5.6 Production planning

A supply chain links suppliers, production, distribution and customers; managing it coordinates material, information and cash flows across organisations.

Lead times, quality, dependency and visibility determine resilience. A local saving can increase total cost if it creates delays or defects elsewhere.

Map the chain, identify the constraint and ask how a change affects total flow rather than one stage.

A manufacturer changes supplier for a lower unit price but delivery variability causes stoppages and expediting costs.

Supply chain management is broader than purchasing; upstream and downstream effects matter.

Just-in-time keeps inventory low by receiving inputs near use; just-in-case holds buffers against uncertainty. The choice balances carrying cost with disruption risk.

JIT needs reliable suppliers and predictable flow; JIC protects continuity but ties up cash and may hide waste. Hybrid buffers can protect critical items.

Identify uncertainty and the cost of stockout versus holding stock before choosing the policy.

A hospital keeps emergency masks as JIC but orders routine stationery JIT.

JIT is not “no inventory,” and JIC is not automatically inefficient.

Stock control charts track inventory over time, showing maximum, reorder and minimum levels; the reorder point should allow for lead time and demand uncertainty.

Usage, delivery reliability and safety stock determine when to order. A chart is useful only if data and lead times are current.

Read the stock level against reorder and minimum lines, then explain the consequence of ordering now or later.

If stock falls to the reorder level while supplier lead time is ten days, the order should cover expected demand plus safety stock for variability.

A reorder line is not a guarantee against stockout when demand or delivery changes.

Productivity measures output per unit of input; capacity measures the maximum sustainable output under stated conditions. They reveal efficiency and constraints but are not identical.

Productivity can rise by improving methods or cutting inputs; capacity utilisation compares actual output with capacity. Pushing utilisation too high can reduce resilience and quality.

State the denominator and capacity assumption, then interpret the operational cause and trade-off.

A plant produces 8,000 units with 100 labour-hours: 80 units per labour-hour. At 95% utilisation, a small breakdown may delay every order.

Higher productivity or utilisation is not automatically better if quality, safety or flexibility falls.

A make-or-buy decision compares producing an input internally with purchasing it, using relevant costs, capacity, quality, control, reliability and strategic dependence.

Avoidable variable and fixed costs matter; allocated overhead that remains after outsourcing should not drive the decision. Supplier risk and opportunity cost can outweigh a lower quoted price.

Compare relevant total cost at the required volume, then include capacity released, quality, lead time and dependency.

Buying a component saves $2 per unit but uses a supplier with long lead times; if internal capacity could make a higher-margin product, the opportunity cost changes the answer.

The lowest purchase price is not automatically the lowest total or strategic cost.