Chapter 5.6 - Production Planning Flashcards
Buffer stock
Refers to the minimum stock level held by a business in case there are unexpected events
(late deliveries of components or a sudden increase in demand)
Capacity utilization
Measures a firm’s existing level of output as a proportion of its potential output
Capital productivity
Measures how well a firm uses its physical capital in order to produce goods and services
Cost to buy (CTB)
Refers to the expenses or expenditure required to manufacture a good or service in-house
Defect rate
Measures the proportion of output, per time period, that is substandard
Cost to make (CTM)
Refers to the expenses or expenditure required to manufacturer a good or service in-house
Economic order quantity
The optimum stock level that ensures there are sufficient stocks for uninterrupted production whilst minimizing the costs of holding inventory
Global supply chains
Refer to the networks that span multiple countries and regions for the purpose of sourcing and supplying goods and services
Just-in-case (JIC)
The traditional stock control system that maintains large amounts of stock in case there are supply or demand fluctuations
Just-in-time (JIT)
A stock control system based on stocks being delivered as and when they are needed in the production process
Labor productivity
A measure of the efficiency of a firm’s workers by calculating the output per worker
Lead time
Measures the duration between placing an order and receiving it. The longer the lead time, the higher buffer stocks tend to be
Make-or-buy decisions
Refer to situations where a firm has to decide between manufacturing a product and purchasing it from a supplier, based on comparing the cost to make (CTM) with the cost to buy (CTB)
Maximum stock level
Refers to the upper limit of inventories that a firm wishes to hold at any point in time
Minimum stock level
Refers to the lowest amount of inventory that a business wishes to hold as a precautionary measure
Operating leverage
Measures a firm’s fixed costs as a percentage of variable costs. A firm with relatively high fixed costs is said to have high operating leverage
Production planning
Refers to the management process of ensuring sufficient resources (inputs) are available for use to create finished products (outputs) in a timely manner to meet the needs of customers
Productive capacity
Refers to a firm’s maximum (potential) output if all its resources are used fully and efficiently
Productivity
Refers to how well resources, such as labor or capital, are used in the production process
Productivity rate
Measures the degree of efficiency in the use of resources in the production process. It uses an average measure (output per worker)
Reorder level
Refers to the level of stock when a new order is placed. Lead times mean that the reorder level helps to prevent production problems arising from a lack of stock
Reorder quantity
Refers to the amount of new stock ordered. This can be seen from a stock control chart by calculating the difference between the maximum and minimum stock levels
Stock control charts
Visual tools used to graphically illustrate a simplistic system of stock control in a business
Stock-out
Occurs if a business does not hold enough stock to meet orders for production
