Question 8 Flashcards
The purpose of safety stock on raw material inventory
- Buffer against long lead times from suppliers to avoid delay in manufacturing
- Risk of unexpected surges in market - protection against demand spikes
- Prevention against increase (flucturations) in price of materials
- Scarcity of materials
- New competitors
- New government policies
Also:
- Prevent Stockouts: Ensure continuous production by covering unexpected delays in supply or sudden increases in demand.
- Mitigate Risks: Reduce the impact of supply chain disruptions, such as supplier issues, transportation delays, or quality problems.
- Maintain Service Levels: Help meet customer expectations by ensuring the availability of finished products.
- Absorb Forecast Inaccuracies: Compensate for inaccuracies in demand forecasting and planning.
Formula: safety stock = σ * safety factor
By multiplying the standard deviation (a measure of demand variability) by the safety factor (derived from the desired service level), the formula calculates the amount of extra stock needed to mitigate the risk of stockouts.
Describes how many sigma’s are needed for X service level
USE TABLE
For 84% service level the safety factor is 1, indicating the need for 1*sigma in safety stock
The objective of procurement
The management of the company’s external resources in such a way that the supply of all goods, services, capabilities, and knowledge which are necessary for running, maintaining, and managing the company’s primary and support activities is secured at the most favourable conditions covering the materials, information and money flows up to the point of consumption
The procurement process approach
SEE MODEL AND TABLE
