Question 5 Flashcards
Aggregate inventory management
Managing inventories according to their classification, e.g. raw materials, semi-finished goods etc.
Cost and benefit of carrying inventory
Item inventory management
Managing inventory at item number level.
Use a ABC classification to decide how to manage each item number.
ABC classification
Helps decide the importance of each item and how they should be controlled.
Degree of control based on ABC value:
* A items about 20% of items, 80% of value
* B items about 30% of items, 15% of value
* C items about 50% of items, 5% of value
Differences between aggregate- and item inventory management
NB! Aggregate first, Item second
Focus: Overall inventory vs. end item
Scope: strategic (broad) vs. operational (detailed)
Level: SC vs. per item (SKU)
Objective: optimise inventory inventment and service level vs. ensure availability and control of specific items
Purpose: where to place inventory, how many, which functions and why vs. how to position SKUs, when and in which quantities to order
Types and functions of inventory
- Anticipation inventory
- Buffer inventory (safety stock)
- Cycle inventory
- Transportation inventory
- Hedge inventory
- De-coupling inventory
- Maintenance, repair, and overhaul inventory
Anticipation inventory
Anticipation of future demand, such as seasonality or promotional (LEGO produces throughout the year to save for Christmas)
Buffer inventory (safety stock)
Buffer against disruptions including:
* Inbalance between supply and demand
* Quality problems
* Lead time fluctuations
* Equipment or supply problems
Cycle inventory
Replenishment occurs in lots that are in excess of immediate demand. Can also be if you take advantage of discount cost or to minimize clerical and setup costs.
Transportation inventory
Inventory in transit (on e.g. trucks)
Hedge inventory
Carry extra inventory to mitigate risk of price changes (price inflation). Can be used for minerals which is traded in worldwide markets with price fluctuations
De-coupling inventory
Inventory held between operations to allow independence. Often SFG held between pull and push (e.g. manufacturing and assembly)
Maintenance, repair, and overhaul inventory
- Often determined from preventive maintenance schedules
- Buffer stocks often held for critical components
- Often located in stocking areas separate from production inventory
Spend Management
Managing the outflow of funds in order to buy goods and services - systematically managing a large and diverse supply base
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
Types of spend
Direct procurement: RM and production goods
Indirect procurement: goods and services and MRO:
* Maintenance = prevent issues
* Repair = fix issues that have already occurred
* Overhaul = restoration to near-new condition
Spend Analysis
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.
Spend Leakage
Money spent on purchases that could have been optimized or avoided. This can include maverick spend, but also encompasses broader categories:
* 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.
Maverick Spend
The percentage of purchases made outside existing corporate procurement agreements.
The procurement spend cube
Spend per sourcing category X spend per supplier X spend per internal budget holder (i.e. department)
ETLA in relation to spend
Spend analysis uses an ETLA approach: spend transaction data needs to be extracted and transformed, then loaded into a database and analysed
Extract
Information from the various IT systems
Transform
Normalize and enrich the data
- Quality of vendor data: same vendor might be entered differently for different transactions. There is a need to consolidate this spend and associate it with a “parent” company.
- Quality of transactional data: data might be poorly formatted and incomplete (duplicates, missing data or incorrect data)
- Quality of category schema: commodity schemas (classification system to organise items into categories) are too high-level. There is a need to adopt industry standard schemas
- Type of data enrichment needed: adding additional information to vendor data, such as credit- and quality ratings
Load
The data into a database
Analyse
Create a library of reports to mine the data.
- Running appropriate reports - reports are often questionable because data have not been enriched.
- “Slicing and dicing” data to look for spend patterns by supplier, by commodity etc.
