APP Inventory, Logistics & Supply Chain Management 2 — Questions and Answers
Question 1: A company uses a periodic review inventory system. What is the primary characteristic of this system?
- Inventory is checked and orders placed at fixed time intervals (Correct answer)
- Orders are placed whenever stock falls to the reorder point
- Inventory is replenished only when a stockout occurs
- Orders are placed based on supplier lead time only
Correct answer: Inventory is checked and orders placed at fixed time intervals
In a periodic review system, inventory levels are checked at set intervals (e.g., weekly or monthly) and orders are placed to bring stock up to a target level.
Question 2: Which supply chain risk mitigation strategy involves holding extra inventory to buffer against demand or supply variability?
- Supply base diversification
- Safety stock (Correct answer)
- Postponement strategy
- Cross-docking
Correct answer: Safety stock
Safety stock is buffer inventory held above average demand to protect against variability in demand or supplier lead times.
Question 3: In logistics, what does 'freight consolidation' primarily achieve?
- Reducing carrier transit time by using express lanes
- Combining smaller shipments into one larger load to reduce per-unit shipping costs (Correct answer)
- Splitting one large order into multiple deliveries for faster fulfillment
- Eliminating the need for a third-party logistics provider
Correct answer: Combining smaller shipments into one larger load to reduce per-unit shipping costs
Freight consolidation combines multiple small shipments into a single larger shipment, reducing cost per unit by achieving better carrier rates.
Question 4: A purchasing practitioner discovers that a supplier's on-time delivery rate has dropped from 95% to 78%. Which metric best quantifies the downstream impact on the buyer's inventory?
- Economic Order Quantity (EOQ)
- Inventory turnover ratio
- Required safety stock increase (Correct answer)
- Days Sales of Inventory (DSI)
Correct answer: Required safety stock increase
Lower supplier reliability increases lead time variability, which directly drives up the safety stock needed to maintain the same service level.
Question 5: Which of the following best describes 'postponement' as a supply chain strategy?
- Delaying payment terms to improve cash flow
- Deferring product customization until closer to the customer order to reduce finished goods inventory (Correct answer)
- Postponing supplier contract renewals until market prices drop
- Delaying shipment of goods until full truckload capacity is reached
Correct answer: Deferring product customization until closer to the customer order to reduce finished goods inventory
Postponement delays differentiation (e.g., labeling, configuration) to the latest possible point, reducing the risk of holding obsolete finished inventory.
Question 6: A company's total landed cost analysis for an overseas supplier should include which of the following costs NOT typically present with a domestic supplier?
- Raw material costs and direct labor
- Import duties, customs brokerage fees, and longer carrying costs due to transit time (Correct answer)
- Supplier's overhead and profit margin
- Purchase order processing and accounts payable costs
Correct answer: Import duties, customs brokerage fees, and longer carrying costs due to transit time
Total landed cost for overseas sourcing must include import duties, customs brokerage, ocean/air freight, insurance, and the increased inventory carrying cost from extended lead times.
Question 7: In supply chain management, 'bullwhip effect' refers to what phenomenon?
- A sharp reduction in lead times due to supplier process improvements
- Increasing demand variability as orders move upstream from retailer to manufacturer (Correct answer)
- Price volatility caused by commodity market speculation
- Rapid inventory depletion during seasonal demand peaks
Correct answer: Increasing demand variability as orders move upstream from retailer to manufacturer
The bullwhip effect describes how small demand fluctuations at the retail level are amplified into larger swings in orders as they move up the supply chain.
APP Inventory, Logistics & Supply Chain Management 2
A company uses a periodic review inventory system.
What is the primary characteristic of this system?