Definition
Overrun is a term commonly used in the production and manufacturing industries to describe a situation where the actual production exceeds the planned or authorized production limits. Various factors can contribute to overruns, including estimation errors during planning, a decrease in order size from customers, or intentional production beyond the initial scope to utilize excess materials and resources.
Examples
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Manufacturing Scenario: A car manufacturer planned to produce 10,000 vehicles in a quarter but ended up producing 10,500 due to incorrect estimation of raw material availability. This extra 500 vehicles represents the overrun.
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Printing Industry: A printing company scheduled to print 5,000 books but produced 5,200 to make use of additional paper already set up for the print run, leading to an overrun of 200 books.
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Software Development: A software project was expected to be completed with 10,000 lines of code, but due to overestimation of required functionality, the final product had 11,000 lines, indicating a 1,000-line overrun.
Frequently Asked Questions
What are the primary causes of production overruns?
Production overruns can be caused by estimation errors, adjustments in customer order sizes, and attempts to use up excess materials. Poor planning and lack of effective control measures can also contribute to overruns.
Are production overruns always negative?
Not necessarily. While often seen as problematic, overruns can sometimes lead to economies of scale and reduced costs-per-unit. However, consistent overruns may indicate inefficiencies that need to be addressed.
How can companies mitigate overruns?
Companies can mitigate overruns by improving forecasting accuracy, enhancing communication within the production process, implementing robust project management techniques, and maintaining a close watch on inventory levels.
What are the financial implications of production overruns?
Financially, overruns can lead to increased costs, wastage of resources, and potential losses if the excess products cannot be sold or utilized effectively.
Can overrun lead to overproduction?
Yes, overruns can lead to overproduction if the excess products produced cannot be matched with market demand, leading to excess inventory and potentially higher holding costs.
Related Terms
Overproduction: The production of more goods than the demand in the market, which often leads to excess inventory and increased storage costs.
Inventory Management: The supervision of non-capitalized assets (inventory) and stock items, aiming at maintaining the desired stock levels to prevent shortage or overrun.
Forecasting: The process of making predictions of future based on past and present data, crucial for production planning to avoid both shortages and overruns.
Lean Manufacturing: A systematic method for waste minimization within a manufacturing system, without sacrificing productivity, often used to avoid overruns.
Online References
- Investopedia on Overproduction
- Wikipedia on Production Planning
- Investopedia on Inventory Management
Suggested Books for Further Studies
- “Lean Production Simplified” by Pascal Dennis: A plain-language guide that explains lean production concepts and their efficiencies.
- “Operations Management” by Jay Heizer and Barry Render: This book covers the broad range of operations management aspects, including production planning and control.
- “Forecasting: Principles and Practice” by Rob J Hyndman and George Athanasopoulos: A comprehensive guide to forecasting methods suitable for practical applications.
Fundamentals of Overrun: Production and Inventory Management Basics Quiz
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