What is lean production?

Lean production aims to minimise waste at every stage of the production process. Key methods include just-in-time (JIT) delivery, kaizen (continuous improvement), cell production, and quality circles. The goal is to reduce costs, improve quality, and increase efficiency by eliminating activities that do not add value for the customer.

What are the risks of just-in-time (JIT) production?

JIT is vulnerable to supply chain disruptions — if a supplier delivers late, the entire production line can halt because there is no buffer stock. It requires reliable, flexible suppliers and a highly organised production schedule. Small businesses may lack the bargaining power to demand frequent small deliveries from suppliers.

Discuss the benefits and risks of adopting lean production methods such as just-in-time (JIT).

Lean production aims to minimise waste at every stage of the production process. Just-in-time (JIT) is a key lean method where materials are delivered only when needed in the production process, eliminating the need to hold large stocks. K A major benefit is the reduction in stockholding costs — the business saves on warehousing, insurance, and the risk of stock becoming obsolete or damaged. A This frees up working capital that can be invested elsewhere in the business, improving cash flow and profitability . Lean methods also encourage a culture of continuous improvement (kaizen) , where employees identify and eliminate inefficiencies. An However, JIT is highly vulnerable to supply chain disruptions . A If a supplier delivers late or a key component is unavailable, the entire production line can halt because there is no buffer stock to absorb the delay. This was demonstrated during the COVID-19 pandemic when global supply chain disruptions caused major production stoppages for manufacturers using JIT. An JIT also requires reliable, flexible suppliers who can deliver small quantities frequently, and a highly organised production schedule. These conditions are easier to achieve for large firms like Toyota (which pioneered JIT) than for small businesses with less bargaining power over suppliers. An

Explain what is meant by capacity utilisation and why low capacity utilisation is a problem.

Capacity utilisation measures how much of a firm's maximum possible output is actually being used, calculated as: (actual output ÷ maximum output) × 100 . K A factory that could produce 10,000 units but only produces 6,000 has capacity utilisation of 60%. A Low capacity utilisation is a problem because fixed costs are spread over fewer units , raising the average cost per unit . K A factory paying £100,000 in rent produces at £10 per unit at full capacity (10,000 units) but £16.67 per unit at 60% (6,000 units). A This makes the firm less competitive and reduces profit margins.

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Exam questions

Every question here carries a tariff that exists in IAL Business. Open the mark scheme before the model answer and you will see what the examiner is paid to look for.

Discuss8 marksAO1 · AO2 · AO3 · AO412 min
Discuss the benefits and risks of adopting lean production methods such as just-in-time (JIT).
Mark scheme
Discuss (8)
Appendix 6: Requires a logical chains of reasoning, in context, showing cause(s) and/or effect(s). A brief assessment is required showing an awareness of competing arguments/factors.
Level 1 — 1–2 marks
Isolated knowledge. Not set in the context of the business and no chain of reasoning.
Level 2 — 3–4 marks
Knowledge used in the context of the business. A cause is identified but the chain is not carried through to an effect.
Level 3 — 5–6 marks
A logical chain of reasoning in context showing cause and effect. No awareness of competing arguments or factors.
Level 4 — 7–8 marks
A logical chain of reasoning in context showing cause(s) and effect(s) AND a brief assessment showing awareness of competing arguments or factors — the clause that separates Discuss from Analyse.
Indicative content
Knowledge of lean production and JIT (minimising waste, holding zero/minimal stock). Application of benefits (reduced costs, less waste) and risks (supply disruption). Developed analysis of conditions needed for success and consequences of failure.
Model answer — 7–8 / 8
What the marks in the margin meanKKnowledge/DefinitionAApplicationAnAnalysis
Lean production aims to minimise waste at every stage of the production process. Just-in-time (JIT) is a key lean method where materials are delivered only when needed in the production process, eliminating the need to hold large stocks. K

A major benefit is the reduction in stockholding costs — the business saves on warehousing, insurance, and the risk of stock becoming obsolete or damaged. A This frees up working capital that can be invested elsewhere in the business, improving cash flow and profitability. Lean methods also encourage a culture of continuous improvement (kaizen), where employees identify and eliminate inefficiencies. An

However, JIT is highly vulnerable to supply chain disruptions. A If a supplier delivers late or a key component is unavailable, the entire production line can halt because there is no buffer stock to absorb the delay. This was demonstrated during the COVID-19 pandemic when global supply chain disruptions caused major production stoppages for manufacturers using JIT. An JIT also requires reliable, flexible suppliers who can deliver small quantities frequently, and a highly organised production schedule. These conditions are easier to achieve for large firms like Toyota (which pioneered JIT) than for small businesses with less bargaining power over suppliers. An
Examiner commentary
JIT is explained and applied, with COVID-19 supply chain disruption and Toyota giving real application. Level 4 is earned because the benefit is set against the condition it depends on: the stockholding saving is weighed against having no buffer stock when a supplier fails, and the method is judged easier for a firm with Toyota's bargaining power than for a small business with none. That conditional judgement is the assessment of competing factors.
Explain4 marksAO1 · AO26 min
Explain what is meant by capacity utilisation and why low capacity utilisation is a problem.
Mark scheme
1–2 marks
Definition: actual output as a percentage of maximum output
3–4 marks
Application: why low utilisation increases unit costs
Model answer — 4 / 4
What the marks in the margin meanKKnowledge/DefinitionAApplication
Capacity utilisation measures how much of a firm's maximum possible output is actually being used, calculated as: (actual output ÷ maximum output) × 100. K A factory that could produce 10,000 units but only produces 6,000 has capacity utilisation of 60%. A

Low capacity utilisation is a problem because fixed costs are spread over fewer units, raising the average cost per unit. K A factory paying £100,000 in rent produces at £10 per unit at full capacity (10,000 units) but £16.67 per unit at 60% (6,000 units). A This makes the firm less competitive and reduces profit margins.
Examiner commentary
Clear definition with formula and numerical example. The fixed cost per unit calculation makes the problem concrete — £10 vs £16.67 per unit is immediately convincing. Avoid just saying "costs increase" — show why using the fixed cost/output relationship.

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Resource Management — Exam Questions & Model Answers

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