Define the term just-in-time (JIT) production.

With reference to Table 2, explain one benefit and one limitation for MM of using sales forecasting.

With reference to MM, explain the difference between crisis management and contingency planning.

Using information from the case study and additional information above, discuss whether MM should sell its tar sands mining operation to JG.

Candidates can answer in terms of JIT production where the focus is on processes that reduce the time within production systems (work-in-progress) and response times with suppliers/customers. The mention of lean production (of which JIT is a part) is useful.

Candidates can also answer in respect of managing stocks (raw materials, work-in-progress, finished products) so that these are available exactly when needed and not before. Award a max of [1] if the answer is only related to JIT stock control.

Candidates can use ‘inventories’ rather than ‘stocks’.

Award [2] for a complete definition.
Award [1] for some understanding of JIT e.g., it mentions ‘lean production’ or ‘stocks’ but not the idea of reducing to a minimum.
Award a max of [1] if the answer is only related to JIT stock control.

Benefits

• Businesses need to plan so forecasts are important
• Oil industry has been predictable so suitable for the sales forecasting technique and helpful to MM
• trend is clearly downward, and MM need to plan for this
• Energy demand is clearly seasonal so broad trends not enough
• Better workforce planning: planning staff required
• Better cash flow management: considering "cyclical and seasonal variation" factors
• Increased efficiency, assisting production department in knowing the number of goods to produce and when to produce them
• Better tracking and finding problematic issues (deviations), etc.

Limitations

• Assumes future is same as past – clearly not the case with unexpected decrease in demand and that long-term predictions are more difficult (economic change and global warming)
• Major problems can affect predictions e.g., strikes

Award [1] for one benefit or one limitation, up to a total of [2].
Award [1] for putting each benefit/limitation into context, i.e., reference MM/ Table 2 up to a total of [2].
i.e Award [3] for answers that put a benefit and/or limitation into context but does not make use of Table 2 in relation to sales forecasting for MM.
Only award [4] for answers that make explicit use of Table 2 in relation to sales forecasting for MM.

Contingency planning; Planning how to respond to unlikely events that are a threat to a business

• Forward looking
• MM are likely to have plans for broad issues such as strikes, fires, floods, earthquakes, failure of IT systems
• Will have gathered relevant information
• Decide which problems are disruptive and which are critical
• Plan likely to be tested and will involve training
• Contingency planning can be used to help improve crisis management

Crisis management: The process by which a business deals with a major event that has happened and poses a threat to the business

• Dealing with an actual not a possible threat
• Information will be available as to the extent of the crisis. e.g., MM may not have planned for so many miners to be trapped underground in Egypt, nor the extent of the Chilean earthquake and the response of the Chilean government
• The plan for an oilfield fire may not have been so extreme as catastrophic
• Actual events can help future contingency planning

Accept any other relevant difference.
Context comes from issues identified in the case and the nature of the business.

Award [4] for a clear distinction between the two with effective use of the context.
Award [3] if both crisis management and contingency planning are understood in context, but there is no clear distinction made.
Award [2] if there is clear understanding of contingency planning and crisis management but no context is shown.
Award [1] for limited understanding.

Refer to Paper 1 markbands for May 2016 forward, available under the "Your tests" tab > supplemental materials.

Arguments for the sale:

• It provides finance for expansion into Lithium mining which looks very positive
• There are local issues with First Nation Canadians which does not fit in with MM's ethical values and could bring bad publicity. Selling could improve corporate image
• Is $50 million enough if they have already spent $45 million?
• Lower than average ARR
• MM has difficulty selling Sulphur, a by-product of tar sands production
• How about NPV ($46m); is $50m enough?

Arguments against the sale:

• Production at capacity and has no major issues, more so than other operations
• It provides a reliable source of income – important if other commodities have fluctuating prices
• They have invested $15 million, and the mine is possibly worth more than $45million so is $50 million enough?
• Employees at the tar sands operation are against selling the operation to JG

Judgement/evaluation

• Depends on whether they need the money
• Is the return strong enough?
• Can they afford to upset the workforce?
• Who will ultimately make the decision? What are their views?
• If the business is doing well, why sell it?

Final judgement should relate to points raised.

Candidates can use information from Section A and Section B.
Candidates who attempt to make use of Section B information may not write with the same level of depth but should be rewarded positively.

Accept reasonable alternative answers.
Marks should be allocated according to the paper 1 markbands for May 2016 forward section B.
Award a maximum of [4] for a purely theoretical answer or with no effective use of the case (e.g., only repeating case material without development).
Award a maximum of [5] for a one-sided answer.
Award a maximum of [6] if options are considered but there is limited use of data or if there is good analysis of data with limited consideration of issues.
Award a maximum of [8] if options are considered and there is good use of data but there are no significant judgements.

Most candidates demonstrated general understanding of the term just-in-time (JIT) production. However, too many responses focused just on issues of stock control. Better responses often included information on lean production. As with previous Q4a, there was no need to relate the answer to the case material.

The notion of sales forecasting was often only understood in general terms. The specific subject use (as illustrated in Table 2) was not understood, and marks varied considerably. Better answers tended to make non-descriptive use of the numbers in Table 2. Many responses tended to make descriptive comments about sales forecasting.

Both terms were generally well understood. The use of context was good, and most responses achieved good marks. A good strategy was to explain the terms in time order i.e. contingency (before the event) and crisis management (after the event).

This question generated a range of answers. The question required a judgement with a requirement to use information from the case and other material. Unfortunately, many candidates chose to only make use of the pre-seen case study material. Better answers referred to the full range of information and data provided. Many responses listed the arguments in favour of MM making the sale followed by a list of the arguments against. Much of the information in the arguments was just lifted from the pre-seen case study. Development of the information with strong analysis and application would have helped many candidates. Not all candidates gave a judgement or suggested a solution for MM.