Unit 5, Section 6: Production Planning (HL Only)

Buffer stock

The minimum stock level that a firm wishes to hold at any point in time.

Capacity utilisation

Refers to the extent to which an organization operates at its maximum level (known as the firm's productive capacity).

capacity utilisation rate

Measures a firm's actual output as a percentage of its capacity (maximum potential output), at a particular point in time.

Capital productivity

This measures how efficiently an organization's fixed assets are used to generate output for the business.

cost to buy

In a 'make or buy decision', this method calculates the total cost of subcontracting production to a third-party supplier.

cost to make

In a 'make or buy decision', this method calculates the total cost of producing the product in-house, instead of using a third-party provider.

defect

This means that output (goods or services) is substandard, i.e., it does not meet certain quality standards.

defect rate

This is a measure of the proportion of a firm's output that does not meet quality standards, i.e., it is the percentage of output that is substandard.

finished goods

Completed final products of a business that are ready to be sold to consumers.

Global Supply Chain

This 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.

J-I-C (just in case)

A stock control system that relies on the use of reserve or buffer stocks in order to meet changing levels of demand.

J-I-T (just in time)

A lean stock control system that relies on deliveries of stock being made just in time for them to be used in the production process.

Labour productivity

This measures the average output per worker, for a given period of time.

lead time

The timeframe (or time lag) from when a business places an order for stock and the firm receiving delivery of the stock.

make or buy decision

The choice of managers whether to manufacture a product in-house (make) or to purchase it (buy) from a third-party subcontractor

maximum stock level

The most amount of stock that a firm wants to hold at any point in time, given its storage facilities and capacity.

minimum stock level

Also known as the buffer stock, this refers to the lowest amount of stocks that a firm chooses to hold as a precautionary measure for production purposes.

Operating Leverage

This is a measure of a firm's total fixed costs as a proportion of its total variable costs. Hence, a business with relatively high fixed costs has high operating leverage.

production planning

This is the management process of ensuring a business has the right resources at the right time to produce goods and supply services to meet the demands of its customers.

productive capacity

The maximum level that a firm is able to operate at, given the resources it has.

productivity

Refers to the level of efficiency in the production process. The more productive resources are, the more output they generate.

Productivity rate

This measures the extent to which a firm uses its resources in the production process, such as output per worker or output per machine hour.

raw materials

Natural resources used in the production process, e.g., wood, fish, physical land, and water.

reorder level

The level of inventory when a firm is required to reorder its stock.

Reorder quantity

The amount of new stock that is ordered for production.

semi-finished product

Inventory consisting of work-in-progress, i.e., components of an incomplete product.

Stock control chart

A visual tool used to monitor and analyse a firm's stock levels. It shows the rate at which stocks are used, when stocks are order, how long they take to be distributed, and when they are delivered.

stock-out

This occurs when a business has no more stock for production or sale, i.e., it is out of stock.

stockpiling

This occurs if a business orders more stock than it would usually do, perhaps in anticipation of higher levels of demand during economically prosperous times, such as peak trading periods.

stocks

Also referred to as inventories, this refers to the materials, components, and products used in the production process, i.e., raw materials, semi-finished goods, and finished goods.

supply chain

This refers to the various phases of business operations from the output of a product to it being distributed to the final customer.

Supply Chain Management

The art of managing and controlling the sequence of activities from the production of a product to it being delivered to the end customer.

usage rate

the quantity consumed or the number of store visits during a specific period