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.
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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.