3.1 Inventory Management

Question 1

What is the Sawtooth model? What does it do?

Some help:
Safety stock?
RLT?
AS?
ROP?

Answer 1

• helps in material planning based on calculating the reorder point (ROP)
• inventory is used over time until ROP, then we order a certain quantity
• ROP = (planned) demand per day * replenishment time in days + safety stock
• order interval: moment you order until next order
• replenishment lead time: order until delivered

Question 2

What what the different order mechanisms?

1.
2.
3.
4.

Answer 2

1. fix Q (quantity) + flexible S (stock) = reorder point method (order fixed Q when min stock is reached)
2. variable order Q + flexible S = order at min stock level; fill up to predefined stock level
3. fix Q + fix S = very rigid; order fix Q according to time schedule
4. variable S, fix Q = order on schedule; fill up to predefined stock level

Question 3

What causes fluctuations of the stock?

1.
2.
3.

Answer 3

1. change in demand rate: faster fall, faster under safety stock
2. delivery time takes too long; after delivery then we dont reach max inventory
3. demand and delivery same, but poor quality

Question 4

Tell to the following Safety Stock levels whether they are sufficient for a Re order point of 5,000 pcs, a consumption of 300 pcs per day, and a RLT of 12 days.

1. SS = 3,600
2. SS= 1,200
3. SS= 3,150

Answer 4

12*300 = 3,600 consumption during RLT

5,000-3,600 = 1,400 safey stock

1. not enough
2. enough
3. not enough

Question 5

What are drivers that determine the Lot sizes for the following roles:

1. Purchasing Manager
2. Warehouse Manager
3. Quality Manager

Answer 5

1. • scale effects due to larger Quantity (high)
   • transportation costs, lower when Q high (high)
   • expediting and postponing of orders (high)
   • capital bound is smaller when small POs (purchase order, low)
2. • packing Qs, due to transportation securing instructions (high)
   • inventory costs, high when high PO lot sizes (does NOT affect handling) (low)
3. • obsolence (veralterung) of stock due to high PO, (low)
   • process costs lower when high PO, e.g. inspections (high)Det

Question 6

Determination of Lot Sizes

1. Expediting of Orders
2. Postponement of Orders

Answer 6

1. needing more, earlier than agreed
2. e.g. when you need later than agreed; try keeping PO low and lot size HIGH

Question 7

Delivery services measures….

Delivery service level consists of…
1.
2.

Answer 7

…. the punctuality of deliveries

1. readiness for delivery: ability to deliver immediately from stock (only for make-to-stock or retail)
2. delivery reliability (DR): ability to meet deadlines including make-to-order, engineer to order etc

DR: qty of products, delivered at the date which had been confirmed first / qty of confirmed products

Question 8

1. Determination of the delivery service is a balance between…
2. The goal here is to minimize…

Answer 8

1. shortfall costs and inventory costs
2. the sum of shortfall costs and inventory/storage costs

Question 9

Shortfall costs….

1.
2.
3.

Answer 9

• correspond to either the contribution margin or the cost of special measures
• option 1: accept the loss of delivery service and the costs that result from it (SFC= Contribution margin * QTY); also in long term due to lost reputation
• option 2: delivery service constant due to contermeasures (SFC= costs for e.g. special transport + surcharge for higher procurement DMC (direct material costs) + additional administrative expenditure)

Question 10

1. Purchase to Pay (P2P) is often used synonymously with…
2. Its components are… (6)
3. these processes are based upon…

Answer 10

1. operational purchasing
2. Solicitation of quotations -> order -> open order mngmt -> goods receipt -> invoice receival & verification -> payment
3. the strategic sourcing (supplier mngmnt & procurement concepts

Question 11

1. The P2P purchase is important for….
2. And its objectives are…
3. Its challenges are…. (5)

Answer 11

1. material availability and cash flow
2. provision of required material according to planned (replenishment-) time, agreed quality and agreed amount
3. sometimes long thorughput time of process; many critical tasks / activities; involvement of many departments of a company; deviations frequently followed by severe consequences; important for the cash flow of a company bc you have payment targets

Question 12

P2P process | What are….

1. solicitation of quotations?
2. placement of order?
3. open order management?

Answer 12

1. transmission of RFQ (requests for quotations) to selected suppliers, which will be assed and the best ones chosen
2. transmission of order with specification to agreed Quantities and schedules, based on quotation or contract (transmissioned via mail, IT systems, platforms)
3. revision of order ; check for errors and then accept; revision of milestones, determination of corrective actions in case of deviations (first check supplier side then itnernally)

Question 13

P2P process | What is…

4. goods receipt
5. invoice receival & verification
6. payment

Answer 13

4. goods arrive; are inspected according to criteria; release or blocking of goods; booking what has been delivered, need to do validation first(; transfer to stock or receiving department)
5. receive invoice; check, release invoice for payment
6. payment according to terms; if applicablem utilize cash discounts

Question 14

What are the different possiblities of E procurement?

1.
2.
3.

Answer 14

1. sell-side / supplier systems, which are provided by supplier or seller (eg amazon)
2. buy-side / procurement systems, which are provided by purchasing company (eg dektop purchasing systems)
3. market place, provided by third party (eg amazon market place)

Question 15

Whats a tender? what are the different options here?

1.
2.
3.
4.

Answer 15

• ausschreibung
• can be made by contracting authorities (public or restricted) or private enterprises
• public tender: award procedure; against corruption and everyone has access; generally needs to make public
• restricted tender: only with special reason and for limited companies Wh(eg only big companies have the capabilites /capacity)

Question 16

Whats the process of a tender?

1.
2.
3.
4.
5.
6.
7.

Answer 16

1. specification of requirements (functional, what the product can do or non-functional, like delivery terms)
2. analyze supplier market and place RFQs
3. solicitate quotations and assess and compare quotations
4. initial assessment and qualification of potential suppliers; eg get more info about them
5. negotiation and conclustion of contract
6. supplier development; continouos monitoring and reporting; optimize process
7. ordering / processing

Question 17

If the rounding quantity specified by the vendor for purchase orders is greater than the minimum quantity, the minimum quantity can be ignored in all calculations.

Right or Wrong?

Answer 17

RIGHT!!

Question 18

The inventory costs of a company consist of the capital costs, depreciation costs and the warehousing costs.

Right or Wrong?

Answer 18

Right

Question 19

RIght or Wrong: To determine a cost of capital rate for calculating the cost of capital, you must know the equity and debt capital interest rates, of which the arithmetic mean is calculated.

Answer 19

Wrong