Production Planning and Supply Chain Management

Study Notes

Supply chain encompasses all activities from production to delivery to consumers.
Involves a network of suppliers, producers, and distributors.
Supply chain management (SCM) focuses on efficient management and control of these activities.
Global supply chains extend across multiple countries for sourcing and supplying goods.

Just in Time (JIT) aims to minimize stock holding by delivering inventory as needed, eliminating the need for buffer stock.
- Advantages: Reduces storage costs, minimizes obsolete stock, and fosters closer supplier relationships.
- Disadvantages: Relies on technology, can incur high transaction costs, and struggles with demand surges.
Just in Case (JIC) retains large stock levels to buffer against supply or demand fluctuations.
- Advantages: Economies of scale from bulk buying, ability to meet unexpected demand spikes, and immediate availability of spare parts.
- Disadvantages: Higher storage costs, risk of theft/damage, and tied-up capital.

Stocks consist of raw materials, work in progress, and finished goods.
Stock Control is crucial for maintaining balance and minimizing costs.
Key costs of stock-holding include opportunity cost, storage costs, and potential for wastage or obsolescence.
Stock Control Charts track max/min stock levels, reorder levels, and lead times.

Capacity Utilization Rate measures actual output vs. potential output, reflecting efficiency and idleness.
- High rates are crucial for firms with high fixed costs.
Defect Rate measures the percentage of substandard products, impacting quality assessment.
Productivity Rates evaluate efficiency in resource use, specifically labor and capital.
- Labour productivity examines output per worker.
- Capital productivity gauges output relative to the hours machines are in operation.

Firms weigh the financial implications of producing in-house versus outsourcing.
Cost formulas:
- Cost to Buy (CTB) = Price x Quantity.
- Cost to Make (CTM) = Fixed Costs + (Variable Cost per Unit x Quantity).
Decision factors extend beyond costs to include quality, production timelines, supplier reliability, and core competencies.