CAIE A-Level Business 4.2 Inventory Management Question Bank

Practise analysing inventory levels, JIT and supply chains through cost, continuity and responsiveness, then evaluating the approach that best fits the organisation's operations.

Exam points

interpret inventory levels or a control chart using buffer stock, reorder level and lead time
analyse holding more inventory or adopting JIT through storage cost, shortages and continuity
evaluate supply-chain importance using supplier reliability, product needs and other operational factors

Covered syllabus points

4.2.1—Managing inventory 4.2.2—Just in Time (JIT)

[Maximum number: 12]

Direct News (DN)

Shila and Lucy own and manage DN, an online publishing business. DN produces a daily online local newspaper called QNews. Readers pay a subscription to access QNews. DN's mission statement is: 'to be a daily community newspaper for local people, about local people'.

DN recently tested a monthly online magazine aimed at the 18-30 age group called QLine. DN's plan is to stop publishing QNews and produce only QLine. Secondary market research suggests QLine will be popular with national businesses wanting to promote their products.

Shila is aware that revenue from online newspapers is decreasing. However, she has found national market research data about online monthly magazines (see Table 2.1).

Table 2.1 National revenue for online monthly magazines

Shila thinks that before the business decides to produce QLine, more market research data will be needed. Shila and Lucy will have to decide on new objectives for DN.

To ensure a quality product that meets customer expectations, Lucy thinks it is important to have careful management of the supply chain, from content creation to customer delivery.

Evaluate the importance to DN of effective supply chain management.

Evaluate the importance to DN of effective supply chain management.

&

2(d)

Indicative content

Knowledge of supply chain (max $2 \square^{\mathrm{k}} \mathrm{s}$ ), may include:

AO1 Knowledge and understanding:

- Supply Chain Management understanding

- The process of creating content

- Managing content

- Delivering content to the consumer

- Customer expectations

- Employee skills

- Suitable content

- Quality issues

- Cost control

No further marks can be gained without knowledge and understanding.

AO2 Application

Limited application ${ }^{\text {spe } \text { applies knowledge of effective supply chain management to DN once. }}$

Developed application $\Sigma^{\mathrm{Fe}}+\Sigma^{\mathrm{Fe}}$ applies knowledge of effective supply chain management DN twice.

- content accessible on any device at any time / the magazine content should be available on all devices,

- Through all internet service providers and easily available to subscribers.

- Content suitable for target market (18-30)

- Not easily available to non-subscribers

- Need to keep costs low

- Allow DN to compete in the new market

- Difference between local and national market

2(d)

AO3 Analysis

Limited analysis → - candidate shows one link in the chain of analysis.

Developed analysis → candidate shows two or more links in the chain of analysis.

- Do current employees have the right skills - to provide appropriate content?

- Can the business survive inefficient management of the supply chain - as costs need to be carefully controlled throughout the chain?

- Large variation of formats required - will involve many suppliers of different platforms / devices.

- Multiple service providers add additional complexity - which can be challenging to manage.

- Need to provide a quality product - which requires careful monitoring throughout the supply chain.

- Content should be easy to find - how to ensure that this applies to all platforms / devices.

- Employees important part of the supply chain - they have concerns / careful workforce planning required.

AO4 Evaluation

Limited evaluation ${ }^{\text {IVAL }}$ - unsupported judgement and/or a weak attempt at evaluative comment

Developed evaluation ${ }^{\mathrm{E}}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\overline{\mathrm{EE}}}$ - supported judgement in context and/or reasonable evaluative comment in context.

- A justified recommendation

- Assessment of the decision

- Identification of factors critical in the supply chain

- How to ensure quality - what to compare to / what is quality content

- Is there enough information to implement

- Will revenue outweigh costs

- Require complex negotiations with multiple platforms - do they have the expertise?

- Discussion of further information required.

- Other factors more important e.g., marketing

Accept all valid responses.

2(d)

Exemplars for awarding evaluation

L1 ${ }^{\text {ENAL }}$ (limited
supporting evidence)

L2 ± (developed supporting
evidence)

L3 ${ }^{\text {LE }}$ (developed supporting evidence with
context)

Effective supply chain
management is
important to DN

Effective supply chain management
is important to DN as it needs to
deliver content that meets customer
expectations.

Effective supply chain management is important to DN
as it needs to deliver content that meets customer
expectations. The main premise of their product is to
deliver factual, entertaining and informative news.

Supply chain
management is not as
important as marketing.

Supply chain management is not as
important as marketing because
without awareness and advertising
there will be a lack of demand.

Supply chain management is not as important as
marketing because without awareness and advertising
there will be a lack of demand. Since Qline will be a
new online monthly magazine DN will need social
media accounts to promote this product.

[Maximum number: 8]

Cobblestone Shoes (CS)

Yazeem is a highly skilled shoemaker. He opened CS in 1975, as a sole trader, to design and repair shoes. When Yazeem set up CS the main target market was professional people who wanted shoes to wear to work or to dress smartly. He produced the shoes using batch production and sold them in his own shop. Each design of shoe was made in a range of sizes and colours.

Abir has suggested that CS should adopt a just in time (JIT) approach to inventory management. By using JIT, she argues, CS would be able to increase its working capital and avoid having money tied up in inventory that might not be used or sold. CS currently has a large number of shoes on display in the shop. There is also a large amount of their
Recently there has a been an increase in low-priced shoes produced for the mass market, which has reduced Yazeem's sales of new shoes. It has also reduced the demand for shoe repairs.

Yazeem's daughter, Abir, is keen to take over the running of CS. She has been fully trained in making shoes and feels that it is time for Yazeem to retire.

Abir thinks that the business should be targeting niche markets. She would like to design and produce unique shoes and use price skimming to increase the profitability of the business.

Abir is also concerned about the contribution made on each batch of shoes. Table 2.1 shows some break-even data for a recent batch of shoes.

Table 2.1 Break-even data about a recent batch of shoes

main raw material, which is leather and must be kept in a climate-controlled storage area.

Abir has already found a new local supplier which is happy to deliver inventory as required.

Analyse two disadvantages to CS of adopting a JIT approach to inventory management.

Analyse two disadvantages to CS of adopting a JIT approach to inventory management.

2(c)

Indicative content

AO1 Knowledge and understanding

Knowledge of just in time inventory management (max 1 mark if no knowledge of disadvantage(s)), including:

- Orders made from suppliers as needed.

- Products produced as required by customers.

- Limited or zero inventory required to be held.

Knowledge of disadvantages of just in time (max 2 marks - annotate first disadvantage on left and second disadvantage on right), including:

- Risk of running out of stock.

- Reliance on (new) suppliers - frequency of ordering/deliveries

- Requires planning/time.

- Limited scope for mass/batch production (little scope for economies of scale) - increased average cost

- Finished product inventory cannot be used for promotional purposes.

- Difficult to forecast/budget

- Cost of infrastructure/capital

- Might be difficult to respond to changing demand.

AO2 Application

Context applied to a disadvantage of using JIT □ (max 2 marks), including:

- Currently selling to mass market (professionals for work or smart dress).

- Currently using batch production.

- Abir has suggested a move towards niche, unique (job produced) shoes.

- New local supplier suggested by Abir.

- Shoes on display in the shop.

- Raw material of leather must be in climate controlled storage.

- No current relationship to suggested new supplier.

- Range of sizes and colours.

2(c)

AO3 Analysis
Analysis of disadvantage(s) of using JIT, including:
Limited analysis - candidate shows one link in the chain of analysis.
Developed analysis - candidate shows two or more links in the chain of analysis or a two-sided analysis.
- Risk of running out of stock;
- may dissatisfy customers and lead to bad publicity - lower sales/profit.
- May lead Yazeem to be idle increasing costs - lower profitability.
- Reliance on suppliers; if the new local supplier is chosen then there is no current relationship, so shoe production may
be delayed - decreased sales/profit.
- Requires planning/time - If Yazeem/Abir are planning the logistics they may be less productive in producing shoes -
lower sales/profit.
- Limited scope for mass/batch production (little scope for economies of scale); increased costs - lower profitability.
- Finished product inventory cannot be used for promotional purposes; customers may not come into a show shop
without any shoes to try on - lower sales/profit.
Accept all valid responses.
Exemplars and annotations

All question bank results loaded

Covered syllabus points

4.2 Inventory management question 1

4.2 Inventory management question 2