china town revision notes
Chinatown
Case study analysis and interpretation
AS Module 2 - People
1.1 Management Structure and Organisation
Organisational Design
Span of control
There are two instances in the case where span of control is referred to. Firstly, when Jack moves the restaurant to larger premises, there is mention of the 'need to hire 24 chefs'. There is no mention of a head chef or supervisory levels, but we are told that the 24 chefs will be organised into four separate sections. Therefore, can we assume that Jack is responsible for overseeing all the chefs? This would imply that his span of control is very wide. Obviously, this could have many consequences which should be considered. It also suggests that the structure of the restaurant will be relatively flat, having only 2 layers (3 if including waiting staff).
Secondly, page 6 outlines the organisational structure of Wei Foods Ltd. The Works Manager has a span of control of 5 - this is ideal. However, the case tells us that there will be 80 factory workers and 60 others 'with maintenance, administration, supervisory or managerial jobs'. Studying the organisational chart, there is an absence of supervisors which again raises issues about span of control and the problems of managers having too wide a span. Again this structure is quite flat, having only a few layers. Therefore, appropriateness of the structure could be questioned as 140 people could be organised into a more effective structure. The lack of clear defined roles may be a contributing factor to the argument that Ling has with the Works Manager in paragraph 24.
Delegation and consultation
Delegation refers to the passing of power and authority down the hierarchy, but at the same time the responsibility still lies with the superior setting the task. Throughout the case, there are indications that Ling is not effective in her delegation. In paragraph 21, Ling retains responsibility for checking production, hygiene and quality standards. As these are key areas to a business in the food industry, Ling could have created a distinct role within the organisational structure to oversee these standards. As Managing Director, it could be argued that this is not really Ling's role. The incident with the Works manager in paragraph 24 again supports the argument that she is not effectively delegating as she is accused of 'undermining the authority of management'.
1.2 Motivation
Motivation theory
Throughout the case there are some indications of various motivational theories. In the kitchen in Jack's restaurant there is mention of the kitchen being too crowded and unsafe to work in (paragraph 5). This could be linked to Herzberg's two factor theory, as the hygiene factors are obviously not in place, causing dissatisfaction amongst Jack's workers. Later in the paragraph, Jack makes changes to operations in the kitchen and increases wages by 20% - possibly supporting Taylor's perspective on motivation (this also gives us some hints about Jack's style of leadership - see later in this document). The fact that a special crew is employed to carry out preparatory work could have a positive effect on chefs, raising their self-esteem which is part of Maslow's hierarchy. This 'special crew' is the first sign of specialisation, again referring to Taylor's Scientific Management. All of the changes are indicative of Mayo's Hawthorne Effect, as the low staff turnover suggests that Jack's employees are motivated by the interest he has shown in them.
Later in the case, as we see Ling becoming a successful entrepreneur, the conflict between Ling and Jack highlights the determination of Ling. The fact that she is willing to make a loss in the test market for her Chinese dishes, may refer to the top level of Maslow's hierarchy of needs (paragraph 15). Later again, when the offer from Carrefour is made, Ling is fully focused on making this new venture a success and is willing to take a large risk even if this is against the wishes of her husband. As Jack mentions, their businesses are already making sufficient profits for their family's needs. Self-actualisation and the motivation 'to become everything that she is capable of becoming' may account for the willpower and drive of Ling.
Referring again to Scientific Management, workers on the assembly line at Wei Foods Ltd complain to Ling that their work is boring. Being an advocate of specialisation, an outcome of Taylor's work was the assembly line. Monotonous and repetitive tasks are typical of those set for workers on an assembly line in order to maximise productivity. However, one of the drawbacks of this system of production is low workforce morale and the related consequences of this.
Leadership and Management styles
Throughout the case we can see an increasing difference in Jack and Ling's own leadership styles. We see a developing Ling approach her staff with a caring, involving management style. The contrast between the two is perhaps emphasised most in paragraph 9, as Jack and Ling differ in their approach to the dismissal of restaurant staff. Again, towards the end of the case, Jack offers a sensible, cautious approach to the offer from Carrefour, whereas Ling is more determined in her manner and willing to take a larger risk. Here Sam Yip is the calming influence, logically asking for forecasts of the economic climate.
In paragraph 24, the Works Manager is fuming when Ling asks staff about reasons for dissatisfaction. His outburst at Ling may suggest a problem with ineffective delegation by Ling. Interestingly, the Assembly Manager has set up a quality circle that Ling had no knowledge of because of a lack in communication by the Works Manager. There is talk here of cell production (possible links here to motivation in practice - job enrichment/empowerment). With these two employee's approaches, we can apply McGregor's Theory X and Y to the two managers approaches. This could also be linked to leadership styles and worker motivation.
1.3 Human Resource Management
Workforce Planning
The absence of any kind of market research raises issues about the lack of objectives for the restaurant at Chinatown. The move to the larger premises is a result of the success of the restaurant at Lisle Street; as the original business become very profitable Jack assumed there was an opportunity to extend this success by moving to the larger premises in Chinatown. The huge capacity here and the excess capacity the restaurant first experiences again reinforce the lack of clearly defined objectives. The assumption that the capacity at the new premises will be largely filled highlights Jack's lack of business experience and knowledge.
As the concept of workforce planning is fundamentally based on anticipated demand and company objectives, Jack's forecast of needing 24 chefs and 50 waiting staff seems rather arbitrary given the absence of market research and competitor analysis. This decision has disastrous consequences as Jack and Ling have to make staff redundant (paragraph 9) indicating that workforce planning may have been of use to Jack and Ling here.
Later in the case, at Wei Foods Ltd, 140 staff 'are budgeted for' (paragraph 18). The wording here suggests some planning has been undertaken, although we are not told what these figures are based on (it could be that the supermarket has researched potential demand for the Chinese meals). While there seem to be sufficient factory workers to cope with fluctuations in demand, it is not entirely clear where sixty indirect workers will be efficiently used within the business. Again this may indicate a lack of effective workforce planning, although some planning is evident here.
Areas for revision
Workforce planning: the main concept behind it is meeting demand with supply by assessing future labour needs. Be aware of the limitations of any type of plan or forecast and, for analysis purposes, the usefulness of workforce planning.
Recruitment and training
Ling recruits an experienced production engineer 'with enormous experience in the mass production of food' (paragraph 16). This can again be linked back to the idea of workforce planning, in that Ling is recruiting externally to fill an existing skills gap. The advantages of external recruitment can be discussed here. For example, in this case a specialist has been brought in to work on a specific project; he is well experienced and fully capable in this area. The Production Engineer is responsible for making some very important decisions in the setting up of Wei Foods Ltd. Later in paragraph 23, it becomes apparent that he working on a consultancy basis, as Ling calls him back in when the factory comes close to maximum capacity.
Recruitment is again referred to in paragraph 24, as several staff leave and need to be replaced. As a consequence of these employees leaving, productivity and production suffers as training of new employees takes place. This again refers to the disadvantages of external recruitment, if indeed we assume that new factory workers are recruited externally.
UNIT 2
Operations Management
1.4 Productive Efficiency
Economies and diseconomies of scale
Economies of scale are where there is a reduction in unit costs of production arising from an increase in the size of the business's operations. This comes in many forms but whatever the type, result in a more competitive business and the opportunity to enjoy either higher profits or lower prices. There are many different ways of achieving economies of scale and these include:
* Technical
* Purchasing
* Technological
* Marketing
* Financial
* Managerial
* Risk bearing
* Specialisation
There are many references throughout the case study to economies of scale. In paragraph 5 there is reference to job specialisation in the preparation of the food. There is a 'special crew' that comes in to prepare vegetables, fish and meat. This means these workers are trained and skilled in what they do and also that time and labour later in the day whilst food is being cooked is better used doing other jobs.
Relating to the business of Wei Food Ltd set up in paragraph 16, Ling hired a production engineer with 'enormous experience in the mass production of food'. This is again specialisation economy of scale.
Production methods within the factory are likely to be highly automated. The business therefore may have a high initial outlay for the cost of this machinery. However, technological economy of scale would hopefully be benefited from in the long term.
Working to capacity will obviously mean that Wei Foods Ltd will be able to benefit from some of the other economies of scale, for example, purchasing. The more a business needs to buy in, in terms of raw materials the stronger their position to negotiate deals with the suppliers and ultimately reduce price.
Capacity utilisation
Capacity utilisation is a measure of how well a business is using its resources to generate maximum potential output. Usually this is expressed as actual output as a percentage of maximum output for the stated period of time. It is a good idea to know the calculation for this.
Capacity utilisation = Current output x 100
Maximum possible output
For a business there are obvious problems of not producing to their full or near full potential. Obviously fixed costs still have to be paid no matter how many units are produced. This therefore makes the unit selling cost per unit increase as a business has to cover these costs.
In comparison there are also problems that can be faced if a business does produce to full capacity. Most firms will aim to produce somewhere in the region of 50% - 90%.
In paragraph 8 it talks of Jack's 'expectation of continuing high demand'. Within this paragraph it also tells us that Jack is no where near producing/serving to full capacity - 'for several weeks the second and third floors were hardly used at all...' Jack and the business now face the problems of under utilisation. He still has to pay the fixed costs. One of the biggest of these is the rent for the old Chinatown building, this is ten times the level of Lisle Street, and therefore, making rent costs alone £60,000 per annum. There are ways to try and get around under utilisation and increase usage. For example, he could exploit the fact that as up to now there seems to have been now advertising. By undertaking some advertising and promotional work then maybe this would increase demand.
There is also under utilisation mentioned in paragraph 18 for Wei Foods Ltd. However for this area of the business for Jack and Ling, in paragraph 23, demand is steadily increasing. The workers are not willing/able to work any more than they are doing with the current shift patterns. There is the possible opportunity for Wei Foods to sub-contract some of their work out. For the exam you will need to know the advantages and disadvantages for using sub-contractors and Ling would have to make a decision as to whether she should 'make or buy'.
When Ling ...
This is a preview of the whole essay
There is also under utilisation mentioned in paragraph 18 for Wei Foods Ltd. However for this area of the business for Jack and Ling, in paragraph 23, demand is steadily increasing. The workers are not willing/able to work any more than they are doing with the current shift patterns. There is the possible opportunity for Wei Foods to sub-contract some of their work out. For the exam you will need to know the advantages and disadvantages for using sub-contractors and Ling would have to make a decision as to whether she should 'make or buy'.
When Ling first got a contract from a supermarket they wanted to do a test area. The test area was to be for '10,000 packs of six different dishes to test the market in the south west'. Ling had to find a supplier for this. Ling herself was not able to produce this many. She would therefore have to sub-contract the work out. She was fortunate in finding somewhere that would produce to her specific specification, but they dictated the price. The test market was done at a loss to Ling Man.
Capacity versus labour intensive intensity
Capital intensive production relies on using machinery (capital) as the main factor of production whereas labour intensive production relies on people as the main factor. A big influence on this is the method of production being used within the businesses. The main types/methods of production are: job; batch; flow; and project.
In Jack's restaurant they came to the understanding that there was a need for a variety of production methods needed in order to be efficient in the small kitchen. The high demand for the authentic food within Jack Lisle meant that batch production needed to be employed in the early morning to prepare vegetable, fish etc. (Paragraph 5). However, if Jack Lisle were going to maintain their USP then they would have to maintain high quality and continue to cook main dishes to order. This therefore means they are producing using job production.
Once again when Jack moved to the bigger restaurant premises they use both batch and job production. (Paragraph 7).
Jack's restaurants are therefore labour intensive. You must be able to explain why this is necessary for his kind of business. When Wei Foods Ltd started, they first bought a factory in Northampton. This is explained in paragraph 16. A factory portrays the image of being highly automated, and therefore this business is likely to be capital intensive production as opposed to labour intensive. Obviously labour is still needed but to a lesser extent.
Area for revision
As demand increases we see the need to develop the system further to go into mass production, obviously meaning a need to become more capital intensive and reliant on flow production. There is always a trade off between productivity and flexibility and this is something which candidates should be considering.
Wei Foods Ltd has got to remain flexible. Is the production system based upon batches of goods and aimed at many market niches, instead of mass production/mass market?
1.5 Stock Control
Stock control is vital for the efficiency and profitability of any business as too much money tied up in stocks results in poor returns on capital employed, but too few stocks affects the lead times possible and can affect customer satisfaction. There are three different type of stock. These are Raw materials and components, Work-in progress and Finished Goods. Both businesses within the case study have perishable goods as their stock. This is in what ever stage of production they are at. There are obviously problems with dealing with such stock and good planning and organisation is essential.
As mentioned above there are costs and implications incurred when both too much and too little stock is held. In paragraph 18 the case study discusses the amount of stock that is held by Wei Foods Ltd. It seems that the business is incurring extra costs for holding the finished goods.
Area for revision
It is important that you know and understand the key words involved in stock control. These include: buffer stocks; re-order levels; lead times; maximum and minimum stock levels; stock diagrams; stock rotation; stock wastage and opportunity cost.
Controlling Operations
Not all parts of the operations of a business are measurable. The ones that are use management and measurement tools such as benchmarking. Benchmarking is a management tool, which helps companies, improve their performance. It involves comparing aspects of business performance with those of other companies. The purpose is to identify the best achievements, for instance in terms of delivery reliability. The business will then change some or all of its practices in order to try and match the best company.
Benchmarking is about improving performance and therefore is often used to improve quality. Explain that not everything within a business can be benchmarked. Things that can be are:
* Improve waste management
* Improve personnel practices
* Simplify office systems
* Control manufacturing costs.
Benchmarking is appropriate if the process of activity is measurable.
Before Jack started his business he identified a gap in the market. What was available in Chinatown before was the 'usual sweet and sour', paragraph 3. Jack knew there was a market for something more authentic and so opened Jack Lisle. The benchmarking comes in as Jack will always be ensuring that his performance is better than that of the other restaurants. For Ling their benchmark was the microwave 'Sweet and Sour Pork and other 'Chinese dishes'. Again, this was the competition and Ling was to make sure that her business produced better.
Quality control, improvement and assurance
Quality control focuses on checking products at the end of the process and is not the best method for checking quality as it means a big waste of resources if there are quality problems early on in the production process. Quality assurance refers to systems for checking quality throughout the production process so that quality is a prime aspect of every stage of production. These include to BS5750 and ISO 9000 as well as TQM and Kaizen, where the commitment is towards improving quality continuously.
Benchmarking is where you compare your standards against either other aspects of your business or against other businesses is all part of this commitment to quality and lean production. Jack always demanded high quality within the restaurant. This is one of the USP he was able to benefit from. In order to achieve this he paid his kitchen staff 20% more than other restaurants in Chinatown (paragraph 5). This management of the business would have led to self checking as opposed to inspection at the end. Employees would have been motivated to perform as well as they could. This may have been compromised however, when Jack had to start making staff redundant because of decreased demand. The remaining workers would now suffer from job insecurity and there are effects of this that must be considered.
In paragraph 10 it explains that Jack demanded high standards. It has no content to suggest how he ensures this happens. He is obviously committed to quality and needs this to ensure his business is successful, and to ensure continuation of the good write-ups in the guidebooks. In what ways could Jack try to guarantee this success? There is the potential for Total Quality Management (TQM) which is ensuring the efficient utilisation of production methods, machines and labour, or Kaizen which is continuous improvement.
Ling Man was very much a 'hands on managing director'. She was keen to be on the factory floor. Paragraph 21 explains she made time for this to ensure 'production, hygiene and quality standards were high'. Within the production methods that are used within the factory then hopefully there is an effort to minimise waste. In paragraph 22, the Supermarket Buyer came in to congratulate Ling Wei, and also to inspect the factory. 'She was delighted by the cleanliness and efficiency of what she saw'. Obviously, Ling and the factory were doing something right and this should be motivation to continue with this.
1.6 Lean Production
This is an attempt to minimise costs and enhance quality. Lean production is high levels of productivity, for both labour and capital equipment. This may lead to a reduction in the size of the labour force needed and consequently a reduction in costs. Less stock should be required at any one time and less space needed for production. Lean production should result in fewer defects, thus improving quality of the product ensuring customer satisfaction. Quality can only be improved if the workforce is content and plays a full part in the decision making.
Cell production
Cell production is the organisation of the production process (of the workforce) into small teams. Each team is responsible for a particular part of the production process. Responsibility includes quality control, health and safety at work, job rotation (allowing the work force to change tasks within the teams). The cell is made up of several teams; the idea is that each cell 'sells' the part finished product on to the net cell which receives it as an internal customer.
The workforce obviously has to be motivated to work in this way. As long as Jack is still paying his kitchen staff the extra 20% that he was from Jack Lisle then perhaps this will be the case. However, the chances of demotivation could have come from the job insecurity of having to lay off staff at the new restaurant and having to close the second and third floors of the restaurant.
In paragraph 16 Ling has hired a highly experienced production engineer. This should help with understanding the best way in which to organise the factory and should help to have a flexible workforce.
Ling is adamant that she will be on the factory floor. She is happy in checking the production, hygiene and quality standards. (Paragraph 21). This does not suggest therefore that she is embarking upon cell production. In paragraph 25 the case mentions the Assembly Manager being keen to have workers in production cells.
Just in time
Just in time management is cutting the amount of stock in the business. Instead of having stock levels that were for 'just in case', a business would hold as little as possible. For both businesses they will hold as little raw material stock as possible as it is perishable. This means they will have to plan their requirements carefully in order for there to be minimum waste.
For Jack and his business there will be little holding of stock. During times of uncertainty for Jack this may have been difficult, as demand was unpredictable.
In the case of Wei Foods Ltd they were holding the production manager had planned for a 'chilled ingredients stockroom large enough to hold three days' stock'. Is this necessary? You need to think about the implications of holding too much stock and apply it to the case.
Continuous improvement
Kaizen is seen as a highly vital, yet simplistic way of reducing waste of any kind. The idea is to involve the workers to embark upon continuous improvement. This is done through asking workers for their ideas, their flexibility of approach and their ability to work in 'teams' or 'cells'.
In paragraph 25 it talks about a 'half-hour quality improvement session'. This consisted of eight volunteer assembly staff. This is a typical quality circle. With this and the production cells mentioned, the Assembly Manager seems to have a lot of good ideas. The idea behind continuous improvement etc. is to improve quality, production etc. Ling does not know enough about this as she is concerned about the 'possible impact on productivity'.
Ling has a team of well qualified staff who she should be more inclined to hand responsibility to.
Module 3 External Influences and Objectives and Strategy
External Influences
2.1 Economic Opportunities and Constraints
The market and competition
At the beginning of the case, it seems as if Jack has cornered a niche in the market. There is no mention of direct competition to Jack Lisle and the success of the restaurant suggests there is little competition at this time. After the move to Chinatown, we see increased competition, perhaps from market followers who have noticed Jack's initial achievement. Absence of competitor analysis may account for one of the contributing factors to the restaurant's low profits after the move.
At the restaurant in Chinatown, the massive increase in capacity and the inability to forecast potential demand leads to under utilisation of the restaurant's capacity. The huge fixed overheads that Jack has now incurred imply cash flow is suffering as revenue is low relative to outflows - a signal of a business that has expanded too quickly. Later in the case at Wei Foods Ltd, the factory experiences a capacity shortage. Although businesses should look to make the best use of its resources to generate sufficient output, a degree of flexibility is needed to cope with fluctuations in demand. This shortage of capacity highlights the inflexibility of workers on the 7.00am - 3.30pm shift, suggesting these workers may not be totally motivated and committed to their roles (should Ling consider non-financial incentives in order to increase motivation in these workers?). A possible method to increasing capacity at the factory may be to create a third shift to the original two shift system suggested by the Production Engineer. This increased production would generate economies of scale as the cost of fixed overheads per unit decreases, improving Ling's profit margin. There could be a link here to the consequences of recruiting externally and possible implications for the organisational structure of the factory.
In reference to market conditions, the potential deal with Carrefour poses many questions for the Wei's. We assume that the supermarket must have indications of a potentially lucrative market for the Chinese meals; however, are they certain that the French culture will embrace this type of food? The rather offhand remark of Ling to close the Northampton factory also raises issues about the redundancy of the staff employed there and the desertion of the new established UK market. Is a possibility that the Northampton factory could remain open in order to serve the UK market if the Wei's decide to go ahead with the Carrefour deal? This would ensure a secure income and effectively serve as a cash cow, assuming demand stays relatively constant. This income could be used to subsidise the new venture in the early stages. As all indications are that Wei Foods Ltd is performing very well, it would be a shame to close a potentially successful business.
Interest rates
Interest rates refer to the cost of borrowing money. The initial finance Jack raises from his own capital is matched by that of his cousin; charged at 15% interest. This is a relatively high figure and we are not told if Jack seeks alternative sources of finance for his first venture. However, after just one year the cousin is paid off in full.
In paragraph 17, after 'holding out for a low credit period' (paragraph 16) Ling manages to secure a £1 million loan from a merchant bank at a fixed interest rate of 6.5%. Can we assume that this rate if fixed for the whole term of the loan. If it is fixed for a specific time period, it could then become a variable rate based on the current interest rate. In this case, given the amount borrowed, increases in the interest rate could have grave consequences for Ling and Jack.
After the offer from Carrefour and negotiations with the bank, Ling is offered a £5 million loan at an interest rate of 8%. There is no indication here that Ling searches for alternative sources of finance which would possibly be cheaper.
Exchange rates
Exchange rates refer to the value of a currency measured in how much foreign currency it can buy. Should Jack and Ling decide to accept Carrefour's offer, they must consider the alternatives of establishing a factory in the UK near the Channel Tunnel or establish a new factory in France. If they pursue the first alternative, the business will be subject to fluctuations in exchange rates. If the pound is strong, this means that the product may become less competitive in terms of price. If the pound is weak, the product will be competitively priced but if Carrefour pays Wei Foods Ltd in Euros, this will also be subject to changes in exchange rates. If they are operating on low profit margins, a small change in exchange rates may drastically affect profit levels. Also bear in mind the extra cost of handling all foreign currency transactions.
The data in 'Table 1: UK macro-economic forecast' is open for interpretation. The maximum and average forecast suggest increases in the number of Euros per £, to different degrees. An increase in the number of Euros per £ would negatively affect profit levels (as you will make less Sterling for each Euro). In contrast, the minimum forecast indicates a decrease in the number of Euros per £. Should the contact be paid to Wei Foods Ltd in Euros this would positively affect profit levels (as they would generate more Sterling per Euro).
Should the Wei's decide to set up a new factory in France, they could deal only with Euros, therefore avoiding the uncertainty associated with fluctuations in exchange rates. Euro interest rates are forecast in Table 2 and will influence Jack and Ling's decision to establish a factory in France. All three forecasts indicate a rise in Euro interest rates. This implies that French customers may have less disposable income with which to buy luxury goods.
Inflation
Inflation refers to the general rise in prices and can cause implications for individuals and businesses. Prepared Chinese meals can be considered a luxury that may suffer if inflation in the UK increases, as people on fixed incomes can no longer afford such luxuries. A rise in prices (as the Maximum forecast indicates) will also have implications for Wei Foods Ltd as the cost of their supplies will also increase, eating into the profit margin of each unit. If inflation remains high, this may lead to redundancies as Ling seeks to reduce her fixed costs per unit. This assumes that Ling is not able to increase the selling price of the Chinese foods.
It is worth noting with the tables of economic forecasts that the time period of the forecasts is relatively short (18 months) and for Jack and Ling to make a more informed, strategic decision, more information based on a longer time period would be needed. At they stand, the data given is inconclusive. Again, consider the usefulness of planning and forecasting and their associated limitations.
Unemployment
Ling finds a production site for the factory in Northampton (paragraph 16). Despite having the advantage of good transport links, the indication of available labour is also a benefit in locating here. A disused shoe factory could imply that there will be people seeking employment in Northampton, and people that may have worked in the manufacturing industry previously.
Areas for revision
Effects of changes in interest rates on demand for products and the effect of changes on investment decisions. Exchange rates - how the two alternatives for the deal with Carrefour will be affected by interest rates (of Sterling and Euro). Revision of the effects and consequences of changes in exchange rates is also needed as this will be a factor that the Wei's will need to take into account when making their decision. Inflation - how changes in inflation will affect demand for the product.
2.2 Governmental Opportunities and Constraints
UK and EU law
In paragraph 9, Jack has to make the newly appointed staff redundant. There may be implications, depending on the length of service, for redundancy pay. Following standard redundancy procedures, the employer is required to both write to the employee to notify them about the redundancy and to also meet with the employee to discuss reasons for the dismissal. By not talking to the staff face-to-face, Jack may have been in breach of legislation related to redundancy. However, this was not the case as Ling made sure the staff was personally spoken to.
In paragraph 5, there is mention of Health and Safety. In the kitchen the staff are crowded and there is mention of sharp knives and hot woks. At this point, Jack could have broken the Health and Safety at Work Act, as it his duty to ensure his workers are protected against any possible hazards. However, he quickly rectifies this situation making the working environment more comfortable and safe.
A range of consumer protection laws could affect Ling's factory. For instance, under the Weights and Measures Act, the Chinese meals must weigh the amount stated or Ling risks incurring costs from contravention and possible negative publicity. Similarly, the contents must match the product described on the packaging in order to abide by the Trade Descriptions Act. At the factory, stock must be kept in certain conditions at laid out by the Food Safety Act. Additionally, in paragraph 22, the Supermarket Buyer is 'delighted by the cleanliness and efficiency of what she saw'. The fact that the customer here has the power to withdraw their contract should hygiene not be up to standard reinforces the need to adhere to Food Hygiene Regulations. Adherence to any of these acts and other legislation may imply increased costs for any of the Wei's businesses.
Areas for revision
An awareness of the different laws regarding health and safety, employment and consumer protection is needed here. You will also need to know how these laws provide protection in each area.
Social and Other Opportunities and Constraints
Social responsibilities
The Wei's have a responsibility to their employees in the Northampton factory. The speculation that the factory may be closed if need be has negative consequences for the employees, which will have knock-on effects to the local economy.
Business ethics
The flippant remark about this closure by Ling, raises issues about her business ethics. Does she consider the redundancy of 140 individuals as a quick-fix for her with little or no repercussions?
Ethics are again referred to in paragraph 13 when Ling is shocked by the 'high profit margin required by the supermarket' and that the supermarket is unwilling to negotiate. Here we have a case of buyer power, as the supermarket puts pressure on their supplier's profit margins in order to maximise their own profitability. This is an issue that has recently been in the media and could therefore be an interesting discussion.
Again in the case of Carrefour, we see the French supermarket making demands of Ling. The Carrefour buyer asks to visit the factory and discuss the offer, they insist on a factory in Northern France or close to the Channel Tunnel. The risk involved with this contract will be very high for Ling, as she stands to lose highly if the opportunity does not meet with success. Carrefour, however, risks nothing. Sam raises the issue in paragraph 28 of the possibility of Carrefour dropping the contract after a few months. This would leave substantial extra capacity. The three-month cancellation clause offers very little protection for Ling if she is considering a long-term, strategic move such as this. This is a good example of buyer power and it could be argued that Carrefour should help meet investment costs.
Unit 3 Objectives and Strategy.
2.4 Starting a Small Firm and Identifying an opportunity
When starting a small firm there is first the requirement to identify an opportunity. This has been done by both Jack and Ling. The idea behind both of the businesses was the fact that they wanted were in a position to offer a higher quality good/service than that of their competitors to be. Jack wanted to offer authentic Chinese cuisine (paragraph 14) and Ling wanted to offer an alternative to the 'sweet, stodgy and tasteless' ready meals, (paragraph 11). Even though there is an opportunity, as time goes on Jack does not always carry out the necessary research to recognise how big the market potential is, but tends to focus more on the product itself. This lack of planning results in many problems for Jack and his business.
There are a variety of reasons why people want to start their own business including to fulfil a dream, to redistribute wealth, to provide a service, to have an interesting job, to have freedom of action, to provide career opportunities, to fund a personal ambition. Which of these are more apparent to the case?
Ling has many opportunities that she would like to fulfil. She is a risk taker, which is an important characteristic of an entrepreneur. Jack however is more cautious.
To support your understanding of this area visit the Arcadia case study.
http://www.thetimes100.co.uk/arcadia3
Legal structure
Jack sets up Jack Lisle as a sole trader. It is easy to set up such a business. This means that he has total ownership of and responsibility for managing the business. The name of the business must have been registered with the Companies House. The capital Jack needed came from his own savings and also money from his cousin (paragraph 3). The ease of setting up is a reason why there are so many sole traders and perhaps this is one of the problems Jack started to encounter when high levels of competition (paragraph 8). There are many advantages and disadvantages of being a sole trader.
Ling's business Wei Foods Ltd makes it a Private Limited Company. Under the Companies Act 1980, limited companies must have at least two members or shareholders. There is no upper limit. The shareholders of Wei Foods Ltd are shown in the pie chart in Figure 1 (page 5 of the case). Shares can only be bought by friends and family, not by members of the general public. There are many advantages and disadvantages of being a sole trader.
Practical problems and start-ups
Both businesses seem to have been formed from a sound opportunity. One problem for businesses not succeeding is a lack of a detailed business plan. Other problems that face new businesses and that apply specifically to the case are:
* Lack of market research - initially this did not seem to matter. When in Lisle Street Jack was successful. However, when the business expands more research may have saved the business some of the distress it experienced in the beginning.
* Over-expansion - did Jack's business expand too quickly, and is the business venture with Carrefour for Ling too much too soon? Sometimes a business will expand too quickly, requiring more machines, materials and labour without actually having the money to do this.
* Megalomania - sometimes one business success can lead the owners to feel that whatever they produce will result in a successful venture. Does this apply to both Jack and Ling?
One area favoured by examiners is the importance of planning for success and the extent to which success is often due to luck.
2.5 Business objectives and Corporate aims and goals
Jack does not appear to have any thoughts in mind but providing authentic Chinese food. The lack of a plan and objectives are serious weaknesses in the business in its early years. It would be worth considering the effect that clear aims and objectives may have had on the long-term success of the business and whether it would have retained its number one position in the market if it had been better organised.
Ling too does not seem to have any long-term plans. She is very enthusiastic and wants to just get bigger and bigger.
Businesses should think about having the following:
* Mission statement - the main aim or objective of the business
* Objectives - what needs to be achieved for the aim of the business to be achieved
* Strategy - the implementation of objectives, the method for achieving objectives
* Tactics - the day-to-day procedures to fulfil the chosen strategy
Short versus long-term objectives
Even though in the beginning Jack seemed to be a very determined character, after he had expanded into the bigger restaurant, his enthusiasm to expand or do anything else was considerably decreased. This also includes any ventures that Ling wanted to do. Perhaps this is all because of the problems Jack had to deal with when he moved from Lisle Street. This would certainly be enough to knock any business person's confidence. Perhaps also the reasoning behind this was the lack or objectives - short and long term. Perhaps Jack had an inability to recognise the importance of setting clear aims and objectives. The effect that these have on decision making should also be considered, especially in the light of the downturn in trade and the threat of competition.
The short and long term goals of Ling are also unclear. It seems that after the initial seeking of a buyer for her product, she was then approached by Carrefour. This makes the idea/dream someone else's not hers. She launches into the business idea and it seems she does this without giving it much thought and consideration.
Conflicting and common aims of stakeholders
There are many different stakeholders of a business. These can be both internal and external. A stakeholder is any person or organisation that has an interest in the business, or is affected by the business. They are not just the owners, but include the workers, suppliers, community etc. be able to identify the main stakeholders in the case and understand how the activities and changing activities of the business will affect them. For example, if Ling decides to go ahead with the deal with Carrefour, then she will be either moving the business to the south or into France. This would mean they may close the Northampton factory, therefore making people redundant in one place and employing others in another place, use different suppliers for the factory etc.
There is also dispute between the shareholders of the business. Paragraph 28 tells of Sam Yip having major concerns about the Carrefour deal. Jack also has concerns and requires information before a decision is made. Ling obviously wants to go ahead with the deal. What does the bank want to do?
2.6 Business strategy
Strategy is defined as the way in which the objectives are achieved. Returning to the main objectives set by a business, such as survival or growth, to satisfy shareholders, strategy will be planned to achieve:
* A competitive advantage by low costs or
* Differentiating the product or
* Increasing productivity.
Strategies are decided upon using many different methods. One of those methods is a SWOT analysis. This stands for Strength, Weaknesses, Opportunities and Threats.
SWOT analysis
To try and achieve a competitive advantage the marketing department will carry out a SWOT analysis. The strengths and weaknesses concentrate on internal factors.
SWOT analysis helps businesses to understand the market they are operating in and the competitive forces within that market and this should be the focus when looking at the SWOT as it is written in order to remain competitive in the face of increasing competition and external influences. An important focus would be to try to prioritise the needs of the business at the moment and then look at the analysis to decide which details apply.
Ling has a lot of ambition and seems to feel and see the advantage in the opportunities that are available to her. Perhaps the use of a SWOT analysis would help some of the business decisions that need making and also help the other shareholders make decisions.
Ensure you complete a SWOT analysis for both of the businesses within the case study.
Chinatown - Unit 2
Jack was keen to involve his staff in looking for ideas to improve things. What are the benefits of employee participation? (6 marks)
Content
3 marks
Application
3 marks
Level 2
2-3 marks
Candidate identifies 2 or more benefits
2-3 marks
Candidate applies knowledge effectively to business context
Level 1
mark
Candidate identifies one benefit
mark
Candidate makes an attempt to apply knowledge
Level 0
0 marks
No relevant content present
0 marks
No discernible attempt to apply knowledge
Possible answers might include:
* Participation can generate greater motivation of the staff as Maslow's higher order needs are satisfied
* Jack can benefit from the ideas of the staff when making decisions
* Staff will be more committed to decisions if they have been involved in them
2
Explain two possible disadvantages of adopting batch production as a means of running a factory (6 marks)
Content
2 marks
Application
2 marks
Analysis
2 marks
Level 2
2 marks
Good understanding of batch production
2 marks
Candidate applies answer effectively to business context
2 marks
Good analysis of disadvantages
Level 1
mark
Some understanding of batch production
mark
Candidate attempts to apply answer to business context
mark
Limited analysis of advantages
Level 0
0 marks
No understanding demonstrated
0 marks
No discernible attempt to apply knowledge
0 marks
No analysis present
Batch Production occurs in manufacture when a limited number of a specific product is required, usually to meet a specific order. Each stage of production is carried out on the whole batch of products before the next stage begins.
Possible disadvantages may include:
* Fewer economies of scale possible than with flow production
* Less output possible than with flow production
* Time can be wasted switching from one batch to the next
* Space and finance can be tied up in the high levels of work-in-progress and stock that can be caused by batch production
3
Identify and explain two issues for Wei Foods Ltd with running at maximum capacity
(8 marks)
Content
2 marks
Application
2 marks
Analysis
4 marks
Level 2
2 marks
Good understanding of maximum capacity
2 marks
Candidate applies answer effectively to Wei Foods
3-4 marks
Good analysis of two issues
Level 1
mark
Some understanding of maximum capacity
mark
Candidate attempts to apply answer to Wei Foods
-2 marks
Good analysis of one issue or limited analysis of two
Level 0
0 marks
No understanding demonstrated
0 marks
No discernible attempt to apply knowledge
0 marks
No analysis present
Running at maximum capacity refers to the business producing the greatest output possible with the current levels of resources.
Possible answers might include:
* Additional orders cannot be accepted
* Workers are put under strain. This can result in demotivation, absence and high labour turnover and their associated costs
* Machinery and equipment is put under strain which may lead to break-downs
* Machinery breakdowns and staff absences may mean that orders cannot be fulfilled
4
To what extent is increasing pay the best method of increasing motivation within a workforce? (15 marks)
Content
3 marks
Application
4 marks
Analysis
4 marks
Evaluation
4 marks
Level 2
2-3 marks
Candidate offers 2 or more relevant responses
3-4 marks
Candidate applies knowledge effectively to business context
3-4 marks
Good analysis of arguments
3-4 marks
Sound judgement shown in answer and conclusions looking at both sides of the argument
Level 1
mark
Candidate offers single relevant response
-2 marks
Candidate attempts to apply knowledge to business context
-2 marks
Limited analysis of arguments/one side only
-2 marks
Some judgement shown in response
Level 0
0 marks
No relevant content present
0 marks
No discernible attempt to apply knowledge
0 marks
No analysis present
0 marks
No evaluation present
Motivation is the extent to which individuals make an effort to do something. Within business, it refers to the workers' desire to complete given tasks in order to aid the business reaching its goals
Arguments for increased pay being the best method of motivation include:
* Workers may feel valued - relates to Maslow's Esteem needs
* If workers' pay is at a higher level than competitors, workers are likely to want to safeguard their employment in the organisation
Arguments against increased pay being the best method of motivation include:
* Once staff have been awarded a pay rise, pay may no longer be a motivator
* Herzberg's Two Factor theory suggests that pay is a hygiene factor therefore it will not act as a motivator, only prevent dissatisfaction
Different things both in and out of work will motivate each individual employee. The extent to which increased pay will motivate is likely to be different for every worker. It may also be dependent at where in the organisation a worker is positioned instead of pay may be more important higher up the structure.
5
Evaluate whether a lean production approach to operations at Wei Foods would lead to improved profitability and efficiency (15 marks)
Content
4 marks
Application
4 marks
Analysis
3 marks
Evaluation
4 marks
Level 2
3-4 marks
Good understanding of lean production
3-4 marks
Candidate applies knowledge effectively to the case
3 marks
Good analysis of arguments
3-4 marks
Sound judgement shown in answers and conclusions looking at both sides of the argument
Level 1
-2 mark
Some understanding of lean production
-2 marks
Candidate attempts to apply knowledge to the case
-2 marks
Limited analysis of argument/one side only
-2 marks
Some judgement shown in response
Level 0
0 marks
No relevant content present
0 marks
No discernible attempt to apply knowledge
0 marks
No analysis present
0 marks
No evaluation present
Lean production is a system that aims to minimise the inputs during the production process, eliminating the use of resources that do not add value to the product. Elements of lean production include continuous improvement, just-in-time stock control, time-based management and cell production. There is evidence from the case that simultaneous engineering has worked and proved efficient as a method of lean production
Lean production can result in:
* Low stock levels
* Flexible and highly skilled workers
* Total quality assurance
* Reduced costs
* Increased production
If lean production techniques lead to a change in culture then productivity, quality and efficiency can be improved, however it is dependent on a number of factors:
* Commitment of management and workforce
* Willingness to accept change
* Investment in capital and training
AQA
General certificate of education
Advanced Subsidiary level
Business Studies
Unit 3 BUS3
Hour
Answer all questions
. To what extent is it ethical for supermarkets to demand such low process from
suppliers? 6 marks
2. If the bank refuse to support Ling she may consider turning the business into a
PLC identify a strength and a weaknesses of such a move. 6 marks
3. Analyse how the information contained in table 2 affect Ling's future development
Plans. 8 marks
4. To what extent did the lack of planning affect the problems with starting up the
second restaurant? 15 marks
5. Discuss whether Wei Foods ltd should accept the contract from Carrefour. 15 marks
China Town - Unit 3
1.To what extent is it ethical for supermarkets to demand such low process from suppliers (6 marks)
Content
2 marks
Application
4 marks
Level 2
2 marks
Candidate demonstrates a good understanding of ethical responsibility
3-4 marks
Candidate applies knowledge effectively the case
Level 1
mark
Candidate shows an understanding of ethical responsibility
-2 marks
Candidate makes an attempt to apply knowledge to the case
Level 0
0 marks
No relevant content present
0 marks
No discernible attempt to apply knowledge
Ethics are the moral principles that underpin decision making. Supermarkets also have an ethical responsibility to their customers and shareholders. The issue relates to whether the supermarket is exploiting the supplier. Wei Foods is still making a profit whether it is only a minor one in comparison to the supermarket mark up
2
If the bank refuses to support Ling she may consider turning the business into a plc. Identify a strength and weakness of such a move (6 marks)
Content
4 marks
Application
2 marks
Level 2
3-4 marks
Candidate details a strength and weakness
2 marks
Candidate applies knowledge effectively the case
Level 1
-2 mark
Candidate details either a strength or weakness, or outlines both
mark
Candidate makes an attempt to apply knowledge
Level 0
0 marks
No relevant content present
0 marks
No discernible attempt to apply knowledge
Possible strengths include:
* Large amount of finance can be raised through sale of shares
* Easier to raise equity capital in the future through issue of new shares hence expansion is more likely
Possible weaknesses include:
* High initial costs of converting to a public limited company
* Loss of control
* Cost of paying out profits in the form of dividends to shareholders
* Financial information must be published
* Threat of takeover is higher in a plc
3
Analyse how the information contained in table 2 affects Ling's future development plans (8 marks)
Content
2 marks
Application
2 marks
Analysis
4 marks
Level 2
2 marks
Candidate offers two or more relevant responses
2 marks
Candidate applies answer effectively to the case
3-4 marks
Good analysis of points raised
Level 1
mark
Candidate offers one relevant response
mark
Candidate attempts to apply answer to the case
-2 marks
Limited analysis of points
Level 0
0 marks
No relevant content present
0 marks
No discernible attempt to apply knowledge
0 marks
No analysis present
Inflation
* Average inflation is forecasted to be low and falling so this should have a positive impact on the business as interest rates may be cut leading to increased demand. Increased costs relating to high wage demands should not affect the business.
* There may be some cause for concern if inflation follows the maximum forecast which is rising and could lead to increased costs and reduced demand
Unemployment
* Average levels of unemployment are forecasted to be fairly stable. The business should not be affected much by unemployment therefore as demand and available labour are unlikely to change significantly
Euro Interest Rates
* Average rates are forecasted to be fairly steady however there is a big discrepancy between minimum and maximum forecasts. If Euro Interest Rates followed the maximum forecast this would have serious implications on demand for the product in Europe
Future development plans will have to be made with the consideration that Table 2 shows "forecasted" figures which cannot be relied upon. Other factors will have to be taken into consideration in addition to the information in Table 2 when Ling makes her development decisions. It is also worth noting the timescale involved with the data is relatively short term.
4
To what extent did the lack of planning affect the problems with starting up the second restaurant? (15 marks)
Content
3 marks
Application
4 marks
Analysis
4 marks
Evaluation
4 marks
Level 2
2-3 marks
Candidate offers 2 or more relevant responses
3-4 marks
Candidate applies knowledge effectively to the question
3-4 marks
Good analysis of arguments
3-4 marks
Sound judgement shown in answer and conclusions looking at both sides of the argument
Level 1
mark
Candidate offers single relevant response
-2 marks
Candidate attempts to apply knowledge to the question
-2 marks
Limited analysis of arguments/one side only
-2 marks
Some judgement shown in response
Level 0
0 marks
No relevant content present
0 marks
No discernible attempt to apply knowledge
0 marks
No analysis present
0 marks
No evaluation present
Possible arguments for the lack of planning causing problems include:
* Hiring, training and organising staff took longer than anticipated meaning that before Jack could launch the new restaurant, other restaurants opened up and were able to start building their customer base.
* Decisions were based on "expectations" not on research
* If a gradual increase in custom was planned for then Jack may not have needed to make so many staff redundant
Possible arguments against the lack of planning causing problems include:
* Jack could not have planned for the number of other restaurant openings
* External influences, such as the down turn in the market, were out of Jack's control
* In some cases a hunch or a feeling can be a good guide to a market if experience and skill are also combined
5
Discuss whether Wei Foods Ltd should accept the contract from Carrefour
(15 marks)
Content
3 marks
Application
4 marks
Analysis
4 marks
Evaluation
4 marks
Level 2
2-3 marks
Candidate identifies 2 or more relevant points
3-4 marks
Candidate applies knowledge effectively to the case
3-4 marks
Good analysis of arguments
3-4 marks
Sound judgement shown in answer and conclusions looking at both sides of the argument
Level 1
mark
Candidate identifies single relevant response
-2 marks
Candidate attempts to apply knowledge to the case
-2 marks
Limited analysis of arguments/one side only
-2 marks
Some judgement shown in response
Level 0
0 marks
No relevant content present
0 marks
No discernible attempt to apply knowledge
0 marks
No analysis present
0 marks
No evaluation present
Arguments for accepting the contract may include:
* The current factory is working close to maximum capacity
* Potential to make larger profits for shareholders
* Expansion of the business may help it to achieve its objectives
* A French factory might attract trade from throughout the Euro Zone.
Arguments against accepting the contract may include:
* Major investment will be taking place for a single contract
* The business is already making a large profit
* Concern over the forecasted maximum Euro Interest Rates figure which could impact upon demand
* Ling's motivation for accepting the contract appears to be based more on her desire to look successful rather than evidence that the proposition will be a success
Extension questions
China town
.
2. To what lengths could Ling minimise the social effect that a closure of the UK
factory and relocation to France would have on the work force? 12
3. Discuss the issues associated with simultaneous engineering. 12
4. Ling has brought in a number of people with expertise in a variety of areas of the
business, to what extent is this the most efficient way to operate a business? 15
5. What barriers to effective communication are evident in the case study? Suggest
possible solutions to these barriers. 12
6. Discuss what methods Ling could implement to improve the motivation of the
production line workers. 10
7. Are Ling's concerns about the impact on productivity in relation to a move to cell
production justified? 12
8. Evaluate the implications of the current stock control methods at Wei foods ltd 15
- 1 -
