EDEXCEL GCSE BUSINESS · PAPER 2
Working with suppliers
Making operational decisions · Lesson 2 of 4
Teacher copy - includes the notes for whoever is teaching from it.
Last Lesson
Answer from memory before the answers appear.
1. Name the three production processes.
Job, batch and flow.
2. Which process has the lowest cost per unit?
Flow production.
3. What is productivity?
Output per worker in a period of time.
4. Give one impact of technology on production.
Lower unit costs, higher productivity, better quality or more flexibility.
Learning Objectives
1. Interpret a bar gate stock graph.
2. Explain just-in-time (JIT) stock control.
3. Explain the factors in choosing a supplier: quality, delivery, availability, cost and trust.
4. Explain the effect of logistics and supply decisions on costs, reputation and customer satisfaction.
Why Manage Stock?
Stock is the raw materials, components and finished goods a business holds.
▸ Too much stock. Ties up cash, costs money to store and insure, and may go out of date, be damaged or stolen.
▸ Too little stock. Production stops and customers are let down, so sales and reputation suffer.
▸ The balance. Enough stock to keep running and meet demand, without wasting money holding too much.
PART ONE
Bar Gate Stock Graphs
A picture of stock rising and falling.
Reading a Bar Gate Stock Graph
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A bar gate stock graph shows stock falling as it is used, then jumping back up when a delivery arrives. Here the business uses 200 units a week. When stock falls to 400 it reorders; one week later 800 units arrive, just as stock reaches the 200-unit buffer. |
Stock falls as it is used, is reordered at 400 units, and is topped back up to 1,000 when the delivery arrives. |
The Parts of a Bar Gate Stock Graph
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Term |
Meaning |
On the graph |
|---|---|---|
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Maximum stock level |
The most stock the business wants to hold |
1,000 units |
|
Reorder level |
The stock level at which a new order is placed |
400 units |
|
Buffer (minimum) stock |
The lowest level stock should fall to, kept for emergencies |
200 units |
|
Reorder quantity |
The amount ordered each time |
800 units |
|
Lead time |
The time between placing an order and it arriving |
1 week |
Using the Graph
Work out what is used during the lead time.
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The business uses 200 units a week and reorders when stock falls to 400 units. The lead time is 1 week. How much stock will be left when the delivery arrives, and what will stock be after the 800-unit delivery? |
1. Stock used during the lead time
200 units a week × 1 week = 200 units
2. Stock left when the delivery arrives
400 - 200 = 200 units (the buffer stock)
3. Stock after the delivery
200 + 800 = 1,000 units (the maximum)
Answer: 200 units left; 1,000 units after the delivery.
PART TWO
Just-in-Time
Holding almost no stock at all.
Just-in-Time (JIT) Stock Control
|
ADVANTAGES |
DISADVANTAGES |
|
▸ Very little money tied up in stock. ▸ Low storage, insurance and waste costs. ▸ Less space needed, so smaller premises. ▸ Stock is always fresh and up to date. |
▸ Production stops if a delivery is late. ▸ Relies on very reliable suppliers. ▸ Frequent small deliveries can cost more. ▸ Cannot meet a sudden rise in demand. ▸ Loses bulk-buying discounts. |
How JIT Works
Just-in-time means ordering materials to arrive exactly when they are needed, and holding little or no stock.
▸ Frequent deliveries. Suppliers deliver small amounts often, sometimes several times a day.
▸ Close relationships. The business and its suppliers share production plans so deliveries arrive on time.
▸ Suits. Businesses with reliable suppliers nearby and predictable demand, such as car makers and supermarkets.
PART THREE
Choosing Suppliers
Procurement: finding and buying from the right suppliers.
Factors in Choosing a Supplier
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Quality Materials must be good enough to make a quality product; poor materials mean faults and complaints. |
Delivery The cost, speed and reliability of delivery - late deliveries stop production. |
|
Availability The supplier must be able to supply the quantities needed, when they are needed. |
Cost A lower price reduces the business's costs, but the cheapest is not always the best. |
|
Trust A reliable supplier with a good track record, who communicates honestly when problems arise. |
|
Stock on the Shelves
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Modern businesses track every item of stock with barcodes and software. The system can warn managers - or even order automatically - when stock reaches the reorder level. |
Barcode scanning keeps an exact, up-to-date record of stock. |
The Effect of Supply Decisions
Logistics is the management of getting materials in and products out on time. Supply decisions affect the whole business.
▸ Costs. Cheaper suppliers and efficient deliveries reduce costs; unreliable ones cause expensive delays.
▸ Reputation. Poor-quality materials or unethical suppliers can damage the business's reputation.
▸ Customer satisfaction. Products in stock, of good quality and delivered on time keep customers happy and loyal.
Case Study
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CASE STUDY Toyota and the Chip Shortage Toyota developed just-in-time production in Japan, and car makers around the world copied it. JIT kept their stock costs extremely low. But in 2021 a worldwide shortage of computer chips showed the risk. Modern cars need hundreds of chips, and car makers holding little stock could not get enough. Factories around the world, including in the UK, had to cut or stop production, and customers waited months for new cars. Many businesses began holding more buffer stock of key parts. |
|
JIT Developed by Toyota in Japan |
2021 A global chip shortage stops car production |
Key Terms
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Stock Raw materials, components and finished goods held by a business. |
Bar gate stock graph A graph showing how stock levels rise and fall over time. |
|
Reorder level The stock level at which a new order is placed. |
Buffer stock The minimum stock kept for emergencies. |
|
Lead time The time between ordering stock and it arriving. |
Just-in-time (JIT) Ordering stock to arrive exactly when it is needed, holding little or none. |
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Procurement Finding and buying the materials and services a business needs. |
Logistics Managing the movement of materials and products into and out of a business. |
Your Task: Stock Detective
12 minutes
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A café uses 50 bags of coffee beans a week. Its maximum stock is 300 bags, its reorder level is 150 bags, its buffer stock is 50 bags and the lead time is 2 weeks. Sketch the bar gate stock graph for 12 weeks. Then explain one risk if the supplier's lead time increased to 3 weeks. 1. Draw the graph with the levels labelled. 2. Mark the reorder point and delivery each time. 3. Explain the risk of a longer lead time. |
A good answer shows: A correct saw-tooth graph with all levels labelled, and the risk that the café runs out - stock would fall to 0 before delivery.
Note: With a 3-week lead time the café uses 150 bags while waiting - exactly its reorder level, so it hits zero.
Can I...?
☐ Explain why businesses manage stock.
☐ Read and label a bar gate stock graph.
☐ Calculate stock levels from a graph.
☐ Explain just-in-time.
☐ Give advantages and disadvantages of JIT.
☐ Explain the five factors in choosing a supplier.
☐ Explain how supply decisions affect costs, reputation and customer satisfaction.
Summary
✓ A bar gate stock graph shows maximum stock, reorder level, buffer stock, reorder quantity and lead time.
✓ JIT holds little stock, cutting costs, but relies on reliable suppliers.
✓ Suppliers are chosen on quality, delivery, availability, cost and trust.
✓ Supply decisions affect costs, reputation and customer satisfaction.
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EXAM FOCUS Explain one disadvantage to a business of using just-in-time stock control. (3 marks) For bar gate graphs, read the numbers carefully off the axes and show your working. For JIT, link any answer to the reliability of suppliers. |
Exam Practice: Working with Suppliers
Answer all questions. Show your working in calculations. · 25 minutes
▸ Question 1 · 1 mark · Define. Define the term 'lead time'.
▸ Question 2 · 2 marks · Calculate. A business uses 150 units of stock a day. It reorders when stock falls to 600 units, and the lead time is 3 days. Calculate how many units…
▸ Question 3 · 2 marks · Outline. Outline one reason why a business holds buffer stock.
▸ Question 4 · 3 marks · Explain. Explain one disadvantage to a business of using just-in-time stock control.
▸ Question 5 · 9 marks · Justify. Justify which supplier Pedal Power Ltd should choose.
Question 1 · 1 mark · Define
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“Define the term 'lead time'.” |
HOW TO ANSWER IT Command word: Define. Worth 1 mark, so plan before writing.
Question 1 · mark scheme
1 mark available. Award a mark for each point made.
▸ Time between ordering and delivery. 1 mark
▸ Model answer. The time between placing an order for stock and the stock arriving.
Question 2 · 2 marks · Calculate
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“A business uses 150 units of stock a day. It reorders when stock falls to 600 units, and the lead time is 3 days. Calculate how many units will be left when the delivery arrives. You are advised to show your working.” |
HOW TO ANSWER IT Command word: Calculate. Worth 2 marks, so plan before writing.
Question 2 · mark scheme
2 marks available. Award a mark for each point made.
▸ Correct method: reorder level - (daily use × lead time). 1 mark
▸ Correct answer: 150 units. 1 mark (award 2 marks for the correct answer with no working)
▸ Model answer. Stock used during the lead time = 150 × 3 = 450 units. Stock left = 600 - 450 = 150 units.
Question 3 · 2 marks · Outline
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“Outline one reason why a business holds buffer stock.” |
HOW TO ANSWER IT Command word: Outline. Worth 2 marks, so plan before writing.
Question 3 · mark scheme
2 marks available. Award a mark for each point made.
▸ A reason identified. 1 mark
▸ Developed. 1 mark
▸ Model answer. To keep production going if a delivery is late (1), so the business does not run out of materials and let customers down (1).
Question 4 · 3 marks · Explain
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“Explain one disadvantage to a business of using just-in-time stock control.” |
HOW TO ANSWER IT Command word: Explain. Worth 3 marks, so plan before writing.
Question 4 · mark scheme
3 marks available. Award a mark for each point made.
▸ A disadvantage identified, e.g. relies on suppliers / cannot meet sudden demand / lost bulk discounts. 1 mark
▸ First linked point of explanation. 1 mark
▸ Second linked point of explanation. 1 mark
▸ Model answer. Production may stop if a supplier delivers late (1). Because the business holds almost no stock, it has nothing to fall back on (1). This means it cannot meet customer orders, losing sales and damaging its reputation (1).
Question 5 · 9 marks · Justify
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“Justify which supplier Pedal Power Ltd should choose.” — Pedal Power Ltd makes electric bikes. It needs a new supplier of batteries. Supplier A is based in the UK, delivers within 2 days and has a strong reputation for quality, but… |
HOW TO ANSWER IT Command word: Justify. Worth 9 marks, so plan before writing.
Question 5 · mark scheme
9 marks available. Award a mark for each point made.
▸ AO2 (Application, 3 marks): uses the context - electric bikes, £180 vs £120, 2 days vs 6 weeks, quality complaints. Level 1-3
▸ AO3a (Analysis, 3 marks): chains of reasoning about each supplier. Level 1-3
▸ AO3b (Evaluation, 3 marks): a justified choice with a supported judgement. Level 1-3
▸ Model answer. Supplier B would cut Pedal Power's costs by £60 per battery, which on thousands of bikes would greatly increase profit or allow lower prices. However, a 6-week lead time means Pedal Power must hold much more stock, tying up cash, and it cannot react quickly to changes in demand. Its quality complaints are also a serious risk: a faulty battery in an electric bike could be dangerous and damage Pedal Power's reputation. Supplier A is more expensive, but its 2-day delivery means Pedal Power can hold little stock, and its reputation for quality protects Pedal Power's brand. On balance Pedal Power should choose Supplier A, because batteries are the most important and safety-critical part of an electric bike, and poor quality could cost far more in recalls and lost reputation than the £60 saving. This depends on whether customers will accept a higher bike price.