5.6 PRODUCTION PLANNING Flashcards
Supply Chain
The system of connected organizations, information, resources, and activities that a business needs to produce goods or provide services to its customers.
Two types of flows in the Supply Chain
- The flow from raw materials, to finish product, to costumer, via different stages of transformation.
- The flow of information
Two dimensions of the Supply Chain
- Logistics. The ‘hardware’. Example: trucks transporting oranges to the factory.
- Information and Communication: The software’. The databases and spreadsheets used by the administartive staff of the factory.
Local Supply Chain
- Short distance between producers and consumer.
- Fresher and more nutritious food.
- Less trasnport, less pollution, fewer transactions.
- Benefits local community
- More sustainable
Global Supply Chain
- Involves international trade
- Less sustainable and fresh
- Trading internationally is very profitable
- From an economics POV, trading internationally is essential because not every country produces every type of food.
Just In Time
- Stock brought from suppliers only when needed
- Beneficial for working capital. Business can use its money for day to day activties
- Reduces costs
- Reduces chance of holding stock that cannot be sold
- Less chance of damaged or ruined stock
- Creates more space for alternative production plans
- Closer relationship with suppliers
Just in Case
- Stock reserved in case it is needed.
- Reduces pressure on cashflow
- Reduces costs (bulk buying economies of scale)
- Possible to meet sudden changes in demand
- Provides spare parts
- No delivery issue or waiting time for customers
- Suppliers will not charge a premium price
Capacity Utilization Rate
Know how efficient their facilities are.
Formula: Acual output / Productive capacity x 100
Defect Rate
The percentage of output that fail to meet set quality standards. The lower the defect rate the better.
Formula: Number of defective units / Total output x 100
Productivty Rate
Measures of efficiency of production. Refers to the addes value of the business. Productivity rate batter if it is above industry avergae, if below concerning.
Total output / Total input x 100
Labour Productivity
Measures the efficiency of a worker. Shows the value of the output produced by a worker per unit of time.
Total output / Total hours worked
Capital Productivity
Measures the efficiency of the company’s capital, especially working capital.
Working capital: Current assets - Current liabilities
Working capital productivty: sales revenue / working capital
Operating Leverage
The ratio of fixed costs to variable costs
Formula: Quantity x (Price - Variable cost per unit) / Quantity x (Price - Variable cost per unit) - fixed costs
Cost to Buy and Cost to Make
CTB = P x Q
CTM = FC + (VC x Q)
Potential Problems in supply chain
Supply Chain Disruptions: Events such as natural disasters, pandemics, political unrest, or supplier bankruptcies can disrupt the flow of materials and goods, leading to delays and shortages.
Globalization Challenges: Operating in a global environment can introduce complexities related to logistics, currency fluctuations, cultural differences, and varying regulatory standards.
Demand Forecasting Difficulties: Accurately predicting customer demand is crucial for supply chain efficiency. Overestimating demand can lead to excess inventory, while underestimating can result in stockouts and lost sales.
Transportation and Logistics Issues: Transportation can be affected by fuel cost fluctuations, capacity constraints, and infrastructural deficiencies, impacting the timely and cost-effective movement of goods.
Quality Control Issues: Ensuring the quality of products across the supply chain, especially when dealing with multiple suppliers and manufacturers, can be challenging and requires robust quality control measures.
Cybersecurity Risks: As supply chains become more digitized, they become more vulnerable to cyberattacks, which can disrupt operations and compromise sensitive information.
Labor Issues: Labor disputes, shortages, or lack of skilled workers can disrupt supply chain operations, especially in labor-intensive sectors.
