4.2. Inventory management
A subsection of Business Studies, 9609, through 4. Operations management (AS Level)
Listing 10 of 25 questions
Motorcycle Components (MC) MC is a large public limited company that produces a range of components used by motorcycle manufacturers. MC’s mission statement is ‘to be the world leader in delivering quality motorcycle components to our customers’. The motorcycle component industry is very competitive and MC’s customers expect high quality and a short lead time. MC operates a Just in Time (JIT) inventory control system. MC’s good relationships with its suppliers ensure that JIT operates efficiently. The production workers at MC are highly skilled and the business benefits from a low labour turnover. Liquidity management is very important in the motorcycle component industry. The industry average for the acid test ratio is 1. A summary of some key data for MC has been prepared by the Finance Director, as shown in Table 2.1. Table 2.1: Summary financial data as at 30 April 2022 ($ million) Trade receivables Cash Inventory Trade payables Other current liabilities The Operations Director, Jay, is proposing new capital expenditure of $4 million. Jay thinks that automation of the production process will have significant financial benefits for MC. He wishes to gain approval from the Board of Directors to implement a process innovation project. Jay believes that, with good communication and the involvement of employees, he can effectively manage the project. Define the term ‘lead time’ (line 5). Explain the term ‘mission statement’ (line 2). Refer to Table 2.1. Calculate MC’s acid test ratio. Explain one reason why the acid test ratio is useful to MC’s Finance Director. Analyse two benefits to MC of Just in Time (JIT) inventory control. Evaluate the possible impact on MC from introducing process innovation.
9609_s22_qp_21
THEORY
2022
Paper 2, Variant 1
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Great Desks (GD) GD is a co-operative owned by all of its employees. It manufactures desks for schools, offices and home use. The products are handmade using job production. GD uses just in time (JIT) inventory control. GD operates in a highly competitive market and uses personal selling to promote its products to wholesale and retail outlets. GD’s employees accept low salaries as most of their income comes from a share of profits at the end of the year. Following five years of rapid growth in sales and profits, GD plans to open its own retail shop. This is because the number of people who work from home is predicted to grow, which will lead to higher demand for desks for home use. GD will need $2m to open the shop. GD’s forecast cash flow from 2023 to 2025 is shown in Table 2.1. Table 2.1 GD’s forecast cash flow 2023 to 2025 ($m) Cash inflow Revenue 4.0 6.0 9.0 Total inflow 4.0 6.0 9.0 Cash outflow Utilities (power, water etc.) 1.5 1.5 2.0 Employee costs 0.5 0.5 0.5 Purchases 2.0 3.5 4.5 Marketing 3.0 5.5 5.0 Total outflows 7.0 11.0 12.0 Net cash flow (3.0) (5.0) Opening balance 9.0 6.0 Closing balance 6.0 1.0 GD’s employees are concerned about the management style of Steve, the Managing Director, who they say: • spends too much time trying to make people happy rather than solving problems • responds to opinions rather than setting long-term plans • fails to recognise threats to the business and does not see the need for new ideas • takes decisions on the votes of employees rather than the merits of the arguments. Identify one advantage to a business of using job production. Explain the term just in time (JIT). Refer to Table 2.1. Calculate GD’s forecast closing balance in 2025. Explain one disadvantage to GD’s employees of it being a co-operative. Analyse two sources of finance GD could use to open its new shop. Evaluate whether Steve’s management style will contribute to GD’s future success.
9609_s23_qp_23
THEORY
2023
Paper 2, Variant 3
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Samira’s Whiteboards (SW) Samira left school at the age of 18 in country H. She had a small amount of savings and an idea to create a flexible, removable and reusable whiteboard. Samira created a prototype and received small orders from local retailers. A local manufacturer batch produces stock when required. There is a two-week lead time for a minimum order of 500 units. Samira started to sell her whiteboards on her website and at trade shows. She has been trading for seven months. She has good cashflow but little working capital as production costs are high. Samira has heard that OS, a large business that sells office equipment, is planning to sell their own version of Samira’s whiteboard. She is keen to increase production quickly to take advantage of being first to market. However, Samira’s manufacturer cannot supply enough product to meet the growth in potential demand for whiteboards. shows an inventory control chart for the first seven months of trade. Jan Feb Mar Apr May Jun July Reorder level Minimum stock level SW Inventory control chart 2023 Lara, a venture capitalist with experience of manufacturing, has approached Samira about making an investment. She would invest $100 000 to build a local mass production facility for SW. The facility would have a maximum output of 50 000 units per month. Lara wants to own 40% of the business. Identify one traditional function of a manager. Explain the term working capital. Refer to . Calculate the total number of whiteboards sold between January and July. Explain one cost for SW of holding inventory. Analyse two barriers to entrepreneurship that Samira may have faced when starting up SW. Evaluate whether Samira should accept Lara's offer to invest venture capital.
9609_s24_qp_21
THEORY
2024
Paper 2, Variant 1
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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. 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 Break-even level of output 400 units Margin of safety 100 units Total variable costs $18 750 Total costs $23 750 Total revenue $25 000 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 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. Identify one type of training. Explain the term mass market. Refer to Table 2.1. Calculate the contribution per unit for the recent batch of shoes. Explain one limitation for CS of using break-even analysis. Analyse two disadvantages to CS of adopting a JIT approach to inventory management. Evaluate the importance to CS of being a small business.
9609_s24_qp_22
THEORY
2024
Paper 2, Variant 2
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Rugged Back Packs (RBP) RBP is a manufacturing business that specialises in producing travel bags and backpacks. The products are sold by many different retailers. The brand of RBP has become well known for quality and reliability. Each retailer requires a fast response to orders for more inventory from RBP. RBP holds high levels of inventories to enable it to respond to orders from retailers within 48 hours (see Fig. 1). The inventory is kept in a secure warehouse next to the factory. Fig. 1: Inventory control chart inventory level (000s) time 40 RBP employs around 100 employees in the factory. Most of the employees are skilled operators of the machinery used to make the bags. The factory manager was dismissed last month because productivity levels had fallen and the factory was not achieving RBP’s production targets. This manager had many disagreements with the employees and most of the workforce is demotivated, with high levels of absenteeism and labour turnover. RBP’s factory is now managed by Maya. Maya is a very experienced manager and she was described by her previous employer as having a high level of emotional intelligence. Define the term ‘brand’ (line 2). Briefly explain the term ‘labour turnover’ (lines 11–12). Refer to Fig. 1. Identify the size of: • maximum inventory level • buffer inventory level • re-order quantity. Explain one possible use of an inventory control chart to RBP. Analyse two disadvantages to RBP of holding a high level of inventory. Evaluate the importance to RBP of Maya having a high level of emotional intelligence.
9609_w17_qp_21
THEORY
2017
Paper 2, Variant 1
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Questions Discovered
25