CIM Inventory Control & Stock Replenishment 5 — Questions and Answers
Question 1: A company has carrying costs of 25% of inventory value annually. If the average inventory value is $200,000, what is the annual carrying cost?
- $25,000
- $50,000 (Correct answer)
- $75,000
- $100,000
Correct answer: $50,000
Annual carrying cost = 25% × $200,000 = $50,000, covering storage, insurance, capital, and obsolescence costs.
Question 2: Which replenishment signal is the foundation of a Kanban pull system?
- A scheduled purchase order generated by MRP
- A Kanban card or signal triggered by actual consumption (Correct answer)
- An automatic reorder generated by the ERP system at a set interval
- A supplier notification based on forecasted demand
Correct answer: A Kanban card or signal triggered by actual consumption
Kanban uses consumption-triggered signals (cards, bins, or electronic alerts) to authorize upstream replenishment only when material is actually used.
Question 3: What distinguishes a 'push' replenishment system from a 'pull' replenishment system?
- Push systems respond to actual customer demand; pull systems use forecasts
- Push systems use forecasts to pre-position inventory; pull systems replenish based on actual demand (Correct answer)
- Push systems are used only in manufacturing; pull systems are used only in retail
- Push systems always result in higher service levels than pull systems
Correct answer: Push systems use forecasts to pre-position inventory; pull systems replenish based on actual demand
Push systems use demand forecasts to pre-build or pre-position inventory, while pull systems replenish only in response to actual consumption signals.
Question 4: When a supplier offers a quantity discount, how does this affect the optimal order quantity compared to the standard EOQ?
- The optimal order quantity always decreases to take advantage of lower prices
- The optimal order quantity may increase beyond EOQ if the discount saves more than the added holding costs (Correct answer)
- Quantity discounts have no effect on the EOQ calculation
- The optimal order quantity decreases because holding costs increase with larger orders
Correct answer: The optimal order quantity may increase beyond EOQ if the discount saves more than the added holding costs
A quantity discount makes larger orders attractive if the purchase price savings outweigh the additional holding costs of carrying more inventory.
Question 5: Which metric best measures how well a warehouse fulfills customer orders from available stock without backorders or substitutions?
- Inventory turnover
- Order fill rate (Correct answer)
- Days inventory outstanding
- Reorder point accuracy
Correct answer: Order fill rate
Order fill rate measures the percentage of customer orders fulfilled completely from stock on hand, directly reflecting inventory availability.
Question 6: In material requirements planning (MRP), what is a 'time fence' used for?
- To define the physical boundaries of the warehouse storage zones
- To set a boundary within which production orders cannot be changed without formal approval (Correct answer)
- To establish the maximum lead time acceptable from suppliers
- To limit the number of SKUs reviewed during each planning cycle
Correct answer: To set a boundary within which production orders cannot be changed without formal approval
A time fence in MRP defines a planning horizon within which scheduled production or purchase orders are frozen to prevent disruptive last-minute changes.
Question 7: Which situation would most likely trigger an emergency or expedited replenishment order?
- Inventory reaches the standard reorder point during normal operations
- A sudden demand spike depletes safety stock and threatens a stockout (Correct answer)
- The periodic review date arrives and stock is above the reorder point
- A supplier offers an early payment discount on scheduled orders
Correct answer: A sudden demand spike depletes safety stock and threatens a stockout
Emergency replenishment is warranted when unexpected demand depletes safety stock, creating an imminent stockout risk that cannot wait for the normal order cycle.
CIM Inventory Control & Stock Replenishment 5
A company has carrying costs of 25% of inventory value annually.
If the average inventory value is $200,000, what is the annual carrying cost?