Operations strategy · A Level Business

RR is a manufacturer and retailer of luxury beauty products. Reeta Roy started RR in 2016 after managing several small enterprises with limited success.

Using her creativity, Reeta produced the first batch of soap in her kitchen. Reeta used fresh ingredients from her home region of country X. Customer feedback was positive and Reeta decided to form a private limited company. RR rented a local factory to start production. The location of the factory was important as Reeta’s business plan was to work with local farmers who could supply fresh ingredients. RR decided not to use machines and instead recruited skilled workers to hand-make its products.

Reeta believes the culture of RR is essential in creating a luxury product. Reeta expects employees to share her pride in RR’s products whether they work in manufacturing or have face-to-face contact with the final consumer.

RR’s first retail store opened in 2017 selling only RR products. By 2026, RR had opened 22 retail stores in country X, with more planned.

Reeta’s leadership

Though employees admire Reeta’s determination, energy and charisma, RR has a high labour turnover of graduate level managers due to limited promotion opportunities and training. Reeta believes that leaders are born with the traits and abilities to lead.

Supply issues

The success of RR’s brand is built on using local ingredients. Sourcing quality ingredients to meet demand is a constant problem. RR occasionally has to accept a variation in the standard of ingredients. Some of RR’s products made using these ingredients have to be rejected after quality control. The operations manager has suggested that RR should introduce lean production.

Country X’s economic performance

Since 2016, there has been rapid economic growth in country X, see Table 1.1.

Table 1.1 Country X economic data

International expansion

RR plans to expand internationally. Reeta wants RR to expand by opening retail units in other countries. However, the marketing team believes that RR should start selling its products using information technology (IT), for example, by using RR’s website and social media. Reeta believes that selling online will have a negative impact on RR’s luxury brand. Reeta thinks that the consumer’s positive interaction with the retail staff is important.

Table 1.2 shows some information about the sales of luxury beauty products in country X.

Table 1.2 Sales of luxury beauty products in country X ($m)

A survey of RR’s consumers found that 60% said visiting an RR store was a key factor in their purchase decisions and that 45% would consider buying RR products online.

The marketing team has produced an investment appraisal for its IT proposal, see Table 1.3.

Table 1.3 Investment appraisal for the marketing team’s IT proposal

FSA

FSA is a multinational company and the market leader in beauty products. FSA is aiming to add to its portfolio of luxury brands. RR’s growing reputation has come to the attention of FSA’s Chief Executive, Gabriel Laurent. Gabriel met with Reeta to discuss purchasing 20% of RR’s share capital. Gabriel was impressed by Reeta’s vision for RR and her leadership values. Reeta has placed a high financial value on RR’s shares which is far greater than shown by RR’s latest published accounts. FSA’s Chief Financial Officer (CFO) is concerned by RR’s lack of detailed accounting data including financial ratios. However, Gabriel is convinced that buying 20% of RR’s shares at the value proposed by Reeta is a unique investment opportunity for FSA.

In 2021, Pavni was made redundant from her job as a production supervisor for a large pottery business. She then decided to open PP as a private limited company in country W.

PP produces and sells handmade gift items made of clay and processed in a kiln. A kiln is a high-temperature oven which turns clay into pottery. PP started with a small range of products including cups, bowls and plates but has since increased its product range to include tea light holders, fridge magnets and small plant pots. The new range of tea light holders has been PP’s most successful product to date.

Pavni has carried out some research into the gift market in country W and has identified forecasts for continued growth. Forecasts indicate that the gift market could grow to $540 million by 2029. The pottery gift segment of this market is 3% and this segment is very competitive.

Marketing

Pavni sells 75% of her products through three retail outlets business to business (B2B). These retailers place orders with PP quarterly and PP has a 2-month lead time from receiving the order to goods being ready for delivery.

PP has a website for consumers to order direct. Products are delivered to consumers within one week. PP has started to gain brand recognition from repeat consumers. Pavni would like the business to consumer sales (B2C) to grow.

Pavni has employed a university graduate, Fiza, on a full-time contract. Fiza has a marketing degree and is going to manage PP’s social media accounts. The marketing role will involve two tasks:

• making regular posts on all the main social media platforms
• developing artificial intelligence (AI) for use in customer service.

Financial data

Pavni is anticipating B2C sales will increase to more than 50% of PP’s output once its social media marketing is established. She is uncertain of the impact this will have on PP’s financial efficiency.

Table 1.1 shows PP’s historical financial efficiency data. Table 1.2 shows data relating to PP’s financial efficiency for 2025.

Table 1.1 PP’s historical financial efficiency data

Table 1.2 Data relating to PP’s financial efficiency for 2025

Human Resources and Business Growth

PP employs two potters. Both are experienced in pottery design and manufacture. They are encouraged to research and develop their own ideas. Pavni allows both employees paid time to research and develop their own ideas. She then evaluates their designs and decides whether to produce the suggested new products.

Pavni encourages intrapreneurship by having a flat organisational structure and using delegation. Pavni believes this business approach will help PP’s growth.

Consumers are increasingly ordering from social media platforms. For PP to respond to market development, the business is developing its social media marketing.

PP’s supplier

Country W only has one supplier of clay. PP uses this supplier. The supplier offers 30 days payment terms with a 5% discount if PP pays within 20 days. The supplier imports clay from China and so it has limited control over the quality or cost.

Investment appraisal

PP will need to increase production capacity to meet the forecast demand from online orders. In order to grow the business, Pavni has decided to invest in a new, larger kiln. The new kiln will allow more items to be manufactured at the same time and will decrease the number of faulty products.

Pavni is considering two options for the new kiln. Table 1.3 shows the investment appraisal information.

Table 1.3 Investment appraisal information for the two different kiln options

Lithium is an essential raw material used in batteries for electric vehicles, smart phones and other products. LBM has developed techniques to detect lithium using mapping technology. LBM sells its survey results to other mining companies. LBM’s annual revenue is less than $1 million and it is losing $2–3 million per year. LBM is planning to start its own lithium mining operations in country G, where it is based.

LBM has researched and developed two effective ways of mining lithium. The first is hot water mining and the second is hard rock mining. LBM became a public limited company one year ago. LBM has substantial finance obtained from grants, shareholders and crowdfunding available for investment. LBM’s revenue is forecast to rise rapidly once mining begins.

Sales forecasting

Annual global demand for lithium is rising considerably and forecasts show world supply will not meet demand after 2030. As LBM establishes its own mining operations it will need to forecast sales. There are likely to be variations in demand for electric vehicles and smart phones over time. It is difficult to vary the output from lithium mines at very short notice. Holding inventory of this raw material involves high costs. Alternatives to lithium are being developed.

Concerns of government

LBM is the only business in country G planning to mine lithium. The government is very concerned that:

• demand from industry for lithium in country G will not be met in the long‑term
• LBM is currently unprofitable
• LBM may be a target for a hostile takeover from a multinational business.

The government is therefore considering nationalising LBM.

Hot water lithium mining

Despite local opposition, LBM plans to open its first mine in four months’ time. Hot water from three kilometres underground will be pumped up to a factory where lithium and possibly other rare raw materials will be extracted from the water. After the extraction process the hot water can then be used for heating local housing. The Operations Director, Astor, estimates the project has a 15‑year life span. However, future cash flows beyond six years become increasingly uncertain.

Table 1.1 shows the data used by LBM in the decision to go ahead with the hot water mine. The data excludes costs and revenues from extracting other raw materials that may be found in the water. LBM has enough finance for the hot water mine if there are no adverse variances to the budget.

Table 1.1: Investment appraisal for hot water lithium mining

Human resource management (HRM) and the hot water mine

LBM uses a ‘soft’ HRM approach for its current 35 graduate employees. They are given delegated powers and decide their own work patterns individually or in self‑selected teams. Many of these graduates are involved in using the mapping technology to find new mines and developing mining techniques.

LBM has started recruiting 150 people to be employed at the hot water mine site. Ten new employees will be technology specialists who will closely supervise the work. The other new employees will be trained to operate machinery. The directors plan to use a ‘hard’ HRM approach for these machine operators.

Hard rock lithium mining

LBM is also planning to open a hard rock lithium mine in two years’ time. Lithium is found inside hard rock layers underground. LBM plans to drill into these, bringing rock to the surface to be treated to extract lithium. Astor has identified a suitable area 500 metres underground. Table 1.2 and Figure 1.1 show the results of some of his operations planning. The data was obtained from mining industry sources, suppliers of drilling equipment and the LBM Research and Development (R & D) team.

Table 1.2: Hard rock lithium mining project activities used in Critical Path Analysis (CPA)

Figure 1.1: Network for hard rock lithium mining project (durations in weeks)

WS is a public limited company. WS manufactures leather shoes for adults. It sells to major shoe retailers and to small independent shoe shops. WS products are targeted at three constantly changing markets: fashion, leisure and work. Its sales employees are reporting that small independent shoe shops have experienced an increasing demand for non-leather and recyclable shoes. There is a growing consumer awareness that resources used in production need to be sustainable. Jon, the Marketing Director, is very keen for WS to carry out an environmental audit.

Enterprise resource planning (ERP) WS uses different IT systems for managing production, marketing and human resources. Keri, the Operations Director, thinks that the processes needed to produce and market shoes could be more integrated. Greater integration could help to improve the efficiency of WS. Keri has begun to research ERP as a means of achieving this integration. She knows that ERP is very expensive and takes time to implement but she is convinced that it could offer WS substantial efficiency benefits.

Employee performance

WS uses batch production to produce different styles of shoes. The production employees at WS are:

• paid wages which are 10% more than the industry average
• increasingly complaining to their managers about production targets
• expected to train on-the-job
• expected to follow strict instructions
• given only limited opportunities for career progression.

Milo, the Human Resources Director, and Keri are concerned that the performance of production employees is declining. Table 1.1 gives data about production and production employees.

Table 1.1: Data about production and production employees

Marketing

WS sells its shoes into three markets: fashion, leisure and work. Each market has its own characteristics. WS shoes are medium to high price in each market. Research shows that consumers consider WS shoes are good quality for the prices charged.

Jon is preparing a marketing plan with the objective of increasing annual sales by 5% without entering any new markets. Table 1.2 shows time series analysis sales data Jon is using. Jon considers that time series analysis will help him make decisions to achieve WS’s marketing objective. Table 1.3 gives additional information about the markets WS sells to.

Table 1.2: WS time series analysis sales data ($m)

Table 1.3: Information about the markets WS sells to

Investor return

In recent years, the directors of WS have made long-term investment a priority rather than short-term increases in dividends.

The main shareholders in WS take an active interest in the business. At the next company Annual General Meeting (AGM) these shareholders intend to ask the directors to explain their method to increase investor returns. These shareholders will be looking for an effective method to achieve an increase in their return. Table 1.4 shows changes in key investment indicators and ratios.

Table 1.4: Change between May 2023 and May 2025

PAIR was set up in 2012 by Kaarina Laine, a graduate in Applied Artificial Intelligence. PAIR is a private limited company in country F. Kaarina, the Managing Director, owns 70% of the shares. Four other directors own the remaining shares.

PAIR’s mission statement is ‘to transform business use of robots’. PAIR designs and manufactures robots which use artificial intelligence (AI) to support business operations. PAIR’s most successful robot, the KB1, is an autonomous cleaning robot. In 2024 the KB1 had the leading market share in country F. It is also a successful export for PAIR. The global market for autonomous cleaning robots is competitive with many brands available.

Growth

The first version of the KB1 was launched in 2013. PAIR’s sales strategy focused on leasing to businesses to provide a cost-effective solution to cleaning the workplace. Initially sales growth was slow, led by the sales team contacting prospective customers to arrange product demonstrations and trials.

However, global economic growth after the pandemic led to labour shortages which affected the recruitment of cleaning employees. Consequently, many schools, offices and hotels approached PAIR to lease the latest version of the KB1. Revenue grew rapidly from 2021 but PAIR was unable to fully meet demand due to production constraints.

Innovative technologies

PAIR invests 7% of revenue in Research & Development (R&D) compared to the industry average of 5%. In 2023, the eighth version of the KB1 was launched providing a more innovative, powerful and quieter cleaner. This version has a longer battery life and can clean different floor types. It uses video technology to learn as it cleans.

In 2024, PAIR began development of a new AI delivery robot, Delbot, which will target the hotel market. It will deliver food, towels and other items to hotel rooms. Kaarina confirmed, in a press release, that the Delbot will be available to customers from early 2026. She commented that the whole process from concept to product launch will only take 18 months.

Organisational structure

PAIR has a flat organisational structure and is divided into functional departments. The R&D department uses a matrix structure creating one-off teams for specific projects. In 2024 PAIR employed a total of 120 employees.

Quality defects At the end of 2023 PAIR’s Operations Director reported increasing quality problems:

• the annual percentage of defective KB1s, reported by quality control inspectors, had doubled to 2%
• increased customer reports of KB1s not working properly
• increased complaints of poor customer service.

In June 2024 PAIR began the process of replacing quality control with quality assurance. This included:

• improved training of employees
• all production employees made responsible for quality
• targets for technicians to fix any faults reported by customers within 24 hours. a

Table 1.1 provides production and employee data for the KB1 factory. In 2024 PAIR had a labour productivity target of 2200 KB1s per employee.

Table 1.1 End of year production and employee data for the KB1 factory

Kaarina is concerned whether the decision to introduce quality assurance has been beneficial for PAIR.

Increase dividends?

Kaarina plans to expand the product portfolio and enter new international markets. PAIR’s growth has been financed from retained profit and long-term borrowing. Kaarina is now considering whether to change PAIR to a public limited company. Table 1.2 shows selected financial data and ratios for PAIR.

Table 1.2 Selected financial data and ratios for PAIR

The other four shareholders are dissatisfied with PAIR’s dividend payments and are pressuring Kaarina to increase dividends for 2025.

Contingency planning

In February 2025 a battery in one of the latest KB1 robots overheated causing a fire at the school where it was operating. The Operations Director investigated and found that there was a fault in the battery supplied to PAIR. Following the investigation PAIR issued a press release in April identifying the battery supplier as being responsible for the fire. The Marketing Director is concerned about PAIR’s lack of contingency planning. She has finally persuaded Kaarina to call an emergency board meeting to consider the benefits of contingency planning.

IPA is a private limited company in country N, a low-income country in Africa. Adesola Kalu set up IPA in 2019. It has a mission to provide technology access to millions of people through recommerce – the selling of previously owned or used products. IPA buys used smartphones, refurbishes them in its factory and then resells them. This provides consumers and businesses cheaper access to technologically advanced smartphones.

A fragmented but growing market

The market for refurbished smartphones in country N is growing rapidly. Most refurbished smartphones are sold during major festival periods. It is a competitive market in which no business has more than a 1% market share. In 2024 12 million refurbished smartphones were sold in country N and this is expected to rise to 14.2 million in 2025. IPA sold 104 000 refurbished smartphones in 2024, an increase of 24 000 from 2023. The average consumer of new smartphones upgrades to the latest model every 15 months. This short upgrade cycle has contributed to the growth of the refurbished market.

Marketing

The refurbished smartphone market is characterised by inconsistent pricing, stolen devices and untrusted offline retailers. IPA sells refurbished smartphones online through its website and offline through local retailers.

IPA aims to provide convenience, cost-effectiveness and quality assurance to its customers. IPA targets both start-up businesses and households. Promotion has focused on advertising on digital platforms. Prices are competitive. Generous credit terms are given when selling to business start-ups.

Adesola has set an objective to increase sales volume by 60% by the end of 2026. Research by the Marketing Director found that:

• potential customers are price sensitive
• promotional elasticity of demand is 0.7
• limited internet connectivity is a problem for businesses and households in rural communities.

The Marketing Director has proposed changes to the current marketing mix including:

• decrease prices by an average of 5%
• increase non-digital advertising expenditure with a campaign focused on advertising through billboards and buses.

Employment contracts

IPA has 55 employees of whom 40 are production employees who check and refurbish smartphones. The remaining employees include production supervisors, administrators, sales staff and technicians. Adesola is the Managing Director and there are also directors of finance, marketing, human resources and operations. Production employees are skilled and employed on full-time contracts. IPA invests in training of production employees and pay is competitive. However, at the last board meeting the Finance Director proposed that contracts for most production employees should be changed to zero hours contracts. The Human Resources (HR) Director is now considering the implications of this.

Expanding operations

Each smartphone is refurbished and quality-tested, with a 25-point quality check, by IPA’s skilled employees. IPA sells the refurbished smartphones with a 6-month guarantee.

As sales increase, IPA has to recruit and train new production employees. With low unemployment in country N, this is not easy. IPA’s factory is close to full capacity. Consequently, Adesola plans to upgrade machinery and extend the factory to meet expected future demand. Using network analysis, the Operations Director estimates the factory expansion and machinery upgrade will take a minimum of 24 weeks. Activities include:

• fit roof to new factory extension
• removal of old machinery (Activity D)
• ordering and delivery of machinery from Europe (Activity E)
• upgrading the electricity supply (Activity F)
• installation of new machinery (Activity G)
• testing of machinery.

A partial network diagram is shown in Fig. 1.1 (all activities linked to nodes 5 & 6 are shown).

Fig. 1.1: A partial network diagram for factory expansion (time in weeks)

Financial position

IPA is profitable but margins are low on each refurbished smartphone. IPA pays sellers of smartphones immediately when the smartphone is received at its factory. The Finance Director is worried about IPA’s liquidity and gearing, particularly as Adesola has committed IPA to rapid expansion plans. Selected financial data and ratios are shown in Table 1.1.

Table 1.1: Financial Data and Ratios

Fiscal and monetary policy changes

In 2024, economic growth in country N slowed and unemployment began to rise. In response 70 the government is implementing a policy to upgrade infrastructure in country N. This includes providing tax incentives for internet service providers to improve mobile phone connectivity in rural areas.

Further policy measures include a cut in the standard rate of income tax by two percentage points from April 2025. The central bank has also cut interest rates. 75

Kelp (or seaweed) farming is the practice of cultivating and harvesting seaweed. Farmers gather the kelp from natural beds in the sea. This farming has a low environmental impact.

KK has a licence to harvest and exploit an area of the seabed in country W. The harvested kelp is dried and packaged at KK’s premises before being sold to food manufacturers. KK is a labour intensive social enterprise with a mission to ‘benefit the planet by the most efficient use of natural resources’.

In 2020 KK decided to build a kelp refinery (see Appendix 1). The cost was estimated to be $5 million, and KK would need to borrow most of this. The refinery would use kelp as a raw material to create a pulp that can be used to produce biodegradable plastics.

Timeline of KK

Future business strategies

In 2025 a new government was elected in country W with policies aimed at improving the economy (see Appendix 4). The directors of KK are considering the likely impact of the government’s policies on KK’s business strategies.

Appendix 1: Network diagram of kelp refinery project in 2020

Three teams to use simultaneous engineering to complete the project:

• purchasing team
• construction team
• human resource team.

Appendix 2: JIT implemented at KK in 2021

Appendix 3: Interview with Managing Director about the new kelp refinery in 2022

Kelp farming is a new and exciting industry in country W. KK is one of its champions and is developing a new kelp refinery. The innovative business has sustainability at its core and is trying to be as efficient as possible. Elis Nik, the Managing Director of KK, said ‘we believe that the key to success is to keep getting better. Our new refinery will be state-of-the-art, but we will not be complacent. Our employees will always have new ideas to increase efficiency, which we collect through an employee suggestion scheme.’

The refinery aims to have zero waste, with recycling of key components and renewable energy powering the entire facility.

Appendix 4: New government’s policies in 2025

• use of monetary policy to stabilise inflation
• government grants to support carbon-efficient businesses
• minimum wage to be increased by 40% by 2028
• reform of country W’s education system, including government-funded university tuition
• elimination of trade barriers for businesses in the primary sector.

Emilio started CH as a hobby in 2012. He started by having two beehives on the roof of his apartment building in the city. Emilio collected the honey his bees made in the beehives from flowers in the city’s gardens and parks. He then sold the honey in jars to local stores and at markets.

In 2014 Emilio decided that he wanted to turn CH into a full‑time honey producing business. He started to increase the scale of operations with a key aim to grow the business.

Timeline of CH

2015–2018 CH relocates the beehives to a rural location and increases the number of beehives. CH gains an organic quality standard for its honey. CH now also sells its honey to national retailers and supermarket chains.

2020–2022 CH increases its range of products to include maple syrup, Manuka honey and New Zealand honey. These are all imported and distributed through CH’s supply chain. Inventory management of these products through ERP has not always been reliable (see Appendix 2).

Developing a new business strategy

Emilio wants to grow the business further. He wants to expand operations into other honey products. However, the Marketing Director wants to focus only on increasing sales of existing products.

Before making a final decision, CH needs to use different approaches to analyse both the business and the market to develop a future business strategy.

Appendix 1: Extract from CH Board meeting regarding ERP implementation (2019)

• Capacity utilisation has increased from 80% in January to 90% in March.
• The proportion of orders incorrectly delivered to supermarket chains has decreased.
• CH Production Managers are provided with daily cost data.
• There is an adverse variance on ERP software training costs.

Appendix 2: Inventory control chart for Manuka honey (16-week period, 2021)

7000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 week

Appendix 3: Extract from trade union letter to management at CH (2023)

Since CH leased the warehouse our members have been directed to work in areas where they do not feel they are fully trained. This is because ERP software is scheduling employees randomly across departments and product lines. This is affecting employee motivation. The trade union requests an urgent meeting with management to resolve these problems.

Appendix 4: Extract from operations report on the costing and pricing of the natural energy gels (2024)

• ERP software allows real‑time tracking of manufacturing costs.
• CH has been able to introduce dynamic pricing.
• CH has taken advantage of economies of scale in areas identified by ERP software.