L4M7 Exam Dumps - CIPS Level 4 Diploma in Procurement and Supply Questions and Answers

Explanation

The normal breakdown in a manufacturing organisation would be raw materials, components, work in progress and finished goods.

Following are the different types of inventory:

Raw materials are the basic materials that a manufacturing company buys from its suppliers, and that is used by the former to convert them into the final products by applying a set of manufacturing processes. For example, aluminum scrap is the raw material for a company that produces aluminum ingots. Flour is the raw material for a company that produces bread or pizza. Similarly, metal parts and ingots are the raw materials bought by a company that manufactures cars, and crude oil is the raw material for an oil refinery.

Work in progress inventory can also be called semi-finished goods. They are the raw materials that have been taken out of the raw materials store and are now undergoing the process of their conversion into the final products. These are the partly processed raw materials lying on the production floor. And they have also not reached the stage where they have been converted into the final product.

Finished goods are indeed the final products obtained after the application of the manufacturing processes on the raw materials and the semi-finished goods discussed above in the article. They are saleable, and their sale contributes fully to the revenue from the core operations of the company.

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.

Dependent demand items rely on the internal production requirements of an organization. These items:

Depend on user department production levels: Demand is driven by the needs of the production line.

Can be managed using JIT systems: Just-in-Time inventory helps optimize stock levels based on immediate production needs, reducing holding costs and minimizing waste.

Dependent demand items differ from independent demand items, where demand is customer-driven rather than production-driven, emphasizing demand predictability and timely procurement.

Decommissioning is the process of safely retiring equipment from use. It involves steps such as cleaning, dismantling, and responsibly disposing of the asset, especially if it contains hazardous materials. Whole-life asset management includes decommissioning as a key phase, ensuring that assets are disposed of cost-effectively and in compliance with environmental standards.

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

Obsolescent stock is stock, usually finished goods, which is in good condition and satisfactory working but for which demand is irreversibly falling towards zero. Once this demand reaches zero the stock can be considered 'obsolete'. It cannot be used or sold in its current state. Food ingredients (like candy canes) which are out of date are another example.