Production Planning(HL) Unit 5.5 Production Planning(HL)

By the end of the chapter You should be able to… Comment on the Supply Chain process Distinguish between Just-in-time and Just-in-case Interpret a Stock control chart Calculate a capacity utilization rate Interpret Productivity Rates Distinguish between Cost to buy (CTB) and Cost to Make (CTM)

The Supply Chain Process The wide system of connected organizations (suppliers), information (orders), resources (raw materials), and operations (transport) that a business needs to produce goods and provide services to customers. Supply chain has two dimensions Logistics – hardware of supply chain Information & communication – software of supply chain Study figure 5.5.3 – relationships within supply chain

Just-in-time v. Just-in-case Just-in-case – traditional method of stock control; holding reserve of both raw materials and finished product to be able to respond to an increase in demand Just-in-time – Modern method of stock control; avoids holding stock – get supplies only when needed to produce just when ordered. Arguments for and against – see table 5.5.1

Stock Control Two issues: Cost of not having stock when required – lost orders, expensive emergency deliveries Cost of holding too much stock Figure 5.5.5 Costs of holding stock and stock out Economic order quantity – combine two sets of costs – amount to order for a given time period

Stock Control – cont’d Initial Order Usage Pattern Maximum Stock Level Minimum Stock Level – aka buffer stock Reorder level Reorder Quantity Lead time Interpreting a stock control diagram – figure 5.5.6

Optimal Stock Levels In order to calculate, a business must consider: The market – growth, competitors, etc. The final product – single-use; fast-moving; high volume? The stock – perishable, storage space, etc. The infrastructure – Reliable? A need to stockpile? The finance - $ to buy? Credit with suppliers? Savings to buy in bulk? Human Resources – are additional people needed? Stock control – difficult to judge precisely

Capacity Utilization Rate Production managers need to know how efficient their operation is. Capacity Utilization Rate = Actual Output divided by Productive Capacity *100 Look at examples; businesses should aim for a high rate

Productivity Rate Measure of efficiency of production Productivity Rate = Total Output divided by Total Input * 100 Needs to be put into context, compared to industry averages, etc. Measure helps managers make decisions about action to be taken. If lower than industry averages – remedial action taken

Cost-to-buy v. Cost-to-make Related to topic of outsourcing – Chapter 5.4 Cost to Buy = Price * Quantity Cost to Make = Fixed Costs + (Variable Costs * Quantity) Look at example – page 381

Key Terms Supply Chain JIT – Just-in-time JIC – Just-in-case Buffer Stock Reorder level Reorder Quantity Lead time

Revision Checklist Read through checklist – page 383.