Quality

1. Quality Assurance includes customers' desires in the quality of the product do that customers remain satisfied
2. Quality Control is the technique which is applied in order to meet proper quality standard. In this system, quality of the product is checked at the end of the production line where defective goods are removed from the lot
3. Total Quality Management(TQM) is a managerial approach where the quality of the product is checked at every stage of production in order to minimize defective goods

Advantages of TQM

• Helps improve quality and reduce defective goods
• Helps improve overall work practice
• Increases sincerity of the workers as they know defective goods will come back to them for correction

Disadvantages of TQM

• Includes high training cost and requires full commitment
• Improves the production process but not the product. The product can only improve with better raw materials and machinery
• It may create conflicts among workers

Lean Production

Lean production is an approach to production which aims to produce the highest level of output with the lowest level of input. This is possible only when a business efficiently reduces wastage. Therefore, by reducing wastage, a business will be able to reduce their cost of production and improve quality

Techniques of Lean Production

1. Kaizen
2. Just in Time Production
3. Cell Production

Kaizen

Kaizen refers to significant or insignificant changes in the production process which will reduce lead time.

Lead time is the time difference between two activities.

Advantages

• The business will improve in all departments as Kaizen is not focused on the product or the production process, rather it focuses on improving the overall business
• Kaizen helps reduce boredom and monotony by giving them different working patterns,environments and different benefits.
• Kaizen helps a business develop a competetive advantage

Disadvantages

• Constant improvement can be expensive to design and implement
• Following Kaizen is difficult as it demands fixed improvement

Just in Time

Just in Time is a technique of lean production which focuses on reducing the cost of production by eliminating warehouses. In this concept, there will be no warehouse to store the stock of finished goods or raw materials. When orders are received, suppliers will be contacted to deliver raw materials.After delivery, the production will start. Under this system, the location of the factory is going to be near the suppliers which will save transport time.

Cell Production

Cell production involves making a group of efficient and inefficient workers who will work together in order to produce products from scratch. This inspires teamwork and inefficient workers will learn from the efficient workers.

Advantages

• It develops team spirit which motivates workers to work more efficiently and learn from observing other workers
• The system is flexible where one worker can replace another worker if they need to make changes
• Communication improves due to teamwork

Disadvantages

• Conflicts may arise
• Inefficient workers may hamper productivity

Multi-skilled workers are those that specialize in more than one task. As a result, they can be used whenever a company has a temporary shortage of particular workers. 

Technology & The Business

The impact of technology on tertiary sector can be evaluated from 2 perspectives:

1. B2C[Business to customers]
2. B2B[Business to business]

B2C is usually seen in various retail websites where the consumers can purchase the products online and receive home deliveries
B2B is often seen when companies are designing,advertising or online software solution in various applications 

Electronic Commerce or E Commerce refers to trading goods and services using the internet.

Advantages of E Commerce

• The operating cost is less as the firm does not need a fancy store where the goods are regularly displayed and transactions take place
• The cost of developing a website is less than the cost of setting up a store
• Consumers that are not able to go to the stores will develop a brand loyalty towards electronic commerce because it gives them a solution
• E Commerce can enable a business to take multiple orders without opening a single store

Disadvantages of E Commerce

• Delivery cost is involved, especially for people living far away
• Difficult to understand credit card forgery

Productivity

Productivity measures the amount of output produced in relation to the resources used. While calculating productivity, the amount of output produced by each worker is considered. Higher productivity means that workers are more efficient.

Methods of improving productivity

• Providing proper training
• Ensuring proper incentives are given(both financial and non financial)
• Improving working practices
• Improving labor flexibility(allowing workers to set their own hours)

Other methods of improving productivity

• Downsizing(firing inefficient workers)
• Work study - a production technique involving carefully planning the production so that the best technique can be applied
• Relocation - changing location to reduce cost of production
• Outsourcing - giving full or partial production to another company in order to reduce the cost of minimizing capacity

Diseconomies of Scale

Diseconomies of Scale take place when a business produces goods in such a large scale that, as a result, more wastage or obsolescence will take place, which increases average cost.

Reasons for Diseconomies of Scale

• Poor relationship between employers and employees
• Delays in taking decisions or slow decision making process
• Lack of control or management in reference to their workers

Economies of Scale are discussed in detail in Rob Jones' Edexcel International GCSE Business Studies book.

Methods of Production

Job Production

Job production focuses on the production of a single product at a time. Products can be customized according to preference of customers. As a result eac product is going to be different and therefore unit cost is higher.

Batch Production

Batch production takes place when a group of products go through the same process at a time. All products are going to be treated in the same way but there is room for a little bit of customization

Flow Production

Flow production occurs when continuous processes are used to produce goods in bulk amount targeted for a mass market. In Flow Production, a business can achieve economies of scale thus the average cost is comparatively lower than any other prouduction methods

Process Production

Process Production is a form of flow production where materials pass through a plant where a series of processes are carried out in order to change the product. It is also known as mass customization

Market Segmentation

Market Segmentation is a marketing strategy which involves dividing a broad target market into subsets that have, or are perceived to have common needs, interest and priorities, and then designing and implementing strategies to target them.

Advantages

• Higher sales lead to higher profits if the segmentation is successful and products designed suits the need of the market
• Better understanding of consumer need
• Targets particular groups with particular products
• Prevents the product being targeted towards the wrong group of customers

Disadvantages

• If the group size is too small the business will not be able to exploit economies of scale
• A business constantly updates itself about the changing demand of the segments
• Fierce competition may take place once one segment becomes profitable as it will attract other businesses

Market Segmentation is explained in more detail in Rob Jones' Edexcel International GCSE Business Studies book

Market Research

Reasons for markets research

1. Descriptive Reasons emphasizing on the present situation of the market
2. Predictive Reasons emphasizing on the future situation of the market
3. Explanatory Reasons conducted to explain a practical situation
4. Exploratory Research conducted to find out new groups of customers

Types of Market Research

1. Primary/Field research
2. Secondary/Desk research

Methods of Primary Research

• Questionnaire
• Personal Interview
• Online Survey
• Focus Groups - an interview conducted in order to find information among a panel of experts
• Observation - observing customers purchasing in a superstore

Methods of Secondary Research

• Newspaper 
• Magazine
• Income Statement
• Government Statistics

Population is the entire group of respondents who are subjects of market research

Sample is a part of population who is going to participate in the actual research process

Advantages of Market Research

• Helps focus attention on objectives
• Aids forecasting, planning and strategic development
• May help reduce risk of new product development
• Communicates image, vision, etc.
• Globalization makes market information more valuable

Disadvantages of Market Research

• The information obtained is only as good as the methods used
• Can be inaccurate and unreliable
• Results may not be what the business wants to hear
• Always a problem that we may not know enough to be sure

Place

Place or Channels of Distribution is one of the more vital elements of the marketing mix where a business will choose the method of selling the product to the customers

Types of Channel of Distribution

1. Manufacturers selling goods directly to the customers using their own store or website
2. Manufacturers selling goods using wholesalers and retailers. This is the most commonly used channel of distribution for fast consumer goods
3. Imported goods may be distributed through agents. The agents are responsible to import these products and sell them to various retailers. Sometimes agents can directly sell the product using websites.

Electronic commerce is the process of buying and selling goods using the internet. Companies use different websites to promote the goods and delivers them at the doorstep after receiving the order. Payment can be made with order or delivery.

Electronic commerce has been explained in more detail here

This note may be incomplete. 

Price

Price Elasticity of Demand(PED) states the percentage change in demand due to a percentage change in price.

Pricing Strategies

1. Cost Based Pricing includes cost plus/absorption pricing and target pricing

Cost plus/Absorption pricing includes both direct and indirect cost in the cost of production with a percentage of mark up. This is often arbitrary.

Target Pricing is a level of price that will give the business a derived profit that they have targeted.

Advantage: The business will be sure to generate a profit as all costs will be covered

Disadvantage: This type of pricing ignores market conditions

2. Competition Based Pricing is where prices are set considering the actions of the competitors. It has two types:

Going Rate Pricing, where the business charges the same prices as rivals

Predatory Pricing, which is when the price of the product is reduced substantially to drive away competition from the market. Once the competition has left, the price will be raised again to cover the losses.

3.Market Based Pricing occurs when the business analyses the condition of the market(demand factor) before setting the price.

• Penetration Pricing is entering the market with lower price
• Market Skimming is entering the market with a higher price
• Loss Leader refers to reducing the price to gain market share
• Psychological Pricing
• Price Discrimination refers to charging different prices for different groups of customers 

Promotion

Promotion is a list of activities used to stimulate sales. There are two types of promotion:

1. Above the line promotion refers to paid for communication in the independent media, such as advertising on TV or in the newspaper. Though it can be targeted it can be seen by anyone outside the target audience.
2. Below the line promotion refers to promotional activities where the business has direct control, such as mailing and money off coupons. It is aimed directly at the target audience.

Impact of promotion

Promotional activities have a variety of aims:

• To inform current and/or potential customers about the existence of products
• To explain potential benefits of using the product
• To persuade customers to buy the product 
• To differentiate the product from the competition
• To develop and sustain a brand
• To reassure customers that they have made the right choice

Branding

Branding refers to a name, sign, symbol or logo which differentiates a firm from its rivals.

Advantages of brands

• Inspires customer loyalty leading to repeat sales and word of mouth marketing
• The brand owner can usually charge higher prices, especially if the firm is the market leader
• Retailers or service sellers want to stock top selling brands. With limited shelf space, it is more likely that top brands will be on the shelf rather than lesser known brands

Problems of developing a brand

• In order to develop a successful brand a business needs to spend considerable amount of time within which their performance should be consistent
• In order to develop a positive brand, a business must consider investing certain amount of cost into advertising and promotion
• Different products have different ways of promoting their brand. None of the ways can be similar and method might generate a different result

Marketing

Marketing is the management process involved in identifying, anticipating and satisfying consumer needs profitably.
The basic function of marketing is to attract and retain customers at a profit.

Approaches to marketing 

1. Product orientation refers to launching a product which is absolutely new. These are innovative goods that do not exist in the market. These goods will create a new type of demand which might change customers' taste and fashion. Usually a business will not conduct any market research for a product. They will assume that the product is so unique that it will automatically sell well.
2. Market Orientation takes place when a product is designed after conducting market research. Using market orientation, a business will include the opinion of customers and will not try something unique or different. The entire success of the product relies on consumer demands. It depends on the accuracy of the market research.

Marketing Strategies

1. Mass marketing takes place when a business designs one product for every group of customers. There is no difference when selling this product to different customers.
2. Niche Marketing takes place when the business launches different products for different groups of customers. It is more successful in fulfilling customer demand as it gives attention to personal tastes and preferences

Market research is explained in greater detail here

Boston Matrix

The Boston Matrix

The Boston Matrix is a means of analyzing the product portfolio and informing decision making about possible marketing strategies

1. Stars are products in markets experiencing high growth rate with a high/increasing market share with potential for high revenue
2. Cash Cows have high market share but low market growth. These products are matured and do not need high cost to support them. They have high cash revenues
3. Dogs are products in low growth markets with declining market share. They are associated with negative cash flow and may require large sums of money to support
4. Problem Children have low market share in high growth markets. They may produce negative cash flow. Potential for the future?

Advantages of Boston Matrix

• Useful to understand the effectiveness of the product portfolio
• Different approaches will be devised for different products in different categories
• It is useful to plan whether to include a new product in the portfolio and which product to withdraw from the portfolio

Disadvantages of Boston Matrix

• It only shows the current position of the product and does not specify how to improve the product
• The data relating to market growth and market share changes constantly so it is difficult to derive information

Product Lifecycle

Note: Saturation refers to the highest point of maturity

Extension Strategies prevent products from going into decline. Some such strategies include:

• Finding new markets for existing products
• Developing a wider product range
• Creating a product towards a specific market
• Changing the appearance
• Increasing frequency of usage
• Changing the ingredients
• Updating designs

Advantages of Product Life Cycle:

• Shows the current level of sales and helps find future sales trends
• Will help pinpoint the timing and planning of extension strategies
• Useful for monitoring the impact of promotion on sales
• It will help identify where spending is required
• It will help identify which products can no longer be sold
• It can be used to understand the percentage of cost generated by the product

Disadvantages of Product Life Cycle:

• It might not help pinpoint the exact levels of future sales
• It fails to justify why sales are changing

Ratio Analysis

Ratio Analysis is a series of financial evaluations that are undertaken in order to understand the financial strengths and weaknesses of the business

Profitability Ratios

1. Gross Profit Margin = Gross Profit/Sales x 100                                                       
2. Net Profit Margin = Net Profit/Sales x 100                                                                     
3. Return on Capital Employed = Net Profit/Capital Employed x 100                              
4. Gross Profit Mark Up = Gross Profit/Cost of Sales x 100                                            
5. Net Profit on Operating Expense = Net Profit/Expense x 100                                                                                

Liquidity Ratios

1. Current Ratio = Current Asset/Current Liability x 100                                                   
2. Acid Test Ratio = Current Asset - Closing Stock/Current Liability x 100                                                                         

Performance Ratios

1. Debtors Collection Period = Total Debtors/Total Credit Sales x 365
2. Creditors Payment Period = Total Creditors/Total Credit Purchase x 365                    
3. Rate of Stock Turnover = Cost of Sales/Average Stock
4. Gearing Ratio = Long Term Liability/Total Capital x 100  

Final Accounts

Definition of Trading, Profit and Loss Account items

1. Turnover/Sales - The amount a business earns by selling goods
2. Cost of Goods Sold - the amount of money a business has spent manufacturing or buying goods
3. Gross Profit - Sales less Cost of Goods Sold
4. Operating Expense - Day to day expenses that a business may incur
5. Net Profit - The final income of the business

Purpose of Trading,Profit and Loss Account

• Helps a business to understand the total income generated
• It can be compared to previous years' accounts
• Useful for deriving the interest on loans and amount of taxation
• Useful to understand the financial solvency of the business

Definition of Balance Sheet items

1. Fixed Assets - Assets whose values do not change over a year
2. Current Assets - Assets whose values change over a year
3. Depreciation - the amounts of fixed assets used by the business in a particular year
4. Current Liabilities - loans payable within a year
5. Long Term Liabilities - liabilities payable after a year
6. Net Asset - Total Assets
7. Drawings - capital withdrawn by the owner for personal use
8. Capital Employed - Amount if investment made in the business adjusted with net profit/loss and long term loans

Purpose of Balance Sheet

• Shows total assets, liabilities and capital
• Shows the asset structure of the business, including fixed and current assets
• Useful to understand the capital structure of the business which will contain investment, profit and long term liabilities

Cash Flow Forecast

An example cash flow forecast

Cash flow is an estimate of the future levels of cash inflow and outflow used to calculate the total cash flow

Cash inflow is the amount of money a business has earned over a period of time

Cash outflow is the amount of money a business has spent over a period of time

Importance of cash flow

• Businesses can identify future cash flow shortages and hence can prepare for such events
• A business can apply for additional funds to overcome expected shortages
• It is an advance planning tool which will help the business take proper decisions about managing cash
• The business can use the cash flow forecast to look for new investors

Profit and Cash

Reasons for difference between profit and cash

1. They are never equal due expenses such as depreciation which are regarded as non cash expenses that reduce profit but do not affect cash
2. They are never equal due to unpaid and prepaid expenses that change one but not the other

Budgets

A budget is a financial plan that is prepared by the business in order to achieve certain financial objectives. 

An example budget

Variance is the difference between budgeted and actual figures. For income it is actual - budget and for expense it is budget - actual.

Types of budget

• Sales budget - used for estimating the level of sales that a business expects to generate
• Production budget - used to calculate the expected level of goods a business wants to produce in order to generate the budgeted sales
• Overhead budget - includes all miscellaneous expenses related to the production of goods and services
• Marketing budget - includes the cost of marketing and advertising which should be incurred to generate the expected sales

Advantages of budgets

• It is a method of controlling and monitoring incomes and expenses
• Budgets help a business plan the future actions in order to fulfill their objectives
• If the employees achieve their targets motivation will increase

Disadvantages of budgets 

• Understated budgets lead to higher variances and positive impressions. This can be manipulated
• All departments must work together to create a budget and avoid conflict
• If the information used is inaccurate, the entire system will give wrong output and hence the wrong targets may be set

Working Capital

Working capital is the amount of money that circulates within a business which is used for payment of day to day expenses and short term debts.

The Working Capital Cycle

Reasons for shortage of working capital

• Purchase of unnecessary fixed assets
• Overestimation of sales
• Underestimation of expense
• A decrease in demand due to seasonal factors
• Losing control over debtors resulting in bad debts
• Changes in economic condition

Methods of improving working capital

• Reducing credit sales and increasing credit purchase
• Taking short term loan from banks such as overdraft
• Selling unutilized fixed assets
• Collecting money from debtors at a faster rate

Break Even Point

Cost of Production refers to the amount of money which is spent by a business in order to produce goods and services. Cost of production includes raw material costs, direct costs, labor costs and indirect factory overheads.

An expense is an amount spent by the business to run the day to day operations of the business.

Total cost includes fixed and variable costs.
Fixed costs do not change with output
Variable costs change with output
                                      
                                           TR>TC= Profit[positive]
                                           TR<TC= Loss[negative]
                                           TR=TC= Break even


Break Even is the amount of goods that a business must sell in order to cover all of their costs of production. At break even the business does not make a profit nor a loss, their income is equal to zero.
Margin of safety refers to the amount of goods a business must sell after breaking even in order to make a profit

Contribution is the amount which is left to cover fixed costs and make a profit. It is Selling Price - Variable Cost

BEP = Fixed cost
          Contribution
Margin of Safety = Total units sold - BEP x Contribution

Sources of Finance

Sources of finance are the various points of generating funds to fulfill business objectives.

Internal finance comes from the trading of the business. It is the fund generated by regular business operations
External finance comes from individuals or organisations that do not trade directly with the business

Internal Finance

• Retained profit - profit revenue from previous years' operation
• Liquidization - Sale of unutilized fixed assets in order to cover for day to day expenses
• Working capital - the amount of money that circulates within a business used to cover day to day expenses and short term debts

Advantages:

• Readily available
• No cost of borrowing
• Does not increase liability of the business

Disadvantages

• Limited in supply
• Can hinder regular operation if overused

External Sources of Finance

• Bank loan
• Bank overdraft
• Leasing
• Hire Purchase
• Venture Capital - Venture Capitalists are companies who invest in small scale businesses with unique ideas. The money is not a loan but an investment. 
• Debentures 
• Share capital
• Debt factoring
• Trade credit

Advantages

• Greater in supply
• The business can save internal cash for future usage

Disadvantages

• Requires time and paperwork to get sanctioned
• Includes cost of borrowing
• Increases liability

Gearing Ratio = Debt Capital x 100

                          Total Capital

If the gearing ratio is more than 50% it is regarded as a high geared company and vice versa.

Financial and Non Financial factors of motivation

Financial factors of motivation are monetary rewards which are given to the workers in order to improve their motivation. The most commonly used financial motivators are:

• Salary given to White Collar/Theory Y workers
• Wages given to Blue Collar/Theory X workers
• Commission received by sales agents
• Performance Related Pay(PRP) sets targets for workers
• Profit share - Companies may want to share profit with employees as a financial reward, making the employees shareholders
• Fringe Benefits - Ancillary benefits received by employees other than basic salary

Wages can be of two kinds: Time rate for quality
                                             Piece rate for quantity

Non Financial Factors of Motivation

1. Job Enlargement - Increasing the authority of workers in the same department
2. Job Rotation - Changing workers'tasks to prevent monotony
3. Job Enrichment - Increasing authority of workers in more than one department
4. Empowerment - Delegating authority to lower level workers
5. Encouraging teamwork