Question 1

Is achieving 100% capacity utilisation always the primary operational goal?

Accepted Answer

No, this is a common misconception. While high utilisation is often desirable for spreading fixed costs, operating at 100% capacity leaves no room for error, unexpected new orders, or essential maintenance. It can lead to employee burnout, a decline in quality control, and an inability to respond flexibly to market opportunities. Most businesses aim for an optimal level, typically around 85-95%, which balances efficiency with flexibility.

Question 2

Does outsourcing non-core functions always result in cost savings?

Accepted Answer

Not necessarily. While cost reduction is a major driver for outsourcing, it is not guaranteed. Hidden costs can arise, such as managing the supplier relationship (contract management), monitoring quality, and rectifying errors. Furthermore, if the chosen supplier is inefficient or increases their prices, the expected savings may not materialise. The decision should also weigh qualitative factors like loss of control and potential damage to the brand's reputation if the supplier underperforms.

Question 3

Does a 'Just-in-Time' (JIT) inventory system mean a business holds absolutely no stock?

Accepted Answer

This is an oversimplification. JIT aims to minimise inventory to the lowest possible level, not necessarily eliminate it entirely. The goal is for materials to arrive 'just in time' for them to be used in production, and for finished goods to be produced 'just in time' to be dispatched to customers. There may still be very small amounts of buffer stock or work-in-progress within the system. The core principle is the relentless pursuit of waste reduction, which includes the waste of holding excessive inventory.

Operational decisions

What you need to know

Operational decisions