Evaluate whether Inolla should subcontract production of electric scooters to solve the problem of insufficient capacity.

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. [1] Definition of subcontracting: contracting a second business to fulfil part or all of the output / function / service.
2. [1] Definition of capacity / capacity constraint / capacity utilisation.
3. [1] Understanding of possible factors to consider: Flexibility of using a subcontractor.
4. [1] Issues relating to control of quality when using a subcontractor.
5. [1] Short term cost savings compared to expansion.
6. [1] Knowledge of other ways of increasing production such as: Increasing productivity of employees through training, Extending existing factory, Building a new factory.
7. [1] Avoids cost of building a factory extension or going public.
8. [1] High gearing of Inolla.
9. [1] 400% increase in demand.
10. [1] Subcontractor in country P with sufficient capacity.
11. [1] Subcontractor has a good reputation for quality and already supplies a competitor.
12. [1] Subcontractor had recent negative publicity for poor working conditions in the factory.
13. [1] Use of ERP to increase capacity.
14. [1] Subcontracting can be flexible as Inolla can increase/decrease orders according to demand.
15. [1] Loss of control over quality could result in reputation damage if scooters do not meet quality standards thus reducing sales.
16. [1] Subcontractor may benefit from economies of scale and therefore have lower prices thus enabling Inolla to make greater profit.
17. [1] Subcontractor has to make a profit. This could result in a higher price per unit to Inolla.
18. [1] Subcontracting will be quicker than building a factory in country P enabling Inolla to increase output and meet customer demands in a shorter time frame.
19. [1] Factory would retain more control over output and quality which is important to their brand image.
20. [1] Factory would require conversion to plc and this would reduce the control that Li-chun has over the business.
21. [1] Subcontracting would reduce risk as there is no guarantee that their move into the shared micromobility market will be successful.
22. [1] Attitude of Li-chun to taking Inolla public. Risk to her control of the business and possibility of a hostile takeover.
23. [1] Depends on the terms of the contract as to how flexible subcontracting is to Inolla.
24. [1] How important is the negative publicity regarding the poor working conditions with the subcontractor. Price may be more important to business customers.
25. [1] Significance of the subcontractor supplying their competitor.
26. [1] Reliability of the subcontractor.
27. [1] If subcontractor has sufficient capacity to meet Inolla's order does this suggest that the business has a problem? Inolla may be able to achieve a lower contract price.
28. [1] Factory may be cheaper in the long term.
29. [1] Most important factor with justification.