Supply Chain, Logistics and Production Planning
This domain tests whether you can plan material and capacity across a hierarchy, size inventory with defensible arithmetic, and handle cross-border movement under Hong Kong trade rules and Incoterms 2020.
Planning hierarchy
- S&OP at monthly granularity balances demand and supply; the master production schedule disaggregates it; MRP explodes the bill of materials against inventory and lead times; shop-floor scheduling sequences the work.
- MRP needs a valid BOM, accurate inventory records and a frozen MPS horizon. Lead-time offsetting and lot-sizing rules (lot-for-lot, EOQ, Wagner-Whitin) change the plan materially.
- Capacity is checked by rough-cut capacity planning and later by CRP; an MRP without a capacity check is a wish list.
- Lean tools: takt time, kanban sizing by demand during replenishment lead time plus safety, and Theory of Constraints with drum-buffer-rope scheduling at the bottleneck.
Inventory and forecasting
- EOQ = √(2DS/H), balancing order cost against holding cost. It is a model, not a target: check discounts and minimum order quantities afterwards.
- Reorder point = demand during lead time + safety stock; safety stock = z·σ_d·√LT for constant lead time. Service level 95% gives z = 1.645, 99% gives 2.326.
- ABC analysis concentrates control on the few items that carry most value, not most count.
Logistics and trade
- Incoterms 2020: FOB risk passes when goods are on board; CIF adds freight and insurance but risk still passes on loading; DAP risk passes at the named place, not unloaded; DDP adds duty. DAT was replaced by DPU.
- Hong Kong is a free port with no general import tariff; excise applies to tobacco, alcohol, hydrocarbon oil and methyl alcohol. Imports and exports must be declared to Customs and Excise within the statutory period after movement.
Worked example
Annual demand is 12,000 units (40 per working day), order cost HK$400, holding cost HK$6 per unit-year. EOQ = √(2 × 12,000 × 400/6) = √1,600,000 = 1,265 units. With σ_d = 10 units/day, lead time 9 days and 95% service, safety stock = 1.645 × 10 × 3 = 50 units, so the reorder point is 40 × 9 + 50 = 410 units.
Traps that cost marks
- Using σ_d·√LT when the lead time itself varies.
- Treating a forecast as demand in the safety-stock formula.
- Confusing Incoterms 2010 and 2020 (DAT is gone; CIF default insurance cover changed).
- Quoting EOQ as optimal when quantity discounts apply.