5.5 Production Planning Flashcards
Supply Chain Process
A sequence of activities that start from the extraction of raw material, to production, to distributors and to the hands of consumers
Just in Time (JIT)
a stock management system where finished goods are delivered as soon as they have been produced, thereby eliminating storage costs (however, is inflexible for sudden increases in demand)
Just in Case (JIC)
a stock management system that maintains large amounts of reserve (buffer) stock in case there are supply or demand fluctuations (however, there are higher storage costs)
Stockpiling
holding large volumes of stock (tends to happen in anticipation of higher levels of demand)
Stock out
when a business runs out of stock (both production and sales must stop)
Maximum stock level
the most amount of stock that a firm wants to hold at any point in time, given its storage facilities and capacity
Buffer Stock
the minimum stock level that a firm wishes to hold at any point in time (used with JIC if there is an unexpected increase in orders, late deliveries from suppliers, or damaged stocks)
Reorder level
the level of inventory when a firm is required to reorder its stock to ensure new stock is delivered in time before it runs out
Reorder quantity
the amount of new stock that is ordered
Usage rate
the speed (rate) at which stocks are used in the production process (stock/ period of time)
Lead time
the time frame from when a firm places an order for stock and receiving the delivery
Capacity utilization rate
measures a firm’s existing level of output as a proportion of its potential output
Capacity utilization importance
spreads out fixed and indirect costs of production over a large level of output
Capacity utilization formula
actual output/ productive output x 100
Productivity rate
measures the efficiency of the production process (how well a business uses its resources to generate output)
