5.6 Production Planning (HL) Flashcards
Supply Chain
-Refers to the network of the individuals, firms, resources, business operations, and technologies involved in the creation and sale of a particular good
Supply Chain Management
-Is the art of managing and controlling the sequence of activities from the production of a product to it being delivered to the final customer.
Local Supply Chain
-Refers to short distances between producers, suppliers, and consumers within a confined location, such as the same city, district, or country.
Global Supply Chain
-Refers to 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.
Just-in-time (JIT)
-Lean method of stock control which relies on deliveries of stock (inventory) being made just in time for them to be used in the production process.
-Removes the costs of holding buffer stocks (minimum stock levels) which elimates the need for storage and costs of maintenance and insurance.
Advantages of Just-in-time
-The system eliminates the need for buffer stocks, so it minimizes storage costs as stocks are delivered as and when required in the production process.
-The firm’s liquidity position improves, as cash is not tied up in inventory, improving cash flow position.
-Help to improve an organization’s competitiveness due to lower costs of stock management and improved product quality.
Disadvantages of Just-in-time
-Due to smaller order quantities, economies of scale are less likely to be achieved.
-The system relies heavily on technology to ensure efficient stock control and movement, but this can be very expensive and vulnerable to technical faults and breakdowns.
-Effectiveness depends on the efficiency and reliability of third-party suppliers.
Just-in-case (JIC)
-A stock control system relies on the use of reserve or buffer stocks to meet changing levels of demand. By keeping large quantities of stock, the firm can meet unexpected orders quickly, thus meeting the needs of their customers.
What business should use JIC
Appropriate for firms that use durable, rather than perishable, stocks.
Advantages of JIC stock control
-flexible enough to accommodate any sudden and unexpected increase in the demand for a product.
-As a reserve or buffer stock exists, production can continue even if suppliers deliver stocks late.
-Prevents a loss of customers and maintains customer satisfaction because their needs are being met.
Disadvantages of JIC stock control
-There are additional costs associated with JIC, which can include insurance and maintenance (including security) of stocks.
-Stocks are also subject to damage or theft.
-Unsuitable for stock management of perishable products such as fresh produce (fruits and vegetables) and livestock products.
Capacity utilisation
-Refers to the extent to which an organization operates at its maximum level.
Capacity Utilisation Rate
-Measures the organization’s actual output as a percentage of its capacity at a particular point in time.
Advantages of high capacity utilisation
-Achieve more economies of scale.
-Higher capacity utilization can help to reduce a firm’s unit costs, making it more competitive.
-Lower average costs of production from economies of scale are also likely to lead to higher profits for the business.
Disadvantages of high capacity utilisation
-Workers can become overworked, so become exhausted, stressed and demotivated as they work flat out.
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.
Improving capacity utilization may involve upgrading IT systems and technologies. However, this can be extremely costly.
Economies of Scale
are the cost-saving benefits that firms enjoy as they enlarge their operations
Defect
refers to output that is substandard, i.e., does not meet the quality standards expected, such as faulty products that are not fit for their purpose.
How can defect rate be measured?
The number of products that are faulty expressed as a proportional of total output as part of the quality assurance process.
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 process.
Defect rate equation
Defect rate = (Defected output ÷ Total output) × 100
Disadvantages of high defect rate
Damage to the organization’s reputation - High defect rates can lead to a poor reputation for the business. Customers may lose trust in the firm’s ability to deliver quality goods and services.
Increased Costs - Dealing with defects often requires additional resources for potential product recalls, rework, and quality control.
Waste - Producing defective products means wasting materials, time, and labour. This inefficiency can harm the firm’s liquidity position and its competitiveness
Labour Productivity
Refers to the output per worker using an output to input ratio for a given time period
Capital Productivity
Expresses the total output of a business using an output to input ratio for a given time period
Capital Productivity Equation
(Total output ÷ Total capital input) × 100
Capital productivity (output per machine hour)
Total output ÷ Machine hours
