1. Production Planning(HL)
Unit 5.5
Production Planning(HL)

2. By the end of the chapter You should be able to…
Comment on the Supply Chain process
Distinguish between Just-in-time and Just-in-case
Interpret a Stock control chart
Calculate a capacity utilization rate
Interpret Productivity Rates
Distinguish between Cost to buy (CTB) and Cost to Make (CTM)

3. The Supply Chain Process
The wide system of connected organizations (suppliers), information (orders), resources (raw materials), and operations (transport) that a business needs to produce goods and provide services to customers.
Supply chain has two dimensions
Logistics – hardware of supply chain
Information & communication – software of supply chain
Study figure – relationships within supply chain

4. Just-in-time v. Just-in-case
Just-in-case – traditional method of stock control; holding reserve of both raw materials and finished product to be able to respond to an increase in demand
Just-in-time – Modern method of stock control; avoids holding stock – get supplies only when needed to produce just when ordered.
Arguments for and against – see table 5.5.1

5. Stock Control Two issues:
Cost of not having stock when required – lost orders, expensive emergency deliveries
Cost of holding too much stock
Figure Costs of holding stock and stock out
Economic order quantity – combine two sets of costs – amount to order for a given time period

6. Stock Control – cont’d Initial Order Usage Pattern Maximum Stock Level
Minimum Stock Level – aka buffer stock
Reorder level
Reorder Quantity
Lead time
Interpreting a stock control diagram – figure 5.5.6

7. Optimal Stock Levels In order to calculate, a business must consider:
The market – growth, competitors, etc.
The final product – single-use; fast-moving; high volume?
The stock – perishable, storage space, etc.
The infrastructure – Reliable? A need to stockpile?
The finance - $ to buy? Credit with suppliers? Savings to buy in bulk?
Human Resources – are additional people needed?
Stock control – difficult to judge precisely

8. Capacity Utilization Rate
Production managers need to know how efficient their operation is.
Capacity Utilization Rate =
Actual Output divided by Productive Capacity *100
Look at examples; businesses should aim for a high rate

9. Productivity Rate Measure of efficiency of production
Productivity Rate = Total Output divided by Total Input * 100
Needs to be put into context, compared to industry averages, etc.
Measure helps managers make decisions about action to be taken.
If lower than industry averages – remedial action taken

10. Cost-to-buy v. Cost-to-make
Related to topic of outsourcing – Chapter 5.4
Cost to Buy = Price * Quantity
Cost to Make = Fixed Costs + (Variable Costs * Quantity)
Look at example – page 381

11. Key Terms Supply Chain JIT – Just-in-time JIC – Just-in-case
Buffer Stock
Reorder level
Reorder Quantity
Lead time

12. Revision Checklist
Read through checklist – page 383.