Production planning Flashcards
Define supply chain.
The steps involved in creating finished goods.
Define supply chain management.
The process of working with suppliers to ensure reliable and quality production and delivery of components and final goods.
What factors do supply chain managers consider when selecting suppliers?
- Impact on multiple stakeholders
- Cost
- Reliability
- Product quality
- Lead times
Define procurement.
The processes required to acquire the necessary resources to conduct operations.
Advantages of local supply chains.
- Greater control
- Lower transport costs
- Local-social and global-ecological benefits
Disadvantage of local supply chains.
- Higher production costs
- Less choice
What is a key benefit of global supply chains?
Greater choice of potential suppliers.
What is one major risk associated with global supply chains?
Greater risk due to exposure to geopolitical tensions.
Define just-in-time (JIT) production.
Strategy where inputs are ordered and delivered immediately before their use, so stock can be minimised.
Benefits and limitations of JIT production.
Benefits: improved cash flow and reduces costs; improved operations; increased capacity.
Limitations: reduced economies of scale; high risk; reduced resilience (unable to adapt to changes in internal and external environment).
Define just-in-case (JIC) stock control.
Strategy where businesses hold large levels of buffer stocks (additional quantities of stock) so that they can continue to operate when faced with an unforeseen event.
Define stock control chart.
A tool to monitor and analyze stock levels and control costs.
Define maximum stock level.
The total amount of inventory a company wishes to hold.
What is capital productivity?
How efficiently a business utilizes its capital to generate output.
What is the defect rate?
The percentage of output that does not meet expected quality standards.
How can high operating leverage affect a business?
It makes it more difficult to break even and affects how sales revenue changes impact profits.
Fill in the blank: The productivity rate measures the average efficiency of production expressed as a ratio of ______ to inputs.
[output]
What is the formula for calculating average cost?
Total costs divided by total output.
What is the relationship between productivity and unit costs?
Higher productivity generally leads to lower unit costs.
What are buffer stocks?
Additional quantities of stock kept by a company in case of need.
What is the significance of economies of scale in production?
Larger quantities ordered can reduce costs.
What is operating leverage?
The degree to which a company can increase profits by increasing sales.
It is calculated based on fixed and variable costs.
How is operating leverage calculated?
Operating leverage = (Price x Quantity - Variable Costs) / (Price x Quantity - Variable Costs - Fixed Costs)
This formula helps determine the impact of sales changes on profits.
What is capacity utilisation?
The percentage of a company’s total capacity that is currently being used.
High capacity utilisation can lead to reduced average fixed costs.
What is the formula for capital utilisation rate?
Capacity utilisation = (Current output / Maximum potential output) x 100
This indicates how much of the total capacity is being utilized.
What does high capacity utilisation indicate for a business?
Efficient use of resources, potentially lower average costs, and increased profits.
Important for businesses with high fixed costs.
What are the fixed costs for a biscuit manufacturer in the example?
$800,000
These costs remain constant regardless of production volume.
What is the variable cost per packet of biscuits in the example?
$0.04
Variable costs depend on the number of packets sold.
What is the significance of a 1.25 operating leverage?
A 10% increase in sales results in a 12.5% increase in profits.
Indicates the sensitivity of profits to sales changes.
What is ‘spare capacity’?
Potential additional output that is not currently being realized.
For example, empty hotel rooms represent spare capacity.
What are the quantitative factors affecting make or buy decisions?
- Total and average costs
- Defect rates
- Capacity utilisation
- Productivity rates
- Cost of logistics
- Capital expenditure
- Profitability
These factors are numerical and measurable.
What are the qualitative factors affecting make or buy decisions?
- Quality management
- Reputation and public relations
- Ethical implications
- Availability of factors of production
- Changing demand
- Supply chain reliability
- Specialisation
These factors involve subjective assessments.
What is the cost to make (CTM)?
CTM = (average variable costs x quantity) + fixed costs
This represents the total cost of in-house production.
What is the cost to buy (CTB)?
CTB = price x quantity
This is the total cost for outsourcing production.
What is one reason a business might choose to make a product?
Quality and cost control through vertical integration.
Ensures better management of production standards.
What is a reason a business might choose to buy a product?
Specialisation and expertise from subcontractors.
Outsourcing can provide access to skills not available in-house.
What does high capacity utilisation mean for a hotel?
The hotel is effectively using its resources, which can lead to lower average costs.
Essential for covering high fixed costs in urban settings.
What is the downside of extremely high capacity utilisation?
Increased stress levels on staff and potential quality drops.
Can lead to operational issues like burnout or service delays.
Fill in the blank: Capacity is the _______.
[Maximum possible output]
This refers to the total production capability of a company.
Fill in the blank: Output is the _______.
[Current level of output at a point in time]
Reflects the actual production level achieved.
Benefits and limitations of JIC stock control.
Benefits: resilience; economies of scale; less risk.
Limitations: less working capital; higher storage costs; waste.
Define lead time.
The time it takes a supplier to fulfil and order (the difference between when an order is placed and when it is delivered).
Define reorder level.
The point when new stock is ordered from a supplier. It considers the lead time and buffer stock level.
Define reorder quantity.
The amount of stock that is ordered from a supplier.
