Lean ManagementAS Economics and Business

Unit 2b

By Mrs Hilton for revisionstation

Lesson Objectives

• To be able to discuss Just in Time (JIT) management of stock

• To be able to identify how short product development lead-times can give a business competitive advantage

• To be able to discuss how minimising waste of resources can give a business competitive advantage

• To be able to answer a past paper question based on the topic

Starter• You have two cats.• Each cat eats 2 pouches of wet food a day (one at 6 am one at

2pm)• Each cat also eats 25g of go-Kat dry food a day• You shop once a week and only have limited money• How much cat food a week do you buy?

• Is there an efficient way to ensure that you never run out of cat food other than buying loads and loads of cat food and stockpiling?

• What if you don’t have the storage space?• What if you have a tight weekly budget?• What is your re-order point?

Just-in-time

• A customer order pulls the parts through the system to the finished product – built to order

• In a car manufacturer customers can select seats, trim, options and colour. Parts are ordered as the car moves through production. Seats arrive just as they are needed.

Advantages of JIT

• As parts are ordered as they are needed there is no wastage which fits the TQM theory of zero wastage

• Parts are not warehoused which is a massive cost saving in terms of premises and staff

• Less capital tied up in stock, therefore reduced average costs of production of each item

JIT and suppliers

• To make JIT work the large manufacturer needs to haver excellent working relationships with their smaller parts suppliers.

• JIT does not work when there are delivery or quality issues

• No buffer stocks are held in a JIT system so if delivery does not arrive the product cannot be made

JIT and employees

• Employees of the business may need training to help them work with a JIT / Kanban system

• They may for part of a quality circle or of a Kaizen team and are encouraged to sort problems on the equipment that they work with.

Short product development lead times

• The quicker a business can get an idea to a fully working product the sooner they will gain:

• Competitive advantage• First mover advantage

• Short lead-times that is from design to final product mean that a business can respond quickly to new trends

Minimising waste of resources

Sample question 1

[4]

Answer question 1Correct answer is D• JIT stock management is a stock control method which relies on no buffer stock and/or has regular deliveries from suppliers when required (1 mark).• Nissan’s capital expenditure of stock will therefore be less than traditional stock control methods as stock is not stored (1 mark)• Less capital will be required to store/warehouse the stock (1 mark).• Employee training may not necessarily change/decrease as there could be a need for more employee training to cope with the JIT system (1 mark).• There will be a decreased not an increase in product defects by using JIT as quality improves using JIT/lean management techniques (1 mark)• Average Costs are more likely to decrease rather than increase due to having less stock holding costs (1 mark)Any acceptable answer which shows selective knowledge/understanding/application and/or development NB up to 2 marks out of 3 may be gained for part (b) if part (a) is incorrect• Maximum 2 marks for explaining why distracters are incorrect

Sample question 2

[4]

Answer question 2Correct answer is C• JIT involves the use of minimal stock levels, i.e. no buffer stocks. (1 mark)• This will mean more frequent deliveries rather than a decrease in deliveries order to maintain fully stocked shelves in the supermarket. (1 mark)• JIT will lead to a fall in average costs rather than an increase as capital is not tied up in stock. (1 mark)• There will be a closer relationship with suppliers as deliveries are made more frequently so Aldi will need to have more contact with suppliers. (1 mark)• This will lead to a reduction in stock levels not an increase in stock levels as stock is only ordered as it is required (1 mark) Any acceptable answer which shows selective knowledge/understanding/application and/or developmentNB up to 2 marks out of 3 may be gained for part (b) if part (a) is incorrectMaximum 2 marks for explaining why distracters are incorrect

Sample question 3

Answer question 3Knowledge 1, Application 1, Analysis 2

Knowledge: up to 1 mark are available for explaining what ismeant by JIT (1 mark). E.g. no buffer stocks are kept

Application: up to 1 mark is available for explaining how JIT canhelp TVS to reduce costs due to less storage (1 mark) and thereforeincreasing profit margins (1 mark) or lead to a competitiveadvantage in price for TVS (1 mark) or similar use of context.

Analysis: up to 2 marks are available for developing the above andshowing how JIT may reduce lead times (1 mark) and/or salespulling orders (1 mark). More able candidates may see the benefitsin terms of opportunity costs (1 mark).

Sample question 4

• [4]

Answer question 4 • Correct answer is D less wastage

• Lean management is an approach by business to increase efficiency (1 mark) in which may include just in time production/ short product development leads times / minimising waste (1 mark). • Lean management aims to remove waste whilst maintaining quality (1 mark). • Stock levels using JIT will be minimised rather than increased by using Lean management (1 mark). • Labour Intensity will either remain the same or will have no impact on the use of lean management (1 mark). • Excess capacity should be reduced with lean management as the business is more efficient (1 mark).

Any acceptable answer which shows selective knowledge/understanding/application and/or development NB up to 2 marks out of 3 may be gained for part (b) if part (a) is incorrect Maximum 2 marks for explaining why distracters are incorrect

Revision Video