CIM Safety Stock & Reorder Points 3 — Questions and Answers
Question 1: A firm has variable lead times with an average of 10 days and a standard deviation of 2 days. Average daily demand is 20 units. Which factor contributes to safety stock need in this scenario?
- Lead time variability (Correct answer)
- Constant demand only
- Fixed order quantity
- ABC item classification
Correct answer: Lead time variability
Variable lead times create uncertainty about when stock will arrive, requiring safety stock to cover the variability.
Question 2: When both demand and lead time are variable, the combined standard deviation for safety stock calculations is best described as:
- A function of both demand variability and lead time variability (Correct answer)
- Only the standard deviation of demand
- Only the standard deviation of lead time
- The sum of demand and lead time averages
Correct answer: A function of both demand variability and lead time variability
Combined variability accounts for both demand and lead time standard deviations using a composite formula.
Question 3: A C-class item has high demand variability. How should safety stock policy typically differ from an A-class item?
- C-class items may carry proportionally less safety stock due to lower value impact (Correct answer)
- C-class items always need more safety stock than A-class items
- C-class items require the same safety stock as A-class items
- C-class items should have zero safety stock
Correct answer: C-class items may carry proportionally less safety stock due to lower value impact
ABC analysis typically applies tighter controls and higher service levels to high-value A-class items, while C-class items may receive simpler, leaner policies.
Question 4: Which term describes the point at which on-hand inventory equals the reorder point triggering a new purchase order?
- Reorder point trigger (Correct answer)
- Safety stock breach
- Economic order quantity
- Cycle stock depletion
Correct answer: Reorder point trigger
When inventory falls to the reorder point level, it triggers a replenishment order to be placed.
Question 5: A seasonal product has demand spikes during Q4. What is the most appropriate adjustment to safety stock during that period?
- Increase safety stock to reflect higher demand variability (Correct answer)
- Decrease safety stock to reduce holding costs
- Keep safety stock constant throughout the year
- Remove safety stock since the spike is predictable
Correct answer: Increase safety stock to reflect higher demand variability
Higher demand variability during peak seasons increases the risk of stockouts, warranting higher safety stock.
Question 6: A company uses a periodic review system (P system). How does safety stock in a P system typically compare to a continuous review system (Q system)?
- P system requires more safety stock because it covers the review period plus lead time (Correct answer)
- P system requires less safety stock than a Q system
- Both systems require the same safety stock
- P system eliminates the need for safety stock
Correct answer: P system requires more safety stock because it covers the review period plus lead time
In a P system, safety stock must cover uncertainty over the review period plus lead time, which is longer than lead time alone.
Question 7: What is the primary purpose of the reorder point in a continuous review inventory system?
- To signal when to place a replenishment order so stock doesn't run out during lead time (Correct answer)
- To determine how much to order at each replenishment
- To set the maximum inventory level
- To calculate the economic order quantity
Correct answer: To signal when to place a replenishment order so stock doesn't run out during lead time
The reorder point ensures that a replenishment order is placed early enough that stock arrives before inventory is depleted.
CIM Safety Stock & Reorder Points 3
A firm has variable lead times with an average of 10 days and a standard deviation of 2 days.
Average daily demand is 20 units.
Which factor contributes to safety stock need in this scenario?