Production planning

Question 1

Define supply chain.

Answer 1

The steps involved in creating finished goods.

Question 2

Define supply chain management.

Answer 2

The process of working with suppliers to ensure reliable and quality production and delivery of components and final goods.

Question 3

What factors do supply chain managers consider when selecting suppliers?

Answer 3

• Impact on multiple stakeholders
• Cost
• Reliability
• Product quality
• Lead times

Question 4

Define procurement.

Answer 4

The processes required to acquire the necessary resources to conduct operations.

Question 5

Advantages of local supply chains.

Answer 5

• Greater control
• Lower transport costs
• Local-social and global-ecological benefits

Question 6

Disadvantage of local supply chains.

Answer 6

• Higher production costs
• Less choice

Question 7

What is a key benefit of global supply chains?

Answer 7

Greater choice of potential suppliers.

Question 8

What is one major risk associated with global supply chains?

Answer 8

Greater risk due to exposure to geopolitical tensions.

Question 9

Define just-in-time (JIT) production.

Answer 9

Strategy where inputs are ordered and delivered immediately before their use, so stock can be minimised.

Question 10

Benefits and limitations of JIT production.

Answer 10

Benefits: improved cash flow and reduces costs; improved operations; increased capacity.
Limitations: reduced economies of scale; high risk; reduced resilience (unable to adapt to changes in internal and external environment).

Question 11

Define just-in-case (JIC) stock control.

Answer 11

Strategy where businesses hold large levels of buffer stocks (additional quantities of stock) so that they can continue to operate when faced with an unforeseen event.

Question 12

Define stock control chart.

Answer 12

A tool to monitor and analyze stock levels and control costs.

Question 13

Define maximum stock level.

Answer 13

The total amount of inventory a company wishes to hold.

Question 14

What is capital productivity?

Answer 14

How efficiently a business utilizes its capital to generate output.

Question 15

What is the defect rate?

Answer 15

The percentage of output that does not meet expected quality standards.

Question 16

How can high operating leverage affect a business?

Answer 16

It makes it more difficult to break even and affects how sales revenue changes impact profits.

Question 17

Fill in the blank: The productivity rate measures the average efficiency of production expressed as a ratio of ______ to inputs.

Answer 17

[output]

Question 18

What is the formula for calculating average cost?

Answer 18

Total costs divided by total output.

Question 19

What is the relationship between productivity and unit costs?

Answer 19

Higher productivity generally leads to lower unit costs.

Question 20

What are buffer stocks?

Answer 20

Additional quantities of stock kept by a company in case of need.

Question 21

What is the significance of economies of scale in production?

Answer 21

Larger quantities ordered can reduce costs.

Question 22

What is operating leverage?

Answer 22

The degree to which a company can increase profits by increasing sales.

It is calculated based on fixed and variable costs.

Question 23

How is operating leverage calculated?

Answer 23

Operating leverage = (Price x Quantity - Variable Costs) / (Price x Quantity - Variable Costs - Fixed Costs)

This formula helps determine the impact of sales changes on profits.

Question 24

What is capacity utilisation?

Answer 24

The percentage of a company’s total capacity that is currently being used.

High capacity utilisation can lead to reduced average fixed costs.

Question 25

What is the formula for capital utilisation rate?

Answer 25

Capacity utilisation = (Current output / Maximum potential output) x 100 ## Footnote This indicates how much of the total capacity is being utilized.

Question 26

What does high capacity utilisation indicate for a business?

Answer 26

Efficient use of resources, potentially lower average costs, and increased profits. ## Footnote Important for businesses with high fixed costs.

Question 27

What are the fixed costs for a biscuit manufacturer in the example?

Answer 27

$800,000 ## Footnote These costs remain constant regardless of production volume.

Question 28

What is the variable cost per packet of biscuits in the example?

Answer 28

$0.04 ## Footnote Variable costs depend on the number of packets sold.

Question 29

What is the significance of a 1.25 operating leverage?

Answer 29

A 10% increase in sales results in a 12.5% increase in profits. ## Footnote Indicates the sensitivity of profits to sales changes.

Question 30

What is 'spare capacity'?

Answer 30

Potential additional output that is not currently being realized. ## Footnote For example, empty hotel rooms represent spare capacity.

Question 31

What are the quantitative factors affecting make or buy decisions?

Answer 31

* Total and average costs * Defect rates * Capacity utilisation * Productivity rates * Cost of logistics * Capital expenditure * Profitability ## Footnote These factors are numerical and measurable.

Question 32

What are the qualitative factors affecting make or buy decisions?

Answer 32

* Quality management * Reputation and public relations * Ethical implications * Availability of factors of production * Changing demand * Supply chain reliability * Specialisation ## Footnote These factors involve subjective assessments.

Question 33

What is the cost to make (CTM)?

Answer 33

CTM = (average variable costs x quantity) + fixed costs ## Footnote This represents the total cost of in-house production.

Question 34

What is the cost to buy (CTB)?

Answer 34

CTB = price x quantity ## Footnote This is the total cost for outsourcing production.

Question 35

What is one reason a business might choose to make a product?

Answer 35

Quality and cost control through vertical integration. ## Footnote Ensures better management of production standards.

Question 36

What is a reason a business might choose to buy a product?

Answer 36

Specialisation and expertise from subcontractors. ## Footnote Outsourcing can provide access to skills not available in-house.

Question 37

What does high capacity utilisation mean for a hotel?

Answer 37

The hotel is effectively using its resources, which can lead to lower average costs. ## Footnote Essential for covering high fixed costs in urban settings.

Question 38

What is the downside of extremely high capacity utilisation?

Answer 38

Increased stress levels on staff and potential quality drops. ## Footnote Can lead to operational issues like burnout or service delays.

Question 39

Fill in the blank: Capacity is the _______.

Answer 39

[Maximum possible output] ## Footnote This refers to the total production capability of a company.

Question 40

Fill in the blank: Output is the _______.

Answer 40

[Current level of output at a point in time] ## Footnote Reflects the actual production level achieved.

Question 41

Benefits and limitations of JIC stock control.

Answer 41

Benefits: resilience; economies of scale; less risk. Limitations: less working capital; higher storage costs; waste.

Question 42

Define lead time.

Answer 42

The time it takes a supplier to fulfil and order (the difference between when an order is placed and when it is delivered).

Question 43

Define reorder level.

Answer 43

The point when new stock is ordered from a supplier. It considers the lead time and buffer stock level.

Question 44

Define reorder quantity.

Answer 44

The amount of stock that is ordered from a supplier.