Question 11

Question 1

Characteristics of a normal distribution

Answer 1

• Bell curve that peaks at the mean
• Symmetric around the mean - mean, median, and mode are all equal and located at the center of the distribution
• Asymptotic: the tails of the distribution approach, but never touch, the horizontal axis, extending infinitely in both directions.
• Defined by mean and standard deviation: the mean determines the center of the distribution, while the standard deviation controls the spread.

Question 2

The normal distribution’s relation to safety stock

Answer 2

Determining the probability of stockouts

Safety stock is calculated to cover demand variations and lead time uncertainties, ensuring a certain service level (e.g., 95% or 99% service level)

Service level: the desired probability that inventory will not run out during lead time. For example, a 95% service level means there is a 95% chance of meeting demand without stockouts

Question 3

The process of calculating safety stock

Answer 3

1. Calculate standard deviation (sigma)
2. Chose service level (or calculate it)
3. Find corresponding safety factor (the numerical value used in the service function (based on the standard deviation or mean absolute deviation of the forecast) to provide a given level of customer service)
4. Calculate safety stock using: Safety stock = sigma * safety factor

Question 4

The process of calculating service levels

Answer 4

1. Calculate number of orders per year based on units used per year and order sizes:
   N=(units per year)/(order size)
2. Calculate service level:
   S.L.=(N -number of tolerable stockouts per year)/N*100

Question 5

Example of calculating service level

Answer 5

N = 1,000/100 = 10
S.L. = (10-1)/10*100 = 90%

Question 6

Spend Management

Answer 6

Managing the outflow of funds in order to buy goods and services. The term is intended to encompass such processes as outsourcing, procurement, e-procurement, and supply chain management

You need to know where you spend money to know where you can save money

Question 7

Spend Analysis

Answer 7

The starting point of strategic sourcing and creates the foundation for spend visibility, compliance, and control.

Spend analysis organizes procurement information via supplier hierarchies, commodity alignment, and spend amount, in order to:
* Ascertain true category spend.
* Identify strategic sourcing opportunities through demand aggregation and supplier rationalization.
* Identify expense reduction through increased compliance—in the form of vendor rebates, maverick spend, contract compliance, and budget variance

The goal of spend analysis is to aggregate and organise spend (i.e. transaction amounts) to analyse suppliers, divisions etc.

Question 8

Spend Leakage

Answer 8

Money spent on purchases that could have been optimized or avoided. This can include maverick spend, but also encompasses broader categories:
* Overpaying
* Overordering (larger quantities than needed)
* Inefficient processes

In detail:
* Overpaying for goods or services due to lack of negotiation or price benchmarking.
* Ordering unnecessary quantities or the wrong items due to poor inventory management.
* Inefficient processes leading to wasted time and resources.

Question 9

Maverick Spend

Answer 9

The percentage of purchases made outside existing corporate procurement agreements