5.6 - Production Planning

Supply Chain

Refers to the network of individuals, organizations, resources, and activities involved in the creation of a product from source material to its eventual delivery to the end user

Supply Chain Management (SCM)

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

Aspects of Supply Chain Process

• Stock control

• Purchasing

• Quality Management

• Supplier network management

• Transportation/Logistics

• Distribution Channels

The importance of supply chain management

Effective SCM can:

• ensure that an appropriate quantity of stock is ordered

• facilitate selling to customers globally

• reduce lead times for customers

• spread risks

• minimise disruptions and delays

• avoid quality issues

Stock Control Charts

Used to graphically illustrate a simplistic system of stock contron in a business

Economies of scale (Cost savings)

Higher levels of producitivity and hence output to reduce the average costs of production

Earning (higher profits and wages)

Higher productivity rates are a source of cost savings and higher profits for businesses

Efficiency (improved competitiveness)

Highly productive more productive, they can compete more effectively on an international scale

Evolution (growth)

A higher productivity rate is a source of growth for businesses because it increases their productive capacity

Importance of Productivity

The 4 E’s

• Economies of scale (cost savings)

• Earnings (higher profits and wages)

• Efficiency (improved competitiveness)

• Evolution (growth)

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

Implications of a high operating leverage

• The business has a considerable amount of fixed costs to cover

• However, they make a high amount of contribution on each unit sold

• The business is vulnerable if sales fall due to external factos as they still have a high level of fixed costs to cover

  • therefore a fall in sales has a relatively large impact on the pro