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  1. 1-1-the-nature-and-purpose-of-business as
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  2. 1-2-forms-of-business as
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  3. 1-3-the-external-environment as
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  4. 2-1-management-and-leadership as
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  5. 2-2-management-decision-making as
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  6. 2-3-the-role-and-importance-of-stakeholders as
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  7. 3-1-marketing-objectives as
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  8. 3-2-understanding-markets-and-customers as
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  9. 3-3-making-marketing-decisions as
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  10. 3-4-the-marketing-mix as
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  11. 4-1-operational-objectives as
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  12. 4-2-operational-performance as
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  13. 4-3-efficiency-and-productivity as
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  14. 4-4-quality as
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  15. 4-5-inventory-and-supply-chain-management as
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  16. 5-1-financial-objectives as
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  17. 5-2-financial-performance as
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  18. 5-3-sources-of-finance as
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  19. 5-4-cash-flow-and-profit as
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  20. 6-1-human-resource-objectives as
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  21. 6-2-human-resource-performance as
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  22. 6-3-organisational-design as
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  23. 6-4-human-resource-planning as
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  24. 6-5-motivation as
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  25. 6-6-improving-employer-employee-relations as
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Exam code:7131

The principles of lean production

  • Lean production is a management philosophy that aims to maximise output while minimising waste

  • It focuses on maximising efficiency, improving quality and reducing costs

  • The use of lean production is likely to lead to a competitive advantage

    • Lower unit costs are achieved due to minimal wastage, so prices may be lower than those offered by competitors

    • High-quality output is likely as a result of supplier reliability and carefully managed production processes

    • The result should be increased profit margins

The main principles of lean production

Five open brown cardboard boxes labelled as "Right First Time", "Flexibility", "Minimal Waste", "Supply chains" and "Continuous Improvement".
Lean production involves getting it right the first time, flexibility, minimal waste, effective supply chain management and continuous improvement

  • Right-first-time approach

    • Aim for zero defects in output

    • Identify and solve problems as they arise

    • Prevent rather than correct errors

  • Flexibility

    • Adaptable capital equipment and physical resources

    • Multiskilled staff and teamwork

    • Flexible management styles

  • Waste minimisation

    • Remove processes that do not contribute to added value

    • Consume as little as is necessary

    • Rework rather than replace

  • Effective supply chain management

    • Develop excellent relationships with suppliers

    • Minimal number of suppliers

  • Continuous improvement

    • Ongoing, small steps to improve processes

    • All staff are involved in improvement, not just those employed in quality management

Just in time versus just in case

The just-in-time approach

  • The just-in-time (JIT) approach is where raw materials and components are ordered as required and delivered “just in time” to be used in production

  • Raw materials and components are ordered from a small number of trusted key suppliers just before they are to be used

    • Close, long-term relationships with these suppliers need to be developed

      • Many businesses using JIT inventory management systems aim to source raw materials and components from local or regional suppliers

      • They must be flexible and reliable

      • They may be required to hold inventory on behalf of a JIT-operating customer

      • They are often in close proximity to their key JIT-operating customer

Evaluating the just-in-time approach

Advantages

Disadvantages

  • Stockholding costs, including storage rental and security, are minimised

  • Inventory and finished goods are less likely to be damaged in storage

  • Close working relationships are developed with a small number of trusted suppliers

  • Cash flow is improved, as money that is not tied up in stocks can be put to other uses

  • Unused storage space is available for productive use or can be disposed of

  • Bulk buying economies of scale are not generally possible

  • Unable to respond to unexpected increases in demand without precise forecasting of demand

  • High administration costs due to frequent ordering of stock

  • Unreliable suppliers (e.g. late or poor-quality deliveries) can quickly halt production

  • External factors can delay delivery of stock, e.g. increased border checks on imported goods since Brexit

Examiner Tips and Tricks

When you explain the JIT approach, link every benefit (less inventory, lower storage costs) to a risk (stockouts if deliveries slip)

Showing both sides proves you understand why lean systems boost profit only when suppliers are rock‑solid

The just-in-case approach

  • Just-in-case inventory management involves a business holding a quantity of raw materials, components or finished goods as buffer stock

    • Stock is held in case of shortages so as to provide a competitive edge over rivals unable to meet demand

  • The decision to keep buffer stocks is one that businesses have to weigh up very carefully

    • Holding inventory incurs storage and security costs and can increase waste, as stock could be damaged, stolen or become obsolete

    • Failing to hold enough inventory could mean a business is unable to meet demand, potentially missing out on sales revenue

Evaluating the just-in-case approach

Advantages

Disadvantages

  • Buffer stocks ensure a stable supply of goods, allowing a business to respond to increases in demand

  • Extreme price fluctuations due to shortages of inventory can be avoided

  • Businesses that are dependent on particular raw materials avoid supply disruption

  • Businesses with a regular supply gain a reputation for always being able to meet customers’ needs

  • Holding buffer stocks can be expensive, as it requires storage facilities and inventory management systems

  • Buffer stocks can become obsolete if the demand for a particular product or input declines

  • Holding buffer stocks ties up cash that could be invested in other areas of the business

Benefits and drawbacks of lean production

  • Lean production is a whole business approach that requires significant changes to be made to the structure, culture and processes of a business

    • Processes

      • Work is reorganised into smooth, straight-line flows

      • Just-in-time deliveries cut inventory rooms

      • Right-first-time checks stop faults early

      • Small, regular improvements (Kaizen) are built in

    • Structure

      • Layers of management are reduced, so problems travel quickly from the shop floor to key decision-makers

      • Cross‑functional teams replace separate departments

      • Staff are empowered to implement decisions and take ownership over quality

    • Culture

      • Everyone is taught to spot waste and suggest better ways daily

      • Blame-free problem-solving and respect for each worker’s ideas become part of “how we do things”

Advantages and disadvantages of lean production

Advantages

Disadvantages

  • Less waste

    • Just-in-time (JIT) deliveries and continuous improvement (Kaizen) reduce waste, storage space and the need to rework products, lowering unit costs

  • Supply chain risk

    • With little buffer stock, any late delivery or production disruption can halt the whole production line

  • Faster processes

    • Streamlined production layouts shorten lead times, so customers receive orders sooner

  • Upfront investment

    • Staff training, layout changes and new IT systems can be costly before cost savings start to emerge

  • Better quality

    • Constant identification and fixing of faults by empowered employees reduces the number of defects and returns

  • Staff pressure

    • The relentless focus on speed and zero waste can raise stress and resistance if not matched by good support from managers

  • Higher flexibility

    • Quick changeovers and multiskilled teams make it easier to switch between product variants

  • Not a one-size-fits-all approach

    • Lean production works best where demand is steady and suppliers are reliable

    • In fast-changing markets, a business may need more buffer stock

Where lean production worked

  • Lean production has been successfully embedded at Toyota

    • By designing flow layouts, empowering team leaders and celebrating tiny daily improvements, Toyota cut defects, reduced inventory and shortened car assembly times

    • The result is reliable cars, lower costs and a reputation for quality that lets it sell millions of vehicles worldwide, generating healthy profits

    • Every part of the business — from purchasing to HR — lives the same lean values, so the system keeps reinforcing itself

Where lean production failed

  • Boeing tried to run its 737 assembly line with almost no spare parts on the factory floor

    • When a key fuselage supplier slipped behind schedule in 2019, Boeing had no buffer stock

    • Unfinished aircraft stacked up outside the factory, costs soared and delivery dates were missed, angering customers

    • The business realised that lean production needs solid suppliers, careful planning and full workforce support

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