Production planning • One of the main issues to production planning is to try and keep a minimal of stock to keep costs down while making sure to meet customers demands. (Can be hard with seasonal things (Christmas trees) • Businesses need to realize their optimal stock levels (the best number of a product to keep on hand) as well as having flexible staff and good planning to deal with problems quickly. • Stock control (inventories = stock) • Raw materials – natural resources used for production • Work-in-progress – semi-finished or unfinished products • Finished goods (ready to sell) All production businesses will have to make sure to have enough stock to not hold up production while not having to much on hand.
Cost of holding too much stock • Storage costs (rent , insurance and security) • Stock may be flammable or tempting for theft • Some things like food can be perishable • Some stock in illiquid (hard to turn into working capital • Stock may become obsolete if new devices are developed • Some things (clothes) may go out of fashion Stockpiling is creating a lot of something and keeping it to sell later
Costs of not holding enough stock • Risk of selling out of a product. (opportunity cost) • Production stops because of missing a key raw material. Can lead to higher costs because workers are being paid but not producing • Business may end up paying more for raw materials because many small orders are made instead of large orders for products. • Damaged corporate image because customers can not receive their products on time
Just in case stock control (JIC) • Buffer stock (reserve stock ) is used on all levels raw materials, semi-finished goods and finished goods incase of a change in demand or supply. Can be good but can also lead to overstocking and working capital problems. • Advantages of JIC • Can easily meet higher demand • Can speed up production when necessary • Large purchases taking advantage of economies of scale. • Reduce downtime because of a lack of raw materials. Drawbacks are lack of opportunity cost as well as storage costs.
Just in time stock control (JIT) • A system where supplies are ordered and the product is assembled when an order is placed for a product. Is useful when a business wants to stay flexible. Is largely reliant on automation. Advantages of JIT • Reduces holding costs (rent, storage……) • Money is not tied up in stock or raw materials • Lowers break-even point • Makes companies flexible and respondent to changes in the businesses world. • Employees may be more motivated because they tend to be more involved in decision process • Waste should be lessened because perishable stock will not go bad. • Can help with suppliers relationship because they become dependent on fast service. Limitations of JIT • Businesses can become very reliant on outside suppliers. • No mistakes can happen during production since no time for reworking is given quality must be acceptable the first time. Also automation in system must be very reliable. • Increase levels of demand can be hard for a business to deal with • Hard to take advantage of economies of scale because business order much smaller amounts. • Administration costs increase because of placing and receiving larger numbers of orders • Workforce and management must both believe in the system for it to work properly.
Production planning and Business strategy • Proper production planning can lead to higher profits for a business by reducing costs as well as possible lower prices for the customer. Very important for businesses to make sure that they can meet the demands of their customers in the process. • Marketing and production departments will work together to determine the optimal level of production for a business. (makes sure over or under stock does not take place) • Most businesses will keep some level of buffer stock but this level is determined by many factors (nature of business, nature of suppliers, nature of customers, cost of storage ………. • Businesses that use outsourcing need to be careful that they still remain involved in the production department. They are still ultimately held responsible for anything that goes wrong. • Improved productivity is also dependent on: quality management, staff training and motivation as well as proper waste management. • Timing of production is also important to make sure that products are ready on time.