Matching Supply and Demand (AQA AS Business): Revision Note

Why match supply and demand?

• Managing supply to match demand means ensuring a business has just the right amount of resources, products or staff available to meet customer needs

• Getting this right is vital for operational efficiency and customer satisfaction

  • If supply exceeds demand, the business may waste money on storage or unsold goods

  • If supply falls short, customers may face delays or go elsewhere

• Businesses can use several methods to match supply to demand, such as:

  • outsourcing

  • hiring temporary or part-time staff

  • producing to order

• Each option offers benefits and trade-offs — explored in more detail below

Outsourcing

• Outsourcing is the process where a business delegates specific business activities, such as IT, customer support or HR, to external service providers

  • Businesses choose to outsource these functions to reduce costs, access specialised expertise or focus on core competencies

• Subcontracting occurs when specific parts of a larger project or contract are assigned to third parties

  • The business remains responsible for the overall project or contract

  • Certain components or tasks are delegated to other companies or individuals with specialised skills

Advantages of outsourcing and subcontracting

• Cost savings

  • Businesses can often reduce expenses such as hiring and training employees, maintaining facilities and managing IT systems

• Access to specialised skills

  • External specialists have resources that a business may lack

  • This allows the business 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

  • This 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 and subcontracting

• 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 outsourcing partners and establish clear expectations 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

Using temporary and part-time employees

• Flexible working is the development of a culture where workers are equipped to do different roles or work in a range of employment patterns

• Examples include temporary or part-time contracts, flexible hours and working from home

Examples of flexible employment

Benefits of flexible employment

• Ability to attract and retain good staff

  • Giving staff options such as flexitime or part-time hours makes the job fit their lives, so fewer staff leave and more applicants apply

• Higher productivity and well-being

  • When employees can choose where or when they work, many focus better and feel less stressed, and output often rises

    • E.g. Atom Bank’s four-day-week trial saw staff complete the same work in fewer hours while customer service scores went up

• Lower overhead costs for the business

  • Hybrid or home working means firms can reduce the size of offices, use fewer desks and cut rent and energy bills

Challenges of flexible employment

• Communication and collaboration can suffer

  • When staff work on-screen instead of sharing the same physical space, informal chats and quick problem-solving decline

    • A recent UK survey found that 55% of remote workers suffer video-call fatigue and lower team energy than their in-office counterparts

• Equipping home offices costs money

  • Businesses must buy or reimburse staff for laptops, monitors and ergonomic chairs

• Less face-to-face time can slow innovation

  • Remote teams are less likely to generate ideas than on-site groups or workers because spontaneous brainstorming drops with remote work

• Need for monitoring to keep everyone on task

  • Many UK companies now install time-tracking or screen-monitoring software to check remote productivity, raising privacy concerns and extra work for managers

Producing to order

• Producing to order is when a product is built only after a customer confirms an order, rather than being made for stock

• The customer’s exact choices, such as size, style, colour and features, drive production, so nothing is finished in advance

Examples of products often made to order

Evaluating producing to order