CSCP Inventory Management 2 — Questions and Answers
Question 1: What is 'days of supply' (DOS) as an inventory metric?
- The number of days the current inventory will last at the current rate of consumption (Correct answer)
- The average number of days a supplier takes to deliver
- The number of days between inventory cycle counts
- The days remaining before a product reaches its expiration date
Correct answer: The number of days the current inventory will last at the current rate of consumption
Days of supply measures how long current inventory will satisfy demand, calculated as on-hand inventory divided by average daily usage.
Question 2: The 'inventory turnover ratio' is calculated as:
- Cost of goods sold divided by average inventory value (Correct answer)
- Total sales revenue divided by ending inventory
- Number of orders divided by total inventory items
- Annual purchases divided by average accounts payable
Correct answer: Cost of goods sold divided by average inventory value
Inventory turnover measures how many times inventory is sold and replaced in a period; higher turns generally indicate better working capital efficiency.
Question 3: Which type of inventory is held to buffer against uncertainty in the supply chain?
- Safety stock (Correct answer)
- Cycle stock
- Pipeline inventory
- Anticipation inventory
Correct answer: Safety stock
Safety stock is additional inventory held beyond cycle stock to protect against stockouts caused by demand variability or supply disruptions.
Question 4: What is 'consignment inventory'?
- Inventory owned by the supplier but held at the buyer's location, paid for only when consumed or sold (Correct answer)
- Inventory held at a public warehouse on a temporary basis
- Defective inventory returned to the supplier for credit
- Inventory set aside for a specific customer order
Correct answer: Inventory owned by the supplier but held at the buyer's location, paid for only when consumed or sold
In consignment arrangements, the supplier retains ownership until the buyer uses or sells the goods, reducing the buyer's working capital requirements.
Question 5: Excess and obsolete inventory is best managed through which approach?
- Proactive monitoring of slow-moving items, root cause analysis, and liquidation or disposal programs (Correct answer)
- Increasing safety stock levels to use up excess
- Moving all excess inventory to a third-party warehouse
- Writing off obsolete items only at year-end financial close
Correct answer: Proactive monitoring of slow-moving items, root cause analysis, and liquidation or disposal programs
Effective E&O management identifies at-risk items early, investigates root causes, and implements structured disposition processes to recover value.
Question 6: In a periodic review inventory system, orders are placed:
- At fixed time intervals, with order quantity varying to bring inventory to a target level (Correct answer)
- Whenever inventory falls to the reorder point
- Based on supplier lead time schedules
- Only when stockouts occur
Correct answer: At fixed time intervals, with order quantity varying to bring inventory to a target level
Periodic review systems check inventory at set intervals and order variable quantities to restore a predetermined maximum inventory level.
CSCP Inventory Management 2
What is 'days of supply' (DOS) as an inventory metric?