5.5+Production+Planning

= 5.7 PRODUCTION PLANNING = __**KEY WORDS:**__ STOCKPILING JUST-IN-CASE JUST-IN-TIME BUFFER STOCK LEAD TIME MAXIMUM STOCK LEVEL MINIMUM STOCK LEVEL REORDER LEVEL ECONOMIC ORDER QUANTITY CAPACITY UTILIZATION PRODUCTIVE CAPACITY OUTSOURCE SUBCONTRACT OFF SHORING

__Stock Control__ : Stock is part of the 'factor inputs' that are required to make the 'quality output' & can come in 3 main shapes : [1] raw materials whether it be very raw //ie wheat grains,// or semi-raw //as in flour,// [2] work-in-progress //ie the dough for bread// [3] final output //eg the bread loaf.// But there is little difference between the 3 in terms of the key question with stock control - ** ie how much should we keep in storage. **

Consider this everyday example....

These answers lie at the heart of Stock Control - consider....
 * Holding too much stock** : [1] uses up a lot of space [2] increases the chances of damage/depreciation [3] creates inflexibility as it limits your liquidity with cash being used up in stock
 * Holding too little stock** : [1] any unexpected demand will be unfilled, and this creates poor customer relationships [2] stock will have to be delivered on a far more regular basis, which not only increases the chance of error, but also the costs of delivery [3] workers/machinery can be left idle if stocks run out and there is nothing for them to do.

So the questions for the Production Manager in charge of stock control are - how much to do I store?
 * 4 key Leading questions **, that can provide us with the right answer are ..
 * 1) how reliable are my suppliers?
 * 2) how predictable is the demand for my product?
 * 3) how risky is it for me to store my stock (in terms of going obsolete, deterioration, etc)
 * 4) how liquid is my firm?

The attachment below indicates how the answers to the Leading Questions might determine how much stock to hold

...................................... There are business terms for the opposing ideas regarding stock control

[1] **Just in Time (JIT)**: This system involves holding minimum amount of stock. You only order in raw materials just before you need to use them, your production is efficient and completed quickly so little work-in-progress exists & you try only produce output that you know will sell quickly. //Ordered 'Just in Time' to use, produced 'Just in Time' to sell.//
 * by (instead of 'but' in the caption above]

[2] **Just in Case (JIC)** : This system involves holding larger quantities of stock. More raw materials - to save on delivery expenses etc, more work-in-progress as production may take longer than a single shift, and more output as shelves are filled and large shop floors are opened. //Ordered 'Just in Case' there is a future problem with suppliers, then we have large amounts stocks to keep us going, produced 'Just in Case' there is a positive change in demand then we have output to satisfy this new demand quickly.//



COMMON ERROR In order to know which is better between JIC or JIT, you need to know to context of the business. It is not true that JIT is generally cheaper nor quicker - sometimes yes, sometimes no. .................................... __//** Stock Control Charts **//__

This topic is learnt around the drawing of a graph. No matter what system you use - JIT or JIC - the graph will have the same basic structure, only the numbers on the axis will change and the angle of the plotted points could too.Below is a step by step guide on how to draw a Stock Control Graph... So thats it..... here are the key points:
 * error in Graph 4 : '5 stock arrive'- not 6.
 * JIT will have a small Buffer Stock v JIC large
 * JIT smaller lead time v JIC larger
 * JIT smaller re-order quantity

Graphically this is how they would compare....



Notice that when the stock arrives stock levels shoot up //horizontally//!
 * A typical error** when drawing is putting all lines //at an angle//.

__**LIMITATION**__: Although these graphs do give a useful visual image, it is very unlikely that any stock will be used up in such a neat consistent and orderly fashion. The practical use of a graph like this is limited, the ideas it represents is more useful.

................... __//** Economic Order Quantity **//__

You have probably guessed by now that the answer to 'so how much stock does Manager A of FirmX actually hold?'is : "it depends". As an academic excercise we do have a graph we use to identify the 'Economic Order Quantity'- which is basically the best Order level to have, but the graph has no numbers on the axis - it is really just an academic idea.

It is based on the idea of wanting to '**minimize costs**' (financial and otherwise) and that ..
 * __ holding __ __stock__ (ie choosing JIC, and ignoring JIT) has costs, //ie damaged & depreciated stock// //, extra rent etc etc //
 * __not__ holding stock (ie preferring JIT and ignoring JIC) also has costs //ie lost orders, higher delivery charges etc//

The graph looks like this....


 * A =** Holding Stock (JIC philosophy). //Very little stock =// //very little cost// & this climbs as you hold more stock (notice the rise is not proportional nor uniform, for reasons we don't need to go into)
 * B =** Not holding stock (JIT philosophy). //Very little stock =// //high costs// & then as you hold more and more stock these costs fall

Total Costs = the aggregate of A+B. C is the point at which your Total Costs are lowest. Your Economic Order Quantity. Your ideal level of stock, where the dis/advantages of JIT & JIC are balanced.

//Like i said before, the axis' are not numbered. Its a theoretical idea - managers should be aiming for EOQ, although they might never really know where it is for their firm and their stock.//

//And if they do, it might change at any time.//

The answers to the Stock Control 'Leading Questions' from earlier, will again have an impact on where the EOQ is for each different firm.

............................... __//**Capacity Utilization**//__ This is about how well are we using our resources.

'Utilizing' means 'Using'.

There is a definition : A MEASURE OF THE __ CURRENT LEVEL __ OF OUTPUT OF A FIRM– IN RELATION TO ITS __ MAXIMUM POSSIBLE LEVEL __ OF OUTPUT

And a formula: = __ ACTUAL PRODUCTION __ x 100 PRODUCTIVE CAPACITY

see the attachment for a simple example that gives a 3% Capacity Utilization

Capacity Utilization can be measured with any resources... Needless to say, Managers will want their resources being used to full Capacity Utilization.** It is more efficient to get your current resources working better, than have to purchase extra resources **. Though as in the elevator idea, you don't want to __over__work, the result would be eg tired workers - and falling productivity, worn-out machines that break down regularly etc.

The key practical question would then be ... HOW DO MANAGERS IMPROVE THE CAPACITY UTILIZATION OF THEIR RESOURCES?

The answers to that question, will be determined by the answer to this question ... WHAT FACTORS AFFECT THE CAPACITY UTILIZATION OF A RESOURCE?

............................... //THIS REMAINS AN IMPORTANT TOPIC BUT NOW FALLS UNDER 5.3 PRODUCTION & LOCATION'// ............................... //Should we produce a good ourselves or allow others to produce it and simply buy it from them. The 'good' in this case may be a part of the final product (potatoes in a restaurant meal, or ball bearings in a car engine etc etc) or the final product itself, and we simply act as retailer (eg the completed frozen meal sold via a supermarket).//
 * __ Outsource & Subcontracting __ : **
 * __Make or Buy Decisions__ :**

//There is no real theory or precise formulae - its just to flag up an important decision in production - that being, should we produce a good at all?// //Perhaps just stick to the 'service' element -and buy the goods in. Let someone else produce them.//

//The simple formula is this :// //if..... __C__ost __T__o __M__ake >// //__C__ost __T__o __B__uy .... then you don't make it, you buy it!// and vice versa.

The real life difficulty of course would be calculating the Costs exactly. Quantitative & Qualitative issues would need to be considered. ...............................

WHY MIGHT THE HUMANITIES DEPARTMENT BE STRICT ABOUT CONTROLLING THEIR WATER STOCK?

...............................

AND TO FINISH : WIERD BUT TRUE: