CIM Inventory Control & Stock Replenishment 4 — Questions and Answers
Question 1: What is the purpose of cycle counting in inventory control?
- To count all inventory items simultaneously once per year
- To continuously count subsets of inventory to maintain ongoing accuracy (Correct answer)
- To identify which items belong in each ABC category
- To calculate reorder points for all SKUs
Correct answer: To continuously count subsets of inventory to maintain ongoing accuracy
Cycle counting involves counting a rotating subset of inventory items regularly throughout the year to maintain accuracy without a full shutdown.
Question 2: Which formula correctly calculates Days Inventory Outstanding (DIO)?
- DIO = Annual Sales / Average Inventory
- DIO = Average Inventory / (COGS / 365) (Correct answer)
- DIO = COGS / Average Inventory × 365
- DIO = (Ending Inventory - Beginning Inventory) / 365
Correct answer: DIO = Average Inventory / (COGS / 365)
DIO = (Average Inventory / COGS) × 365, representing how many days it takes to sell through the average inventory balance.
Question 3: In supply chain management, what is 'bullwhip effect' and how does it relate to inventory replenishment?
- It describes inventory shrinkage caused by employee theft
- It refers to demand signal amplification where small retail demand fluctuations cause large upstream inventory swings (Correct answer)
- It is the positive effect of JIT replenishment on stock levels
- It describes the cracking sound used as a metaphor for supply chain disruptions
Correct answer: It refers to demand signal amplification where small retail demand fluctuations cause large upstream inventory swings
The bullwhip effect occurs when small demand variations at retail level are amplified into large order swings upstream, causing excessive inventory or stockouts.
Question 4: When calculating safety stock using the statistical method, which variable accounts for demand variability?
- Lead time standard deviation only
- Average demand during lead time
- Standard deviation of demand during lead time (Correct answer)
- Service level multiplied by average lead time
Correct answer: Standard deviation of demand during lead time
Safety stock = Z × σ_dLT, where σ_dLT is the standard deviation of demand during lead time, capturing demand variability.
Question 5: A Just-in-Time (JIT) inventory system achieves low inventory levels primarily by:
- Ordering in very large quantities to minimize per-unit costs
- Synchronizing deliveries closely with production or sales needs (Correct answer)
- Maintaining high safety stock to prevent any stockouts
- Outsourcing all warehousing to third-party logistics providers
Correct answer: Synchronizing deliveries closely with production or sales needs
JIT minimizes inventory by timing supplier deliveries to arrive exactly when needed for production or sale, eliminating the need for large buffers.
Question 6: Which inventory replenishment strategy is best suited for items with highly seasonal or unpredictable demand patterns?
- Fixed-quantity continuous review system
- Economic Order Quantity with fixed reorder points
- Demand-driven replenishment with short lead times and flexible suppliers (Correct answer)
- Annual bulk purchasing to minimize ordering costs
Correct answer: Demand-driven replenishment with short lead times and flexible suppliers
Demand-driven replenishment with agile supply chains is best for unpredictable demand, as it responds to actual signals rather than fixed forecasts.
Question 7: What is the main advantage of using RFID technology for inventory control compared to traditional barcodes?
- RFID tags are cheaper to produce than barcodes
- RFID allows multiple items to be scanned simultaneously without line-of-sight (Correct answer)
- RFID provides better protection against inventory theft
- RFID integrates more easily with legacy ERP systems
Correct answer: RFID allows multiple items to be scanned simultaneously without line-of-sight
RFID can read multiple tags simultaneously without requiring line-of-sight, enabling faster and more automated inventory tracking than barcodes.
CIM Inventory Control & Stock Replenishment 4
What is the purpose of cycle counting in inventory control?