L4M7 Questions and Answers

Explanation

The International Standard Book Number (ISBN) is a numeric commercial book identifier which is intended to be unique. Publishers purchase ISBNs from an affiliate of the International ISBN Agency. ISBN is standardised by ISO 2108:2017. ISBN is an example of industry standard code as it applies to commercial books around the world.

Check digits are additional numbers or characters added to codes that a computer uses to verify the number is valid. The intention is to reduce the likelihood of miskeying an item and hitting an alternative live item. More often, a system is devised which a computer can calculate using combination of numbers.

Own product code system: an organisation will use its own product code system. This has the ad-vantage that the organisation can construct a code that is effective and fits with its software and variety of items covered.

The Harmonized Commodity Description and Coding System, also known as the Harmonized System (HS) of tariff nomenclature is an internationally standardized system of names and numbers to classify traded products. It came into effect in 1988 and has since been developed and maintained by the World Customs Organization (WCO) (formerly the Customs Co-operation Council), an independent intergovernmental organization based in Brussels, Belgium, with over 200 member countries.

Explanation

Material requirement planning (MRP) is a production planning and material (inventory) control system used in manufacturing. Objectives of MRP are to ensure materials are available for production while minimising inventory and to plan production and procurement activities.

MRP software combines the master production schedule, the bill of materials and the inventory information to work out the net requirements (net MRP) of what to purchase or produce and when.

These net requirements are worked out using the following equation:

Net requirements = Total requirements - Available inventory

Where:

Total requirement = Gross requirements (gross MRP)

Available inventory = Inventory on hand + Units on order

In the other words, Gross MRP = Net MRP + Available inventory, so the answer should be "The gross MRP includes consideration of available inventory, whereas the net MRP does not"

LO 2, AC 2.3

Explanation

JIT, often referred to as the Toyota production system (TPS), originated in Toyota’s manufacturing plants in Japan in the early 1970s. It was first introduced by the organisation's owner, Taiichi Ohno. The prime goal of JIT is the achievement of zero inventories.

The just-in-time objectives of eliminating waste can be summarised in the 'five zeros: zero defects, zero set-up times, zero inventories, zero handling and zero lead times.

Explanation

It would be really convenient if we could just hand our products directly to the customers, but that’s not possible. Packaging needs to be done for several reasons. Here are some of the most prominent ones:

1. Safety: Packaging is used to keep your product safe from external factors. It also prevents human tampering. If you want to sell fruit juice, you just can’t hand it over to customers. It should be packaged in something, like a stand up pouch.

2. Brand visibility: You provide the best product in your category and you want your customers to remember that. How else will you do that without using the right kind of creative food packaging?

3. Bundling it together: If you want to sell an ounce of something, you need to create a packet so that the right amount is bundled together.

4. Theft prevention: If you sell your product loose, there are chances that the retailer doesn’t give the right amount to the customer and saves some part for himself. There are other cases too where theft can be done in the absence of packaging.

Apart from these four, there are many other reasons why you should package your products.

Explanation

Minimum open aisle width for standard counterbalance forklift is 10.5-13.1 ft. You can look at the minimum aisle width for different equipment here, or calculate yourself with an instruction here.

LO 1, AC 1.3

Explanation

Price setting mechanisms fall into two main categories: fixed and variable. A fixed price mecha-nism is a straightforward concept which typically results in a relatively stable budget that can be forecast. Variable mechanisms have an element of variable pricing per unit bought.

Setting a fixed price mechanism is in theory a relatively simple and straightforward concept, where the collector and the buyer agree on a fixed price for a specific material or mix of materials, for a certain length of time.

All other pricing mechanisms that are not fixed have an element of variable pricing per unit bought.

The most common variable pricing mechanisms can be divided into two groups:

1. Where the benefit accruing to the buyer from acquiring the material is used to calculate what the payment to the seller should be; or Approaches to Materials Sales: A guide for local authorities

2. Where the price paid is indexed to a published source of market price information. The above scenario demonstrates variable pricing mechanism using published sources on inflation rate and exchange rate. CIPS also refers this mechanism as adjustable prices.

Explanation

For JIT manufacturing to succeed, companies must have steady production, high-quality workmanship, glitch-free plant machinery, and reliable suppliers.

JIT production systems cut inventory costs because manufacturers do not have to pay storage costs. Manufacturers are also not left with unwanted inventory if an order is canceled or not fulfilled.

Explanation

The purposes of a warehouse are to keep the inventories in good condition and to ensure that the operations is smooth. In the scenario, the warehouse has 2 stories, with goods-in and goods-out areas located on the ground floor and a lift connecting the stories. The lift could become a bottleneck if the goods inside the warehouse are not well-arranged.

Since the lift is often small with limited load capacity, putting heavy bulk items on the first floor will cause bottleneck and increase the chance of accidents. Therefore, palletised items (even they have low-usage) should be placed on the ground floor. Smaller and lighter items should be stored on the first floor.

This QUESTION NO: does appear in the real exam. To answer the question, students should imagine the situation.

Explanation

The safety stock (or buffer stock) is the stock level that limits stock shortages due to unforeseen events (forecasts not in line with demand, longer than expected supply time, etc…)

Demand variance is the degree to which the demand in a fixed period deviates from the average demand of the same period.

A reorder point is the unit quantity on hand that triggers the purchase of a predetermined amount of replenishment inventory.

The just-in-time (JIT) inventory system is a management strategy that aligns raw-material orders from suppliers directly with production schedules.

Explanation

Material Requirements Planning (MRP) software manages material requirements for manufacturing processes.

LO 2, AC 2.3

Explanation

Tote box is the reusable storage box. These can be open or have lids or flaps to close them and come in a large variety of sizes and weight loadings.

A tote is ideal for holding and hauling items such as: tools, fasteners, bark dust, dry cement, cords, wires, smaller boxes,...

Pallets are the platform structures designed to support a load and be lifted using the forks (typically seen on forklift trucks and other equipment). These are in a variety of standard sizes and can be made of many materials including plastics, resin, board or timber. Pallets are not containers, but support platforms.

Bar racks are designed to store bars and pipes

Stock cages are available in many sizes and can hold single items or groups of items

Explanation

Subjective forecasting uses qualitative methods (surveys, opinions) which relay on perception and opinion. Objective forecasting uses quantitative methods (facts and figures). Both methods have to make assumption about how closely (or not) the future will resemble the present and the past. Forecasting is never exact.

Explanation

Enterprise resource planning (ERP) is the integrated management of main business processes, often in real time and mediated by software and technology. ERP provides an integrated and con-tinuously updated view of core business processes using common databases maintained by a data-base management system. ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP facilitates information flow between all business functions and manages connections to outside stakeholders.

Manufacturing resource planning (MRP II) is defined as a method for the effective planning of all resources of a manufacturing company. Ideally, it addresses operational planning in units, financial planning, and has a simulation capability to answer "what-if" questions and extension of closed-loop MRP. This is not exclusively a software function, but the management of people skills, requiring adedication to database accuracy, and sufficient computer resources. It is a total company management concept for using human and company resources more productively.

A master production schedule (MPS) is a plan for individual commodities to be produced in each time period such as production, staffing, inventory, etc. It is usually linked to manufacturing where the plan indicates when and how much of each product will be demanded. This plan quantifies significant processes, parts, and other resources in order to optimize production, to identify bottlenecks, and to anticipate needs and completed goods. Since a MPS drives much factory activity, its accuracy and viability dramatically affect profitability.

Procure-to-pay (P2P) is a term used in the software industry to designate a specific subdivision of the procurement process. The procure-to-pay systems enable the integration of the purchasing department with the accounts payable (AP) department. Some of the largest players of the software industry agree on a common definition of procure-to-pay, linking the procurement process and financial department.

LO 2, AC 2.3

Explanation

The design of a building should consider the advantages of natural light as this can reduce the cost of artificial lighting and improve the environmental performance of the building. Daylight entering the building can also help reduce heating costs. Unfortunately some stocks react badly to direct sunlight, and some stock reacts badly to extreme of temperature or may require a specific temperature for storage. Some stock may require a warmer temperature than the ambient temperature and other stocks may require cooler temperature. For example, fabric and garment are sensitive to direct sunlight as ultraviolet light catalyses a reaction between the water present in all fabrics and atmospheric oxygen to create hydrogen peroxide. This is a bleaching agent and breaks down the chemical bonds that give dyes their colour.

Explanation

Direct and indirect costs of holding inventory include the following:

1. Acquisition costs

2. Holding costs (carrying costs) are the costs associated with the storage and handling of physical stock. There are two different types of holding costs:

a. Costs related to the value of the goods: financial costs (i.e. the interest on the working capital tied up in inventory, which may be the bank borrowing rate or the company's target for return on capital); cost of insurance; losses due to product deterioration; losses due to obsolescence and redundancy of inventory; losses due to theft, accidental damage etc.

b. Costs related to the physical characteristics of the inventory include the following: storage space; power, heat and lighting of the store; movement equipment; labour costs; administration costs.

3. Costs of stockouts

Explanation

Possible solutions to the high irregular or seasonal demand problems are listed below:

• Take advantage of the height of the warehouse

- Mezzanine floor

- High racking system (increase storage capacity but require high-reach material handling equip-ment)

• Eliminate dead stock or inventory

• Improve material flow

• Improve storage location method

• Consider using aisle space during demand peak

• Narrow aisles between racks (require narrow handling equipment)

• Carousel-type storage system

• Auto-storage and retrievals system (ASRS)

Explanation

According to Hines and Rich, value stream refers to specific parts of the firms that actually add value to the specific product or service under consideration. XYZ Ltd is mapping the value stream by analysing the value-adding activities that contribute to their most important product.

Postponement is a business strategy which maximizes possible benefit and minimizes risk by delaying further investment into a product or service until the last possible moment. An example of this strategy is Dell Computers' build-to-order online store. One of the earliest references to the concept was in a paper by Zinn and Bowersox in the Journal of Business Logistics. They highlighted five types: Labelling, Packaging, Assembly, Manufacturing and Time postponements.

Kanban (看板) (signboard or billboard in Japanese) is a scheduling system for lean manufacturing and just-in-time manufacturing (JIT). Taiichi Ohno, an industrial engineer at Toyota, developed kanban to improve manufacturing efficiency. Kanban is one method to achieve JIT. The system takes its name from the cards that track production within a factory. For many in the automotive sector, kanban is known as the "Toyota nameplate system".

Put simply, silo working occurs when several departments or groups within that organisation do not want to share information or knowledge with other individuals they work with.

Explanation

Holding extra stocks will always improve customer service levels, or at least reduce the risk of them falling. This implies that if an organisation aims at higher service levels, they should have larger safety stock. However, increasing safety stock is not the only solution to improve service level. The widespread adoption of just-in-time (JIT) techniques particularly in the automotive industry has greatly reduced costs with increased service levels as well as the additional benefit of increased problem visibility.

The correct answer should be 'A safety stock is not always required to achieve a required service level'.

Explanation

A master production schedule (MPS) is a plan for individual commodities to be produced in each time period such as production, staffing, inventory, etc.[1] It is usually linked to manufacturing where the plan indicates when and how much of each product will be demanded.[2] This plan quantifies significant processes, parts, and other resources in order to optimize production, to identify bottlenecks, and to anticipate needs and completed goods. Since a MPS drives much factory activity, its accuracy and viability dramatically affect profitability. Typical MPSs are created by software with user tweaking.

Explanation

Costs of operating an asset can widely vary. The following table is an example from Guide to Total Cost of Ownership, New Zealand Government:

Explanation

ABC analysis is applied to stock and its management. It is based loosely on the Pareto principles, better known as 80/20 rule. Pareto principle is the theory that 80% of outcome results from 20% of inputs. For example, 80% of sales are to the top 20% of customers; 80% of spend on inventory is accounted for by the top 20% of stock items.

The ABC concept is based on Pareto's law. The following steps are carried out for the ABC analy-sis.

- Step 1: Compute the annual usage value for every item in the sample by multiplying the annual requirements by the cost per unit.

- Step 2: Arrange the items in descending order of the usage value calculated above.

- Step 3: Make a cumulative total of the number of items and the usage value.

- Step 4: Convert the cumulative total of the number of items and usage values into a percentage of their grand totals.

- Step 5: Draw a graph connecting cumulative % items and cumulative % usage value. The graph is divided approximately into three segments, where the curve sharply changes its shape. This indicates the three segments A, B and C.

LO 2, AC 2.1

Explanation

A cost-benefit analysis is a process businesses use to analyze decisions (such as capital investment). The business or analyst sums the benefits of a situation or action and then subtracts the costs associated with taking that action.

A cost-benefit analysis (CBA) should begin with compiling a comprehensive list of all the costs and benefits associated with the project or decision.

The costs involved in a CBA might include the following:

- Direct costs would be direct labor involved in manufacturing, inventory, raw materials, manufacturing expenses.

- Indirect costs might include electricity, overhead costs from management, rent, utilities.

- Intangible costs of a decision, such as the impact on customers, employees, or delivery times.

- Opportunity costs such as alternative investments, or buying a plant versus building one.

- Cost of potential risks such as regulatory risks, competition, and environmental impacts.

Benefits might include the following:

- Revenue and sales increases from increased production or new product.

- Intangible benefits, such as improved employee safety and morale, as well as customer satisfaction due to enhanced product offerings or faster delivery.

- Competitive advantage or market share gained as a result of the decision.

An analyst or project manager should apply a monetary measurement to all of the items on the cost-benefit list, taking special care not to underestimate costs or overestimate benefits. A conservative approach with a conscious effort to avoid any subjective tendencies when calculating estimates is best suited when assigning a value to both costs and benefits for a cost-benefit analysis.

Finally, the results of the aggregate costs and benefits should be compared quantitatively to deter-mine if the benefits outweigh the costs. If so, then the rational decision is to go forward with the project. If not, the business should review the project to see if it can make adjustments to either increase benefits or decrease costs to make the project viable. Otherwise, the company should likely avoid the project.

Explanation

Delphi method was developed in the 1950s, originally to forecast the impact of technology on warfare. The method entails a group of experts who anonymously reply to questionnaires and subsequently receive feedback in the form of a statistical representation of the "group response," after which the process repeats itself. The goal is to reduce the range of responses and arrive at something closer to expert consensus. The Delphi Method has been widely adopted and is still in use today. Delphi method is a subjective forecasting technique

Holt-Winters forecasting is a way to model and predict the behavior of a sequence of values over time—a time series. Holt-Winters is one of the most popular forecasting techniques for time series. It’sdecades old, but it’s still ubiquitous in many applications, including monitoring, where it’s used for purposes such as anomaly detection and capacity planning.

Time series analysis is a statistical technique that deals with time series data, or trend analysis. Time series data means that data is in a series of particular time periods or intervals.

Objective forecasting approaches are quantitative in nature and lend themselves well to an abun-dance of data. There are three categories of objective forecasting methods: time series, caus-al/econometric, and artificial intelligence.

LO 2, AC 2.3

Explanation

For single items, an extra investment in inventory (higher levels of safety stock) will always in-crease customer service levels. Conversely, higher service levels imply larger quantities of safety stocks and an increased investment in inventory. (Procurement and Supply Chain Management - 9th Edition)

Explanation

Along with Jidoka, Just-in-time (JIT) production is one of the pillars of the two Toyota Production System. It is a production method that fundamentally changed the way large-scale production oc-curred in the 20th century, and is the basis for Lean Manufacturing (Lean for short), which is the school of thought many modern companies have modeled themselves after.

JIT production is often called a pull system because instead of using traditional push production where scheduling is done based on historical data and demand forecasting, production is scheduled based on actual customer orders. Rather than predicting demands from customers, the JIT method requires that actual customer demand exists. Production doesn't begin before an order triggers it. This system not only reduces the amount of extra inventory, but also reduces the amount of work in progress at one time.

Explanation

RFID tags are the small devices that can be embedded in labels or attached to tags which work with radio transmitters and/or receivers to identify themselves.

RFID tags can be used to do the following:

- Track individual items

- Track boxes of products, cages of products and pallets

- Track containers with multiple loads

- Locate equipment within a building

- Trigger alarms should equipment or stock be removed without authorisation.

RFID devices have a very small integrated circuit incorporating a small memory capability - many are smaller than 2mm square and 2mm thick. Despite its size, many can hold 2000 characters of data.

RFID operating rage depends on the radio frequency used, receiver capability and the environment. Some tags are only readable from under 1m, others can have a 100m range.

RFID tags and labels are very specific to the type of material and size of your assets. For example, metal will deactivate the RFID antenna and the tag will not transmit at all. Using RFID on metal requires a special type of tag with an RFID block to prevent interference with the antenna. Liquid products can also affect the reliability of the RFID signal. To use RFID tags in specific environ-ments, some technologies are needed to support them.

Explanation

Lean thinking aims to remove wastes from work processes. Before diving into the 8 wastes, it is important to understand what waste is. Waste is any action or step in a process that does not add value to the customer. In other words, waste is any process that the customer does not want to pay for.

The original seven wastes (Muda) was developed by Taiichi Ohno, the Chief Engineer at Toyota, as part of the Toyota Production System (TPS). The seven wastes are Transportation, Inventory, Motion, Waiting, Overproduction, Overprocessing and Defects. They are often referred to by the acronym ‘TIMWOOD’. The 8th waste of non-utilized talent or ‘Skills’ of workers was later introduced in the 1990s when the Toyota Production System was adopted in the Western world. As a result, the 8 wastes are commonly referred to as ‘TIMWOODS’.

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Source: The lean way

Multiple approval levels for a small purchase request is an example of over-processing since this adds more unnecessary work to users and procurement professionals.

Explanation

Economic order quantity (EOQ) model is the method that provides the company with an order quantity. This order quantity figure is where the record holding costs and ordering costs are mini-mized. By using this model, the companies can minimize the costs associated with the ordering and inventory holding. In 1913, Ford W. Harris developed this formula whereas R. H. Wilson is given credit for the application and in-depth analysis on this model.

If the economic order quantity model is applied, the following assumptions should be met:

- The rate of demand is constant, and total demand is known in advance.

- The ordering cost is constant.

- The unit price of inventory is constant, i.e., no discount is applied depending on order quantity.

- Delivery time is constant.

- Replacement of defective units is instantaneous.

- There is no safety stock level, i.e., the minimum stock level is zero.

- Restocking is made by the whole batch.

Because the demand and lead time are constant, no stockout events can occur.

Explanation

The net requirements are worked out using the following equation:

Net requirements = Total requirements - Available inventory

Where:

Total requirements = Gross requirements

Available inventory = Inventory on-hand + Units on-order

In the other words: Net requirements = Gross requirements - Inventory on-hand - Units on-order

Inventory on-hand is also known as Inventory level, whereas Units on-order can be called Scheduled receipt.

Explanation

Drum is the container for stock, which is usually cylindrical and can be made from a variety of materials. Contents are usually loose material or liquids

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Tote box is the reusable storage box. These can be open or have lids or flaps to close them and come in a large variety of sizes and weight loadings.

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A tote is ideal for holding and hauling items such as: tools, fasteners, bark dust, dry cement, cords, wires, smaller boxes,...

For larger and bulkier items, industrial containers make it easy to keep things stored and in one spot for transportation. Due to the metal interior, an industrial container is more appropriate for items that — unlike tools and small pieces of machinery — lack any surface sensitivity.

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Solid containers like bins and totes are far from the only storage devices for the various materials that are needed in abundance at factories and warehouses. Another option is the storage bag, which can be used to hold bulk supplies of items until they’re needed for the department shelves or assembly lines.

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LO 1, AC 1.1

Explanation

Two-dimensional (2D) barcodes look like squares or rectangles that contain many small, individual dots. This has many different types (i.e. Data matrix, QR codes, Aztec code,...) and several different standards in use (i.e. GS1 standards, ISO/IEC 18004:2015). It can be substituted for 1D barcode, but it has the capability to hold a larger amount of data. For examples, GS1 Data Matrix can contain 3116 Numeric characters or 2335 Alphanumeric characters while GS1-128 barcode has maximum capacity of 48 characters.

Like 1D barcodes, 2D barcodes are also machine-readable with dots/squares and spaces. They have symbology like this:

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Since the code is two dimensional, conventional laser scanner can't read it. 2D barcodes require imaging scanner to read.

2D barcodes can be also used for different purposes throughout the supply chain: identifying prod-ucts/SKU (single unit, packaged or pallet), identifying content of a purchase order or delivery, identifyingthe batch number from which the item originates, identifying the manufacturer, country of origin etc, tracking status of an order, shipment or delivery

Explanation

Assets in their end of life need to be removed or disposed. Though an organisation can incur some costs in decommissioning or removal of the assets, it may recover costs by reselling the assets. Therefore, sometimes the organisation can gain positive cash flow from removal and disposal of assets. The answer should be "No, the organisation may recover the value of the assets by reselling it".

LO 3, AC 3.3

Explanation

The triple bottom line is a sustainability framework that examines a company’s social, environment, and economic impact (or People, Planet, Profit).

Explanation

A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial or business equipment is also leased. Since the lessee does not own the asset, it is not responsible for disposing the assets, and therefore, disposal costs are not attributable to the lessee. The lessee usually incurs rentals and operating costs. Finally, a company should treat the lease the same as other contracts, which they must qualify the supplier.

Explanation

Fixed assets may be sold anytime during their useful life. This gives rise to the need to derecognize the asset from balance sheet and recognize any resulting gain or loss in the income statement.

The accounting for disposal of fixed assets can be summarized as follows:

- Record cash receive or the receivable created from the sale:

Debit Cash/Receivable

- Remove the asset from the balance sheet

Credit Fixed Asset (Net Book Value)

- Recognize the resulting gain or loss

Debit/Credit Gain or Loss (Income Statement)

Example

ABC LTD purchased a machine for $2000 on 1st January 2001 which had a useful life of 5 years and an estimated residual value of $500. The machine was being depreciated on straight line basis. However, ABC LTD decided to sell the asset on1 January 2003 for $1500 in order to raise cash for the purchase of a new machine.

The disposal of the fixed asset will be recorded as follows:

Record cash received or the receivable arising from the sale:

Debit Cash $1,500

Remove the asset from the balance sheet

As a fixed asset is recognized in the balance sheet at the Net Book Value (i.e. Cost less Accumulated Depreciation), the machine will be removed from the accounts of ABC LTD in two parts:

First, the Machine Cost must be removed by crediting the ledger:

Credit Machine Cost $2,500

Second, the Accumulated Depreciation in respect of the machine must be removed by debiting the ledger:

Debit Accumalated Depreciation $600*

*Accumulated Depreciation: (2000 - 500)/5 x 2 Years

The combined effect of the above two transactions would be to remove the machine's net book value of $1400 (2000 - 600) from the balance sheet.

Recognize the resulting gain or loss on the sale of machine

ABC LTD received $1500 for an asset with a balance sheet worth of $1400. It therefore earned a gain of $100. The gain will be recorded as follows:

Credit Gain on Disposal $100