Operations Strategy (A Level) (Cambridge (CIE) A Level Business): Exam Questions

Luxury Hampers (LH)

In 2015 Loretta bought LH, an established food hamper business. A hamper is a gift box or basket containing food and drink. Loretta purchased the business for $500000 using a combination of personal savings and venture capital. Loretta set a short-term objective of profit maximisation and planned for rapid expansion within a five-year period.

LH buys high-quality food and drink products directly from manufacturers and packages the products into hampers to sell as luxury gifts.

Timeline of LH

2015–2017

Focus on business efficiency improvement using better inventory control and management of costs.
Marketing changes from targeting individual customers to targeting national corporate customers.
LH develops online marketing capabilities.

2018

Loretta identifies PS (an international luxury gift supplier) as a suitable target for takeover.
Loretta prepares a SWOT analysis for LH and PS (see Appendix 1).
After the takeover, LH uses the brand name of LH nationally, but uses the PS brand name internationally to retain brand awareness.

2019–2020

Investment into rapid development of international corporate customers.

2021

All products now sold using the LH brand.
Loretta is asked to present financial data about the impact of the takeover of PS at the annual general meeting (AGM) (see Appendix 2).

2022

LH receives increasing numbers of negative online reviews (see Appendix 3).
Outdated IT systems and quality control procedures identified as problems.

Developing an operations strategy

In 2023, a cyber-attack corrupted 75% of LH’s IT systems and data. Incomplete supplier data was recovered. However, all customer data was lost. This led to cancelled orders and LH experienced considerable damage to its reputation.

LH’s shareholders called an extraordinary general meeting (EGM) and Loretta was replaced as Managing Director by Sanjay, the Operations Director.

Sanjay has identified several problems which need to be solved in both the short and long-term. He considers there are several opportunities to improve LH’s operational efficiency.

Sanjay knows a new operations strategy must be developed with an appropriate budget. The strategy will have clear objectives to increase data security and improve customer service.

Appendix 1: Extracts from 2018 SWOT analysis for LH and PS

Appendix 2: Extracts from LH’s financial data presented 2021

Appendix 3: Extracts from online reviews in 2022

‘Although the packaging was excellent and the hamper was delivered on time, the contents were not what I ordered! Not happy and not using LH again!’

‘LH over-promised on delivery times. I wanted to provide New Year hampers for all of my senior managers across Europe and they were delivered after the festival period.’

‘Impossible to contact LH customer service. Ordered from someone much better!’

Motorcycle Components (MC)

MC is a large public limited company that produces a range of components used by motorcycle manufacturers. MC’s mission statement is ‘to be the world leader in delivering quality motorcycle components to our customers’.

The motorcycle component industry is very competitive and MC’s customers expect high quality and a short lead time. MC operates a Just in Time (JIT) inventory control system. MC’s good relationships with its suppliers ensure that JIT operates efficiently. The production workers at MC are highly skilled and the business benefits from a low labour turnover.

Liquidity management is very important in the motorcycle component industry. The industry average for the acid test ratio is 1. A summary of some key data for MC has been prepared by the Finance Director, as shown in Table 2.1.

Table 2.1: Summary financial data as at 30 April 2022 ($ million)

The Operations Director, Jay, is proposing new capital expenditure of $4 million. Jay thinks that automation of the production process will have significant financial benefits for MC. He wishes to gain approval from the Board of Directors to implement a process innovation project. Jay believes that, with good communication and the involvement of employees, he can effectively manage the project.