Supply Chain Management (4-6)

What are the four main categories of inventory?

Raw Materials, Work-in-Process (WIP), Finished Goods, and Maintenance, Repair & Operating (MRO) supplies.

What is the difference between Raw Materials and MRO inventory?

Raw Materials become part of the finished product. MRO supplies support business operations but do not become part of the finished product.

What is the difference between Cycle Stock, Safety Stock, and Strategic Stock?

Cycle Stock meets normal demand. Safety Stock protects against unexpected demand or supply problems. Strategic Stock prepares for anticipated events such as seasonal demand or price increases.

What is the difference between Pipeline Inventory and Obsolete Inventory?

Pipeline Inventory is inventory in transit or the distribution pipeline. Obsolete Inventory is expired, damaged, outdated, or no longer needed.

What is the difference between Periodic Review and Continuous Review inventory systems?

Periodic Review checks inventory at regular intervals. Continuous Review constantly monitors inventory and triggers replenishment when the reorder point is reached.

What is the difference between Fixed-Time Period and Fixed-Order Quantity systems?

Fixed-Time Period means inventory is reviewed at fixed intervals, but order quantities can vary. Fixed-Order Quantity means the same amount is ordered each time, but the time between orders can vary.

What is the difference between Reorder Point (ROP) and Economic Order Quantity (EOQ)?

ROP determines WHEN to place an order. EOQ determines HOW MUCH to order to minimize combined ordering and carrying costs.

What is the difference between Ordering Costs and Carrying Costs?

Ordering Costs occur when placing and receiving orders. Carrying Costs are incurred by holding inventory, including storage, insurance, taxes, and obsolescence.

What is ABC Inventory Analysis?

A method of prioritizing inventory based on value. A items have the highest value and priority, B items have moderate value, and C items have the lowest value and priority.

What are the Two-Bin, Base Stock, and Single-Period inventory systems?

Two-Bin: reorder when the first bin empties. Base Stock: replenish inventory whenever units are withdrawn. Single-Period: inventory is managed for one selling period, such as Christmas trees.

What is Inventory Turnover, and is a higher turnover generally better?

Inventory Turnover measures how often inventory cycles through a business. Higher turnover is generally better because it indicates more efficient inventory utilization.

What is the difference between Procurement and Purchasing?

Procurement is the overall process of acquiring goods and services, including sourcing and supplier management. Purchasing is the transactional activity of buying goods or services.

What is the difference between a Purchase Requisition and a Purchase Order?

A Purchase Requisition is an internal request to buy something. A Purchase Order is an external commercial offer to a supplier and becomes binding when the supplier accepts and confirms it.

What is the difference between RFI, RFP, and RFQ?

RFI gathers information about supplier capabilities. RFP requests detailed supplier proposals. RFQ requests specific price and delivery quotations.

What is a Three-Way Match?

Comparing the Purchase Order, Goods Receipt, and Supplier Invoice to ensure they agree before payment is made.

What is the Profit-Leverage Effect?

Reducing purchasing costs directly increases pretax profits dollar-for-dollar, assuming everything else stays the same.

What is Total Cost of Ownership (TCO), and what does QSDP mean?

TCO includes all costs of acquiring and using a product, not just purchase price. QSDP stands for Quality, Service, Delivery, and Price.

What are the main factors in a Make-versus-Buy decision?

Business Strategy, Risks, and Economic Factors. Companies may make products to maintain control or protect technology, or buy to access expertise and lower costs.

What is the difference between Centralized and Decentralized Purchasing?

Centralized Purchasing uses one central department to make purchasing decisions. Decentralized Purchasing allows individual facilities or departments to make their own decisions.

What is the difference between Forward and Backward Vertical Integration?

Backward Integration means acquiring a supplier. Forward Integration means acquiring a customer or downstream distributor.

What is Strategic Sourcing?

A long-term approach to selecting suppliers that focuses on overall value, quality, costs, risks, and supplier relationships rather than just purchase price.

What is the difference between Single Sourcing, Sole Sourcing, and Multiple Sourcing?

Single Sourcing means choosing one supplier even though alternatives exist. Sole Sourcing means only one supplier is available. Multiple Sourcing means buying from more than one supplier.

What is Spend Analysis?

Examining and categorizing company purchasing expenditures to identify cost savings, improve efficiency, and monitor purchasing compliance.

What is Supply Base Rationalization?

Reducing the number of suppliers to the lowest practical level without significantly increasing supply risk.

What are the four major sourcing categories?

Routine/Noncritical: low value and low supply risk. Bottleneck: low value and high supply risk. Leverage: high value and low supply risk. Strategic: high value and high supply risk.

Which sourcing strategies work best for each sourcing category?

Routine: simplify and automate purchasing. Bottleneck: protect supply and develop backup options. Leverage: negotiate using purchasing volume. Strategic: develop close, long-term supplier partnerships.

What is the difference between Vendor Managed Inventory (VMI) and Co-Managed Inventory (CMI)?

In VMI, the supplier manages inventory replenishment decisions. In CMI, the supplier recommends replenishment orders, but the buyer must approve them.

What is a Reverse Auction?

A sourcing process where suppliers compete against one another by offering progressively lower prices to win the buyer's business.

What is a Strategic Alliance between a buyer and supplier?

A cooperative relationship where two independent companies work toward shared objectives, often sharing information, risks, and rewards for mutual benefit.

What is the difference between Ethical Sourcing and Sustainable Sourcing?

Ethical Sourcing emphasizes fair labor, worker safety, and responsible practices. Sustainable Sourcing meets current needs without compromising future economic, social, and environmental needs.