CDPP Inventory Management & Optimization

Question 1

What is safety stock and how is it calculated?

Accepted Answer

Extra inventory held to protect against uncertainty in demand and supply lead times

Answer

Safety stock is buffer inventory maintained to protect against demand variability and supply lead time uncertainty, typically calculated based on service level, demand variability, and lead time variability.

Question 2

What is the Economic Order Quantity (EOQ) model?

Accepted Answer

A formula calculating the optimal order quantity that minimizes total holding and ordering costs

Answer

EOQ calculates the order size that minimizes the total cost of inventory by balancing ordering costs (which decrease with larger orders) against holding costs (which increase with larger orders).

Question 3

What is ABC analysis in inventory management?

Accepted Answer

Classifying inventory into A (high value), B (medium value), and C (low value) categories for prioritized management

Answer

ABC analysis classifies items based on their annual consumption value: A items (top 20% of items, ~80% of value) receive the most attention, while C items (bottom 50%, ~5% of value) receive the least.

Question 4

What is the bullwhip effect in supply chain management?

Accepted Answer

The amplification of demand variability as you move upstream in the supply chain

Answer

The bullwhip effect occurs when small fluctuations in consumer demand get progressively amplified at each upstream stage of the supply chain, leading to excessive inventory and production swings.

Question 5

What is a service level in inventory planning?

Accepted Answer

The probability of not stocking out during a replenishment cycle, typically expressed as a percentage

Answer

Service level represents the desired probability of having sufficient stock to meet demand during the lead time period, such as a 95% service level meaning a 95% chance of not stocking out.

CDPP - Certified Demand Planning Professional Practice Test

CDPP - Certified Demand Planning Professional Practice Test

CDPP Inventory Management & Optimization