APICS Demand Management 5 — Questions and Answers
Question 1: Which forecasting method is most appropriate when demand is driven by an underlying causal variable such as housing starts or GDP?
- Simple exponential smoothing
- Regression analysis (Correct answer)
- Moving average
- Naive forecasting
Correct answer: Regression analysis
Regression analysis models the relationship between demand and one or more independent causal variables to produce a cause-and-effect forecast.
Question 2: A planner calculates a seasonal index of 1.25 for Q4. What does this indicate?
- Q4 demand is 25% below the annual average
- Q4 demand is 25% above the annual average (Correct answer)
- Q4 safety stock should be increased by 25%
- Q4 lead times are 25% longer than average
Correct answer: Q4 demand is 25% above the annual average
A seasonal index greater than 1.0 indicates demand in that period is higher than average; 1.25 means Q4 demand is 25% above the annual average.
Question 3: Which term describes the maximum amount of product a market can absorb within a given period, regardless of price or marketing effort?
- Effective demand
- Market potential (Correct answer)
- Derived demand
- Latent demand
Correct answer: Market potential
Market potential represents the upper limit of demand for a product in a defined market over a specific time period under ideal conditions.
Question 4: In a make-to-order environment, which input is most critical for driving the master production schedule?
- Statistical demand forecast
- Firm customer orders (Correct answer)
- Inventory replenishment signals
- Safety stock targets
Correct answer: Firm customer orders
In make-to-order environments, firm customer orders (not forecasts) are the primary demand signal because production begins only after an order is received.
Question 5: What is the primary risk of using only qualitative forecasting methods for high-volume commodity products?
- They require expensive software systems to implement
- They introduce subjective bias and are difficult to validate statistically (Correct answer)
- They cannot account for seasonal demand patterns
- They require historical data going back at least five years
Correct answer: They introduce subjective bias and are difficult to validate statistically
Qualitative methods rely on human judgment, which can introduce personal biases and lack the statistical rigor needed for reliable high-volume product forecasting.
Question 6: Which planning horizon is typically associated with the demand management process in S&OP?
- 1–3 days (operational scheduling)
- 3–18 months (tactical planning) (Correct answer)
- 5–10 years (strategic capacity planning)
- 1–2 weeks (short-term dispatch scheduling)
Correct answer: 3–18 months (tactical planning)
S&OP and demand management typically operate over a 3–18 month tactical horizon, balancing medium-term demand projections with supply capacity decisions.
Question 7: A company observes that its distributor's orders fluctuate far more than end-consumer sales. This phenomenon is known as:
- Demand aggregation
- The bullwhip effect (Correct answer)
- Demand smoothing
- Order promising variability
Correct answer: The bullwhip effect
The bullwhip effect describes how small fluctuations in consumer demand get amplified as orders move upstream through the supply chain.
APICS Demand Management 5
Which forecasting method is most appropriate when demand is driven by an underlying causal variable such as housing starts or GDP?