CIM Safety Stock & Reorder Points 4 — Questions and Answers
Question 1: A retailer's lead time demand averages 500 units with a standard deviation of 40 units. At a 99% service level (z = 2.33), what is the safety stock?
- 93.2 units (Correct answer)
- 100 units
- 80 units
- 46.6 units
Correct answer: 93.2 units
Safety stock = z × σ = 2.33 × 40 = 93.2 units.
Question 2: Which of the following would cause a company to REDUCE its safety stock levels?
- Supplier lead times become more consistent and predictable (Correct answer)
- Demand becomes more volatile
- Service level targets are raised
- Lead times increase on average
Correct answer: Supplier lead times become more consistent and predictable
More consistent lead times reduce variability, lowering the uncertainty safety stock is designed to buffer against.
Question 3: In the formula ROP = (Average daily demand × Lead time) + Safety stock, what does the first term represent?
- Expected demand during the replenishment lead time (Correct answer)
- Total on-hand inventory
- Maximum possible demand
- Economic order quantity
Correct answer: Expected demand during the replenishment lead time
Average daily demand multiplied by lead time gives the expected (average) consumption while waiting for the order to arrive.
Question 4: A manager wants to reduce inventory costs but maintain service levels. Which strategy best addresses safety stock without changing service level targets?
- Work with suppliers to reduce lead time variability (Correct answer)
- Increase the reorder point
- Raise the order quantity
- Switch from A to C class items
Correct answer: Work with suppliers to reduce lead time variability
Reducing lead time variability lowers σ in the safety stock formula, cutting safety stock while maintaining the same service level.
Question 5: Which of the following best defines 'cycle service level' in the context of safety stock?
- The probability of not stocking out during a single replenishment cycle (Correct answer)
- The percentage of total annual demand filled from stock
- The fill rate for individual orders
- The ratio of stockouts to total orders
Correct answer: The probability of not stocking out during a single replenishment cycle
Cycle service level (CSL) measures the probability of avoiding a stockout in any given replenishment cycle.
Question 6: An item has an average daily demand of 30 units, a lead time of 5 days, and desired safety stock of 75 units. What is the reorder point?
- 225 units (Correct answer)
- 150 units
- 75 units
- 300 units
Correct answer: 225 units
ROP = (30 × 5) + 75 = 150 + 75 = 225 units.
Question 7: A supply chain analyst notices that safety stock is consistently consumed even during normal operations. What does this suggest?
- Safety stock is set too low or demand/lead time estimates are inaccurate (Correct answer)
- Safety stock is set at an optimal level
- The item should be reclassified as a C item
- The reorder point should be decreased
Correct answer: Safety stock is set too low or demand/lead time estimates are inaccurate
If safety stock is regularly depleted, it signals that the buffer is insufficient for actual variability, or the averages used are underestimates.
CIM Safety Stock & Reorder Points 4
A retailer's lead time demand averages 500 units with a standard deviation of 40 units.
At a 99% service level (z = 2.33), what is the safety stock?