Procurement: JIT, JIC, Price & Quality Revision Notes | GCSE AQA Business

1. Why Procurement Decisions Make or Break a Business

A car manufacturer runs out of a single bolt. The entire production line stops. Thousands of workers stand idle, and the business loses hundreds of thousands of pounds per hour. This is not a hypothetical — it happened to several manufacturers during global supply chain disruptions in 2021.

Procurement is the process of sourcing and buying everything a business needs to operate — from raw materials to packaging. Get it right, and costs stay low, production runs smoothly, and customers receive their orders on time. Get it wrong, and the consequences ripple through every part of the business.

At the heart of procurement sits one fundamental question: how much stock should a business hold at any given time? The answer depends on the approach the business takes — and the two main approaches are Just in Time and Just in Case.

2. Stock Management: JIT and JIC

Think of stock management like a kitchen. One chef keeps the fridge packed with every ingredient imaginable — they never run out, but food spoils and the fridge costs a fortune to run. Another chef orders ingredients fresh each morning, using exactly what is needed — no waste, but if the delivery is late, there is nothing to cook. These two approaches map directly onto JIC and JIT. The choice between JIT and JIC depends on various factors, such as the type of products being managed, customer demand patterns, and the nature of supplier relationships.

The choice between JIT and JIC is not about preference — it reflects the nature of the business, its industry, and its relationship with suppliers. A business selling fresh food cannot hold weeks of stock. A business manufacturing aircraft parts cannot afford to halt production because a single component failed to arrive.

Notice the trade-off at the core of this table. JIT frees up cash and cuts waste, but it transfers risk onto the supply chain. JIC absorbs that risk by holding stock, but ties up working capital and increases costs. Neither approach is universally superior — the right choice depends on context.

3. Choosing Suppliers: Price, Quality, and Reliability

Deciding between JIT and JIC is only half the procurement decision. The other half is choosing which supplier to buy from. A business might identify three potential suppliers for the same component — but they differ on price, quality, and how reliably they deliver on time. These three factors sit at the centre of every procurement decision.

Price is the most visible factor in procurement — a lower purchase price directly reduces the cost of production, improving gross profit margin. However, choosing the cheapest supplier without considering quality or reliability can be a costly mistake. A component that fails during production causes delays, waste, and potential damage to the finished product.

Quality refers to whether the materials or components meet the required standard consistently. For a business like a car manufacturer, a substandard component does not just waste money — it creates safety risks and potential product recalls. The cost of poor quality almost always exceeds the saving made by choosing a cheaper supplier.

These three factors — price, quality, and reliability — rarely all point to the same supplier. A business must weigh them against each other based on its priorities. A hospital prioritises quality and reliability above price. A budget retailer may prioritise price, accepting slightly lower quality. This is where procurement becomes a genuine strategic decision.

4. Reading and Interpreting Stock Control Charts

Procurement decisions do not happen in isolation — they are guided by stock control data. A stock control chart gives a business a visual picture of how stock levels change over time, when to reorder, and how much to order. Understanding how to read one is an essential exam skill.

Three horizontal reference lines appear on a stock control chart. The maximum stock level is the upper limit — holding more than this is wasteful and costly. The reorder level is the trigger point: when stock falls to this level, a new order is placed. The minimum stock level (buffer stock) is the safety net — stock should never fall below this line under normal circumstances.

The sawtooth pattern on the chart is characteristic of stock management. Stock falls steadily as it is used in production, then jumps back up when a delivery arrives. The gap between placing an order and receiving it is the lead time — and this is why the reorder level must be set high enough to cover usage during that lead time.

Look at Week 9 on the chart above. Stock has fallen to 100 units — the minimum stock level. This signals a problem: either the reorder was placed too late, or the supplier's lead time was longer than expected. A JIT business in this position would face a production stoppage. A JIC business with a larger buffer would have more breathing room.

Worked example: Calculating Reorder Level from Lead Time and Usage Rate

A manufacturer uses 100 units of Component Y per week. The supplier's lead time is 3 weeks. The business wants a buffer stock of 150 units. Calculate the reorder level.

1. Reorder Level = (Usage per week x Lead time in weeks) + Buffer stock — The reorder level must cover all stock used during the lead time, plus keep the buffer intact. This ensures stock never falls below the minimum level while waiting for delivery.
2. Usage during lead time = 100 units per week x 3 weeks = 300 units — During the 3-week wait for delivery, the business will use 100 x 3 = 300 units. This is the minimum stock needed just to survive the lead time.
3. Reorder Level = 300 + 150 = 450 units — The buffer stock of 150 units is added on top. This means even if demand spikes or the supplier is slightly late, the business will not run out of stock.
4. When stock falls to 450 units, place a new order immediately. — Setting the reorder point at 450 units gives the business 3 weeks of production cover plus a 150-unit safety buffer. A JIT business would set a much lower buffer — or none at all — accepting higher risk in exchange for lower storage costs.

Answer: Reorder Level = 450 units. The business should place a new order when stock reaches 450 units.

5. Applying Procurement Decisions: A Worked Scenario

Theory becomes meaningful when applied to a real decision. Consider Priya, who runs a small furniture manufacturer called CraftWood Ltd. She currently uses JIC, holding 8 weeks of timber stock at all times. Her accountant has pointed out that the storage costs alone are costing the business £24,000 per year. A local timber merchant has offered to supply timber within 48 hours of any order, at a price 5% higher per unit than her current supplier.

Priya is weighing up whether to switch to JIT using the local merchant. This is exactly the kind of procurement decision that appears in AQA exam questions — and it requires you to weigh up multiple factors, not just pick the cheapest option.

Worked example: Evaluating a Procurement Decision: JIT vs JIC for CraftWood Ltd

CraftWood Ltd currently spends £480,000 per year on timber under JIC. Storage costs are £24,000 per year. A local JIT supplier charges 5% more per unit but eliminates storage costs. Evaluate whether switching to JIT is financially beneficial.

1. Current timber cost: £480,000. Storage cost: £24,000. Total JIC cost = £480,000 + £24,000 = £504,000 — Under JIC, the business pays for both the stock itself and the cost of storing it. Both must be included to get the true cost of the current approach.
2. Price increase = 5% of £480,000 = 0.05 x £480,000 = £24,000. New timber cost = £480,000 + £24,000 = £504,000 — The JIT supplier charges 5% more per unit. 5% of £480,000 = £24,000, so the new annual timber spend rises to £504,000.
3. JIT timber cost: £504,000. Storage cost: £0 (no stock held). Total JIT cost = £504,000 — Under JIT, the business holds no stock, so storage costs are eliminated entirely. The total cost is the new timber spend.
4. JIC total: £504,000. JIT total: £504,000. Difference = £0 — In this scenario, the financial saving from eliminating storage costs exactly offsets the higher unit price. The decision cannot be made on cost alone — other factors must be considered.
5. JIT benefits: frees working capital, reduces waste risk, fresher materials. JIT risks: production halts if the local supplier fails to deliver within 48 hours; no buffer if demand spikes unexpectedly. — When the financial case is neutral, non-financial factors become decisive. Priya should assess how reliable the local supplier is and whether CraftWood's demand is predictable enough to make JIT viable.

Answer: Switching to JIT is financially neutral in this case — the higher unit price is offset by eliminated storage costs. The decision should be based on supplier reliability and demand predictability. If the local merchant has a strong track record and CraftWood's orders are consistent, JIT is the better long-term choice as it frees working capital and reduces waste.

6. Exam Technique: Procurement Questions

Procurement questions on AQA GCSE papers tend to follow predictable patterns. You will be given a business scenario and asked to explain, analyse, or evaluate a procurement decision. The marks are in the development — not the identification. Saying 'JIT reduces storage costs' earns one mark. Explaining why this matters for the specific business in the question earns two or three.

For evaluate questions (typically 9 or 12 marks), you must argue both sides. A strong answer on JIT vs JIC will acknowledge that JIT reduces costs and waste, then counter with the risk of production stoppages if suppliers fail. The conclusion must make a justified judgement — not sit on the fence. Use phrases like 'On balance...' or 'Given that the business operates in...' to signal your evaluative judgement.

When a question asks you to 'use the data', you must quote specific figures from the source material. Saying 'the business has high storage costs' is generic. Saying 'the business spends £24,000 per year on storage, which represents approximately 4.8% of its total procurement cost' is applied — and that is where the higher marks sit.