Supply Chain Concepts

Question 1

PAR Level

Answer 1

PAR Level stands for Periodic Automatic Replenishment. Traditionally, it means the Safety Stock level but in some inventory management systems named PAR Level instead. Safety stock = the expected minimum inventory quantity required to held in the warehouse to ensure that the customers supply requirements met.

Question 2

Perpetual Inventory

Answer 2

Perpetual inventory is a method of accounting for inventory that records the sale or purchase of inventory immediately through the use of computerized point-of-sale systems and enterprise asset management software. Perpetual inventory provides a highly detailed view of changes in inventory with immediate reporting of the amount of inventory in stock, and accurately reflects the level of goods on hand.

Question 3

Why is a perpetual inventory system superior to a periodic inventory system?

Answer 3

A perpetual inventory system is superior to the older periodic inventory system because it allows for immediate tracking of sales and inventory levels for individual items, which helps to prevent stockouts. A perpetual inventory does not need to be adjusted manually by the company’s accountants, except to the extent it disagrees with the physical inventory count due to loss, breakage or theft.

Question 4

Periodic Inventory

Answer 4

The periodic inventory system is a method of inventory valuation for financial reporting purposes in which a physical count of the inventory is performed at specific intervals. This accounting method takes inventory at the beginning of a period, adds new inventory purchases during the period and deducts ending inventory to derive the cost of goods sold (COGS).

Question 5

What does “EDI” stand for? What does it refer to?

Answer 5

Electronic Data Interchange, commonly shortened to EDI, is a standard format for exchanging business data. EDI transactions are a type of electronic commerce that companies use for transactions such as when one company wants to electronically send a purchase order to another.

Question 6

EDI Transaction: 850

Answer 6

Purchase Order

Question 7

EDI Transaction: 855

Answer 7

Purchase Order Acknowledgement

Question 8

EDI Transaction: 860

Answer 8

Purchase Order Change (Buyer Initiated)

Question 9

EDI Transaction: 865

Answer 9

Purchase Order Change (Seller Initiated)

Question 10

EDI Transaction: 856

Answer 10

Advanced Ship Notification

Question 11

EDI Transaction: 810

Answer 11

Invoice

Question 12

Fill or Kill

Answer 12

Fill or kill (FOK) is a type of time-in-force designation used in securities trading that instructs a brokerage to execute a transaction immediately and completely or not at all. This type of order is most often used by active traders and is usually for a large quantity of stock. The order must be filled in its entirety or canceled (killed). This can also be used in supply chain management.

Question 13

Backorder

Answer 13

A backorder is an order for a good or service that cannot be filled at the current time due to a lack of available supply. The item might not be held in the company’s available inventory but could still be in production. Or, the company might need to still manufacture more of the product. The nature of the backorder and the number of items on backorder will affect the amount of time it will take before the customer can eventually receive the ordered product. The higher the number of items backordered, the higher the demand for the item.

Question 14

Blanket Purchase Agreement

Answer 14

A blanket order, blanket purchase agreement or call-off order [1] is a purchase order which a customer places with its supplier to allow multiple delivery dates over a period of time, often negotiated to take advantage of predetermined pricing. It is normally used when there is a recurring need for expendable goods. Blanket orders are often used when a customer buys large quantities and has obtained special discounts. Based on the blanket order, sales orders (‘blanket releases’ or ‘release orders’) and invoice items can be created as needed until the contract is fulfilled, the end of the order period is reached or a pre-determined maximum order value is reached.[2]

Question 15

Lowest Unit of Measure Distribution

Answer 15

Low Unit of Measure distribution (LUM) provides healthcare customers with products in the lowest unit of measure—typically “each” or box. This distribution method is for customers that want to reduce total supply chain costs by having orders picked and packed for a department par level and delivered directly to the appropriate department as required. LUM enables customers to significantly reduce their receiving personnel and dock space, while also facilitating the delivery of products to end-users within the healthcare facility.

Question 16

FIFO Costing

Answer 16

The first in, first out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold. … Under the FIFO method, the earliest goods purchased are the first ones removed from the inventory account.

Question 17

Average Costing

Answer 17

The average cost method is an inventory costing method in which the cost of each item in an inventory is calculated on the basis of the average cost of all similar goods in the inventory. The average cost method is calculated by dividing the cost of goods in inventory by the total number of items available for sale.

Question 18

Cycle Counting

Answer 18

A cycle count is an inventory auditing procedure, which falls under inventory management, where a small subset of inventory, in a specific location, is counted on a specified day. Cycle counts contrast with traditional physical inventory in that a full physical inventory may stop operation at a facility while all items are counted at one time. Cycle counts are less disruptive to daily operations, provide an ongoing measure of inventory accuracy and procedure execution, and can be tailored to focus on items with higher value, higher movement volume, or that are critical to business processes. Although some say that cycle counting should only be performed in facilities with a high degree of inventory accuracy (greater than 95%), cycle counting is one means of achieving and sustaining high degrees of accuracy.

Question 19

SOAP

Answer 19

SOAP (abbreviation for Simple Object Access Protocol) is a messaging protocol specification for exchanging structured information in the implementation of web services in computer networks. Its purpose is to provide extensibility, neutrality and independence. It uses XML Information Set for its message format, and relies on application layer protocols, most often Hypertext Transfer Protocol (HTTP) or Simple Mail Transfer Protocol (SMTP), for message negotiation and transmission.