Use lean production and manage inventory
Explain just-in-time inventory, Kaizen and the trade-off between lower stock and reliable supply.
Exam scope and assessment notes
Cambridge IGCSE (9–1) Business Studies 0986, 2026 syllabus, Version 2. This is the separate 9–1 legacy route; 0774 replaces it for first assessment June 2027. Candidates are not assessed on constructing income statements or statements of financial position, nor on price-elasticity or exchange-rate calculations. Simple cash-flow forecast construction is assessed. Written practice is self-checked, not an official Cambridge grade; timed-paper evidence and human subject-teacher review remain outstanding.
Before you begin
- No previous operations study is assumed. Read the time period, output unit, cost data and operating constraints before calculating or recommending.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
What does just-in-time inventory aim to do?
What you will learn
- Define lean production
- Explain JIT and Kaizen
- Assess reasons to hold inventory
Reduce waste without assuming zero risk
Lean production aims to reduce waste and use resources efficiently. Just-in-time (JIT) inventory control arranges for materials to arrive close to when they are needed, reducing stock held and storage costs.
Kaizen means continuous, incremental improvement, often involving employees identifying small ways to improve a process. It requires time, participation and follow-through rather than a one-off slogan.
Inventory protects operations too
Businesses hold inventory to meet customer demand, keep production running and cope with delays or seasonal changes. Stock levels depend on demand variability, supplier reliability, lead times, storage cost, perishability and the cost of a stockout.
JIT can lower storage and obsolescence costs but makes production more vulnerable to late deliveries or sudden demand. A business should balance efficiency with an appropriate buffer for its circumstances.
Pause and explain
What is one risk of reducing inventory using JIT?
Worked example
A bakery keeps flour for one week of production. A supplier proposes daily deliveries. What potential benefit and risk should the bakery compare?
Show the worked solution
- Smaller deliveries may reduce storage needs.
- The bakery depends more on timely supply.
- Compare delivery reliability with the cost of holding stock.
Answer Daily delivery may reduce storage and spoilage costs, but a late delivery could stop production. The bakery should compare supplier reliability, lead time and the cost of a stockout with the savings.
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 furniture maker uses JIT for timber. Name one cost it may reduce and two conditions needed to avoid production stoppages.
Give me a hint
Consider storage and supply timing.
Compare my reasoning
- Less stock may reduce storage or holding costs.
- Suppliers need reliable delivery and consistent quality.
- The maker should plan for demand changes and disruptions.
JIT may reduce storage and holding costs. The maker needs reliable suppliers with consistent timber quality and should consider demand variability or a backup plan so delays do not stop production.
Look for these in your work
- Cost identified
- Supplier conditions stated
- Disruption considered
Workers suggest one small layout change each week and test whether it reduces walking time. Which lean method is this, and what should the business record?
Give me a hint
Look for repeated incremental improvement involving employees.
Compare my reasoning
- The repeated small changes fit Kaizen.
- Measure walking time or output before and after.
- Check that quality and safety do not worsen.
This is Kaizen. The business should record the measure before and after each change and check product quality and safety so reduced walking does not create another problem.
Look for these in your work
- Method identified
- Comparison measured
- Trade-offs checked
A supplier offers a lower price for larger orders. Compare the bulk discount with a JIT approach for a product with uncertain seasonal demand.
Give me a hint
Compare purchase price with storage, obsolescence and stockout risks.
Compare my reasoning
- Bulk buying may reduce unit purchase cost.
- It increases the amount held and may leave unsold stock.
- JIT can reduce storage but depends on supply responsiveness.
Bulk buying can lower purchase cost per unit but may leave the business with expensive unsold seasonal stock. JIT lowers holding risk but needs responsive supply. The business should compare total cost with forecast uncertainty and lead times.
Look for these in your work
- Price benefit stated
- Inventory risk stated
- Alternative trade-off compared
Common mistakes
- Saying JIT means holding no inventory in every case
- Assuming every delivery arrives on time
- Treating Kaizen as a single redesign
What can you explain now?
What does just-in-time inventory aim to do?
Compare with the explanation
Receive stock near when it is needed
This can reduce time spent holding inventory.
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Make it stick
How do JIT and Kaizen reduce waste in different ways?
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.