Unit 5.6: Production planning

Question 1

Buffer stock

Answer 1

Refers to the minimum stock level held by a business in case there are unexpected events. e.g late deliveries of components or a sudden increase in demand

Question 2

Capacity utilisation

Answer 2

measures a firm’s existing level of output as a proportion of its potential output

Question 3

Capital productivity

Answer 3

measures how well a firm uses its physical capital in order to produce goods and services.

Question 4

Cost to buy (CTB)

Answer 4

Refers to the expenses or expenditure to purchase a product from a third-party or outsourced supplier

Question 5

Cost to make (CTM)

Answer 5

refers to the expenses or expenditure required to manufacture a good or service in-house

Question 6

Defect rate

Answer 6

Measures the proportion of output, per time period, that is substandard

Question 7

Economic order quantity

Answer 7

the optimum stock level that ensures there are sufficient stocks for uninterrupted production, whilst minimising the costs of holding inventory

Question 8

Global supply chains

Answer 8

refer to the networks that span multiple countries and regions for the purpose of sourcing and supplying goods and services

Question 9

Just in case (JIC)

Answer 9

Is the traditional stock control system that maintains large amounts of stock in case there are supply or demand fluctuations

Question 10

Just in time (JIT)

Answer 10

Is a stock control system based on stocks being delivered as and when the are needed in the production process.

Question 11

Labour productivity

Answer 11

Is a measure of the efficiency of a firm’s workers by calculating the output per worker

Question 12

Lead time

Answer 12

measures the duration between placing an order and receiving it. The longer the lead time, the high buffer stocks tend to be

Question 13

Maximum stock level

Answer 13

Refers to the upper limit of inventories that a firm wishes to hold at any point in time, depending on its capacity and facilities

Question 14

Minimum stock level

Answer 14

refers to the lowest amount of inventories that a business wishes to hold as a precautionary measure

Question 15

Operating leverage

Answer 15

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

Question 16

Production planning

Answer 16

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.

Question 17

Productive capacity

Answer 17

refers to a firm’s maximum (potential) output if all of its resources are used fully and efficiently

Question 18

Productivity

Answer 18

refers to how well resources, such as labour or capital are used in the production process

Question 19

The productivity rate

Answer 19

measures the degree of efficiency in the use of resources in the production process. It uses an average measure. e.g output per workers, or output per machine hour

Question 20

Reorder level

Answer 20

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

Question 21

Reorder quantity

Answer 21

refers to the amount of new stock ordered. This can be seen on a stock control chart by calculating the difference between the maximum and minimum stock levels

Question 22

Stock control charts

Answer 22

Are visual tools used to graphically illustrate a simplistic system of stock control in a business

Question 23

A stock-out

Answer 23

occurs if a business does not hold enough stocks to meet orders for production

Question 24

Stockpiling

Answer 24

occurs when a business over-produces so holds too much stock, so it is detrimental to the firm’s cash flow position.

Question 25

Stocks (or inventories)

Answer 25

Are the materials, components and products used in the production process. i.e raw materials, semi-finished goods and finished goods

Question 26

Supply chain

Answer 26

refers to the different stages of activities from the production of a good or service to it being distributed to the end consumer

Question 27

Supply chain management (SCM)

Answer 27

is the art of managing and controlling these activities, which must be efficient and cost effective for a business to be profitable

Question 28

Usage rate

Answer 28

Refers to the speed at which stocks are depleted. The higher the usage rate, the more frequent reordering of stocks needs to be