CIM Safety Stock & Reorder Points 5 — Questions and Answers
Question 1: A company switches from a make-to-stock to a make-to-order strategy. What is the likely effect on safety stock requirements?
- Safety stock decreases because production is triggered by actual orders (Correct answer)
- Safety stock increases due to longer lead times
- Safety stock remains the same
- Safety stock must double to cover customer variability
Correct answer: Safety stock decreases because production is triggered by actual orders
Make-to-order eliminates finished goods uncertainty since production only starts once an order is received, reducing or eliminating finished goods safety stock.
Question 2: Which metric measures the percentage of order lines (or units) shipped complete from available stock, and is distinct from cycle service level?
- Fill rate (Correct answer)
- Reorder frequency
- Order cycle time
- Safety stock ratio
Correct answer: Fill rate
Fill rate measures what fraction of demand is met immediately from stock, covering partial fulfillment scenarios unlike cycle service level.
Question 3: What is the effect of using a higher safety factor (z-score) on inventory carrying costs?
- Carrying costs increase because more safety stock is held (Correct answer)
- Carrying costs decrease because fewer orders are placed
- Carrying costs are unaffected by safety stock levels
- Carrying costs decrease due to volume discounts
Correct answer: Carrying costs increase because more safety stock is held
Higher z-scores yield more safety stock, which must be stored and financed, increasing inventory carrying costs.
Question 4: A manufacturer's supplier offers to share real-time inventory and production data. How does this vendor-managed inventory (VMI) relationship typically affect safety stock?
- Safety stock can be reduced because supply visibility lowers uncertainty (Correct answer)
- Safety stock must increase to validate supplier data
- Safety stock is unaffected by VMI arrangements
- Safety stock doubles to account for data sharing lag
Correct answer: Safety stock can be reduced because supply visibility lowers uncertainty
VMI improves supply chain visibility, reducing lead time and demand uncertainty and therefore safety stock needs.
Question 5: In a multi-echelon supply chain, where is safety stock most efficiently positioned to minimize total system inventory?
- At the echelon with the greatest demand uncertainty and longest lead times (Correct answer)
- Only at the retail level
- Only at the central warehouse
- Equally distributed at every node
Correct answer: At the echelon with the greatest demand uncertainty and longest lead times
Multi-echelon optimization places safety stock where it provides the greatest service benefit relative to cost, typically where variability is highest.
Question 6: A company recalculates its reorder point after discovering its demand forecast has been consistently 15% below actual demand. What adjustment is needed?
- Increase the reorder point to reflect higher actual demand (Correct answer)
- Decrease the reorder point to save inventory costs
- Keep the reorder point unchanged and increase safety stock only
- Remove the safety stock buffer
Correct answer: Increase the reorder point to reflect higher actual demand
A systematic under-forecast means the ROP is too low, and increasing it corrects for the bias in expected lead time demand.
Question 7: Which of the following scenarios would result in the HIGHEST reorder point, all else being equal?
- High average demand, long lead time, high demand variability, high service level target (Correct answer)
- Low average demand, short lead time, low variability, low service level
- High average demand, short lead time, low variability, low service level
- Low average demand, long lead time, low variability, high service level
Correct answer: High average demand, long lead time, high demand variability, high service level target
All four factors — high demand, long lead time, high variability, and high service level — each independently increase the ROP, so their combination yields the highest ROP.
CIM Safety Stock & Reorder Points 5
A company switches from a make-to-stock to a make-to-order strategy.
What is the likely effect on safety stock requirements?