MCQ & T OR F

Procurement: Refers to the raw materials, component parts, and supplies bought from outside
organizations to support a company’s operations.

Global Procurement (Sourcing): Refers to buying components and inputs anywhere in the
world.
 Driven by two main reasons:
 Factor-input strategy (organization is seeking low-cost or high-quality).

 Market access strategy (organization is sourcing in markets where it plans to do

significant business).

Supplier Development (Reverse Marketing)

Refers to aggressive procurement involvement not typically part of supplier selection and can
include purchaser initiating contact with a supplier or a purchaser establishing prices, terms and
conditions among other behavior.

Demand Forecasting Models

1- Judgmental: involves using judgments and is preferred in situations where there is
limited or no historical data such as with a new product introduction.

2- Time Series: future demand is solely dependent on the past demand.

3- Cause and Effect (Associative Forecasting): assume that one or more factors are related
to demand and that a relationship between cause and effect can be used to estimate
future demand.

Warehousing: is that part of a firm’s logistics system that stores products (raw materials, parts,
goods in progress, finished goods) at and between point-of-origin and point-of-consumption.

 It provides information to management on the status, condition, and disposition of

items being stored.
 It is used for the storage of inventories during all phases of the logistics process.
 Warehousing Tasks
 Receiving.
 Inventory tracking.
 Order entry.
 Picking, loading.
 Return processing.
 Packaging and labeling.
 Blending, filling.
Inventory Costs
1. Carrying (Holding) Costs: the costs associated with holding inventory.

Types of Carrying (Holding) Costs

 Obsolescence Costs: products lose their value through time.

 Inventory Shrinkage: more items are recorded entering than leaving

warehousing facilities (damage, loss, or theft).

 Storage Costs: occupying space in a plant, storeroom, or a warehouse.

 Handling Costs: staff (receive, store, retrieve and move inventory) and
specialized storage requirements.

 Insurance Costs: against fire, flood, theft and others.

 Taxes: calculated on the basis of the inventory on hand on a particular date.

 Interest Costs: take into account the money that is required to maintain the
investment in inventory.

2. Ordering Costs: refer to those costs associated with ordering inventory, such as order
costs and setup costs.
 Setup costs are those necessary to modify production processes.

3. Stockout Costs
 to avoid oversupply  store fewer items.
 an estimated cost or penalty for a stockout.
 involve an understanding of a customer’s reaction to a company being out of stock
when a customer wants to buy an item.

Seven Sources of Waste

1. Inventory.
2. Overproduction.
3. Motion.
4. Defects.
5. Over processing.
6. Waiting.
7. Transport.
Types of Stock
 Cycle or Base Stock: refers to inventory that is needed to satisfy normal demand during
the course of an order cycle.

 Safety or Buffer Stock: refers to inventory that is held in addition to cycle stock to guard
against uncertainty in demand or lead time.

 Pipeline or In-transit Stock: refers to inventory that is en route between various fixed
facilities in a logistics system such as a plant, warehouse, or store.

 Speculative Stock: refers to inventory that is held for several reasons including seasonal
demand, projected price increase, and potential shortages of product.

Order Cycle/ Replenishment Cycle / Lead time

Refers to the time from when a customer places an order to when the order is received.

Principles of Lean
The five-step thought process for guiding the implementation of lean techniques is easy to
remember, but not always easy to achieve:
1. Specify value from the standpoint of the end customer by product family.
2. Identify all the steps in the value stream for each product family, eliminating whenever
possible those steps that do not create value.
3. Make the value-creating steps occur in tight sequence so the product will flow smoothly
toward the customer.
4. As flow is introduced, let customers pull value from the next upstream activity.
5. As value is specified, value streams are identified, wasted steps are removed, and flow
and pull are introduced, begin the process again and continue it until a state of
perfection is reached in which perfect value is created with no waste.
Reorder Trigger Point (ROP)
A reorder point (ROP) is the Level of inventory at which a replenishment order is placed, when
the quantity on hand of an item drops to this amount, the item is reordered.

 The reorder point under conditions of certainty is equal to the average daily demand
(DD) in units times the length of the replenishment cycle (RC) >> ROP = DD X RC.

 The reorder point under conditions of uncertainty can be calculated the same way with
one modification which is including a safety stock factor (SS) >> ROP = (DD X RC) + SS.