Setting up the business of Lairigian Bike Adventures as a sole trader has several important benefits, including:

• The owner of the business has total control over it. He/she can decide what to do, how to do it, what to charge clients, where to purchase goods and services and so on. 
• Since no consultation is required, decisions can be made quickly. This should help John provide his customers with good service.
• All the profits of the business belong to the owner. In other types of business profits are shared. 
• A sole trader can develop very close relationships with clients. John may well have local knowledge or experience which is likely to appeal to his customers.  If his clients like him personally they are likely to post positive reviews on sites like TripAdvisor.  He may also have local connections with suppliers (for example, to provide clients with accommodation or meals) that might benefit his customers.

On the other hand, there are also several drawbacks to operating as a sole trader:

• Sole traders have unlimited liability. This means that John would be personally responsible for the business’s debts, and could potentially lose his house, savings or any other assets should the business get into serious trouble.  
• Lairigian Bikes is entirely dependent on John. He is a “single point of failure”.  If he becomes ill, or for any other reason can’t work, it will be very difficult for the business to meet its commitments to clients.  John has a mortgage to pay, and any interruption to his earnings may have serious consequences. 
• Other than his daughter Sophie, John is the only person working in the business. This means he has to do everything from leading tours, to handling bookings, bike maintenance and book-keeping.  One person may not have all the necessary skills.
• It may be difficult to raise finance for short term needs of for expansion.

Overall, operating this business as a sole trader seems most appropriate.  Other possibilities may be a partnership, cooperative or private limited company.  John happens to have the finance necessary to start the business without having to borrow money, so input from others is not required.  John is likely to be an experienced and enthusiastic mountain biker (otherwise, why start a business in this area?), which will help him provide a good customer experience, essential for any new, small business.  If the business fails the consequences for John should not be too serious, especially if finances are managed prudently.  For example, leaving as much of the profit as possible in the business accounts, at least initially, will help to cover short-term problems such as cancelled bookings on unexpected bike repairs. 

Personal liability should not be a serious issue in this case.  Possible major costs (such as being sued by a client after an accident) would be covered by insurance, and other liabilities (for example customers’ deposits that may have to be refunded or employees’ wages) are relatively small.

Sole traders can employ other people. As well as leading some tours, Sophie way well have other skills that would benefit the business.  John could also pay others for functions such as marketing and accounts where he may not have the necessary skills.

If the business is successful and significant expansion is a possibility it may well eventually be worth considering setting up a partnership.  This would be dependent on finding the right person(s), but may allow Lairising Bikes to offer tours in new geographical areas, or a different type of experience (for example walking or kayaking).  As well as generating new business, a partnership would help to reduce risk and may bring benefits due to economies of scale.  

• This is an example of a situation where a product that is not fit for purpose can result in costs that are many times its initial purchase price. The customer is likely to be very unhappy!
• In this situation there are serious health and safety concerns, and the first thing that needs to be done is contact all purchasers of the product to inform them of the issue. Suits may have to be removed from service, inspected, tested, returned, replaced or disposed of.  Hopefully, SQS records system will allow them to quickly and accurately trace all suits that may be faulty and inform the customers promptly.
• If SQS has a system for inspecting the suits before despatching them to customers, it is clearly not working. In this situation it should be straightforward to devise a simple test to see if water is flowing properly through a suit.  Who is responsible for this?  What do they do?  What are the acceptance criteria?  How is this recorded? Can individual suits be identified? How are these tests monitored?  All suits currently in stock need to be tested, as do new ones supplied by East Coast Divers.
• East Coast Divers need to be informed. SQS should expect full cooperation and a prompt, thorough investigation into the problem.  It may be that SQS finds that a new worker in their factory has been to blame for over-zealously gluing the pipes in place and causing blockages.   Or perhaps a new type of glue has been used and it takes longer to set. After additional training and supervision for the worker (or reverting to the original type of glue), East Coast Divers are confident the problem will not recur.  However, it may be wise for SQS to visit their factory and verify for themselves that the issue has been adequately addressed.  It is not enough to blame one worker or process for a problem – the company should have had a system in place that ensures any defect is detected and dealt with before the product is shipped to the customer.  SQS should discuss their quality system with East Coast Divers, not least because SQS buys several products from them.  How can they have confidence that everything East Coast Divers supplies is fit for purpose?
• Similarly, SQS also need to look at its own quality system. It is not enough to rely on its suppliers.  How does it ensure the things it buys from any supplier are fit for purpose when received, do not deteriorate in storage and meet the customer’s requirements when finally delivered?    In this case it will probably be necessary for all hot water suits to be inspected and tested when received from East Coast Divers.  Over time, with evidence that the issue has been properly addressed it may be possible to reduce this level of checks.
• Many companies prefer to buy products and services from suppliers with a quality system that has been certified to a recognised standard such as ISO 9000.

Quality Control (QC): inspections and tests carried out to verify a product’s compliance with specifications.  It may involve:

• Visual inspection
• Other inspection techniques, for example MPI (magnetic particle inspection) and dye penetrant tests
• Functional tests
• Non-destructive tests
• Sampling

QC techniques will be used during the manufacture of the various components in a wind turbine system.  Although this company is only involved in installation and maintenance, QC will still be required.  For example, to measure the output of a wind turbine under a variety of different conditions to check that it meets specifications.

Quality Assurance (QA): documented system that generates the evidence required to give the company, its customers and other stakeholders’ confidence that its products and services continually meet requirements.  It encompasses QC but reaches into all parts of a business that have an impact on customer satisfaction.  Many companies carry out internal audits to assess compliance with quality system policy and procedures.  Continuous quality improvement is another function of a QA system.  This may be done by analysing QC data and looking for improvements in the way the company works.

The company may decide that it is beneficial to have its quality system certified to a recognised international standard.  In some cases the owners or operators of an offshore wind farm might require that a maintenance company is certified to ISO 9001.

Total Quality Management (TQM):  management system that focuses all employees on continual improvement of company processes and practices.  The aim is to deliver long-term success for the company by making the business more efficient and improving customer satisfaction.

The drive for TQM was started in the late 1940s by Dr. W. Edwards Deming, who was an American engineer, statistician and management consultant.  He worked with large companies in Japan helping to rebuild industry after the 2^nd world war.  His idea was that by improving quality, a business can reduce its costs and at the same time increase productivity and market share. 

This needs to be considered in an historical context.  When Deming started working in Japan “quality” meant craftsmanship.  Mass production and assembly lines were relatively new ideas, and consumerism hadn’t really started.  War time production reached enormous scales and there was an emphasis on “getting the job done”.  Defective products were thought to be inevitable because of manufacturing tolerances.  Inefficient business practices persisted because of the lack of competition and consumers had to accept what they were given.  The British car and motorcycle industries are good examples of this.

Reconstructing the devastated infrastructure and economy of Japan meant starting businesses in non-military sectors, taking advantage of modern technology and selling to mass markets.  Applying Deming’s philosophy allowed companies not only to produce items that met and exceeded customers’ expectations, but to do so at low prices because of high efficiency.  With more people able to afford to buy things, companies were able to expand and the economy thrived.  This could not have taken place with the old way of doing things.  Manufacturing methods and products improved continuously and rapidly in all sectors, but the electronics industry stands out from all others.  It grew from the invention of the transistor in 1947 to the incredibly complex integrated circuits of modern times in a few short decades, changing our lives as it did so.  Making a microprocessor for a phone or computer involves so many intricate manufacturing steps it’s hard to imagine how this ever could be achieved if Deming’s ideas hadn’t become so embedded in modern industry. 

(a) The spreadsheet:

Use this formula to calculate sample size:

In cell F2 to calculate sample size for part (a) the formula used was:  C2^2(D2(1 – D2))/E2^2.  This was copied into cells F3 to F10 to calculate the other sample sizes.

(b) From the spreadsheet we can see:

• The higher the confidence level required, the greater the sample size needed [parts (a), (b) and (c)].
• The greater the standard deviation, the greater the sample size needed [parts (d), (e) and (f)].
• The greater the margin of error, the smaller the sample size needed [parts (g), (h) and (i)].

Sampling is when part of a population is selected to represent the entire population.  The sample should be unbiased, where each item in the population has an equal chance in being selected for the sample. 

Biased sampling techniques include convenience sampling (where items are selected for the sample at the convenience of the person taking the sampling), and voluntary response sampling (where items put themselves forward to be included in the sample).  In both these methods the sample is likely to have different characteristics to the population.

Unbiased sampling techniques include:

Simple random sampling – the whole population is treated equally and every item has an equal chance of being included in the sample.

Stratified random sampling – a certain characteristic is used to form the population into groups called strata.  A random selection from each stratum is selected to form the sample.

Multistage sampling – this is a combination of two or more stages of simple random sampling.  The population is formed into groups, and one group is chosen at random from which to take the sample.  This group may be further divided into sub-groups, and a sub-group chosen at random for the sample.  This may be continued through a number of stages until the sample is obtained.

If individual items in a population are assigned numbers, a random number table can be used to find a random sample.

(There are other sampling techniques not mentioned in this video such as systematic sampling and cluster sampling.)

Six Sigma is an approach to quality that aims for near perfection.  It is a disciplined, data-driven set of methodologies intended to eliminate defects arising in any process.  To achieve Six Sigma, a process must not produce more than 3.4 defects per million opportunities.

For the company to be considering Six Sigma, there must be a perception that quality problems are contributing to losses in sales and thereby falling market share.  Perhaps customers have complained about specific quality issues, or the company is aware of costs that arise due to poor quality such as replacing or re-working components that are outside specifications.  Other reasons for falling market share (for example, obsolescence in the company’s products or a particularly effective marketing campaign from a competitor) may not be overcome by Six Sigma.

In applying Six Sigma, the company will need to break down its whole manufacturing and assembly operation into individual processes and sub-processes. It will need to measure and gather data on the quality of each of these, and carry out analysis to see exactly where, how, why and to what extent defects occur.  Also, the effects of defects in one process on subsequent processes should be considered.  The analysis should identify weaknesses in the company’s operations and it will probably be possible for improvements in many processes to be made.  For example, the manufacture of a particular component might require several complex operations to be carried by skilled machinists with a resulting high defect rate. Perhaps an equivalent component can be made cost-effectively and with a much lower defect rate by a 3D printer.   Business jets include systems such as engines, hydraulics, navigation equipment and computers that are manufactured by specialist companies, so the Six Sigma approach may also identify quality issues in products bought in by the company.  Once all the changes have been made, operations will need to be analysed in detail again to assess the impact on quality.  Further improvements will be sought and the cycle repeated. 

Six Sigma is iterative and continuous in striving for near perfection.  In this case whether or not the application of Six Sigma will lead to improved sales and reduced costs in time to address falling market share is difficult to say.  However, the company may wish to apply Six Sigma techniques to the assembly line of a new product, addressing issues of obsolescence at the same time as quality.  It may also wish to consider the Taguchi method of robust design to reduce manufacturing costs.

The major legal obligations for CF Aerostructures include:

1. As a PLC, the business must be registered with Companies House and obtain a trading certificate. A suitably qualified Company Secretary must be appointed and company accounts published in the prescribed manner.  The directors of the company are responsible for this.
2. Several trading laws apply to the manufacture and sale of products. CF does not advertise and sell its products on the open market so the Trades Descriptions Act will not be relevant.  CF’s products are probably made to the aircraft manufacturer’s design (in order they fit the rest of the aircraft), so trademarks, copyrights and patents will not be an issue.   The Sale of Goods Act is intended to ensure anything bought and sold is of reasonable quality and fit for purpose.  Customers will have clear product specifications which CF’s quality system will aim to ensure are met.  It seems unlikely that the Sale of Goods Act would ever need to be applied because it would be in CF’s and their customer’s interests to resolve any dispute before that stage.  All of CF’s employees in manufacturing have a responsibility for quality, and a Quality Manager may be employed to oversee the system.  The Quality manager will report to a senior manager or director who will have ultimate responsibility. 
3. CF may have been given a licence to manufacture products to the design of the customer. This licence will have legal obligations to protect the product’s design.  Company directors will be responsible for ensuring the conditions of the licence are met. 
4. All manufacturers have to comply with health and safety laws. This is for the protection of employees, visitors and other people affected by the business.  The Health and Safety at Work etc Act 1974 is a wide-ranging law that applies to all company activities, not just manufacture.  COSHH (Control of Substances Hazardous to Health) regulations apply in situations where dangerous chemicals are handled and stored.  As a manufacturer of products made from composite materials, CF will use resins, adhesives, paints, cleaning materials and other hazardous substances, and COSHH regulations will certainly apply.  All employees have responsibility for their own and others’ health and safety, and may be prosecuted for breaking the law.  Managers and directors have responsibility at different levels for health and safety.
5. All companies are legally required to pay appropriate taxes, including VAT (Value Added Tax) and Corporation Tax. They also collect employee taxes such as Income Tax and National Insurance from the company payroll.  A senior manager such as the Finance Director is responsible for this on a day-to-day basis.  The Company Secretary has ultimate responsibility to ensure the company complies with the financial legal requirements.
6. All companies require appropriate insurance: employer’s liability; public liability/professional indemnity; general business insurance. In CF’s case, an employee injured in an accident at work might make a claim against the company.  If upheld, it may be met by CF’s employer’s liability insurance.  Similarly, damage to the environment caused by incorrect disposal of chemicals may result in a claim from the local council for repairs.  This may be covered by CF’s public liability insurance.  Any motor vehicles owned by CF will need to be insured.  Company directors are responsible for ensuring appropriate insurance policies are held.