IB Business Management 5.6 Production Planning Key Definitions

Buffer stock is the minimum inventory level maintained to prevent stockouts during unexpected demand spikes or supply delays.

Capacity Utilization Rate measures how much of your production capacity is being used.

Capital productivity measures output relative to capital investment.

The total expense incurred when purchasing goods or services from an external supplier.

The total expense incurred when producing goods or services internally.

Defect rate measures the percentage of defective products in total production.

JIC is the traditional approach to inventory management, where businesses maintain a buffer stock to handle unexpected demand or supply chain disruptions.

JIT is an inventory management system where materials and products are produced or sourced only when needed.

Labour productivity measures output per worker over a specific period.

Lead time is the delay between placing an order and receiving goods.

Operating leverage measures how fixed costs impact profitability as output levels change.

Productivity rate measures overall efficiency by combining labor, capital, and resource utilization.

The reorder level is the inventory level at which a new order must be placed to replenish stock before it runs out.

Reorder quantity is the amount of stock ordered each time to replenish inventory.

Reshoring involves relocating production back to the home country to address supply chain risks or enhance brand reputation.

Scalability refers to a business’s ability to grow and expand its operations without a proportional increase in costs.

Supply chain management involves coordinating all activities required to produce and deliver a product, from raw materials to the final customer.