Manage inventory and supply chains
Classify inventory, weigh holding benefits and costs, interpret buffer and reorder levels, and explain supply-chain management.
Section 4.2 · Inventory management
Cambridge International AS & A Level Business 9609, 2026–2028 syllabus and 2029 syllabus, section 4.2.1. Cambridge states that both current versions have no significant changes affecting teaching. This lesson maps only its named section; other sections and full paper practice remain separate. Written practice is self-checked
Before you begin
- No previous business course is assumed. Use the lesson's definitions before applying them to the business context.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What is work in progress?
What you will learn
- Distinguish raw materials, work in progress and finished goods
- Explain inventory costs, benefits, lead time and buffer stock
- Interpret a simple reorder point and inventory chart
Inventory supports operations but ties up resources
Raw materials await use; work in progress has entered production but is not complete; finished goods are ready for sale or delivery. Inventory can protect a business from uncertain supply or demand and prevent production stops.
Holding inventory uses storage space and cash and can create insurance, handling, damage, expiry or obsolescence costs. Too little stock can cause lost sales, idle production or dissatisfied customers. The suitable level depends on the product and supply conditions.
Reorder decisions include lead time and buffer stock
Lead time is the time between ordering and receiving replenishment. Buffer inventory is a reserve held against variation or delay. In a simple fixed-use model, reorder level = expected usage during lead time + buffer stock; the calculation assumes those figures are suitable for the period.
An inventory chart can show stock falling as it is used, a reorder point, replenishment lead time and a delivery that restores stock. Supply Chain Management coordinates sourcing, suppliers, production, inventory and delivery so materials and products move reliably through the chain.
Pause and explain
Daily use is 25 units, lead time is 4 days and buffer stock is 30. What is the simple reorder level?
Worked example
A workshop uses 40 hinges each day. Delivery takes 5 days, and it keeps a 60-hinge buffer. Using a fixed-use model, calculate the reorder level.
Show the worked solution
- Expected lead-time use = 40 hinges per day × 5 days.
- Add the 60-hinge buffer stock.
- Label the result as the stock position at which to reorder under these assumptions.
Answer Lead-time use is 200 hinges; adding a buffer of 60 gives a reorder level of 260 hinges. The business should adjust the rule if demand or lead time varies materially.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A café holds raw coffee beans, partly prepared dough and packaged pastries ready for sale. Classify each inventory type.
Give me a hint
Classify by how far each item has progressed through the operation.
Compare my reasoning
- Beans have not entered production.
- Dough has entered production but is incomplete.
- Packaged pastries are ready for customers.
Coffee beans are raw materials, partly prepared dough is work in progress, and packaged pastries are finished goods.
Look for these in your work
- All three types are classified
- Production stage determines the category
- Finished goods are distinguished from WIP
A store orders 18 units each day. Supplier lead time is 6 days and the chosen buffer is 35 units. Calculate a simple reorder level and state one assumption.
Give me a hint
Multiply expected daily use by lead time, then add buffer stock.
Compare my reasoning
- Expected use during lead time is 18 × 6.
- Add 35 units of buffer stock.
- State that average use and delivery time are treated as stable.
Lead-time use is 108 units; the simple reorder level is 108+35=143 units. This assumes daily use and supplier lead time are sufficiently stable for the calculation.
Look for these in your work
- Calculation is correct
- Buffer is included
- A model assumption is named
A manufacturer often holds excess components but still stops production when one specialised part is late. Explain how supply-chain management could address both issues.
Give me a hint
Coordinate information and suppliers across the chain; do not just increase every stock level.
Compare my reasoning
- Identify which components create stoppages and why.
- Improve supplier communication, delivery visibility or contingency sources.
- Review stock levels against lead time, demand variation and holding cost.
The manufacturer could coordinate forecasts and delivery schedules with suppliers, monitor the specialised part's lead time and consider a targeted buffer or alternative source. It should also reduce excess stock elsewhere after checking demand and holding costs rather than increasing every inventory category.
Look for these in your work
- Shortage cause is investigated
- Coordination and resilience are addressed
- Holding cost remains part of the decision
Common mistakes
- Treating all inventory as finished goods
- Ignoring storage and obsolescence cost
- Using lead time without matching it to the usage period
What can you explain now?
What is work in progress?
Compare with the explanation
Inventory partway through production
It has entered the transformation process but is not finished.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
How do inventory type, lead time, buffer stock and supply-chain coordination affect the decision about when and how much to reorder?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.