Analyse why effective inventory control is important to a manufacturing business.

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. [1] Definition of effective inventory control: ensuring inventory cost is minimised across raw materials, work in progress, and finished goods.
2. [1] Maintaining an optimum inventory level for smooth production and sales.
3. [1] Avoiding unnecessary holding costs (e.g., insurance, storage, obsolescence).
4. [1] Avoiding stock-out costs (e.g., lost sales, production delays, customer dissatisfaction).
5. [1] Manufacturing businesses rely heavily on inventory (e.g., auto parts) to complete finished products.
6. [1] Need for efficient ordering and planning to maintain adequate stock levels and types, as late orders can incur costs.
7. [1] Failure to meet demand due to poor control can lead to loss of customers and reputational damage.
8. [1] Accurate recording of cost of goods sold in the income statement, affecting profit calculations, is vital for manufacturers.
9. [1] Description of JIT as a demand-pull system where production matches demand, keeping inventory minimal.
10. [1] (Advantage) Funds not tied up in inventory can be used elsewhere.
11. [1] (Advantage) Storage areas can be repurposed for more productive processes.
12. [1] (Advantage) Potential for quicker response to customer demand and greater output/production.
13. [1] (Advantage) Reduced defect rates, less wastage, and greater customer satisfaction.
14. [1] (Advantage) Parts used in production are newer, more up-to-date, and potentially at lower cost.
15. [1] (Disadvantage) JIT implementation can be expensive for a business.
16. [1] (Disadvantage) It exposes a business to significant risks, particularly related to the supply chain.
17. [1] (Disadvantage) A minor disruption from even one supplier can force a manufacturing business to halt production quickly (e.g., Toyota example).
18. [1] Discussion includes relevant examples of benefits and disadvantages in a manufacturing context.
19. [1] Evaluative comments on the assessment of risk for using JIT.
20. [1] Evaluation considering that JIT suitability depends on the nature of the business and its relationships with stakeholders (especially suppliers).