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9609 · 4.2.2

Just in Time (JIT) — practice questions

Practice and worked examples for 9609 Just in Time (JIT). Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Car assembler considers JIT for seat deliveries from a supplier 200 km away. Currently holds 3 days' seat stock. Advise whether to adopt JIT.

Show solution outline

Pros: Seats are bulky — warehouse savings significant; cash freed (5.1.2).

Prerequisites check:

  • Supplier must guarantee on-time, defect-free delivery — quality at source.
  • IT integration for production schedule sharing.
  • Backup supplier or contingency if road blocked.

Risk: Single supplier, 200 km — strike or weather halts line (costly).

Recommendation: Pilot JIT on one model line if supplier agrees penalty clauses; keep minimal safety stock initially — hybrid until proven.

Worked example 2

CircuitCo manufactures smart home devices. It is considering switching from a traditional inventory system to JIT for its main processor chip. Analyse the financial implications using the following data and advise the company.

Current System (JIC):

  • Average inventory: 4,000 chips
  • Cost per chip: $20
  • Annual holding cost: 25% of inventory value
  • Annual warehousing cost for chips: $30,000

Proposed System (JIT):

  • Average inventory: 200 chips
  • Cost per chip: $21 (due to smaller, more frequent orders)
  • Annual holding cost: 25% of inventory value
  • Annual warehousing cost for chips: $4,000 (shared, smaller space)
  • Additional annual delivery costs: $18,000
Show solution outline

Step 1: Calculate Total Annual Cost of the Current (JIC) System

  • Value of average inventory = 4,000 chips × $20/chip = $80,000
  • Annual holding cost = 25% of $80,000 = $20,000
  • Total JIC Cost = Holding Cost + Warehousing Cost = $20,000 + $30,000 = $50,000

Step 2: Calculate Total Annual Cost of the Proposed (JIT) System

  • Value of average inventory = 200 chips × $21/chip = $4,200
  • Annual holding cost = 25% of $4,200 = $1,050
  • Total JIT Cost = Holding Cost + Warehousing Cost + Additional Delivery Costs = $1,050 + $4,000 + $18,000 = $23,050

Step 3: Compare Costs and Calculate Savings

  • Annual saving with JIT = Total JIC Cost - Total JIT Cost
  • Annual saving = $50,000 - $23,050 = $26,950

Step 4: Advice and Conclusion Based on the financial data, switching to JIT would result in an estimated annual cost saving of $26,950. The savings primarily come from drastically reduced inventory holding and warehousing costs, which more than offset the higher unit cost per chip and increased delivery charges.

Recommendation: CircuitCo should proceed with the switch to JIT. The financial benefits are significant. However, this advice is conditional on the company having secured a highly reliable supplier and possessing robust internal processes to manage the increased operational risk from potential supply chain disruptions.

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