MODULE- 5

PART-I
I. What is inventory? What are the purposes of inventory.?
Ans: Inventory is the stock of any item or resource used in an organization.
Inventory includes: raw materials, finished products, component parts, supplies,
and work-in-process. An inventory system is the set of policies and controls that
monitors levels of inventory and determines what levels should be maintained,
when stock should be replenished, and how large orders should be.
The purposes of inventories are: 1. To maintain independence of operations 2. To
meet variation in product demand 3. To allow flexibility in production scheduling
4. To provide a safeguard for variation in raw material delivery time 5. To take
advantage of economic purchase order size.

II. What are the objectives of inventory? Explain.

Ans: To meet anticipated demand 2. To smooth production requirements 3. To
decouple components of the production 4. To protect against stock outs 5. To take
advantage of order cycles 6. To hedge against price increases, or to take advantage
of quantity discounts 7.To permit operations (work in process)

III. A firm with an annual demand of 900 units per year estimates its ordering cost
at Rs 15/- per order and its carrying cost at Rs 0.30 per unit per year. Assuming
that all the conditions of the EOQ model are met, what is EOQ to order
Ans: Q= root of 2DS/ H= 300 units.
IV. What are the benefits of MRP-I?
 Low levels of in-process inventories
• Ability to track material requirements
• Ability to evaluate capacity requirements
• Means of allocating production time.

V. Explain the inputs and outputs of CRP system.

Ans: Capacity requirements planning: The process of determining short-range

capacity requirements. • Load reports: Department or work center reports that
compare known and expected future capacity requirements with projected capacity
availability. • Time fences: Series of time intervals during which order changes are
allowed or restricted.

VI. Explain steps in preparing a bill of materials.

Ans: 1. Develop a product structure 2. Build a gross requirements plan 3. Build a
net requirements plan 4. Determine lot sizes for lot-for-lot, EOQ, and PPB( part
period balancing. 5. Describe MRP II in detailed way.
 MODULE-5 PART -II
VII. Explain importance of purchasing

Ans: The recent globalization of businesses has resulted in highly demanding

customers. This has created intense pressure on companies to meet and exceed
customers’ expectations more effectively and efficiently than their competitors,
and still remain profitable to survive and grow. We know that profit is a sales price
minus cost. If companies believe that the sales price of their product/service is
broadly determined by the customers (or market), then the only option to make
profit is to reduce costs. However, the key ingredients of cost such as labour,
material, etc are roughly comparable among all the competitors aiming for a
market. Hence, the excess cost that sabotages the prospects of a company amidst
competitors is due to the production method employed

VIII. Discuss the tools applied in e –procurement process.

Ans : Prominent tools and operations in e-procurement process include:

1. Demand forecast
2. Aggregate Planning
3. Master Production Schedule
4. Material Requirement Planning
5. Capacity Requirement Planning
6. Just-In-Time Inventory Management

Demand forecasts are prepared using past data and available information about the
future, and a multi-period schedule of sales forecast/plan is prepared. These
forecasts are compared with finished goods inventory available and a Master
Production Schedule (MPS) is developed. An MPS, and the outputs of MRP and
CRP, provide the basis for detailed schedules for all workstations (to procure raw
materials or make items). Each work-station produces as per MPS. Queues and in-
process/finished goods inventory are a part of the system. MPS pushes forward the
product through subsequent stages of manufacture and assembly regardless of sales
and hence the name PUSH system. In recent times, Just in Time inventory systems
is a tool in e-procurement to manage material inventories from suppliers with
production schedules.
IX. Explain the meaning and scope of Supply Chain Management?

Supply Chain Management (SCM) is “the management of upstream and

downstream relationships with suppliers and customers in order to deliver
superior value added products and render high service levels at economized
cost”.

There are 5 major components of supply chain.

Process of Supply Chain

A supply chain management is defined as “the integration of key business

processes from end-users through original suppliers that provide products, services,
and information and add value for customers and other stakeholders”
Supply chain entails forward flow of goods and a backward flow of finances as
illustrated in figure. But information the most vital resource is exchanged both
ways. SCM integrates the flow of materials, finances and information from
suppliers, manufacturers, wholesalers, distributors and retailers to the final
customer back and forth.

Elucidate the role and significance of SCM in society and economy?

ENSURE HUMAN SURVIVAL

SCM Helps Sustains Human Life - Humans depend on supply chains to
deliver basic necessities such as food and water
SCM Improves Human Healthcare – Humans depend on supply chains to
deliver medicines and healthcare

IMPROVE QUALITY OF LIFE

Foundation for Economic Growth – SCM facilitates speedy and spot on
supply of much needed resources to producers

Improves Standard of Living – Societies with a highly developed supply chain

infrastructure facilitates exchange of products and services b/w businesses
and consumers quickly and at low cost.

SOCIETAL IMPACT
Job Creation – Supply chain professionals design manage transportation,
warehousing, inventory management, packaging and logistics information.

ENVIRONMENTAL IMPACT
Opportunity to Decrease Pollution – SCM reduces product transportation.
Opportunity to Decrease Energy Use – SCM cuts costs distances
X. Discuss the evolution of supply shain philosophy?

Up until the early 2000s, supply chain was a loose link among divided business
entities- manufacturing, logistics, procurement. But today, the supply chain is
viewed holistically. Modern supply change management encompasses the strategic
alignment of end-to-end business processes to realize corporate objectives
economically and transcends further to harmonize the components of whole
ecosystem, thus giving a firm the competitive advantage to curb the competition.

Supply chain management process plan is constituted for given product line and
company in question to optimize resource utilization and thereby spawn a cost
reduction in the organizational budget with a mission to generate greater
operational efficiencies within organization and between stake holder
organizations.

In modern times, the dawn of the digital age has brought wholesale transformation
to the world of commerce. Only twenty years ago, these processes were arduous,
labor intensive, time consuming and disorganized. In recent times, the availability
of connected technologies has facilitated automation and high speed
communication and application of data systems and IoT devices have enabled
global operations like Technology Transfers with time of execution shrunk from
months down to a turnaround of hours.

XI) Explain the importance/ significance of SCM in today’s organization.

As the battle to curb competition and aim of companies is shifting from profit
driven to market and customer order driven, the focus of companies is shifting
from the realms of intra-organization to the field of inter-organizations that
represents the extended enterprise which is well embodied in the supply chain
management.

International competition in the modern times is being fought “supply chain versus
supply chain” rather than “firm versus firm”. This shift of focus from individual
entities to supply chains has been one of the most significant paradigm shifts, and
thriving on global level supply chains is inevitable in recent times, following the
onset of global phenomena and global level operations and availability of
connected technologies and IoT devices.

Eventually the benefits of proficient SCM are all stake holders can enhance their
productivity, with consumer being the primary beneficiary.
XII. State and explain the views/approaches to Supply Chain Management ?
Ans: There are 2 approaches to view Supply Chain Management.

CYCLE VIEW OF Supply Chain

Cycle 1: Customer Order Cycle

Cycle 2: Replenishment Cycle

Cycle 3: Manufacturing Cycle

Fig5-1: Process view of supply chain

Cycle4: Procurement Cycle

There is a buyer and a supplier in each cycle. The mission of the

buyer in each cycle is to attain economies of scale and ensure
product availability on time.
Each cycle consists of 6 sub processes and each starts with the
supplier marketing the product to its immediate customer, as
elucidated in the block diagram below.

Thus the cycle view of SC clearly portends the major processes

involved at each stage and the owner during each process. Fig 5-2:Sub processes in supply chain
This view is palatable for taking operational decisions
as it highlights the roles and responsibilities of each stakeholder.

PUSH / PULL VIEW OF SC

All business operations and processes in SC fall into one of two categories
PUSH MODEL OF SUPPLY CHAIN
In push process, execution is initiated in anticipation of customer order. As customer order
forecast is an approximation and uncertain, the push process is speculative and out of our control
and is characterized by low demand uncertainty and lower economies of scale in production and
transportation and even lead times are longer. Thus cost minimization can be achieved by better
utilization of resources by way of lean manufacturing and management to minimize inventories,
transportation and production costs and optimization of production and distribution
 Fig 5-3: Demand driven supply chains

PULL MODEL OF SUPPLY CHAIN

In pull process, execution is initiated in response to a customer demand. As customer demand is
a known with certainty, the pull process is reactive and in our control. Boundary line that
demarks the pull from push processes is elicited in the figure 1-7

PUSH-PULL MODEL OF SUPPLY CHAIN

In push- pull strategy some stages of supply chain typically the initial stages are operated in a
push based manner, while the remaining stages employ the pull process. The interface between
push based stages and pull based stages is known as push-pull boundary as shown in fig 1-8.
That is the point where the firm switches from managing the supply chain using one strategy
along the supply chain time line to managing using the other strategy. At this point the firm
needs to co-ordinate 2 strategies typically through buffer inventory. The inventory management
entails demand forecasting.

Fig 5-4 : Pull Push Model of Supply Chain

 Fig 5-5: Pull Push Process of LL Bean Supply Chain

Fig 5-6: Pull Push Process of Dell Computers Supply Chain

Fig 5-7: Pull Push Process of Dell Computers Supply Chain

IX. What is a vendor. State and explain the stages in vendor development
process ?
A vendor, also referred to as a supplier, is a third-party entity often hired to
perform tasks that a company outsources. Vendors could be a company with
multiple employees or an individual who completes the work alone. Companies
may also choose to hire vendors to delegate important tasks their team needs help
with. Using vendors can help a company save money since vendors typically
complete one project and are not salaried employees. Vendors can assist
companies who can't keep up with customer demand and provide vital services.
Vendors used by companies may include:
 Retailers
 Manufacturers
 Software developers
 Wholesalers
 Maintenance providers
The Vendor Development Process is carried out by the Purchase Department in
close consultation with User Department / R&D/ Material Testing / QA
Department. Vendor development is a strategic approach that organizations use to
build and maintain relationships with their suppliers or vendors. The primary goal
of vendor development is to create long-term partnerships that benefit both parties
by improving the quality, cost, delivery, and innovation of products or services.

1. Supplier Selection: Organizations evaluate potential vendors based on

criteria such as quality, cost, delivery capabilities, financial stability, and
ethical standards. This is followed by developing strong relationships with
vendors is crucial. This involves open communication, trust-building, and
collaboration to align goals and objectives.
 2. Request for Quotations (RFQs): As potential vendors return RFPs, the team
deciding on the right vendor can meet. Review each RFP and clarify any
company details. Research each vendor's work history, commitment to
project completion and customer testimonials. The company may formally
reach out and make an offer to a vendor once confirming pricing details and
scheduling. It may be helpful to have a secondary option in case the first
choice can't commit to the specifics of the contract.

3. Analysis of Quotations: Some companies may have policies that include

hiring the lowest cost vendor instead of the most experienced. Each
company has to choose what is best for their budget and requirements, but
it's important to know that there are many aspects to vendor selection that
may use other company guidelines besides price.

4. Evaluation of Vendor: This step involves vendor rating that is explained

below, followed by capacity building and continuous improvement. Vendor
development may involve helping suppliers improve their processes,
upgrade their technology, or enhance their skills to meet the organization's
requirements. For continuous improvement, both parties work together to
identify areas for improvement and implement changes to enhance
efficiency, reduce costs, and drive innovation.

5. Evaluation by Quality Assurance Department: Organizations monitor vendor

performance regularly to ensure that they meet quality standards, delivery
schedules, and cost targets.

X. What is vendor rating? Discuss the common methods of vendor rating?

Vendor rating can be defined as a systematic approach used by organizations
to measure a supplier’s performance against predetermined standards. This
evaluation allows procurement professionals to identify vendors who consistently
meet or exceed expectations and helps in identifying areas for improvement for
those who fall short.
When conducting a vendor rating, organizations typically create a set of key
performance indicators (KPIs) that align with their specific procurement
requirements. These KPIs can include metrics such as on-time delivery, product
quality, price, service, delivery besides responsiveness, flexibility, and adherence
to contractual terms. By evaluating suppliers based on these KPIs, businesses can
gain insights into their strengths and weaknesses, enabling them to make informed
decisions regarding supplier selection and ongoing supplier management.
Furthermore, vendor rating is not a one-time process but rather an ongoing
evaluation that allows organizations to monitor supplier performance over
time. By regularly assessing suppliers, businesses can identify any changes in
performance, address potential issues proactively, and foster continuous
improvement within their supply chain.

The common methods/ techniques of vendor rating are :

Let us rate two companies, A and B. Factors considered are quality, price, and delivery. Weights
for each of the above factors. That is
 Quality – 60%
 Price – 20%
 Delivery – 20%

If we multiply each factor’s values by their weights, we can derive ratings and compare which is
better.
Company A inputs:
Total quantity supplied: 10 units, total quantity accepted: 8 units, price per unit: $10, Delay in
delivery 20% time delay.
Quality rating = (8/10)X100 = 80%
Price rating = (Price Ratio Lowest / Simpler Price) x 100 = (10/10)X100 = 100%
Delivery rating = 100 – 20 = 80%
weighted vendor rating of company A = (80X60+100X20+80X20) = 84

Company B inputs:
Total quantity supplied: 20 units, total quantity accepted: 18 units, price per unit: $16, Delay in
delivery 10% delay.
Quality rating = (18/20)X100 = 90%
Price rating = (Price Ratio Lowest / Simpler Price) x 100
= (10/16)X100 = 62.5%
Delivery rating = 100 – 10 = 90%
weighted supplier rating of company B= (90X60+62.5X20+90X20) = 84.5

Conclusion
Though the price per unit of Company B is more than Company A, Company B still wins
because of its overall rating.