Question 5

Question 1

Aggregate inventory management

Answer 1

Managing inventories according to their classification, e.g. raw materials, semi-finished goods etc.

Cost and benefit of carrying inventory

Question 2

Item inventory management

Answer 2

Managing inventory at item number level.

Use a ABC classification to decide how to manage each item number.

Question 3

ABC classification

Answer 3

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

Question 4

Differences between aggregate- and item inventory management

Answer 4

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

Question 5

Types and functions of inventory

Answer 5

1. Anticipation inventory
2. Buffer inventory (safety stock)
3. Cycle inventory
4. Transportation inventory
5. Hedge inventory
6. De-coupling inventory
7. Maintenance, repair, and overhaul inventory

Question 6

Anticipation inventory

Answer 6

Anticipation of future demand, such as seasonality or promotional (LEGO produces throughout the year to save for Christmas)

Question 7

Buffer inventory (safety stock)

Answer 7

Buffer against disruptions including:
* Inbalance between supply and demand
* Quality problems
* Lead time fluctuations
* Equipment or supply problems

Question 8

Cycle inventory

Answer 8

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.

Question 9

Transportation inventory

Answer 9

Inventory in transit (on e.g. trucks)

Question 10

Hedge inventory

Answer 10

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

Question 11

De-coupling inventory

Answer 11

Inventory held between operations to allow independence. Often SFG held between pull and push (e.g. manufacturing and assembly)

Question 12

Maintenance, repair, and overhaul inventory

Answer 12

• Often determined from preventive maintenance schedules
• Buffer stocks often held for critical components
• Often located in stocking areas separate from production inventory

Question 13

Spend Management

Answer 13

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

Question 14

Types of spend

Answer 14

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

Question 15

Spend Analysis

Answer 15

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 16

Spend Leakage

Answer 16

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.

Question 17

Maverick Spend

Answer 17

The percentage of purchases made outside existing corporate procurement agreements.

Question 18

The procurement spend cube

Answer 18

Spend per sourcing category X spend per supplier X spend per internal budget holder (i.e. department)

Question 19

ETLA in relation to spend

Answer 19

Spend analysis uses an ETLA approach: spend transaction data needs to be extracted and transformed, then loaded into a database and analysed

Question 20

Extract

Answer 20

Information from the various IT systems

Question 21

Transform

Answer 21

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

Question 22

Load

Answer 22

The data into a database

Question 23

Analyse

Answer 23

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.