CPIM Inventory Planning & Control Strategies 5 — Questions and Answers
Question 1: A retailer experiences significantly higher demand in Q4 due to the holiday season. Which inventory strategy should be used to prepare?
- Reduce safety stock levels in Q3 to cut costs
- Build anticipation inventory in advance of the demand peak (Correct answer)
- Switch from continuous to periodic review during Q4
- Increase the EOQ calculation frequency
Correct answer: Build anticipation inventory in advance of the demand peak
Anticipation inventory is built ahead of a predictable demand surge (seasonal or promotional) when current production or supply capacity cannot meet peak demand alone.
Question 2: What is the 'bullwhip effect' in supply chain inventory management?
- The tendency for inventory accuracy to decrease upstream in the supply chain
- The amplification of demand variability as orders move upstream through the supply chain (Correct answer)
- The reduction of lead times as technology improves
- The effect of discounts on increasing order frequency
Correct answer: The amplification of demand variability as orders move upstream through the supply chain
The bullwhip effect describes how small fluctuations in end-customer demand are magnified into large swings in orders further up the supply chain, causing excess inventory and costs.
Question 3: Which technique aggregates individual SKU forecasts into a product family or group forecast to improve overall planning accuracy?
- Disaggregation
- Hierarchical forecasting (Correct answer)
- Exponential smoothing
- Causal forecasting
Correct answer: Hierarchical forecasting
Hierarchical forecasting develops forecasts at multiple levels (family, subfamily, SKU), leveraging the greater statistical accuracy of aggregate forecasts before disaggregating to item level.
Question 4: In an MRP system, what is 'gross requirements'?
- The quantity on hand before any adjustments
- The total demand for an item from all sources before considering available inventory (Correct answer)
- The net demand after subtracting on-hand inventory and scheduled receipts
- The safety stock quantity for a given item
Correct answer: The total demand for an item from all sources before considering available inventory
Gross requirements represent the total planned demand for a component from all parent items in the bill of materials, before netting against available inventory.
Question 5: A company reduces its order quantity from 500 to 250 units. Assuming demand is constant, what happens to average cycle stock?
- Average cycle stock doubles
- Average cycle stock remains the same
- Average cycle stock is halved (Correct answer)
- Average cycle stock decreases by 25%
Correct answer: Average cycle stock is halved
Average cycle stock equals Q/2; halving the order quantity from 500 to 250 halves the average cycle stock from 250 to 125 units.
Question 6: Which approach calculates a replenishment quantity by multiplying daily demand by a target number of days of supply?
- Economic order quantity method
- Days-of-supply (DOS) method (Correct answer)
- Lot-for-lot method
- Periodic order quantity method
Correct answer: Days-of-supply (DOS) method
The days-of-supply method determines order quantity as daily demand multiplied by the desired coverage period in days, providing a simple, intuitive replenishment rule.
Question 7: What distinguishes a 'push' inventory replenishment system from a 'pull' system?
- Push systems replenish based on actual downstream demand signals; pull systems use forecasts
- Push systems produce and ship based on forecasts; pull systems respond to actual consumption signals (Correct answer)
- Push systems use kanban cards; pull systems use MRP
- Push systems apply to finished goods only; pull systems apply to raw materials
Correct answer: Push systems produce and ship based on forecasts; pull systems respond to actual consumption signals
In push systems, inventory is produced or ordered based on forecasts and pushed to the next stage; pull systems replenish only in response to actual demand consumption.
CPIM Inventory Planning & Control Strategies 5
A retailer experiences significantly higher demand in Q4 due to the holiday season.
Which inventory strategy should be used to prepare?