5.6 production planning

define supply chain process

a system of connected organizations, information, resources and activities needed to produce goods and services and deliver to their end consumer

define local supply chain

a short distance between producer and consumer

define global supply chain

involves international trade and a large distance between producer and consumer

advantages of using local supply chains

food can be fresher, less transport, less pollution, less transactions, support local community

define just-in-time stock management

only buying stock when it is required, holding almost no extra stock, reduces costs and storage

define just-in-case stock management

having a reserve of stock which allows the ability to meet sudden changes in demand, less potential waiting time for customers

define the economic order quantity

the amount of stock that should be ordered to spend the minimum amount of money

define lead time

the amount of time it takes between ordering stock and receiving it

define buffer stock

the stock that is kept as reserve, or just in case

define reorder level

the level at which stock has to be to be reordered

define reorder quantity

the amount of stock that is ordered when reaching the reorder level

factors for finding the optimal stock levels

the market, the type of product, infrastructure, finances, human resources

define capacity utilization rate

how efficient a facility is

formula for capacity utilization rate

( actual output / productive capacity ) * 100

define defect rate

the amount of items that are defect and cannot be sold

formula for defect rate

(number of defective items / total output ) * 100

define productivity rate

a measure of efficiency of production

formula for productivity rate

(total output / total input ) * 100

define labour productivity

the efficiency of a worker

formula for labour productivity

total output / total hours worked

define capital productivity

the efficiency of using the company’s capital

formula for working capital

current assets - current liabilities

formula for working capital productivity

sales revenue / working capital

define operating leverage

measures how the total costs are made up of fixed costs and variable costs to calculate its use of fixed costs to generate profit

formula for operating leverage

(quantity (price - variable cost per unit) ) / ( quantity (price - variable cost per unit ) - fixed costs )

define cost to buy / cost to make

the business decision about whether the company should make the product or buy the parts

formula for cost to buy

price * quantity

formula for cost to make

fixed costs + (variable cost * quantity)