Production planning practice questions.

Define the term 'lead time' as used in production planning.

• The time a product spends held as finished-goods inventory before sale
• The time between placing an order with a supplier and receiving the goods
• The time taken to convert raw materials into finished output on the line
• The buffer time added to a schedule to absorb unexpected disruptions

Answer: The time between placing an order with a supplier and receiving the goods

Lead time is the delay between ordering stock and its delivery; it is central to stock control because reorder points must cover demand during this period.

A firm consumes 40 units per day and its supplier's lead time is 5 days. It keeps a buffer stock of 60 units. Calculate the reorder level.

• 200 units
• 240 units
• 260 units
• 300 units

Answer: 260 units

Reorder level = (usage per day × lead time) + buffer stock = (40 × 5) + 60 = 200 + 60 = 260 units.

Which of the following is the main aim of a just-in-time (JIT) stock management system?

• To hold large buffer stocks so production never stops
• To minimise holding costs by receiving stock only as it is needed
• To maximise economies of scale through bulk ordering
• To increase the reorder quantity above the economic order quantity

Answer: To minimise holding costs by receiving stock only as it is needed

JIT reduces stock-holding (warehousing, insurance, obsolescence) costs by synchronising deliveries with production, though it raises dependence on reliable suppliers.

Distinguish between just-in-time (JIT) and just-in-case (JIC) stock control. Which statement is correct?

• JIC minimises buffer stock, whereas JIT holds large reserves
• JIT relies on buffer stock, whereas JIC eliminates it
• JIT orders stock as needed, whereas JIC holds buffer stock
• Both aim to hold maximum stock at all times to avoid stockouts

Answer: JIT orders stock as needed, whereas JIC holds buffer stock

JIT pulls stock in only when required to cut holding costs; JIC deliberately holds buffer stock as insurance against demand surges or supply disruption.

A stock-control chart shows the reorder level being reached but a delivery arriving late. What is the most likely consequence?

• Buffer stock rises above the maximum stock level
• The firm dips into buffer stock and risks a stockout
• Lead time is automatically shortened for the next order
• The economic order quantity increases

Answer: The firm dips into buffer stock and risks a stockout

Buffer (safety) stock exists precisely to cover late deliveries; a late delivery draws down this reserve and, if severe, causes a stockout halting production.

A factory produces 900 units against a maximum possible output of 1200 units. Calculate the capacity utilisation rate.

• 66.7%
• 75%
• 80%
• 133%

Answer: 75%

Capacity utilisation = (actual output ÷ maximum output) × 100 = (900 ÷ 1200) × 100 = 75%. Dividing the wrong way round (1200 ÷ 900) gives the tempting 133%.