BB is a family-owned small business. The firm manufactures bicycles which are supplied to independent retailers. Recently, Lia, the Sales Director, has reported a 20% fall in monthly sales. She has asked the other directors for ideas to increase revenue. The Managing Director, Moneeb, has suggested that BB should open its own retail shop. Moneeb believes that BB has poor inventory management. BB currently uses buffer inventory control methods. There has been a build-up of inventory that is using warehouse space that could be converted to a shop at a cost of $180000. He estimates additional yearly costs of operating the shop of $40000. Moneeb has provided the following information in Table 1.1. Table 1.1: Financial data for selling bicycles through BB's proposed shop | Unit price | Cost of sales per unit | Forecast additional annual sales | | :--------- | :--------------------- | :------------------------------- | | $300 | $120 | 1250 units | John, the Operations Manager, thinks it would be a mistake to open a shop as they have no experience in the retail sector. He thinks that sales could be increased through the existing channel of distribution. John believes that the salaried staff in the sales department are not motivated to find new independent bicycle retailers, as they rely on customers who have bought from BB for many years. Lia thinks that BB should produce a new design of foldable bicycle which would be lightweight and portable. Secondary research shows that this is a growth market with customers prepared to pay a premium price for a well-designed foldable bicycle. Lia estimates that an investment of $225000 would be required but the gross profit margin is forecast at 50% with additional annual revenue of $500000. Moneeb and Lia have been asked to present their proposals for increasing BB's revenue to the other directors, who will then make a decision.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

1. [2] Existing data (1) which has already been gathered and organised for another purpose(1)
2. [2] Using existing data (1) Collected for another purpose/reason (1)
3. [2] already gathered (1) for another purpose (1)
4. [1] Gathered by another business
5. [1] Using existing data
6. [0] Second hand research/data
7. [3] Keeping safety stock, (A) extra stock that is maintained to reduce the risk of a shortfall in components (B) due to uncertainties in supply and demand. (C)
8. [3] a level of excess stock that is maintained (A) to reduce the risk of a shortfall in components (B) due to uncertainties in supply and demand (C)
9. [3] Safety margin of stock held (A) when there is uncertainty in demand, supply, or manufacturing output (B) to ensure that the firm can produce enough product for orders (C)
10. [2] Safety margin of stock held (A) when there is uncertainty in demand, supply, or manufacturing output (B)
11. [1] a level of extra stock that is maintained (A)
12. [1] E.g. or some other way of showing good understanding; variations in supply, demand and/or production
13. [1] For unanticipated/unexpected/unplanned situations
14. [1] Excess stock/safety margin of stock kept
15. [3] Correct answer (60 %)
16. [2] Formula and data used correctly (based on OFR)
17. [1] Attempt (e.g. formula or identifies data) or correctly calculated gross profit ($180)
18. [1] (Revenue – cost of goods sold) / Revenue × 100
19. [2] $300-$120 = $180; $180 / 300 (× 100)
20. [3] = 60% (with or without working and %)
21. [3] 60 (%)
22. [2] 0.6
23. [2] (180/300)*100
24. [1] (rev-COGS)/rev × 100
25. [1] Gross profit/revenue × 100
26. [3] Explanation of an Operations management function in context
27. [2] Explanation of a management function
28. [1] Identification of a management function
29. [1] May mention one of Mintzberg's functions of management (Figurehead, Leader, Liaison Monitor, Disseminator, Spokesperson, Entrepreneur, Disturbance Handler, Resource Allocator, Negotiator) but for context mark must refer to operations.
30. [1] Operations manager functions such as producing the right amount of a good or service, at the right time, of the right quality and at the right cost to meet customer requirements.
31. [1] Any one of Mintzbergs functions e.g. leader
32. [1] motivating the employees
33. [1] Such as the salaried sales staff
34. [1] Ensuring stock control / inventory levels
35. [1] To ensure adequate levels for production / not too much
36. [1] By regulating the buffer stock efficiently
37. [4] Shows understanding of two motivation methods could be used for BB's sales staff
38. [4] Developed analysis of two motivational methods that BB could use to motivate its sales staff
39. [3] Shows understanding of one motivation method could be used for BB's sales staff
40. [3] Developed analysis of one motivational method that BB could use to motivate its sales staff
41. [2] Shows knowledge of two motivation methods
42. [2] Limited analysis of two motivational methods that BB could use to motivate its sales staff
43. [1] Shows knowledge of one motivation method
44. [1] Limited analysis of one motivational method that BB could use to motivate its sales staff
45. May mention financial and/non-financial motivators.
46. Content: Salaried employees so could change to include commission payments
47. Content: Set sales target with a bonus for meeting target
48. Content: Offer a profit-sharing scheme
49. Content: Re-train as sales staff rely on repeat custom so training in attracting new customers
50. Content: Encourage participation in identifying new outlets especially if go ahead with the new design
51. Content: Fringe benefits such as a company car to go and meet new customers
52. Content: Provide more promotion opportunities
53. Content: May refer to needs such as self-actualisation
54. K: Targets & bonus; APP: For the new foldable bike/ To find new (ind) bike retailers; AN: Which would provide financial incentives; DEV: But may lead to mis-selling/ hard sales tactics
55. K: Commission; APP: Based on how many bikes sold; AN: Which would reduce the safety of a salary; DEV: And force staff to look for new customers
56. K: Retraining; APP: To upskill selling skills to new bike retailers; AN: So employees would be more confident approaching new customers; DEV: And building a wider customer base
57. K: Fringe benefits; APP: Provide company cars to approach new bike retailers; AN: But may be expensive; DEV: And reduce 50% gross profit margins
58. [7] Justified recommendation based on arguments in context
59. [6] Developed recommendation based on arguments in context
60. [5] An evaluative statement/recommendation based on arguments in context
61. [4] Understanding of two factors in decision making in context
62. [4] Argument based on two factors of decision making in context
63. [3] Understanding of one factor in decision making in context
64. [3] Argument based on one factor of decision making in context
65. [2] Knowledge of two factors of decision making by firms
66. [2] limited analysis of two factors of decision making by firms
67. [1] Knowledge of one factor of decision making by firms
68. [1] limited analysis of one factor of decision making by firms
69. Context must be explicit not just implied based on the 3 proposals – new product/market, stock management and/or motivation of sales employees
70. Context/content: Moneeb - Change inventory control to JIT, retail sales, improved gross profit margin, utilise spare capacity. Is the location suitable for retail? How easy to re-organise stock system? Implied criticism of stock manager. Requires investment.
71. Context/content: Lia - new design of foldable bike/bicycle/cycle, growing niche market, premium prices could lead to higher profit. Risky as not known in that market. Will require marketing campaign – extra costs. Needs more research. Requires investment.
72. Context/content: Allow candidates to use Johns contribution as a proposal
73. K: gross profit margin; APP: 50% for the folding bike; AN: More stock – already high inventory; DEV: Opportunity cost of stock held (Re-purpose of existing stock); EVAL: Should choose folding bikes because area of existing sales expertise and has channels, may not have enough capital to invest in new shop
74. K: Marketing knowledge; APP: B2B only – no knowledge of consumer sales; AN: Risky as have to start from nothing; DEV: Have to compete against established companies.
75. EVAL: Should choose folding bikes because area of existing sales expertise and has channels, may not have enough capital to invest in new shop