CIPS L4M7 Whole Life Asset Management Exam Practice Test

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

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:

Qr code Description automatically generated

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

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

Explanation

Costs of holding inventory include the following:

• Acquisition cost

• Inventory holding cost

• Costs of stock-outs

Acquisition costs follow the typical procure-to-pay model. Benefits of procure-to-Pay (P2P) software include:

- Vendor Management, which includes researching, selecting, engaging with, and evaluating the performance of suppliers who make up your supply chain.

- Purchase Requisition Workflows, or the formal process of creating and submitting a purchase requisition (PR) for approval to meet a specific business need.

- Purchase Order (PO) Workflows, covering the creation of a formal, detailed PO from the purchase requisition, including information on the quantity and quality of goods and services, as well as specific terms and conditions.

- Receiving, which includes the acceptance of physical goods (or review of quality and completion for services) and entering the accepted order into inventory, tracking, and accounting systems.

- Invoice Management, during which the invoice is compared to the original PO to verify pricing, quality, quantity, and terms have been met.

- Accounts Payable Workflows, wherein the accounts payable department processes the invoice for payment, submits the payment to the vendor, and reconciles any related financial entries in the accounting system.

The software is intended to help reduce the acquisition costs.

LO 2, AC 2.2

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

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

The purposes of stores and warehouses are:

1. Maximum use of space.

2. Ready access to all items.

3. Efficient movement of goods.

4. Effective utilization of labour & equipment’s

5. Maximum protection of items

6. Good-house-keeping.

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

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

Decisions regarding stores and warehouse locations involve a complex range of issues that are unique to each business. Most storage facilities and location decisions are based on a combination of qualitative and quantitative analysis.

Qualitative analysis uses subjective judgment to analyze a situation based on non-quantifiable in-formation, such as potential markets for new products, forecast on possible risks that may happen, etc.

Quantitative analysis (QA) is a technique that uses mathematical and statistical modeling, meas-urement, and research to understand behavior. Quantitative analysts represent a given reality in terms of a numerical value. This may include the following:

- Cost analysis for the current premises and future predictions based on current premises

- Cost analysis for routine operations

- Current inventory performance measures: lead times, service levels, rate of stock turn, stock-outs in a given period and stock cover

To get a big picture of current situation and future demands, organisation should combine both qualitative and quantitative methods so that useful information is achieved and well-informed decisions are made.

Explanation

Work in progress is the stock part-way through a manufacturing process; in the service sectors the term is also used for anything between order and delivery.

Explanation

Temporary warehousing (or 'Very short-term warehousing') is offered in the market where organ-isation makes their requirements for space open online to offers or bids for available space. This appears to be an emerging market and service providers in the UK and USA typically quote a price per pallet per week with some also requiring a 'transaction fee' for movements of each pallet in and out.

Consignment stocking is a facility offered by a supplier to a buyer to allow a delivery of stock to the buyer with payment only after it is used or sold to a customer.

Double-deep pallet racking and carousel-style storage are two tools that leverage space within a warehouse:

Double-deep pallet rack

Carousel style storage

Explanation

Net present value (NPV) is the 'today' net value that deprives from 'future' cash flow of an invest-ment or a capital purchase. Net Present Value is a helpful tool for assessing the total lifetime value of an investment. Procurement professionals or investors can base on this value to make decision to achieve value for money. Generally, an organisation should select the offer which has the highest NPV among their options. Preferably, the NPV of an capital investment should be positive, which means the investment eventually adds value to the business.

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.

Bill of materials (BOM) is an important component of MRP. BOM is also known as product struc-turer. This lists all the items that comprise each assembly and sub-assembly that make up the final product or end item. Therefore, MRP is commonly used to manage dependent demand stock.

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

Unit load is a term used to describe grouping of different items into a convenient stack or stacks which make them easy to handle and store. Typically this involves pallets and/or the plastic wrap-ping of a load.

Stacker is designed to lift and stack pallets. This one is fully mobile so can move easily around the warehouse. An operator would typically sit or stand while driving like a counterbalanced, reach or straddle lift truck.

A load cell is a type of transducer, specifically a force transducer. It converts a force such as ten-sion, compression, pressure, or torque into an electrical signal that can be measured and standard-ized.

Unit price is the price of a single product or service, used for example when buying several things together to refer to the price of each one.

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

Available inventory (or Inventory position - IP) is equal to inventory on-hand plus quantity on order minus backorder (if any)

Explanation

ABC classifications are applied to stock and its management is based loosely on the Pareto princi-ple, better known as the 80/20 rule.

The likely outcome of analysis of inventory (value importance):

- Category A - about 20% of the stock items account for about 80% of the total inventory value. Items in category A have the highest value.

- Category B - about 30% of items account for about 15% of total inventory value

- Category C - the remaining 50% of items account for 5% of the total inventory value

Explanation

Economic order quantity (EOQ) was developed in 1913 by Ford W. Harris and has been refined over time. The formula assumes that demand, ordering, and holding costs all remain constant. The EOQ minimizes the total annual inventory cost.

EOQ formula is as follow:

LO 2, AC 2.3

Explanation

RFID tags have very limited range. The following table was extracted from Wikipedia:

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RFID tags can be used to do the following:

- Track individual items

- Track boxes of products, cages of products and pallet

- Track containers with multiple loads

- Locate equipment within a building

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

RFID tags are made of three different components: an RFID chip, which is an integrated circuit (IC), an antenna, and a substrate. RFID chips are 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. Many retailers simply use the tag as a thick label and print both sides with product information and perhaps a barcode.

It is important to note that there are multiple standards in use for RFID - some of these are standardised for industries but there are also national standards in operations. These standards need to be investigated before investment as not all readers work with all cards. GS1 is a non-for-profit organisation which make the standards for barcodes and RFID.

Explanation

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

LO 2, AC 2.3

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

Cross-docking is the practice of unloading goods from inbound delivery vehicles and loading them directly onto outbound vehicles. By eliminating or minimizing warehouse storage costs, space requirements and inventory handling, cross-docking can streamline supply chains and help them move goods to market faster and more efficiently.

Cross-docking usually takes place in a dedicated docking terminal in a warehouse, where inbound goods are first received at a dock and sorted according to their final destinations. They are then moved to the other side of the dock via forklift, conveyor belt or other equipment and loaded on outbound vehicles.

Cross-docking works best with products that need to be transported quickly, such as food, that have already been sorted and labeled for customers, do not need quality inspections or have steady demand.

Explanation

Opening stock is the starting amount of inventory that a business has at a fixed moment in time. This could be the start of a financial year, another reporting period or ad hoc stocktake. The concept of opening stock mush not be confused with raw materials

Closing stock is the inventory held at the end of the period under consideration. Thus, the closing stock of one period is automatically the opening stock for the next.

Work in progress is the stock part-way through a manufacturing process; in the service sectors the term is also used for anything between order and delivery.

Buffer stock (safety stock) is the stock held as a contingency or insurance against disruption or unexpected demand.

LO 2, AC 2.1

Explanation

In principle, use of any materials involves an environmental cost. Some packaging materials use a lot of natural resources and energy to produce. The journey taken by packaging from raw material to manufacturing and then to the initial user also incurs a 'carbon footprint'. The weight of packag-ing contributes to the fuel usage of vehicles while the volume used can add up to additional jour-neys or the use of larger vehicles. Finally, the reuse, return, disposal or recycling will also involve additional to the environmental cost.

In this question:

- 'Purchase the packaging materials in bulk' may incur additional fuel and carbon footprint in delivering these materials

- 'Try to reduce the costs of packaging' may prompt the organisation to use less eco-friendly and cheap materials like polystyrene chips

- 'Not use the packaging materials at all' can increase the environmental performance of packag-ing activities, but it also harms the products to be delivered and may cause other environmental problems (i.e. spillage of toxic chemicals into the environment)

So the correct answer should be: 'Adopt international environmental packaging standards'. The International Standards Organisation (ISO) has published several standards regarding packaging and environment, namely ISO 18601, ISO 18602, ISO 18603, ISO 18604, ISO 18605, ISO 18606.

Explanation

Consignment stock is stock legally owned by one party, but held by another, meaning that the risk and rewards regarding to the said stock remains with the first party while the second party is re-sponsible for distribution or retail operations. Ownership of consignment stock is passed only when the stock is used (issued or sold in the case of a shop). Unused stock in a warehouse may be returned to the supplier when it concerns standard manufactured products. With customer specific items, agreements concerning returning products, should be negotiated.

Explanation

Direct and indirect costs of holding inventory include the following:

- Acquisition costs: preparing the requisition, supplier selection and approvals, time and costs of the procurement process, etc.

- Holding costs

- Costs of stockouts

LO 2, AC 2.2

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

Tail Spend is derived from ABC Analysis, Class A high value suppliers, Tail Spend is formed from class B & C suppliers, equates to 20% of the total spend, B is Mid Tail and C is Long tail. Effective Spend Analysis and tail spend management, ensures that procurement can focus on creating an optimum and efficient sourcing strategy.

Procurement Spend Analysis

Procurement organisations effectively identify and manage suppliers using a sourcing strategy. Tail suppliers normally have low strategic value and makes the category management, very difficult . SpendAnalysis and Category Management are very closely aligned, Spend Analysis including ABC, provides the category manager, with spend visibility.

Spend Analysis and procurement metrics are used to create category plans, build supplier relation-ships, to maintain service levels and deliver the best possible price and quality for goods and ser-vices bought. The acquisition of Spend data and subsequent Spend Analysis, provides Category Managers access to a well-structured procurement process,

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

An inventory write-off is a process of removing from the general ledger any inventory that has no value.

Using the direct write-off method, a business will record a credit to the inventory asset account and a debit to the expense account. For example, say a company with $100,000 worth of inventory decides towrite off $10,000 in inventory at the end of the year. First, the firm will credit the inventory account with the value of the write-off to reduce the balance. The value of the gross inventory will be reduced as such: $100,000 - $10,000 = $90,000. Next, the inventory write-off expense account will be increased with a debit to reflect the loss.

The expense account is reflected in the income statement, reducing the firm’s net income and thus its retained earnings. A decrease in retained earnings translates into a corresponding decrease in the shareholders’ equity section of the balance sheet.

If the inventory write-off is immaterial, a business will often charge the inventory write-off to the cost of goods sold (COGS) account. The problem with charging the amount to the COGS account is that it distorts the gross margin of the business, as there is no corresponding revenue entered for the sale of the product. Most inventory write-offs are small, annual expenses. A large inventory write-off (such as one caused by a warehouse fire) may be categorized as a non-recurring loss.

Explanation

Safety stock is also known as buffer stock. As this name suggests, this type of stock provides some kind of 'buffer', which means safety stock will help the business to reduce the shocks induced by volatile demand or disruption on the supply chain. In other words, safety stock will reduces the probability of stockouts. The following graph would explain the reason why an organisation should have safety stock:

Chart, histogram Description automatically generated

Figure 1: Safety stock graph

As it is only the buffer against uncertainty, safety stock level should be equal to the deviation of demand or replenishment time. Safety stock should be able to accommodate variance of demand and variance of lead time.

Explanation

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

- 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.

- 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.

Explanation

The costs of stockouts - the costs of being out of inventory - include:

- Loss of production output

- Costs of idle time and of fixed overheads spread over a reduced level of output

- Costs of any action taken to deal with the stockout, such as buying from another stockist at an enhanced price, switching production, obtaining substitute materials

- Loss of customer goodwill due to the inability to supply or late delivery.

(Procurement and Supply Chain management - 9th Edition, K. Lysons and B. Farrington, 2016)

LO 2, AC 2.2

Explanation

Delphi method is a structured forecasting technique using a panel of experts and a number of rounds of questioning. Responses are shared after each round and the experts encouraged to recon-sider their own responses. It is intended to achieve a consensus view.

Explanation

Dependent demand is the requirement for stock item which is directly related to and therefore de-pendent upon the rate of production (examples are: raw materials, components, energy). The com-ponents in the scenario are dependent demand items.

Independent demand is the requirement for stock item which is not directly related to, and is therefore independent of rate of production.