O P E RAT I O N S M A N AG E M E N T

PRODUCTION PLANNING

PRODUCTION PLANNING

• Explain the difference between JIT/JIC• Explain and analyse the appropriateness of

traditional stock control (usage patterns, lead times, buffer stocks and re-order levels); optimum stock levels; capacity utilization• Explain/discuss outsourcing and subcontracting• Make appropriate calculations to support a make-

or-buy decision

• Read setting the scene – pg 369

STOCK CONTROL • Stock (inventory) materials and goods required to allow for the

production of and supply of products to the customer.

Manufacturing businesses will hold stocks in three distinct forms:

• Raw materials and components. These will have been purchased from outside suppliers. They will be held in stock until they are used in the production process.

• Work in progress. At any one time the production process will be converting raw materials and components into finished goods and these are ‘work in progress’. For some firms, such as construction businesses, this will be the main form of stocks held. Batch production tends to have high work-in-progress levels.

• Finished goods. Having been through the complete production process goods may then be held in stock until sold and dispatched to the customer.

COSTS OF STOCK

COSTS OF NOT HOLDING STOCK

OPTIMUM STOCK LEVELS

CONTROLLING STOCK LEVELS

BUFFER STOCK

MAX. STOCK LEVEL

RE-ORDER QUANTITY AND LEAD TIME

REORDER

STOCK LEVELS

JIT V JIC

JIC

Just In Case: The traditional view of holding stock was to hold high stock levels, especially of raw materials and finished goods, to meet unexpected situations such as:• failure of supplying firm to deliver on time• production problems halting output• increased consumer demand.

JIC

• The stock level does not necessarily follow regular and consistent patterns. The strength of sales is shown in the slope of the line. Strong sales lead to stocks being quickly depleted - steeply sloping lines. Weak sales lead to stocks being slowly depleted and  less steeply sloping lines. A run of unexpected sales or supply chain interruptions can lead to stock outs.

JIT

• Just In Time (JIT) requires that no buffer stocks are held, components arrive just as they are needed on the production line and finished goods are delivered to customers as soon as they are completed.

JIT

JIT may not be suitable for all firms at all times:There may be limits to the application of JIT if the costs resulting from production being halted when supplies do not arrive far exceed the costs of holding buffer stocks of key components.Small firms could argue that the expensive IT systems needed to operate JIT effectively cannot be justified by the potential cost savings. In addition, rising global inflation makes holding stocks of raw materials more beneficial as it may be cheaper to buy a large quantity now than smaller quantities in the future when prices have risen.Similarly, higher oil prices will make frequent and small deliveries of materials and components more expensive.

JIT

CAPACITY UTILISATION

CAPACITY UTILISATION

EFFECT ON AVERAGE FIXED COSTS

NEGATIVES OF OPERATING AT FULL CAPACITY

EXCESS CAPACITY

CAPACITY SHORTAGE

CAPACITY SHORTAGE

OUTSOURCING

OUTSOURCING

LIMITATIONS OF OUTSOURCING

LIMITATIONS OF OUTSOURCING

MAKE OR BUY?

MAKE OR BUY?