Lean production | AQA A-Level Business
For Specification 7132
AQA A-Level Business | Free Revision Notes
Estimated study time: 70 minutes
Lean production aims to improve operational performance by reducing unnecessary waste and making more effective use of resources. This Lean production A-Level Business revision page focuses on the approaches specifically required by AQA: Just in Time (JIT) and Just in Case (JIC) operations. You will compare the two approaches and analyse why lean production may improve efficiency and lower unit costs, while also considering the difficulties businesses can face. The topic develops your understanding of efficiency and labour productivity [Efficiency and labour productivity] and links closely with later decisions about inventory management [Inventory management].
Learning Objectives 🎯
By the end of this revision page, you should be able to:
Explain the meaning and purpose of lean production.
Explain how Just in Time operations work.
Explain how Just in Case operations work.
Compare Just in Time and Just in Case approaches.
Analyse the benefits of lean production for operational performance.
Analyse the difficulties businesses may experience when using lean production.
Revision Notes 📚
Lean production A-Level Business revision overview
AQA requires students to understand the benefits and difficulties of lean production.
Within this topic, lean production must include a comparison of:
Just in Time (JIT) operations
Just in Case (JIC) operations.
Lean production belongs within AQA's section on improving operational efficiency and productivity. It should therefore be connected to ideas such as:
reducing unnecessary resource use
controlling unit costs
managing inventory
improving operational efficiency
responding to customers
competitiveness.
The important exam skill is not simply to state that lean production is "efficient". You need to explain why it may improve performance and when difficulties may prevent those benefits from being achieved.
What is lean production?
Lean production is an approach to operations that aims to reduce waste and use resources more efficiently.
Waste does not only mean materials being physically thrown away. In an operational context, waste can arise when resources are used unnecessarily.
For example, a business may hold more inventory than it needs. This may create:
storage requirements
unnecessary inventory costs
losses if inventory is damaged
losses if inventory loses value
wasted products, particularly where goods do not remain usable indefinitely.
AQA's 2024 examiner report found that most students understood the central idea of reducing waste when discussing lean production.
The basic objective is therefore:
reduce unnecessary resource use
↓
improve operational efficiency
↓
potentially reduce unit costs
↓
potentially improve competitiveness
This links directly back to operational objectives [Operational objectives], particularly objectives relating to costs, speed of response and added value.
Lean production and efficiency
Lean production can contribute to operational efficiency because fewer resources may be tied up in activities that do not create sufficient value.
One important area is inventory.
If a business holds less unnecessary inventory:
less inventory held
↓
less storage required
↓
lower storage-related costs
↓
potential reduction in total costs
↓
potential fall in unit costs
AQA's 2024 mark scheme recognised reduced inventory, lower losses from waste, damage or declining value, and reduced warehousing requirements as possible ways lean production can lower unit costs.
This builds on the wider ideas studied in efficiency and labour productivity [Efficiency and labour productivity].
Just in Time operations
Just in Time (JIT) is an approach in which a business aims to minimise the inventory it holds while still having sufficient inventory available to meet demand.
AQA's 2025 mark scheme described JIT as allowing a business to minimise inventory levels while ensuring sufficient stock is available for demand.
Instead of maintaining large quantities of inventory for long periods, inventory is supplied when it is required.
The principle is:
inventory arrives when needed
rather than:
large quantities are stored in advance in case they are needed later.
Why businesses use Just in Time
Lower inventory levels
A central benefit of JIT is that less inventory needs to be held.
If a business carries less inventory:
less space may be required for storage
less cash may be tied up in inventory
fewer goods may be lost through waste or damage.
The importance of the amount of inventory held is developed further in inventory management [Inventory management].
Lower storage costs
Holding inventory can require:
warehouse space
storage facilities
other resources associated with keeping goods before they are needed.
If JIT allows inventory levels to fall, these requirements may also fall.
The analytical chain is:
JIT
↓
lower inventory
↓
less storage space required
↓
lower operating costs
↓
potential reduction in unit costs
AQA's 2024 mark scheme specifically recognised lower warehousing costs as one way lean production may reduce unit costs.
Reducing waste, damage and loss of value
Inventory can become less valuable while it is being held.
It may:
be damaged
be wasted
lose value.
For businesses dealing with products that do not remain usable indefinitely, holding excessive inventory may create particularly significant waste.
AQA's 2025 assessment used the context of a food retailer. The mark scheme recognised that JIT could be valuable because reducing inventory can help limit waste involving fresh goods.
A possible chain is:
smaller inventory holdings
↓
less stock remains unused for long periods
↓
lower likelihood of waste
↓
lower costs
↓
potentially higher efficiency
JIT and cash flow
Inventory must normally be purchased before it is sold.
Holding large quantities of inventory can therefore mean cash is committed to goods that have not yet generated sales.
Reducing inventory through JIT can reduce the amount of cash tied up in stock.
AQA's 2024 mark scheme recognised switching to JIT as one possible way a business could improve cash flow because less cash would be tied up in finished goods or stock.
This is an example of the interrelationship between operations and finance.
JIT and fresh or perishable products
JIT may be particularly useful where inventory can deteriorate or become unusable.
Suppose a food retailer orders substantially more fresh food than customers purchase.
Unsold items may eventually become waste.
A more closely managed JIT approach may mean:
smaller quantities held
↓
inventory more closely matches demand
↓
less unsold inventory
↓
lower waste
↓
lower costs
AQA's 2025 examiner report noted that students successfully applied JIT to a retailer by considering issues such as perishable goods, quality and gross profit margins.
JIT can support quality
The 2025 AQA mark scheme also recognised that JIT could be appropriate for a retailer positioning itself as a high-quality supplier because careful inventory management can help ensure products remain fresh while avoiding shortages.
This illustrates an important point.
Lean production should not be viewed purely as a cost-cutting approach.
Operational decisions may also influence:
quality
customer satisfaction
speed of response
competitiveness.
The relationship with quality is explored further in quality control and quality assurance [Quality control and quality assurance].
The difficulties of Just in Time
The advantages of holding less inventory come with risks.
If a business holds very little spare inventory, it has less protection when something does not happen as expected.
Dependence on reliable suppliers
JIT requires inventory to arrive when it is needed.
If a supplier is late:
delivery delayed
↓
little additional inventory available
↓
business may lack required materials or products
↓
operations or sales may be disrupted
↓
customers may not receive what they require
Supplier reliability can therefore become particularly important.
AQA's 2022 mark scheme explicitly recognised that businesses seeking to keep buffer inventory low through JIT need reliable suppliers because supply delays can interrupt production and affect customers.
The importance of this relationship is explored further in choosing suppliers [Choosing suppliers].
Greater risk of running out of inventory
When little inventory is held, an unexpected increase in demand may create shortages.
Suppose a retailer normally expects to sell 500 units each day and maintains inventory closely around this level.
If demand unexpectedly increases to 700 units, the business may not immediately have enough inventory available.
The possible chain is:
unexpected increase in demand
↓
JIT business holds little spare stock
↓
inventory may run out
↓
customers cannot buy the product
↓
potential lost sales
This risk is especially important where:
demand is unpredictable
deliveries cannot be obtained quickly
customers can easily switch to competitors.
Disruption to the supply chain
JIT depends on inventory moving through the supply chain when required.
Problems affecting suppliers or deliveries can therefore create significant operational consequences.
The specification requires students to understand effective and efficient supply-chain management later in the course, in supply-chain management [Supply-chain management].
For JIT, the key point is simple:
less protective inventory means disruption elsewhere in the supply chain can affect the business more quickly.
Smaller orders may increase purchase costs
A JIT business may purchase inventory more frequently and in smaller amounts.
AQA's 2024 mark scheme recognised that this may make it more difficult for a business to obtain the cost advantages associated with buying larger quantities.
The possible chain is:
JIT
↓
smaller, more frequent inventory purchases
↓
less opportunity to benefit from lower prices associated with larger orders
↓
higher cost of inputs
↓
unit costs may rise
This is a crucial evaluation point because it shows why lean production does not automatically result in lower unit costs.
Lean production may initially create additional costs
Changing an established operational system can itself be difficult.
A business may need to change:
processes
employee behaviour
relationships with suppliers
inventory arrangements.
The 2024 AQA mark scheme recognised that changing to lean production may create short-term difficulties and higher unit costs even if lower costs are achieved later.
This gives a useful time-based evaluation:
short term
Changing operations may create disruption and additional cost.
longer term
If the system operates successfully, reduced waste and inventory may improve efficiency.
Just in Case operations
Just in Case (JIC) is an approach in which a business keeps more inventory available in case it is required.
Rather than attempting to minimise stock holdings, the business retains additional inventory to provide protection against uncertainty.
The basic principle is:
hold inventory in advance in case it is needed
rather than:
arrange for inventory to arrive only when required.
JIC therefore provides a contrast with JIT, as required by the AQA specification.
Why a business may use Just in Case
Protection against unexpected demand
If demand rises unexpectedly, a business holding additional inventory may still be able to satisfy customers.
For example:
normal demand = 1,000 units
unexpected demand = 1,200 units
additional stock available = 300 units.
The business can satisfy the additional 200-unit demand from inventory already held.
This may reduce the risk of lost sales.
Protection against delayed deliveries
A JIC business has additional inventory available if a supplier does not deliver when expected.
The chain is:
supplier delayed
↓
business uses inventory already held
↓
operations can continue
↓
customers may experience less disruption
This is why the appropriate inventory system depends partly on supplier reliability.
Greater ability to respond to uncertainty
Additional inventory can provide flexibility where demand or supply is unpredictable.
This can make JIC useful when the consequences of running out of inventory would be particularly significant.
However, that protection comes at a cost.
Difficulties of Just in Case
Higher inventory holdings
By definition, JIC involves keeping additional inventory.
This can mean more resources are committed to goods or materials that are not yet being used or sold.
Higher storage requirements
More inventory may require more storage space.
This can increase operating costs.
The chain is:
JIC
↓
larger inventory holdings
↓
greater storage requirement
↓
higher costs
↓
potentially higher unit costs
This is the opposite of one of the principal cost benefits associated with JIT.
More cash tied up in inventory
A business that buys inventory before it is required must finance that inventory.
Greater stock holdings can therefore mean more cash is committed to inventory.
This may place pressure on cash flow compared with an effective JIT system.
Greater risk of waste, damage or loss of value
The longer inventory remains unsold or unused, the greater the opportunity for some goods to:
become damaged
be wasted
lose value.
This means JIC can be particularly costly when the products being held cannot be stored successfully for long periods.
Just in Time versus Just in Case
Factor | Just in Time (JIT) | Just in Case (JIC) |
Inventory held | Kept relatively low | More inventory is retained |
Main aim | Have inventory available when required while minimising stock | Keep additional inventory available in case it is required |
Storage needs | Usually lower | Usually higher |
Cash tied up in inventory | Usually lower | Usually higher |
Waste or damage risk | Lower inventory can reduce this risk | More inventory can increase this risk |
Supplier reliability | Particularly important | Additional inventory provides greater protection from delays |
Unexpected demand | Greater risk of shortages | Additional inventory may help satisfy demand |
Purchasing quantities | May involve smaller, more frequent purchases | May allow larger quantities to be purchased |
Operational risk | Greater exposure to supply disruption | Greater cost of holding additional inventory |
Neither approach is automatically better.
The appropriate choice depends on the business's context.
Factors affecting whether JIT or JIC is more appropriate
A business should consider several factors before deciding how much inventory to hold.
These factors are developed further in inventory management [Inventory management].
For the JIT versus JIC decision, particularly important issues include:
predictability of demand
reliability of suppliers
speed at which additional inventory can be obtained
cost of holding inventory
risk that inventory will be wasted or lose value
consequences of running out of inventory.
Demand predictability
If demand is highly predictable, JIT may be easier to operate because managers can estimate more accurately when inventory will be required.
If demand is unpredictable, JIC may provide protection.
Example
A business expects demand of 10,000 units but actual demand might vary considerably.
If it holds almost no additional inventory and demand suddenly reaches 12,000 units, shortages could occur.
A larger inventory holding provides greater protection against this uncertainty.
The trade-off is:
greater protection from shortages
versus:
higher cost of holding inventory.
Supplier reliability
Reliable suppliers are particularly important for JIT.
If suppliers consistently deliver:
the correct quantity
when required,
a business has less reason to keep large additional inventories purely for protection.
If supply is unreliable, JIC may become more attractive.
AQA has explicitly recognised the connection between JIT systems and supplier reliability.
This creates a natural link with choosing suppliers [Choosing suppliers].
Nature of the product
Products that can become unusable quickly may make excessive inventory costly.
For example, the AQA 2025 examination used a food retailer where JIT could reduce wastage and help maintain freshness.
By contrast, where inventory can be stored without significant loss in value and shortages would be very costly, maintaining additional stock may be more attractive.
The decision therefore depends on the product and market rather than on a rule that one approach is always superior.
Cost of storage
If storage is expensive, reducing inventory through JIT can create significant savings.
If storage costs are relatively low, the financial disadvantage of holding additional JIC inventory may be smaller.
This is another reason the appropriate inventory system depends on business context.
Consequences of running out of inventory
A shortage can have different consequences for different businesses.
If customers can easily wait for the product, a shortage may be less damaging.
If customers need the product immediately and can switch quickly to a competitor:
out of stock
↓
customer purchases elsewhere
↓
lost sale
↓
possible damage to competitiveness
A business therefore needs to compare the cost of keeping additional inventory with the risk and consequence of running out.
Lean production and unit costs
A common exam issue is whether lean production will reduce unit costs.
It can, but the answer is not automatically yes.
Why unit costs may fall
Lean production may:
reduce unnecessary inventory
reduce storage requirements
reduce waste or losses from damaged inventory
improve the speed of operational processes
make more efficient use of resources.
A possible chain is:
less waste
↓
lower total operating costs
↓
same or greater output
↓
lower unit cost
↓
improved cost competitiveness
Why unit costs may not fall
Lean production can also create cost pressures.
For example:
smaller, more frequent inventory orders may be more expensive
changing operational processes can create short-term costs
unreliable deliveries can disrupt operations
attempts to improve other objectives, such as quality, may involve expenditure.
AQA's 2024 mark scheme therefore explicitly accepted arguments showing lean production might lead to either lower or higher unit costs, depending on circumstances.
📌 Exam rule: Never write:
"Lean production means unit costs will fall."
Write:
"Lean production may reduce unit costs if the savings from reducing waste and inventory exceed the additional costs and difficulties involved."
That is much stronger analysis.
Lean production and speed of response
A more efficiently organised operation may allow a business to respond more quickly.
AQA's 2024 lean-production mark scheme recognised that faster response can save time and contribute to lower costs.
However, JIT also creates a potential opposite effect.
If the business does not have the required inventory available:
customer demand occurs
↓
inventory unavailable
↓
business must wait for additional supply
↓
response may become slower
The impact therefore depends on how successfully the system is managed.
Lean production and quality
Reducing waste does not mean simply using fewer resources regardless of the effect on customers.
If attempts to remove resources cause quality to deteriorate:
lower costs
↓
but poorer quality
↓
customer satisfaction may fall
↓
competitiveness may weaken
Managers therefore need to judge lean production alongside other operational objectives [Operational objectives].
AQA's 2024 mark scheme recognised that businesses may sometimes accept higher unit costs where operational changes support higher quality and added value.
The relationship is developed further in the value and difficulties of improving quality [The value and difficulties of improving quality].
Lean production and competitiveness
Lean production can contribute to competitiveness where it improves efficiency.
For example:
less waste and lower storage cost
↓
lower unit cost
↓
business can lower price or increase its margin
↓
competitive position may improve
But another business might compete mainly through quality or reliability.
If aggressive inventory reduction causes shortages:
insufficient inventory
↓
customers cannot obtain products
↓
sales may be lost
↓
competitiveness may deteriorate
The effect of lean production therefore depends on the source of the business's competitive advantage.
Lean production and other business functions
AQA expects students to recognise interrelationships between operational decisions and other functions.
Finance
Lower inventory can mean less cash is tied up in stock.
Marketing
JIT must provide sufficient inventory to meet the demand created by marketing decisions.
Human resources
Changing operational systems may require employees to alter how they work.
Supply chain
JIT depends strongly on coordination with suppliers.
This is why lean production should not be analysed as an isolated operations decision.
Lean production in retail and manufacturing
JIT is not restricted to manufacturing businesses.
AQA's 2025 examination specifically applied JIT to Seebus plc, a food retailer. The examiner report noted that some students lost marks because they treated the business as a manufacturer rather than applying JIT to the retail context.
For a manufacturer, JIT might concern materials arriving when required for production.
For a retailer, JIT may concern products arriving in stores or the wider inventory system when required to satisfy customers.
📌 Exam point: Always adapt your explanation to the business in the case study.
Evaluating Just in Time versus Just in Case
A good judgement should identify why one approach fits the specific business better.
JIT may be more appropriate when:
demand can be predicted relatively accurately
suppliers are reliable
deliveries can be obtained quickly
storage is costly
holding inventory creates a significant risk of waste
reducing cash tied up in inventory is important.
JIC may be more appropriate when:
demand is highly uncertain
supplier delays are a significant risk
running out of inventory would be particularly damaging
inventory can be stored without excessive cost or waste
continuity of supply is more important than minimising inventory holdings.
The strongest conclusion may sometimes be that a business should not view the choice as simply "all JIT" or "all JIC". The amount of inventory that is appropriate depends on the risks associated with the particular product, suppliers and demand.
Building an exam chain for a benefit of JIT
A weak answer:
JIT reduces costs because there is less stock.
A stronger answer:
JIT reduces the amount of inventory held
↓
less warehouse space is required
↓
storage costs may fall
↓
total operating costs may decrease
↓
unit costs may fall
↓
business may become more price competitive
This explains the entire business consequence.
Building an exam chain for a difficulty of JIT
A weak answer:
JIT is risky if suppliers are late.
A stronger answer:
JIT means the business holds little additional inventory
↓
supplier delivers late
↓
required inventory is unavailable
↓
operations or sales may be interrupted
↓
customers may not receive the product when required
↓
sales or competitiveness may be damaged
The final steps show why the operational problem matters.
Building a balanced judgement
Suppose a question asks:
Should a supermarket use JIT rather than JIC?
A strong answer might reason:
For JIT:
Fresh products have a limited useful life, so holding large amounts may create waste. Lower inventory could therefore reduce wasted stock and storage costs.
Against JIT:
If demand is unpredictable or suppliers are unreliable, very low inventory could cause shortages. Customers may then buy elsewhere.
Judgement:
The most important factor may be the type of product. JIT may be particularly valuable for products where excessive inventory creates waste, while holding more inventory may be justified for products where shortages are more damaging and stock can be stored safely.
The judgement is contextual rather than absolute.
Key Words 🔑
Key word | Student-friendly definition | How it may be used in an exam |
Lean production | An approach to operations that aims to reduce waste and use resources more efficiently. | Analyse whether reducing waste could lower unit costs or improve competitiveness. |
Just in Time (JIT) | An approach that minimises inventory while ensuring stock is available when required to meet demand. | Analyse the benefits and risks of operating with relatively low inventory. |
Just in Case (JIC) | An approach in which additional inventory is kept available in case it is required. | Analyse whether protection from shortages justifies higher inventory costs. |
Inventory | Goods or materials held by a business for future use or sale. | Explain why the amount held affects costs, waste and the ability to meet demand. |
Unit cost | The average total cost associated with each unit of output. | Analyse whether lean production is likely to reduce or increase operating costs per unit. |
Hints from the Examiner Reports 💡
Examiner hint: Know what lean production actually means. The 2024 report found that nearly all students understood lean production, but some confused it with capital-intensive production. Keep the concepts distinct.
Examiner hint: Link lean production clearly to waste. The same report found that most students correctly understood reducing waste as an important feature of lean production.
Examiner hint: Do not assume lean production always lowers unit costs. Stronger 2024 responses recognised situations where lower unit costs might not result rather than treating the relationship as automatic.
Examiner hint: Use JIT as part of developed analysis. The 2024 examiner report identified the effective use of JIT as a feature of stronger lean-production essays.
Examiner hint: Apply JIT to the actual business in the question. In 2025, some students understood JIT but lost effectiveness because they discussed manufacturing when the case involved a retailer.
Examiner hint: For a contextual JIT question, identify why low inventory matters to that particular business. Successful 2025 answers connected JIT to issues such as perishable inventory, quality and the business's financial objectives.
Common Mistakes ⚠️
Mistake: Defining lean production as simply producing fewer goods
Why this is incorrect: Lean production is about reducing waste and improving resource efficiency. It does not mean deliberately reducing output.
How to improve: Think:
less unnecessary resource use, not less production.
Mistake: Confusing lean production with capital-intensive production
Why this is incorrect: Capital intensity concerns the mix of labour and capital used by a business. Lean production concerns reducing waste and improving efficiency.
This confusion was identified in the 2024 examiner report.
How to improve: Keep the two topics separate. The labour-capital decision is covered in the optimal mix of resources [The optimal mix of resources].
Mistake: Saying JIT means holding no inventory at all
Why this is incorrect: AQA's 2025 mark scheme describes JIT as minimising inventory while ensuring sufficient stock is available to meet demand.
How to improve: Use wording such as:
JIT aims to keep inventory levels low and obtain stock when it is required.
Do not define it as literally having zero inventory.
Mistake: Assuming JIT is always cheaper
Why this is incorrect: Although storage and waste costs may fall, smaller and more frequent purchases may increase input costs. Operational disruption can also be expensive.
How to improve: Compare the savings from holding less inventory with the additional risks and costs created by JIT.
Mistake: Ignoring supplier reliability
Why this is incorrect: A JIT business has less additional inventory available if deliveries are late.
How to improve: Develop the chain:
unreliable supplier → late inventory → shortage → operational disruption → possible lost sales.
Mistake: Assuming JIC is simply inefficient
Why this is incorrect: Holding additional inventory creates costs, but it can protect a business from uncertain demand and supply problems.
How to improve: Always consider the trade-off between:
inventory cost
and
protection from shortages.
Mistake: Describing JIT without applying it to the business
Why this is incorrect: Whether JIT is useful depends on the business's inventory, customers and suppliers.
This was a specific weakness identified in the 2025 examiner report.
How to improve: Use the case information. For example, ask:
Is the inventory likely to be wasted?
Is demand predictable?
Are suppliers reliable?
What happens if stock runs out?
Mistake: Assuming lean production only affects operations
Why this is incorrect: Inventory decisions can affect cash flow, marketing, customers and suppliers.
How to improve: Look for relevant interrelationships between operations and other functions while keeping your answer focused on the question.
Exam-Style Questions ✍️
Question 1
Which one of the following best describes Just in Time operations?
A. Holding large amounts of inventory to protect against shortages
B. Minimising inventory while ensuring sufficient stock is available to meet demand
C. Increasing capacity before demand increases
D. Replacing employees with capital equipment
[1 mark]
Answer: B.
Question 2
Explain what is meant by lean production.
[2 marks]
Indicative answer:
Lean production is an approach to operations that aims to reduce waste and make more efficient use of resources.
Mark guidance:
1 mark for recognising the reduction of waste.
1 mark for linking this to more efficient use of resources or operational performance.
Question 3
Explain one difference between Just in Time and Just in Case operations.
[4 marks]
Indicative answer:
JIT aims to minimise the inventory a business holds and obtain stock when it is needed. In contrast, JIC involves keeping additional inventory available in case demand is greater than expected or supply is disrupted. JIC therefore provides greater protection from shortages but normally involves higher inventory holdings.
Mark guidance:
Credit:
accurate understanding of JIT
accurate understanding of JIC
clear comparison between the two.
Question 4
FreshBox Ltd is a food retailer. It sells fresh food with a limited useful life and operates from stores with relatively little storage space.
Explain one reason why FreshBox Ltd may use a JIT inventory system.
[6 marks]
Indicative answer:
FreshBox sells fresh products, so holding excessive inventory could lead to goods becoming unusable before they are sold. JIT would allow FreshBox to keep inventory levels relatively low while obtaining goods as they are required. This may reduce wasted food and lower the costs associated with storing inventory, improving operational efficiency.
Mark guidance:
Higher-level responses should:
demonstrate accurate JIT knowledge
apply the explanation to FreshBox
develop the operational consequence.
Question 5
Precision Components Ltd currently holds an average of £800,000 of inventory. Managers plan to introduce JIT and forecast that average inventory will fall to £250,000.
Analyse one benefit to Precision Components Ltd of introducing JIT.
[9 marks]
Indicative content:
Inventory is forecast to fall by £550,000.
Less inventory means fewer resources are tied up in stock.
This may improve cash flow.
Lower inventory may reduce storage requirements.
Storage-related operating costs may therefore fall.
This may reduce total costs and potentially unit costs.
Greater efficiency could improve competitiveness.
A developed response should not simply state that £550,000 is "saved", because the figures show the value of inventory held rather than necessarily a direct cost saving of £550,000.
Question 6
FastTech Ltd uses JIT operations. It holds very little additional inventory and relies on one main supplier. During the last year the supplier has regularly delivered components later than agreed.
Analyse how supplier reliability may affect the success of FastTech Ltd's JIT system.
[9 marks]
Indicative content:
JIT means FastTech holds little additional inventory.
Late supplier deliveries could therefore leave it without the components required.
Production may be interrupted.
Customers may have to wait longer for products.
FastTech may lose sales or damage its competitive position.
The risk is greater because the business relies heavily on one supplier.
A more reliable supply arrangement or additional inventory could reduce this risk, although holding more stock would weaken some JIT cost benefits.
Mark guidance:
Higher-level responses should develop the relationship:
supplier reliability → inventory availability → operations → customer/business consequence.
Question 7
StyleHome Ltd sells furniture. Demand is difficult to predict. Its products can be stored for long periods without becoming unusable, and customers expect popular products to be available immediately.
Analyse whether JIT or JIC is likely to be more appropriate for StyleHome Ltd.
[9 marks]
Indicative content:
Case for JIC:
Demand is difficult to predict.
Additional inventory provides protection if demand is unexpectedly high.
Products can be stored for long periods, reducing one potential disadvantage of keeping stock.
Immediate product availability matters to customers.
Running out could therefore result in lost sales.
Case for JIT:
Lower inventory would reduce the amount of cash tied up in stock.
It may reduce storage requirements and costs.
Overall:
JIC may be more appropriate if the cost of losing sales through shortages is greater than the additional costs of holding inventory, particularly because the products can be stored without quickly becoming unusable.
Question 8
QuickMeal Ltd is a growing food retailer with 60 stores.
Managers are considering moving from a Just in Case inventory approach to Just in Time.
The following information is available:
Measure | Current JIC system | Forecast JIT system |
Average inventory value | £4.0m | £1.5m |
Annual storage costs | £600,000 | £280,000 |
Annual inventory wasted | £350,000 | £100,000 |
Supplier deliveries per week | 3 | 7 |
QuickMeal sells a large amount of fresh food. Its main suppliers have generally been reliable, although demand can increase unexpectedly during busy periods.
Assess whether QuickMeal Ltd should change from JIC to JIT.
[16 marks]
Indicative data use:
Average inventory is forecast to fall by:
$$
£4.0m-£1.5m=£2.5m
$$
Annual storage costs are forecast to fall by:
$$
£600,000-£280,000=£320,000
$$
Annual inventory waste is forecast to fall by:
$$
£350,000-£100,000=£250,000
$$
Arguments supporting JIT may include:
Average inventory falls substantially from £4.0m to £1.5m.
Less cash would therefore be tied up in inventory.
Annual storage costs are forecast to fall by £320,000.
Inventory waste is forecast to fall by £250,000.
This is particularly relevant because QuickMeal sells fresh food.
Lower waste and storage costs may improve efficiency and potentially reduce unit costs.
Suppliers have generally been reliable, which supports the successful operation of JIT.
Arguments supporting retaining JIC may include:
Demand sometimes increases unexpectedly.
JIT would leave QuickMeal with less additional inventory to respond to sudden demand.
Running out of popular products could result in lost sales and disappointed customers.
Deliveries increase from three to seven each week, showing greater dependence on frequent supply.
Supplier disruption could affect stores more rapidly under JIT because less additional stock is available.
QuickMeal must therefore consider whether its suppliers are reliable enough to support the new system consistently.
Evaluation:
The numerical information provides a strong case for JIT. QuickMeal could reduce average inventory by £2.5 million, annual storage costs by £320,000 and annual inventory waste by £250,000. The reduction in waste is particularly significant for a retailer selling fresh food.
However, these benefits depend on reliable and frequent deliveries. The increase from three to seven deliveries per week means QuickMeal would become more dependent on suppliers. Unexpected increases in demand could also create shortages.
A justified conclusion could therefore be that JIT is likely to improve QuickMeal's efficiency if its suppliers can deliver reliably and managers can respond sufficiently quickly to changing demand. If supply or demand is highly unpredictable, retaining more inventory for particularly important products may provide valuable protection.
Question 9
"Introducing lean production will always lower a business's unit costs."
To what extent do you agree?
[25 marks]
Indicative content:
Arguments supporting the statement:
Lean production may lower unit costs because:
less unnecessary inventory needs to be held
storage requirements may fall
less inventory may be lost through waste, damage or loss of value
resources may be used more efficiently
faster operational processes may save time
lower total costs spread across output may reduce unit costs.
Arguments challenging the statement:
Unit costs may not fall because:
JIT may involve smaller and more frequent purchases
the business may lose cost advantages available from larger purchases
changing operating systems may initially create additional costs
unreliable suppliers can interrupt operations
shortages may prevent efficient production or sales
a business may prioritise quality or added value rather than simply minimising cost.
Evaluation:
Lean production has the potential to reduce unit costs because its focus on reducing waste can improve operational efficiency. However, "always" is too absolute.
The effect depends on:
the costs being eliminated
the reliability of suppliers
the nature of inventory
demand predictability
the costs of implementing the system
the business's wider operational objectives.
A strong conclusion should therefore judge that lean production is more likely to reduce unit costs when unnecessary inventory and waste are significant and the supply chain is reliable. Where implementation is costly or JIT causes expensive disruptions, unit costs may instead rise, particularly in the short term.
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