5.6 Production Planning

• Just in time (JIT) is a Japanese stock management method where stocks are delivered when they are needed with minimum levels of stock held.
• Just in case (JIC) is when large amounts of stock are stored in case of supply or demand fluctuations.
• Inventories can include raw materials, work in progress and finished goods.
• Stockpiling is holding excess stock.
• Stock-outs is holding insufficient stock.
• Supply chain management refers to the sequence of activities from a production of a good/service to its delivery.
• Fast moving consumer goods need to have more available stock due to high stock turnover.
• Consumer durables or perishables are purchased infrequently and therefore less stock is needed.
• Lead time, seasonal fluctuations and the high opportunity cost of stockpiling can influence the amount of stock needed.
• Capacity utilisation is the ratio of the total output of a business compared to its potential output.
• Capacity utilisation rate=actual output / productive capacity x 100
• Defect rate = defective output / total output x 100
• Resources + Productivity = Production
• Productivity refers to how well resources are used in production to create outputs.
• Productivity can be measured by labour productivity, capital productivity, productivity rate etc.
• Productivity rate = total output / total input
• Labour productivity = total output / number of workers
• Capital productivity = total output / number of capital hours
• Operating leverage measures a businesses' fixed costs as a percentage of variable costs.
• A firm with relatively high fixed costs has high operating leverage.
• A firm with relatively low fixed costs has low operating leverage.
• Determinants of productivity rates (TRIES): Technology, Rivalry, Innovation, Entrepreneurship, Skills & Experience
• Cost to buy is the cost for a business to purchase a product to sell from an external supplier.
• Cost to make is the cost for a business to produce a product themselves to sell over buying from an external supplier.