Ways to Match Supply & Demand (AQA A Level Business): Revision Note

Production scheduling

• Production scheduling means planning when and how much to produce, adjusting the timing or volume of production runs as demand changes

Ways businesses can use production scheduling

• Bringing forward or delaying production to match an expected rise or fall in demand

• Using overtime or extra shifts to increase output temporarily during a known busy period

• Rescheduling maintenance to quieter periods, so production time isn't lost when demand is high

• Prioritising production of the highest-demand products during a specific period, ahead of slower-selling lines

Example

A toy manufacturer schedules extra production runs in the autumn to build up inventory ahead of the Christmas period

Advantages and disadvantages of production scheduling

Inventory levels

• Inventory levels are the amount of stock (raw materials, work in progress or finished goods) a business holds

  • These can be increased or decreased to manage supply against changing demand

• Building up inventory ahead of a high-demand period lets a business meet orders without increasing production immediately

• Running inventory down as demand falls avoids holding unnecessary stock

Ways businesses can manage inventory levels:

• Building up stock ahead of a known seasonal peak, such as before Christmas or summer

• Running inventory levels down deliberately as a product nears the end of its life or demand is expected to fall

• Using just-in-time methods to keep inventory low when demand is stable, while holding buffer inventory when demand is likely to fluctuate

• Agreeing flexible delivery arrangements with suppliers, so inventory can be topped up quickly when needed

Example

A garden centre increases its stock of plants and equipment ahead of spring, when demand is highest

Advantages and disadvantages of managing inventory levels

Employment forms

• Adjusting the type of contracts used, such as part-time, temporary, zero-hours or freelance staff, can allow a business to flexibly increase or decrease the workforce in line with demand

  • Hiring temporary or zero-hours staff during peak periods allows a business to expand its workforce quickly without a long-term commitment, then reduce it again once demand falls

Ways businesses can adjust the form of employment

• Hiring temporary or seasonal staff for a fixed period to cover a predictable demand peak

• Using zero-hours contracts so staff can be called in only when they are actually needed

• Offering part-time contracts to cover busy hours or days without paying full-time wages

• Using freelance or agency staff for short-term projects or unpredictable spikes in workload

Example

A theme park hires temporary and zero-hours staff over the summer holidays to cope with higher visitor numbers

Advantages and disadvantages of adjusting the form of employment

Outsourcing

• Outsourcing means paying another business to carry out an activity, such as production or a specific process, rather than doing it in-house

  • Outsourcing extra production during high demand allows a business to increase output without investing in its own additional capacity

  • It can then scale outsourcing back down as demand falls

Ways businesses can use outsourcing

• Contracting another manufacturer to produce extra units during a period of high demand

• Using a third-party logistics company to handle deliveries during busy periods, rather than expanding an in-house fleet of delivery vehicles

• Outsourcing a specific stage of production, such as packaging, to free up in-house capacity for core output

• Agreeing outsourcing on a temporary or short-term contract, so it can be scaled back once demand falls

Example

A clothing retailer outsources extra manufacturing to an overseas factory during a period of unexpectedly high demand for a new product line

Advantages of outsourcing

Cost savings

• Businesses can often reduce expenses associated with operations such as hiring and training employees, maintaining infrastructure and managing IT systems

Access to specialised skills

• External specialists have resources that the business lacks internally, which allows it to benefit from the knowledge and experience of industry specialists as and when required

Increased flexibility

• Businesses can provide greater flexibility to scale their operations up or down based on demand fluctuations, which is particularly valuable in industries with seasonal or unpredictable demand

Focus on core competencies

• Businesses can concentrate their resources and efforts on their core competencies, where they can add value

Limitations of outsourcing

Quality control

• Using external providers makes it harder to ensure consistent quality and adherence to company standards

Loss of control

• Handing direct control over those activities to others outside of the business may be risky

• Companies must carefully select reliable partners and establish clear contractual terms to protect their interests

Data security and confidentiality

• Sharing sensitive information outside of the business introduces potential risks to data security and confidentiality

Communication and cultural differences

• Using global providers may result in language barriers or problems with time zone differences

• Cultural differences may present communication challenges

Capital investment

• Capital investment means spending money on machinery, equipment or technology to permanently increase a business's production capacity

• Investing in new machinery or technology allows a business to meet a sustained rise in demand, rather than just a short-term spike

Ways businesses can use capital investment

• Purchasing new machinery or equipment to raise the maximum level of output

• Investing in automation or technology that speeds up existing production processes

• Expanding or upgrading premises to allow additional production lines to operate

• Investing in technology that enables remote or flexible working, increasing the workforce's effective output

Example

A bakery invests in a new automated oven to increase its daily bread output and meet growing demand from supermarkets

Advantages and disadvantages of capital investment

Increasing or decreasing capacity

• Capacity is the maximum output a business can produce in a given period; increasing or decreasing capacity means changing this maximum to match demand

Ways businesses can change capacity

• Opening a new production site, or closing or mothballing one when demand falls

• Adding or removing a shift pattern, such as running a night shift during a period of peak demand

• Increasing or decreasing the hours a factory or facility operates each day or week

• Renting additional space, machinery or equipment temporarily, rather than committing to a permanent expansion

Example

A car manufacturer opens a second shift at its factory to increase capacity during a period of high demand

Advantages and disadvantages of changing capacity

Challenges of not matching supply and demand

• Failing to match supply and demand means a business produces either too little or too much relative to what customers actually want

  • An undersupply is where demand exceeds supply

  • An oversupply is where supply exceeds demand

Consequences of undersupply

• Lost sales and revenue, as customers who can't be served may buy from a competitor instead

• Damage to customer satisfaction and brand reputation, particularly if shortages happen repeatedly

• Pressure to rush production or expand capacity quickly, which can increase costs or reduce quality

Consequences of oversupply

• Higher storage costs and cash tied up in unsold stock

• Risk of stock becoming obsolete, out of date or having to be sold at a discount, reducing profit margins

• Wasted resources, including materials, labour and capacity, that could have been used more productively elsewhere