Resource Management: Capacity, Stock and Quality (Edexcel 9BS0 2.4)
Section 2.4 covers how businesses turn resources into output efficiently: measuring capacity utilisation, deciding how much stock to hold, and building quality into products and processes. It supplies some of the easiest calculation marks in Theme 2 and some of the richest evaluation material, because every operations choice trades cost against risk.
Capacity utilisation
Capacity utilisation = (current output ÷ maximum possible output) × 100. It measures how much of a firm’s productive potential is actually being used.
Worked example: a factory able to produce 36,000 units a year currently makes 27,000. Utilisation = 27,000 ÷ 36,000 × 100 = 75%.
Why it matters: fixed costs are spread over every unit made, so higher utilisation cuts unit costs. At 75%, a quarter of the rent, machinery and salaried staff is effectively paying for idle capacity. But 100% is rarely the target — no slack means no room for maintenance, breakdowns, staff training or a sudden order, and quality tends to slip under constant strain. Service businesses live by the same number: Premier Inn’s owner Whitbread reported UK occupancy of around 80% in its 2024/25 results, high enough to spread hotel fixed costs effectively while leaving rooms for peak-night demand.
Under-utilisation is fixed by boosting demand, rationalising capacity, or renting space out; over-utilisation by outsourcing, extra shifts or investment.
Stock control: JIT, JIC and buffer levels
Stock ties up cash, needs storage and can spoil or date — but running out stops production and loses sales. Stock-control charts formalise the balance with a maximum level, a re-order level and a buffer stock (the safety minimum), with lead time the gap between ordering and delivery.
- Just-in-time (JIT) holds minimal stock, with components arriving as production needs them. It releases cash and cuts waste, but depends totally on reliable suppliers and stable demand.
- Just-in-case (JIC) holds buffer stock to absorb shocks, at the cost of cash and storage.
The risk in JIT became national news when Jaguar Land Rover suffered a cyber attack in September 2025 that shut its systems and halted UK production for weeks; with little buffer stock in the chain, hundreds of suppliers stopped too, and the disruption was estimated to have cost the wider economy around £1.9bn. Efficient in calm conditions, JIT concentrates risk when anything breaks the flow.
Quality: control, assurance, TQM and kaizen
Edexcel distinguishes four approaches:
- Quality control — inspecting output at the end and rejecting failures. Simple, but waste has already happened and inspectors, not producers, own quality.
- Quality assurance — building checks into every stage so errors are caught where they occur; staff self-check their own work.
- Total quality management (TQM) — a culture in which every employee treats the next stage of the process as a customer; quality becomes everyone’s job, not a department.
- Kaizen — continuous improvement through many small suggestions from staff rather than occasional big projects.
The pay-off is competitive advantage: fewer returns, lower rework costs, stronger reputation and the ability to charge more. The costs are training, time and a genuine shift in management style — TQM fails where staff are told about it rather than trusted with it. In evaluation, link the approach to the firm’s market: a premium brand cannot survive end-of-line inspection alone, while a discounter may judge TQM’s cost unjustified.
Key terms
Practice questions
A factory has a maximum capacity of 36,000 units a year and currently produces 27,000 units. Calculate its capacity utilisation. [4 marks]
Model answer guidance: Capacity utilisation = (27,000 ÷ 36,000) × 100 = 75%. State the formula, substitute, and give the answer as a percentage. A follow-up sentence noting that 25% of capacity is idle shows understanding and supports any linked explain question.
Explain one reason why a hotel chain might not aim for 100% room occupancy. [4 marks]
Model answer guidance: Identify the need for slack: full occupancy leaves no rooms for premium last-minute demand and no time for maintenance. Develop — at 100% the chain must turn away high-paying late bookers and delay refurbishment, so revenue per room and long-run quality can both fall; around 80%, as Premier Inn achieves, balances spreading fixed costs with flexibility.
Discuss whether a UK car manufacturer should move from just-in-time to just-in-case stock management. [8 marks]
Model answer guidance: For JIC: the 2025 Jaguar Land Rover cyber attack showed JIT halting production across whole supply chains within days; buffer stock buys survival time. Against: holding components ties up cash, needs warehousing and hides inefficiency, and car parts date as models change. Conclude that a hybrid — buffers only for parts with long lead times or single suppliers — targets the risk without abandoning JIT's cost advantage.
Assess the value of kaizen to a manufacturer seeking to improve quality without major investment. [10 marks]
Model answer guidance: Value: small staff-driven improvements cost little, accumulate into real gains, and raise motivation because operators own the changes. Limits: gains are gradual, management must genuinely act on suggestions or cynicism spreads, and kaizen cannot fix a fundamentally flawed process that needs capital investment. Judgement: strong where the culture supports participation and the process is basically sound; weak as a substitute for necessary re-equipment.
Assess whether raising capacity utilisation is always in the best interest of a manufacturing business. [12 marks]
Model answer guidance: For: unit costs fall as fixed costs spread across more output, improving margins or allowing price cuts. Against: pushing towards full capacity removes maintenance windows, increases errors and overtime costs, and can lock the firm into low-margin orders taken only to fill the factory. Judgement should hinge on how the extra output is achieved — profitable demand at good prices, yes; discounted filler work that strains quality, no.
Examiner tips
- For capacity questions, always link the percentage to unit costs — the mark scheme rewards the fixed-cost-spreading chain, not the number alone.
- Name the JLR 2025 shutdown when evaluating JIT: a current, specific example of supply-chain risk lifts application marks.
- Keep quality control and quality assurance distinct — inspection at the end versus prevention at every stage — because muddling them caps the answer.
In The Business School simulation your students make these exact decisions in a live market against rival firms — every choice mapped to the specification. Free teacher demo, no installs, students join with a PIN.