Ad Valorem

TermiKnowledge - Supply Chain, Procurement and Inventory Terminologies
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CIOP is an end-to-end supply chain training and certification program designed and developed by supply chain practitioners and consultants. The syllabus was developed in consultation with the industry, which led to Inventory Management Body of Knowledge (IMBoK v3.0). Most of the class discussions you will hear cannot be found in any textbook rather these are all the original contribution from the developers of CIOP. For example, think about the types of inventories such as raw material, work-in-process and finished goods. Out of these three, WIP is the most difficult to sell in the market and that is one of the reasons, WIP should be controlled well. The company has a built-in capability and capacity to sell finished goods, which is their business. The second easy to sell are the raw materials as you know the suppliers, who may either buy-back or at least guide you. But in case of WIP, this is custom manufactured to suit your manufacturing processes and may not well fit any other organisation, hence you may have to sell it as a scrap.


In a traditional contract based system, the main premise of the agreement is Ad Valor, which is Latin for "after the sale". Basically Ad Valor means "after 

sale", which is why the original contract provided that merchandise would be sold on an "as is" basis after the product had been produced. This was to make sure that the warehouse was not left with merchandise that was not complete or was not of acceptable quality. Because of this, when goods did not sell or were rejected by the consumer, they would be replaced. But what has changed over time is the idea that Ad Valor can only mean after the sale and not before.

Inventory is no longer considered Ad Valor because it is now considered part of Supply Chain Management, which is exactly how it needs to be. The concept is similar to supply chain management in that the more you have of a good commodity the higher demand there is for it. In this case, the demand is directly tied to the amount of inventory available in the warehouse. The problem is that in today's production environment there is a tendency to churn inventory or drop it when there is not enough demand for it. Therefore, the warehouse manager must be able to determine when enough supply is available and then make arrangements for the replenishment of the inventory.

This is not as easy as simply counting the amount of stock in stock or in inventory bins. Inventory management is dependent on the accuracy and timeliness of inventory distribution. This is extremely important for warehousing businesses because they rely on their stock to keep them running smoothly. Ad Valor is no longer a part of the definition when it comes to warehouse operations. But warehouses should still make sure that their Ad Valor criteria is met for every incoming order.




Certified Inventory Optimization Professional 

CIOP is an end-to-end supply chain certification that contains 30 modules such as Introduction to Supply Chain Management, All About Inventory, Production Planning System, Strategic Business Planning, Sales & Operations Planning, Master Scheduling, Material Requirements Planning, Demand Management, Capacity Management, Forecasting, Production Activity Control, Procurement, Order Quantities, Independent Demand Ordering Systems, Warehouse Management, Transportation Management, Supplier Relationship Management (SRM), Customer Relationship Management (CRM), Introduction to Quality, Introduction to Packaging, Introduction to Process, Lean, Six Sigma, Total Quality Management, Theory of Constraints, Supply Chain Technologies, Supply Chain Techniques, Industry 4.0, International Standards and Supply Chain Risk, Safety and Security. 

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CIOP Knowledge Series

One-Minute Supply Chain Facts

The most recent video is available here. To access the past videos in the One-Minute Supply Chain Facts Series, please click the playlist icon located on the Top-Right of the video.





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