APP Inventory, Logistics & Supply Chain Management 3 — Questions and Answers
Question 1: Which inventory valuation method results in the highest cost of goods sold during a period of rising prices?
- FIFO (First-In, First-Out)
- LIFO (Last-In, First-Out) (Correct answer)
- Weighted Average Cost
- Specific Identification
Correct answer: LIFO (Last-In, First-Out)
Under LIFO, the most recently purchased (and therefore most expensive) items are sold first, producing the highest COGS when prices are rising.
Question 2: A purchasing manager wants to evaluate a 3PL provider. Which key performance indicator (KPI) measures the 3PL's ability to deliver complete, accurate, on-time orders without damage?
- Freight cost per unit shipped
- Perfect Order Rate (Correct answer)
- Warehouse utilization percentage
- Carrier on-time delivery rate
Correct answer: Perfect Order Rate
Perfect Order Rate measures the percentage of orders delivered complete, on time, undamaged, and with accurate documentation — the most comprehensive 3PL fulfillment KPI.
Question 3: What is the primary purpose of vendor-managed inventory (VMI)?
- To transfer ownership of goods to the supplier until consumed
- To allow the supplier to monitor stock levels and replenish inventory autonomously (Correct answer)
- To eliminate safety stock requirements entirely
- To consolidate purchasing decisions with a single preferred supplier
Correct answer: To allow the supplier to monitor stock levels and replenish inventory autonomously
In VMI, the supplier monitors the buyer's inventory data and takes responsibility for maintaining agreed stock levels, reducing the buyer's replenishment workload.
Question 4: Under Incoterms 2020, which term places maximum responsibility on the buyer?
- DDP (Delivered Duty Paid)
- EXW (Ex Works) (Correct answer)
- CIF (Cost, Insurance and Freight)
- FOB (Free On Board)
Correct answer: EXW (Ex Works)
EXW places the least obligation on the seller — the buyer is responsible for all transportation, export clearance, insurance, and import duties from the seller's premises.
Question 5: A company uses a two-bin replenishment system. What triggers the reorder action?
- The total inventory falls below the EOQ calculation
- The first bin is emptied, signaling use of the second (safety) bin (Correct answer)
- A scheduled monthly inventory count reveals low stock
- The supplier sends an automatic replenishment notice
Correct answer: The first bin is emptied, signaling use of the second (safety) bin
In a two-bin system, the second bin is a visual trigger — when the first bin empties and the second bin is opened, a replenishment order is placed.
Question 6: Which supply chain visibility tool provides real-time tracking of goods in transit and is most critical for managing perishable or high-value shipments?
- Enterprise Resource Planning (ERP) module
- Transportation Management System (TMS) with GPS tracking integration (Correct answer)
- Supplier scorecard database
- Demand planning software
Correct answer: Transportation Management System (TMS) with GPS tracking integration
A TMS with GPS/IoT tracking integration provides real-time in-transit visibility, enabling proactive intervention for temperature-sensitive or high-value shipments.
Question 7: In lean supply chain thinking, 'muda' refers to:
- A Japanese term for maximum inventory level
- Any activity or resource use that does not add value to the customer (Correct answer)
- A supplier certification level in lean manufacturing
- The minimum order quantity set by a supplier
Correct answer: Any activity or resource use that does not add value to the customer
Muda is the Japanese term for waste — any activity consuming resources without creating customer value, such as excess inventory, overproduction, or unnecessary transportation.
APP Inventory, Logistics & Supply Chain Management 3
Which inventory valuation method results in the highest cost of goods sold during a period of rising prices?