Value of Effective Inventory Control | AQA Q2, Paper 3 2018

Here is a suggested response to Q2 in AQA A-Level Business Paper 3 (2018) on the value of effective inventory control to the case study business.

Effective inventory control is particularly important to Hopps because it needs to strike a balance between ordering sufficient quantities of products to keep variable costs per unit down, to be able to meet demand, but also to minimise the amount of finance invested in inventory.

The case study indicates that Hopps has struggled with inventory control in the first year, with Jack both selling out of the most popular products (suggesting he might have benefitted from implementing re-order levels) but also taking the rest of the year to sell slow-moving products (increasing the risk of losses from obsolete inventory). A simple system of inventory control would be likely to help Hopps hold a buffer stock of the most popular products and set re-order levels based on recent sales data. It might also help Hopps work more closely with its manufacturers. For example, the sales data from the inventory control system might encourage the manufacturers to offer shorter lead-times on popular products or even better prices based on a higher re-order quantity. The manufacturers might also be able to use the inventory control system to hold stocks on behalf of Hopps thereby reducing the costly physical space that Hopps needs to hold inventory, which in turn is likely to reduce stockholding costs as Hopps business grows.

Note: the question require students to analyse the value of effective inventory control. The "range" was therefore not plural, so it is likely that one well-developed, relevant argument would have been sufficient to reach L3.