Business · 4 Operations management

4.1.1 Production processes

Before you start

Production means turning inputs — materials, labour, machinery — into goods or services that customers buy.
A business's costs include wages, rent, materials and machinery; profit is what is left of revenue after costs.
Cash flow is the money coming into and going out of a business; money spent on something now cannot be used for anything else.
Inventory is the stock of materials and products a business keeps. The word 'stock' means the same thing.
You may use a calculator in the exam, but there is no formula sheet — every business formula has to come from memory.

Syllabus objectives covered (7)

calculate labour productivity
why efficiency is important for a business
how to increase efficiency, e.g. increasing automation and technology, improving labour skills
concept of lean production and how to achieve it: just-in-time (JIT) inventory control and Kaizen
advantages and disadvantages of lean production methods
why businesses hold inventory
factors affecting how much inventory businesses hold

Part 1 of 8

Labour productivity: how much each worker produces

Labour productivity measures how much output a business gets from each employee over a period of time — a week, a month, a year. It is the most common way of putting a number on how efficiently a workforce is being used.
Learn the formula in exactly this form, because nothing in the exam will give it to you: Output per period (units) ÷ Number of employees = units per employee.
$Labour productivity = \frac{Output per period (units)}{Number of employees}$
Here is one done in full. A bakery makes 36 000 loaves in a month and has 45 employees. Write the formula line first: labour productivity = output per period ÷ number of employees. Then the numbers: 36 000 ÷ 45. Then the answer with its unit: 800 loaves per employee per month.
Why write the formula line before the numbers? In a 2-mark Calculate, a correct answer earns both marks. But if you press a wrong key, a correct method with a wrong answer still earns 1 mark — and the examiner can only give you that mark if the method is on the page. The formula line is your insurance.
Trap one: use the output the business actually produced. Questions often give two output figures — what was produced, and the most the factory could produce (its maximum capacity). If that bakery could make 40 000 loaves but made 36 000, dividing 40 000 by 45 answers a different question and scores nothing for the answer.
Trap two: the answer is units, not money. Output is counted in loaves, chairs, calls or customers served. Writing '$800' turns a quantity into a sum of money, and it will not earn full marks. Write the product's name or 'units' after the number.
Trap three: more output does not mean higher productivity. If the bakery hires 5 more workers and makes 40 000 loaves, productivity is 40 000 ÷ 50 = 800 loaves per employee — exactly the same. Output rose only because there were more people. Productivity rises when each worker produces more, or the same output needs fewer workers.
Service businesses have productivity too. A call centre measures calls handled per employee; a restaurant, meals served per employee. The formula is identical — only the unit changes.

Part 2 of 8

Why efficiency matters

Efficiency means producing output using as few resources as possible — as little labour, material, energy and time as possible for each unit made. Labour productivity measures one part of it: how well labour is used.
The reason businesses care comes down to one idea: an efficient business has a lower cost per unit. Nearly every reason you will give in an answer follows from that.
See it with numbers. Suppose each worker at a furniture factory costs $1 800 a month. With 60 workers making 4 800 chairs, the wage cost per chair is 108 000 ÷ 4 800 = $22.50. If 56 workers make the same 4 800 chairs, the wage cost per chair is 100 800 ÷ 4 800 = $21.00. Same chairs, lower cost for every one.
Lower cost per unit lets a business lower its price and stay competitive against rivals, which can win sales and market share.
Or it can keep the price the same and make more profit on every unit sold — a higher profit margin. That profit can be reinvested, or paid to owners.
Less waste of materials and time means resources are not paid for and then thrown away, which is also a cost saving.
An efficient business can produce more with what it already has, so it can meet a rise in demand without first buying more machines or hiring more people.
The trap: writing 'efficiency is important because it saves money' and stopping. That is one knowledge point. The marks for analysis come from the next link in the chain — saves costs, so the business can charge a lower price than its rivals, which could increase its sales.

Part 3 of 8

How a business increases efficiency

The syllabus names two examples, so know both thoroughly and be able to give their drawbacks: increasing automation and technology, and improving labour skills.
Increasing automation and technology. Machines can work faster than people, repeat the same task without mistakes, and keep going for long hours without breaks. So more output is produced per employee, and fewer faulty products are wasted.
The drawback: machinery is expensive to buy, needs maintenance, and employees must be trained to use it. The cost comes first; the saving comes later.
Improving labour skills through training. A well-trained employee works faster, makes fewer mistakes and needs less supervision, so output per employee rises and less material is wasted.
The drawback: training costs money and takes employees away from production while they learn, and a newly skilled employee may leave for a better-paid job elsewhere.
The objective says 'e.g.', so other valid ways are credited too. Two you can use: improving motivation, because motivated employees tend to work harder and be absent less; and introducing lean production, which is the whole of the next section.
When a question gives you a business, pick the method its problem calls for. Old machines that break down point to new technology. Mistakes by new employees point to training. Matching the method to the evidence is what turns a list into an answer.

Part 4 of 8

Lean production: cutting waste with JIT and Kaizen

Lean production means using techniques that reduce waste in production, so that the business uses fewer resources and becomes more efficient.
'Waste' here is wider than rubbish in a bin. It includes materials thrown away, faulty products that have to be remade, time spent waiting or moving things around, and inventory sitting on shelves costing money while it does nothing.
The syllabus names two ways of achieving lean production. The first is just-in-time (JIT) inventory control.
JIT means materials and components arrive from suppliers only just before they are needed in production, and products are made to meet orders rather than to sit in a warehouse. So the business holds very little inventory — ideally close to none.
For JIT to work, the business needs suppliers that deliver reliably and on time, often and in small quantities, and good communication with them so they know exactly what is needed and when.
The second is Kaizen, a Japanese word meaning continuous improvement. Instead of one large change imposed by managers, employees look for small improvements in how their own work is done, all the time.
Kaizen usually works through small teams of employees who meet regularly to suggest improvements — moving a tool closer to cut walking time, changing the order of two tasks, removing a check that catches nothing. Each change is small; together, and repeated, they remove a great deal of waste.
Keep the two separate in your head. JIT is about inventory: hold less of it. Kaizen is about people improving methods: many small changes. Both are lean production because both cut waste.

Part 5 of 8

Lean production: the advantages and the costs

JIT advantage — less money tied up in inventory. Materials are paid for close to when they are used, so cash is not sitting on shelves. That improves cash flow and leaves money for other things.
JIT advantage — lower storage costs. Less inventory means less warehouse space, less insurance, fewer staff counting and moving stock.
JIT advantage — less waste. Inventory that sits for a long time can go out of date, be damaged, be stolen or become obsolete when a new model arrives. Holding little of it avoids those losses.
JIT disadvantage — no safety margin. If a supplier delivers late, there is nothing in reserve, so production stops. Workers are paid but produce nothing, and customers' orders may be missed.
JIT disadvantage — hard to meet a sudden rise in demand. With no finished products or spare materials, an unexpected large order may have to be turned away.
JIT disadvantage — ordering small quantities often. The business may lose the discounts suppliers give for buying in bulk, and pays for more frequent deliveries.
Kaizen advantages. Ideas come from the employees who actually do the work and know where time is lost. Being asked for ideas can make employees feel valued, which can improve motivation. Most improvements are small and cheap to make.
Kaizen disadvantages. Meetings take employees away from production. Employees need training to work in teams and spot improvements. Some may resist change or see no reason to help if they are not rewarded. And small steps may not be enough when a business needs a big change quickly.
Notice that most disadvantages of JIT are really advantages of holding inventory, which is the next section. That is not a coincidence: holding inventory and cutting it are two sides of one decision.

Part 6 of 8

Why businesses hold inventory at all

Inventory comes in three kinds. Raw materials and components waiting to be used. Work-in-progress: products partly made. Finished goods waiting to be sold. A shop holds mainly finished goods; a factory can hold all three.
To keep production going if a delivery is late. A reserve of materials — sometimes called buffer inventory — means a delayed lorry does not stop the factory.
To meet an unexpected rise in demand. If a large order arrives, finished goods can be sent straight away instead of making the customer wait and possibly go to a rival.
To meet seasonal demand. A business whose sales peak at one time of year can build up finished goods beforehand, so it is not trying to make everything at once.
To get bulk-buying discounts. Suppliers often charge less per unit for large orders, so buying a lot at once can lower the cost of materials.
To have products available for customers. A shop cannot sell what is not on its shelves; customers who find an empty shelf may not come back.
Holding inventory has costs as well: storage space, insurance, money tied up that could be used elsewhere, and the risk of goods going out of date. So the real question a business faces is not 'inventory or none' but 'how much' — the next section.

Part 7 of 8

How much inventory? The factors

A business balances the cost of holding too much against the cost of running out. Each factor below pushes the amount one way or the other.
The nature of the product. Perishable goods — fresh food, flowers — go off quickly, so they are held in small amounts. Long-lasting goods, like screws or tinned food, can safely be held in larger amounts.
How long suppliers take, and how reliable they are. A supplier in another country who takes six weeks means the business must hold more, to cover the wait. A reliable supplier nearby who delivers daily means it can hold very little.
How predictable demand is. Steady demand can be planned for with little inventory. Demand that jumps unexpectedly, or peaks in one season, needs more held in reserve.
Storage space and its cost. If the warehouse is full or the rent is high, holding more becomes expensive.
Finance available. Inventory is paid for before it is sold. A business short of cash, or paying interest on an overdraft, cannot afford to tie up much money in it.
The cost of running out. If a stoppage leaves many workers idle, or customers switch permanently to a rival, running out is expensive — so the business holds more.
Risk of becoming out of date. Products that are replaced by new models, or go out of fashion, are risky to hold in large quantities.
Whether the business uses JIT. A JIT business deliberately holds as little as it can.

Part 8 of 8

How a Business answer earns its marks

Business marks are for skills, not just facts. The mark scheme tags each point: k for knowledge, app for application to the business in the question, an for analysis, and eval for evaluation in the long final part.
k is naming a correct point: 'JIT reduces storage costs'. On its own that earns 1 mark, however well you phrase it.
app is linking the point to a fact about this business from the question — its product, one of its numbers, its situation: 'JIT reduces storage costs, such as the $3 000 a month it pays for its cold store'. The link must make sense for the point; a number dropped in at random earns nothing.
Be careful with the business's name. Writing it is not the same as using the case — use its product or its figures instead. The specimen mark scheme lists things like the product, the number of employees and the type of business as application, never the business's name alone.
an is the consequence — the 'so' or 'which means': '…so its costs fall, which could increase its profit margin'. Ask 'so what?' after every point and write the answer down.
Put together: JIT reduces storage costs [k] such as the $3 000 a month for its cold store [app], so its costs fall, which could increase its profit margin [an]. One sentence, three marks — which is exactly how each point in a 6-mark Explain is marked.
An Outline wants k + app for each point, no more. An Explain wants k + app + an for each. Writing four k points to a question that asks for two with development scores far less than two developed points: extra points do not replace missing app and an.
In an 8-mark part ending 'Justify your answer', the last 2 marks are eval: a clear decision, with a reason that weighs the points rather than repeating them. 'It should use JIT' is not a justification. 'It should use JIT, because the waste costs it every month while the late deliveries happen only a few times a year' is.

Worked examples

Example 1. Rosewood Furniture makes wooden chairs. In March its factory produced 4 800 chairs. It has 60 employees. The factory can produce a maximum of 6 000 chairs a month. Calculate Rosewood Furniture's labour productivity in March.

Show the working

Write the formula line before anything else, in words. This is what earns the method mark if a number goes wrong later.
$Labour productivity = \frac{Output per period}{Number of employees}$
Pick the right output. The question gives two: 4 800 chairs actually produced, and 6 000 the factory could produce. Productivity uses actual output, so 4 800. The 6 000 is there to catch you.
Substitute and divide.
$\frac{4800}{60} = 80$
Add the unit and the period: chairs per employee per month. Not dollars — a chair count divided by a head count is still a count.
Check by multiplying back: 80 chairs × 60 employees = 4 800 chairs, which matches the output. Using 6 000 would have given 100, a figure that describes a month that never happened.

Answer: Labour productivity = output ÷ number of employees = 4 800 ÷ 60 = 80 chairs per employee per month.

Example 2. Rosewood Furniture's figures continue. April: 5 040 chairs produced by 63 employees. In early May the managers trained every employee in a faster way of assembling chairs and did not replace 7 employees who left. May: 5 040 chairs produced by 56 employees. Calculate labour productivity for April and for May, and explain what the figures show about Rosewood's efficiency.

Show the working

April, formula line first: output ÷ number of employees = 5 040 ÷ 63 = 80 chairs per employee per month.
May: output ÷ number of employees = 5 040 ÷ 56 = 90 chairs per employee per month.
Now compare with March's 80 from the first example. In April output rose from 4 800 to 5 040 chairs, but productivity stayed at 80. The extra chairs came from 3 extra employees, not from each employee producing more. More output is not the same as higher productivity.
In May output did not change, but productivity rose from 80 to 90, because the same number of chairs was made by 7 fewer employees. This is a real improvement in efficiency.
Link it to the cause. The rise followed training in a faster assembly method, which is improving labour skills — one of the named ways of increasing efficiency.
Finish with why it matters. With fewer employees making the same chairs, the wage cost of each chair falls, so Rosewood could lower its prices to compete or keep prices the same and earn more profit on each chair.

Answer: April: 5 040 ÷ 63 = 80 chairs per employee per month. May: 5 040 ÷ 56 = 90 chairs per employee per month. Productivity did not change from March to April — output rose only because there were more employees. It rose to 90 in May, when training in a faster method let 56 employees make what 63 had made. Wage cost per chair falls, so Rosewood is more efficient and can cut prices or earn a higher profit margin.

Example 3. Monsoon Umbrellas makes umbrellas in a factory with 35 employees. Its waterproof fabric is imported and can take up to 8 weeks to arrive. Most of its sales are made between June and September. Outline two reasons why Monsoon Umbrellas holds inventory. (4 marks)

Show the working

Read the command word. Outline wants the main point plus a link to this business: k + app for each reason, 2 marks each. Analysis is not needed here, so do not spend time on it.
Look for the facts the examiner put in for you to use. There are two that matter: fabric can take 8 weeks to arrive, and sales peak from June to September. Each one fits a reason for holding inventory.
Reason one. Knowledge: to keep production going if deliveries are late. Application: its imported fabric can take up to 8 weeks to arrive.
Reason two. Knowledge: to meet high demand when it comes. Application: most umbrellas are sold between June and September, so finished umbrellas can be built up before June.
Check each reason against a test: could this sentence have been written without reading the question? 'To meet demand' — yes, so it is k only. 'To have umbrellas ready for the June to September peak' — no, so it earns app as well.

Answer: Monsoon Umbrellas holds a reserve of materials so production does not stop if a delivery is late [k], because its imported fabric can take up to 8 weeks to arrive [app]. It also holds finished goods to meet high demand [k] in June to September, when most of its umbrellas are sold [app].

Example 4. Juno's Kitchen makes fresh salads and sandwiches that it delivers to 30 cafés every morning. It holds a week's supply of ingredients in a cold store that costs $3 000 a month to run. Salad vegetables last about four days. Last year $9 000 of ingredients passed their use-by date and were thrown away. Its main supplier is 150 km away, and the only road floods several times each rainy season. Do you think Juno's Kitchen should introduce just-in-time (JIT) inventory control? Justify your answer. (8 marks)

Show the working

Know what 8 marks are made of: up to 2 for knowledge, 2 for application, 2 for analysis and 2 for evaluation. So you need at least two developed points and then a decision that weighs them.
Gather the application before you write. The stem gives you: fresh food that lasts four days; a $3 000-a-month cold store; $9 000 of waste last year; 30 cafés expecting a delivery every morning; a supplier 150 km away on a road that floods. Each point you make should use one of these.
Advantage, built in three steps. JIT means holding less inventory, so less food goes out of date [k]. Last year $9 000 of ingredients were thrown away [app]. So its costs fall, which could increase its profit margin [an].
Disadvantage, built the same way. With JIT there is no reserve of ingredients if a delivery is late [k]. The only road from its supplier floods several times each rainy season [app]. So it may fail to deliver to its cafés, which may buy from a competitor instead, reducing its sales [an].
Now the decision. Do not sit on the fence and do not repeat the points above. Weigh them: which matters more for this business, and why? Here the waste happens every month, while floods happen a few times a year and can be planned for.
Make the justification add something new — a reason the cost is bigger than the risk, or a condition that limits the risk. Keeping a small reserve only during the rainy season does both.

Answer: Advantage: JIT means less inventory is held, so less food passes its use-by date [k]; Juno's Kitchen threw away $9 000 of ingredients last year [app], so its costs would fall and its profit margin could rise [an]. Disadvantage: JIT leaves no reserve if a delivery is late [k]; the only road from its supplier floods several times each rainy season [app], so it might not be able to supply the cafés, which could switch to a rival and reduce its sales [an]. Justification: I think it should introduce JIT, because its ingredients only last about four days, so holding a week's supply means waste is built into how it works [eval]. The flood risk is seasonal and predictable, so it could keep a small reserve only in the rainy season, keeping most of the saving while protecting its deliveries to the 30 cafés [eval].

Where people go wrong

Mistake: Dividing the maximum output a factory could produce by the number of employees.

Instead: Use the output actually produced in the period.

Labour productivity measures what each employee did produce. Capacity figures are often put in a question alongside real output precisely to see whether you pick the right one.

Mistake: Writing a labour productivity answer as money, such as '$80'.

Instead: Write units per employee: '80 chairs per employee per month'.

Output is a count of products, and a count divided by a count of people is still a count. A money answer shows you have not understood what was measured, and does not get full marks.

Mistake: Saying productivity went up because total output went up.

Instead: Productivity rises only if output per employee rises. Recalculate for each period before comparing.

Output can rise simply because more people were hired, leaving each person producing exactly the same as before.

Mistake: Describing JIT as 'having no inventory, so there are no problems with inventory'.

Instead: JIT means holding very little inventory, which saves storage and waste but removes the safety margin against late deliveries and sudden orders.

A question on lean production almost always wants both sides. An answer that sees only the savings has missed half the marks available.

Mistake: Answering a 6-mark Explain with a list of correct points and no reference to the business.

Instead: For each point, write the point, link it to a fact from the question, then give its consequence: k + app + an.

Only one mark per point is for knowledge. Four points with no application or development can score less than two points developed properly.

Check yourself

State the formula for labour productivity from memory, with its unit. Then calculate it for a call centre that handled 9 600 calls in a week with 40 employees.
Answer
Labour productivity = output per period (units) ÷ number of employees, in units per employee. 9 600 ÷ 40 = 240 calls per employee per week.
Explain one reason why efficiency is important for a business, developing it with a 'so' or 'which means'.
Answer
An efficient business has a lower cost per unit, so it can charge lower prices than its rivals, which could increase its sales. (Also valid: lower cost per unit, so it earns more profit on each unit at the same price; or less waste, so fewer materials are paid for and thrown away.)
State two ways a business can increase efficiency, and one drawback of each.
Answer
Increasing automation and technology — machines are expensive to buy and maintain, and employees need training to use them. Improving labour skills through training — training costs money and takes employees away from production, and trained employees may leave. (Improving motivation or introducing lean production are also valid ways.)
What is lean production, and what are JIT and Kaizen? One sentence each.
Answer
Lean production is using techniques that reduce waste so that a business uses fewer resources and is more efficient. JIT is inventory control in which materials arrive only just before they are needed, so very little inventory is held. Kaizen means continuous improvement: employees make many small, ongoing improvements to how work is done.
State one advantage and one disadvantage of JIT, and one disadvantage of Kaizen.
Answer
JIT advantage: less money tied up in inventory and lower storage costs (or less waste from goods going out of date). JIT disadvantage: if a supplier is late there is no reserve, so production stops (or a sudden large order cannot be met, or bulk-buying discounts are lost). Kaizen disadvantage: meetings take time away from production, employees need training and may resist change, and small changes may not be enough when a big change is needed.
Identify the three kinds of inventory a manufacturer can hold, and state two reasons for holding inventory.
Answer
Raw materials and components, work-in-progress, and finished goods. Reasons: to keep production going if a delivery is late; to meet an unexpected or seasonal rise in demand; to get bulk-buying discounts; to have products available for customers. Any two.
A florist and a hardware shop are the same size. Explain why the florist is likely to hold much less inventory.
Answer
Flowers are perishable and die within days, so any flowers held beyond what can be sold are wasted and their cost is lost. Nails, tools and paint last for years, so the hardware shop can hold large amounts without them going to waste. The nature of the product is the factor.
Identify three other factors, apart from the nature of the product, that affect how much inventory a business holds.
Answer
Any three from: how long suppliers take and how reliable they are; how predictable or seasonal demand is; storage space available and its cost; finance available and the cost of tying money up; the cost of running out; the risk of products becoming out of date; whether the business uses JIT.

Exam questions

Try each part first. Open the mark scheme after you have written your answer.

Question 1. Kiran Textiles makes cotton T-shirts in a factory and sells them to clothing retailers. It has 150 employees. Last week it produced 27 000 T-shirts; the factory can produce a maximum of 30 000 a week. Its sewing machines are 15 years old and often break down, and new employees receive only one day of training. Its cotton comes from a supplier in another country and takes 4 to 6 weeks to arrive. Orders double in the two months before the festival season. The warehouse is almost full, and the business is using a bank overdraft.

(a) Define 'lean production'. 2 marks

Mark scheme

pt2 Award 2 marks for clear understanding, e.g. techniques / methods used to reduce waste in production so that fewer resources are used / efficiency increases (2). Award 1 mark for some understanding, e.g. cutting waste / making production more efficient (1). Do not award examples such as JIT or Kaizen on their own, as they do not define the term.

(b) Calculate the labour productivity at Kiran Textiles last week. Show your working. 2 marks

Mark scheme

pt1 Method: output ÷ number of employees / 27 000 ÷ 150. Do not award 30 000 ÷ 150 (maximum capacity is not actual output).
pt1 Correct answer: 180 T-shirts (units) per employee (per week). A correct answer with no working earns both marks. An answer given as a money value, e.g. $180, earns 1 mark only.

(c) Outline two ways Kiran Textiles could increase its efficiency. 4 marks

Mark scheme

k1 First way identified, e.g. buy new / more automated machinery / invest in technology; improve labour skills / more training; improve motivation; introduce lean production.
app1 Relevant application of the first way, e.g. to replace its 15-year-old sewing machines that often break down; for its T-shirt production; for the 150 employees. The reference must make sense in relation to the point.
k1 Second, different way identified (as above). Do not credit the same way twice.
app1 Relevant application of the second way, e.g. new employees receive only one day of training; for the 150 employees making T-shirts. Accept all valid responses.

(d) Explain two factors Kiran Textiles should consider when deciding how much inventory of cotton to hold. 6 marks

Mark scheme

k1 First factor identified, e.g. time taken for / reliability of supplier deliveries (lead time); predictability / seasonality of demand; storage space / cost of storage; finance available / cost of money tied up in inventory; cost of running out; use of JIT.
app1 Relevant application, e.g. cotton takes 4 to 6 weeks to arrive; orders double before the festival season; the warehouse is almost full; it is using a bank overdraft; T-shirts / clothing retailers.
an1 Relevant development, e.g. if it runs out it cannot restock quickly, so production stops and retailers' orders are missed / may need more space, increasing costs / money tied up in inventory worsens cash flow or increases overdraft interest.
k1 Second, different factor identified (as above).
app1 Relevant application of the second factor to Kiran Textiles (as above).
an1 Relevant development of the second factor, e.g. it must build up cotton before orders double so sales are not lost / renting extra warehouse space would reduce its profit. Accept all valid responses.

Question 2. Harbour Motors assembles electric scooters and has 90 employees. It keeps 6 weeks of components, such as frames and batteries, in a warehouse that it rents for $5 000 a month. When a new battery model is launched, old batteries in the warehouse are hard to use. Its frames come from a supplier 10 km away that delivers every day. Its batteries come from one supplier overseas and take 5 weeks to arrive. Managers make all decisions about how work is done, although many employees say they have ideas for improvements. The directors are considering introducing lean production using just-in-time (JIT) inventory control and Kaizen.

(a) Identify two reasons why a business holds inventory. 2 marks

Mark scheme

pt1 First valid reason, e.g. to keep production going if deliveries are late / buffer against supply delays; to meet an unexpected rise in demand; to meet seasonal demand; to benefit from bulk-buying discounts; to have products available for customers.
pt1 Second, different valid reason (as above). Only award the first two answers given. Accept all valid responses.

(b) Consider the advantages and disadvantages of introducing JIT and Kaizen at Harbour Motors. Do you think Harbour Motors should introduce lean production? Justify your answer. 8 marks

Mark scheme

k2 Identification of relevant points, up to 2 marks. Advantages, e.g. JIT: less money tied up in inventory / lower storage costs / less waste or obsolete inventory; Kaizen: ideas from employees who do the work / improved motivation / low-cost improvements. Disadvantages, e.g. JIT: risk of production stopping if supplies are late / cannot meet sudden rises in demand / loss of bulk-buying discounts; Kaizen: time taken from production / training needed / employees may resist change / small changes may not be enough.
app2 Relevant application of points, up to 2 marks, e.g. $5 000 a month warehouse rent; 6 weeks of components; old batteries hard to use when a new model is launched; frame supplier 10 km away delivering daily; batteries take 5 weeks from one overseas supplier; employees say they have ideas; 90 employees; electric scooters. The reference must make sense in relation to the point.
an2 Relevant development of points, up to 2 marks, e.g. lower costs so profit margin could increase / cash freed for other uses; if batteries arrive late, scooter assembly stops and orders are missed, reducing revenue; employees feel valued so motivation and productivity may rise; managers must spend time listening to ideas.
eval2 A justified decision about whether Harbour Motors should introduce lean production, up to 2 marks. The justification should not repeat earlier points. E.g. introduce Kaizen now, as employees already have ideas and it costs little, but use JIT only for frames from the daily local supplier and keep a reserve of batteries, because a 5-week overseas delivery cannot be made just in time. Justification will depend on the points discussed. Accept all valid responses.

How this is examined

Weighing lean production for a given business — should it adopt JIT or Kaizen?: The final, longest part of a data-response question, ending 'Justify your answer', built on a business whose inventory, suppliers and employees are described in the stem. Two developed points using the stem — for example 'less inventory goes out of date [k], it threw away $9 000 last year [app], so costs fall and profit margin rises [an]' — and the opposite side, such as 'no reserve if deliveries are late [k], its supplier's road floods [app], so orders to its customers are missed [an]'. Then a decision whose reason weighs the two sides for this business, without repeating them.
Why this business holds inventory, and what decides how much.: A 4-mark Outline (point + link to the business, twice) or a 6-mark Explain (point + link + consequence, twice), with lead times, seasonal sales, storage costs or perishable products placed in the stem for you to use. Match a factor to a fact: 'its supplier takes 6 weeks [app], so it must hold more cotton [k], otherwise production stops and orders are missed [an]'. A generic 'to meet demand' with no link to the business earns the knowledge mark only.
Why efficiency matters, and how to get more of it.: An Outline or Explain of two ways a named business could increase efficiency, or two reasons efficiency is important to it. Chains that end in a consequence: 'new machines [k] to replace its sewing machines that keep breaking down [app], so fewer hours of production are lost and output per employee rises [an]'; 'lower cost per unit, so it can charge less than its rivals and increase sales'.
Calculating labour productivity from the figures given.: A short Calculate, typically 2 marks, near the start of a data-response question, with output and employee numbers in the stem — sometimes alongside a maximum-capacity figure. Formula line first — output per period ÷ number of employees — then the division, then the answer in units per employee. A correct answer alone earns both marks; a correct method with a wrong answer earns 1. Using maximum capacity instead of actual output, or writing the answer as dollars, loses marks.
Saying precisely what lean production, JIT and Kaizen mean.: A 2-mark Define, marked 2 for clear understanding and 1 for some understanding. Lean production: 'techniques that reduce waste in production so fewer resources are used / efficiency increases'. JIT: 'materials arrive just as they are needed, so little or no inventory is held'. Kaizen: 'continuous improvement through small changes suggested by employees'. An example on its own does not define a term and scores nothing.

Words to know

Labour productivity: Output per period (units) ÷ number of employees, measured in units per employee.
Efficiency: Producing output using as few resources as possible, so that the cost of each unit is low.
Automation: Using machines or computers to carry out tasks with little or no human involvement.
Lean production: Techniques that reduce waste in production so that fewer resources are used and efficiency increases.
Just-in-time (JIT): Inventory control in which materials arrive only just before they are needed, so very little inventory is held.
Kaizen: Continuous improvement: employees making many small, ongoing improvements to how work is done.
Inventory: The stock a business holds: raw materials and components, work-in-progress, and finished goods.
Buffer inventory: A reserve of inventory held so that production or sales can continue if a delivery is late or demand rises unexpectedly.
Maximum capacity: The most a business could produce in a period with its current resources — not the same as what it actually produced.

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