CIM Safety Stock & Reorder Points 2 — Questions and Answers
Question 1: A company experiences average daily demand of 50 units with a lead time of 8 days. What is the basic reorder point (without safety stock)?
- 400 units (Correct answer)
- 350 units
- 450 units
- 500 units
Correct answer: 400 units
Basic ROP = Average daily demand × Lead time = 50 × 8 = 400 units.
Question 2: Which statistical measure is used to quantify demand variability when calculating safety stock using the standard deviation method?
- Standard deviation of demand (Correct answer)
- Mean absolute deviation
- Coefficient of variation
- Range of demand
Correct answer: Standard deviation of demand
Safety stock calculations using the statistical method rely on the standard deviation of demand to measure variability.
Question 3: A service level of 95% corresponds to a z-score of approximately 1.65. If lead time demand standard deviation is 30 units, what is the safety stock?
- 49.5 units (Correct answer)
- 45 units
- 30 units
- 60 units
Correct answer: 49.5 units
Safety stock = z × σLTD = 1.65 × 30 = 49.5 units.
Question 4: What happens to the reorder point when supplier lead time increases, assuming all other variables remain constant?
- Reorder point increases (Correct answer)
- Reorder point decreases
- Reorder point stays the same
- Reorder point becomes negative
Correct answer: Reorder point increases
A longer lead time means more inventory is consumed before replenishment arrives, raising the reorder point.
Question 5: Which approach to setting safety stock is most appropriate when demand data is limited or highly irregular?
- Judgment-based or percentage-of-lead-time-demand method (Correct answer)
- Statistical z-score method
- Economic order quantity formula
- ABC classification alone
Correct answer: Judgment-based or percentage-of-lead-time-demand method
When data is sparse or irregular, judgment-based or simple percentage methods provide practical safety stock estimates.
Question 6: A distributor sets a reorder point of 200 units. If average lead time demand is 160 units, what is the implied safety stock?
- 40 units (Correct answer)
- 200 units
- 160 units
- 360 units
Correct answer: 40 units
Safety stock = ROP − Average lead time demand = 200 − 160 = 40 units.
Question 7: How does increasing the desired service level affect safety stock requirements?
- Safety stock increases because a higher z-score is required (Correct answer)
- Safety stock decreases because fewer stockouts are expected
- Safety stock remains unchanged
- Safety stock is eliminated at 100% service level
Correct answer: Safety stock increases because a higher z-score is required
Higher service levels require larger z-scores, which directly increase the safety stock calculation.
CIM Safety Stock & Reorder Points 2
A company experiences average daily demand of 50 units with a lead time of 8 days.
What is the basic reorder point (without safety stock)?