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CIPS L4M7 - Whole-life asset management > Chapter 2.2 > Flashcards

Chapter 2.2 Flashcards

1
Q

Acquisition costs

A

The cost of procuring and receiving the goods

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2
Q

Holding costs

A

The costs of physically holding the inventory

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3
Q

Liquidity

A

A solvency measure to determine whether an organisation is able to meet its liabilities (short-term debts) when they come due from net current assets

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4
Q

EDI (electronic data interchange)

A

The computer-to-computer exchange of business documents in electronic format between business partners. It is the electronic communication of information that was traditionally communicated on paper, such as purchase orders and invoices

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5
Q

ERP (Enterprise resource planning)

A

Business process management software that uses a system of integrated applications to manage the business and automate many back-office functions

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6
Q

Who values the inventory itself as an asset?

A

Generally Accepted Accounting Practice (GAAP)

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7
Q

Name 15 ordering or acquisition costs

A
  1. Preparing the requisition
  2. Supplier selection and approvals
  3. The time and costs of the procurement process
  4. The IT ordering platform
  5. Other EDI links to suppliers
  6. Preparing the purchase order
  7. The cost of the ERP system time
  8. Printed stationery
  9. Progressing or chasing the order
  10. Receiving and receipting the goods
  11. The cost of the materials or goods
  12. Handling
  13. Inspection or part approval and management of sub-standard goods
  14. Dealing with mismatched receipts and wrong invoices
  15. Approval and payment of invoices
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8
Q

What 3 main groups can acquisition costs be summarised in to?

A
  1. Preliminary costs
  2. Placement costs
  3. Post-placement costs
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9
Q

Preliminary costs

A

Costs associated with actions before raising the purchase order

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10
Q

Placement costs

A

The cost of raising the purchase order ad ensuring the supplier receives it

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11
Q

Post-placement costs

A

The cost after the purchase order has been raised, necessary to get the goods to the requestor and payment to the supplier

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12
Q

Purchase invoice matching system (PIMS)

A

A system which automatically compares purchase orders with the delivery note and the supplier invoice, automatically matching, approving and paying low-value invoices

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13
Q

Purchasing Card (Procurement card)

A

Essentially a credit card owned by the company that enables an officer to make low-value purchases without the need for formal requisitions and purchase orders

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14
Q

What model do acquisition costs follow?

A

The typical procure-to-pay (P2P) model

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15
Q

Name the 8 steps of the P2P process

A
  1. Requirement planning
  2. Request for quotation
  3. Creation of purchase order
  4. Goods receipt
  5. Preparation of goofs receipt
  6. Creation of payment invoice
  7. Payment
  8. Reporting
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16
Q

What adds up to the total cost of acquisition?

A

Every stage of the P2P process

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17
Q

Holding costs / carrying costs

A

Costs associated with the storage and handling of physical stock

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18
Q

Name 2 costs associated with storage and handling of the inventory

A

Holding costs or carrying costs

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19
Q

What are the two types of holding costs

A
  1. Costs are related to the value of the goods
  2. Costs related to the physical characteristics of thi inventory
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20
Q

Name 6 costs related to the value of the inventory

A
  1. Financial costs, the interest on the working capital tied up in inventory, which may be he bank borrowing rate or the company’s target for return on capital
  2. Cost of insurance
  3. Losses due to product deterioration
  4. Losses due to obsolescence and redundancy of inventory
  5. Loses due to theft, accidental damage
  6. Cost associated with security
21
Q

Name 6 costs related to the physical characteristics of the inventory

A
  1. Storage space
  2. Power, heat and lighting
  3. Movement equipment
  4. Labour costs
  5. Costs of scrapping and physical disposal of inventory
  6. Administration costs
22
Q

Name 3 costs associated with a stockout

A
  1. Loss of production output
  2. Costs of machine downtime and of overheads spread over a reduced level of output
  3. Costs of any action required to deal with the stockout
23
Q

Name 4 costs of any action required to deal with the stockout

A
  1. Buying from another more expensive supplier
  2. Paying more for urgent delivery of replacement items
  3. Switching to another form of production
  4. Using alternative parts or materials which may incur extra costs due to a need to quality check, sample and approve them
24
Q

What 3 things may there still be even when the stockout has been remedied

A
  1. Loss of customer goodwill through inability to supply or late delivery
  2. Loss of sales or new orders
  3. Loss of market credibility
25
Q

Key performance indicators (KPIs)

A

Measurable values that will enable a buyer to track how well a supplier is performing. KPIs are tracked over time and will enable the buyer to decide when remedial action may be needed to improve performance

26
Q

Supplier relationship management (SRM)

A

Holistic management of relationships formed between buyers and suppliers based on the criticality of the goods or services being procured

27
Q

Name the 8 options to reduce costs while mitigating any negative impact on service levels

A
  1. Using lead times and costs of holding as part of a price evaluation
  2. Strategically placed safety stock
  3. Vendor-owned stock
  4. Increased overall inventory levels
  5. Understanding demands and seasonal/ad hoc fluctuations leading to more accurate forecasting
  6. Sourcing decisions based on supplier performance not just purchased prices
  7. Using KPIs to improve supply performance and eliminate the bottlenecks
  8. Robust supplier relationship management using agreed KPIs to drive continuous supply chain improvements
28
Q

What 2 things can influence a contract award decision

A
  1. Taking order lead times
  2. The costs of holding inventory
29
Q

Will holding extra stock always improve customer service levels?

A

Yes and it reduces the risk of them falling - the higher the service level target the greater the requirement for larger amounts of safety stock

30
Q

How can you determine the optimum amount of safety stock to be held?

A

Carry out a statistical analysis of orders and lead time data to establish averages and the range of normal deviation from the average

31
Q

Name a 3 step risk management approach

A
  1. Assess the risk, which is the combination of likelihood and severity of impact
  2. Assess the cost of mitigating the risk
  3. The difference between the expected demand inventory levels and the point at which the likely and potential cost of stockout falls below the cost of holding additional inventory defines the safety stock
32
Q

What is the reorder point?

A

The point at which the inventory matches the safety stock level

33
Q

How can you make safety stock rapidly accessible?

A

There will be a through-flow, with stock to be used next as close to the point of use as practical, standard inventory held possibly slightly further away and safety stock coming in as new stock in the central store

34
Q

What might you do where production capacity is limited or expensive to increase

A

Have safety stock placed within the sequence of production operations to minimise any effects of this bottleneck process breaking down

35
Q

What method can assist in determining sensible stock holding levels?

A

ABC classification

36
Q

Vendor managed inventory (VMI)

A

Inventory owned by the buying organisation that is monitored and managed by the supplier to ensure that adequate supply provision is made in line with usage and forward demand

37
Q

When is there an increased risk of stockouts if insufficient inventory is held

A

Wherever there is a large number of unique stock keeping units coupled with independent demand

38
Q

What is consignment stock

A

Source products from one supplier who maintains a stock of these parts ready to be used at the point of customer consumption.The supplier owns the stock until it is used by the purchaser only then is the purchaser invoiced for it

39
Q

Describe checks and restocking levels of consignment stock

A

The supplier does weekly or twice weekly stock checks and restocking levels are agreed and automatic

40
Q

What cost does consignment stock share

A

The costs of stockholding between the supplier and the purchaser

41
Q

What part do insurance costs sit with when it comes to consignment stock

A

Either party depending on the contract agreed between them

42
Q

Whats the most obvious method of reducing risks to service delivery

A

To increase the inventory level overall

43
Q

What do you need to do to predict the future demands and manage the variations

A

Past data needs to be combined with any new or changing influences

44
Q

What does the degree of fluctuation of demand levels influence?

A

How much extra supply chain capacity and/or inventory safety stock needs to be available so it can be accessed at need

45
Q

How can you reduce the need to carry as much buffer stock?

A

By having additional suppliers to meet increased demand

46
Q

What has greatly reduced costs with increased service levels?

A

The widespread adoption of just in time

47
Q

Whole-life cost

A

An estimate used to help buyers determine the end-to-end cost of providing a service, manufacturing or procuring a product. Also commonly referred to as total cost of ownership (TCO) or total life cycle costs (LCC). The use of the terms vary dependent on industry and sector

48
Q

Should you make sourcing decisions based on supplier performance not just prcie?

A

Yes

49
Q

What does driving continuous improvement with suppliers been long proven to do?

A

Increase performance and drive out costs by eliminating waste, and eliminating constraints in the supply chain

CIPS L4M7 - Whole-life asset management (9 decks)

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