5.6 Production Planning (HL) Flashcards
5.6.1 The Local & Global Supply Chain Process
Define a “Supply Chain”
State the two main types of “Supply Chains” and for both provide its:
- Definition
- Two ADVANTAGES and DISADVANTAGES
Define ‘Supply Chain Management (SCM)’
Supply Chain Definition:
The network of the individuals, firms, resources, business operations, and technologies involved in the creation and sale of a particular good.
There are two main types of supply chains:
1. Local Supply Chain:
the short distances between producers, suppliers, and consumers within a confined location.
ADVANTAGES:
1. More efficient - take less time as it involves less transportation
2. Better impact on the environment, less pollution and shorter supply chains = improved corporate image
3. Less prone to disruptions and more sustainable
DISADVANTAGES:
1. Confined Location means smaller access to a variety of suppliers etc
2. Restricted Market - can’t move overseas etc
- Global Supply Chain:
The network between a firm and its suppliers and consumers that incorporates all transactions on an international level, from sourcing raw materials to supplying finished goods and services to customers. It involves the long distances.
ADVANTAGES:
1. More Cost Effective - due to the benefits of offshoring production
2. International trade - access to new markets and potential for growth
3. Create relationships with offshore suppliers, producers etc
DISADVANTAGES:
1. Impact on the environment - lower corporate image due to ethical standpoint
2. Less sustainable - more prone to risks of it being broken etc
3. Less Control
Supply Chain Management (SCM) Definition:
“managing and controlling the sequence of activities from the production of a product to it being delivered to the final customer”
5.6.3 Stock Control Charts
Name the ‘Three Types of Stock’
Define a ‘Stock Control Chart’ and what type of JI (just-in…) it relates to.
State and define the main aspects of a ‘Stock Control Chart’
Explain the ‘Main Drawback’ of a ‘Stock Control Chart’
There are three types of stock (or inventory):
1. Raw Materials - natural resources
2. Semi-finished goods - incomplete units of output
3. Finished Goods - completed products
An important aspect of just-in-case (JIC) is stock control (stock control chart).
STOCK CONTROL CHART:
A visual tool used to monitor and analyse a firm’s stock levels
The main aspects of a stock control chart are:
1. 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
- Reorder Level - the level of inventory when a firm is required to reorder its stock. This ensures new stock is delivered in time before stocks run out.
- Reorder Quantity - the amount of new stock that is ordered for production
- Usage Rate - this shows the speed (rate) at which stocks are used in the production process. increases during economic prosperity
- Lead Time - the timeframe (or time lag) from when a firm places an order for stock and receives delivery of the stock
Stock-out - when a business has no more stock for production or sale i.e it is out of stock.
Main Drawback:
Quite simplistic, so does not present things in reality. It doesn’t consider for instance, late deliveries, seasonal fluctuations in demand and production delays.
5.6.4 Capacity Utilisation Rate (A02,A04)
CAPACITY UTILISATION
Definition:
the extent to which an organization operates at its maximum level (known as the firm’s productive capacity). For instance wave pools. It is used as an indicator of productive efficiency.
CAPACITY UTILISATION RATE:
Definition:
The organization’s actual output as a percentage of its capacity (maximum potential output), at a particular point in time
Formula:
(Actual Ouput per period/ Full Capacity Output per Period) x 100
0% = no output = spare capacity
100% = all resources are used = full capacity
ADVANTAGES (of a ‘high capacity utilization”):
1. More Efficient - makes the most out of the use of its resources
2. Economies of Scale - higher capacity utilization is required to achieve economies of scale, making it more competitive
DISADVANTAGES (of a ‘high capacity utilization”):
1. Demotivation - Workers can become overworked
2. Machinery and capital equipment are likely to wear out and depreciate at a fast pace. This can result in higher costs for maintenance and replacement or repairs.
3. As workers focus on the quantity or volume of output, it is possible that the overall quality will suffer.
5.6.5 Defect Rate (A02,A04)
Define the term ‘Defect’
Define the term ‘Defect Rate’
Outline the two different ways ‘Defect Rate’ can be measured
State the two formulas for the ‘Defect Rate’
State two DISADVANTAGES of a ‘High Defect Rate’
DEFECT
Definition:
The output that is substandard i.e that does not meet certain quality standards. It often has to be re-produced, which wastes time, resources and money. It also damages corporate reputation.
DEFECT RATE
Definition:
The proportion of a firm’s output that is substandard (doesn’t meet quality standards).
It can be measured in two ways…
1. Number of faulty products as a proportional of total output as per QA process
2. The number of products that fail benchmark tests as a proportion of the number of products that are tested as part of the quality control (QC) process.
Hence, FORMULA:
- FOR QUALITY ASSURANCE:
(Defected output ÷ Total output) × 100 - FOR QUALITY CONTROL:
(Defected output ÷ Output tested) × 100
DISADVANTAGES of a ‘High Defect Rate’:
1. Damage to Corporate Reputation - loss of trust in firm’s ability to deliver quality products, lower customer satisfaction
2. Increased Costs - Defects need to be reproduced and will produce waste, product recalls etc, increasing operational costs.
3. Legal Consequences - defective products may cause harm to consumers, resulting in lawsuits, fines etc.
5.6.6 Operating Leverage (A02,A04)
Define the term ‘Labour Productivity’
State its Formula
Define the term ‘Capital Productivity’
State its two different Formulas
Define the term ‘Operating Leverage ((otherwise referred to as ‘Degree of Operating Leverage)’
State what it helps a firm discover
Name whether you want it to be high or low and what this means for the firm
State its Formula
LABOUR PRODUCTIVITY
Definition:
the average output per worker, for a given period of time. Can be expressed in terms of output and input sales revenue or output.
Formula:
Total Output/Total Labour Input
CAPITAL PRODUCTIVITY
Definition:
how efficiently an organization’s fixed assets are used to generate output for the business.
Formula:
(Total output ÷ Total capital input) × 100
OR
(Total output ÷ Machine hours)
PRODUCTIVITY RATE
Definition:
how well things are done in terms of a ratio between the volume of output and the volume of inputs during a given time period. Inputs can refer to labour, capital, or any other factor resource in the production process. E.g output produced per hour
Formula:
(Total output ÷ Total input)
OR
(Total output ÷ Total input) × 100
OPERATING LEVERAGE (otherwise referred to as ‘Degree of Operating Leverage)
Definition:
A firm’s total fixed costs as a proportion of its total variable costs. Hence, a business with relatively high fixed costs has high operating leverage. It shows how well a firm is using its fixed-cost items to generate profits.
It helps a firm to determine if they have too many fixed costs (more risk) or too many variable costs (less risk).
A higher degree of operating leverage ratio tends to be better for businesses. If a firm’s operating leverage is less than 1.0, this means it costs the business more to produce something than it earns in profits. This suggests that the business needs to reassess its pricing methods.
FORMULA:
Q (P – V) / Q (P – V) – F
Where:
Q = Quantity (the number of units sold or produced)
P = Price per unit
V = Variable cost per unit
F = Fixed costs (or total fixed costs
EXTRA INFORMATION:
If a firm has a low degree of operating leverage due to the majority of its production costs being variable costs, this could suggest the firm would benefit from automation.
Operating Income = Gross profit − Operating expenses
