City-top Honey (CH) 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 2014 Emilio converts CH to a private limited company and he is the Managing Director. Emilio puts more beehives on city buildings and CH takes out a lease on a small factory to process the honey. CH’s main customers are independent food shops. 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. 2019 CH buys and moves to a bigger factory which is five times the size of the old one. Emilio implements an Enterprise Resource Planning (ERP) software system (see Appendix 1). 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). 2023 CH leases a warehouse for its inventory. Sales increase by 50%. Factory and warehouse employees are increasingly demotivated by scheduling carried out through ERP. The employees have contacted their trade union (see Appendix 3). 2024 CH works with a university to develop natural energy gels for athletes to eat during exercise, using its honey as an alternative to processed energy gels (see Appendix 4). 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) [Figure 2.1] 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.

Mark scheme

Marking points from the official mark scheme (May/June 2025). The mark or mark type is shown in brackets.

1. [1] Enterprise Resource Planning Software
2. [1] Costing/Pricing
3. [1] Employee relations
4. [1] Inventory control
5. [1] Capacity management
6. [2] ERP software can be used to control elements of the operations in a business.
7. [3] ERP software can be used to control elements of the operations in a business, such as ordering new inventory.
8. [2] Move to a larger factory – harder to manage
9. [2] ERP used to manage capacity
10. [2] Capacity remains fairly constant – Between 80–90%
11. [2] Inventory control has been poor – Manuka honey has been out of stock three times – two occasions have been out for over a week
12. [2] It has taken 15 weeks to get it right with stock management of manuka honey
13. [2] Trade union involvement with staff scheduling issues
14. [2] Urgent meeting has been requested
15. [2] Cost/price decisions have been easier
16. [2] Dynamic pricing
17. [2] Identification of economies of scale opportunities.
18. [8] ERP has improved the relationship with customers and allowed them to send data between businesses to meet their needs and CH production levels.
19. [8] Better capacity management should have led to better working capital management, better resource management and less waste (lean production).
20. [8] CH has been able to use ERP with smaller and larger customers to ensure their products are still supplied in variety of stores.
21. [8] Capacity has been at a manageable level – 90% – allowing time for maintenance and good average costs.
22. [8] Inventory management is poor.
23. [8] Regular inventory out could lead to loss of orders and/or customers and market share as a result.
24. [8] This chart is just for manuka honey, is the software causing problems across all imported products?
25. [8] Regular use of buffer inventory makes it hard to expand the business and look for new customers/orders.
26. [8] Are buffer inventory and max inventory set at the right levels?
27. [8] Software scheduling is demotivating staff – could affect production levels and ability to meet customer orders.
28. [8] Unhappy staff may hurt retention rates/labour turnover if staff leave.
29. [8] Staff leaving will add to CH's recruitment and training costs as new employees needed.
30. [8] ERP has helped collect cost/price data for energy gels, making decisions quicker and speeding up the development of the product.
31. [8] The software has been working, pulling data from across the organisation for managers to use.
32. [8] In general ERP software has been working to draw data down for decision making purposes. Capacity, costing and pricing functions are doing well.
33. [8] In general ERP software is NOT working properly. Stock and staffing have not been managed well leading to costs increasing in these areas.
34. [7] The ERP software has worked when managing the capacity of the production lines. The 90% (max) capacity has enabled CH to have time for maintenance and fluctuations in demand so that it can meet the needs of its customers.
35. [7] This will also have influenced costs, possibly bringing down average costs for CH and helping them increase profit margins.
36. [7] The inventory management has been poor. Customers will have been disappointed two or three times in the last four months - this could lead to them finding alternative suppliers and loss of market share for CH.
37. [7] It is possible that the problem is not ERP related and that the supplier of Manuka honey has had issues, therefore does CH need to find more reliable suppliers – this could prove costly.
38. [7] The human resource problems are related to the ERP software but how much could they have been over-ridden by management? Are management relying too much on the software to do their job?
39. [7] If this is true, are there possible diseconomies of scale appearing now CH has got so big and is relying on software to pick up the slack in decision making?
40. [7] What could be the result of the meeting? Could HR be removed from ERP? Is this possible?
41. [7] If this continues, how much will staffing levels be affected? Will people leave and need replacing? This could all add to the business' costs.
42. [7] The Energy gels development seems to have been an ERP success, using the costing and pricing data effectively. This keeps down average costs and ensures the new product is profitable.
43. [7] Overall success will depend on the analysis and evaluation provided by the candidate. It has been successful in some areas (capacity and costing/pricing) while other areas less so (stock management and HR). Impact on operations may have been more favourable as the stock management is now sorted after 4 months/16 weeks. Is there really an argument to get rid of the ERP? What are the alternatives?