CPIM Distribution, Logistics, and Global Supply Chain 2 — Questions and Answers
Question 1: What is the key principle behind 'vendor-managed inventory' (VMI)?
- The customer manages the supplier's production schedule
- The supplier monitors the customer's inventory levels and takes responsibility for replenishment decisions (Correct answer)
- The customer and supplier share ownership of inventory in transit
- The customer pre-pays for inventory held at the supplier's facility
Correct answer: The supplier monitors the customer's inventory levels and takes responsibility for replenishment decisions
In VMI, the supplier has access to the customer's inventory data and is responsible for maintaining agreed-upon stock levels, reducing the customer's ordering burden and improving replenishment efficiency.
Question 2: ABC inventory classification is based on:
- Product size and weight
- Annual usage value, with A items being the highest-value items (Correct answer)
- Supplier reliability ratings
- Product shelf life and perishability
Correct answer: Annual usage value, with A items being the highest-value items
ABC analysis classifies inventory by annual usage value (unit cost × annual volume), with A items typically representing 20% of SKUs but 80% of value, requiring tighter control.
Question 3: What is 'total cost of quality' composed of?
- Inspection costs only
- Prevention costs, appraisal costs, and internal and external failure costs (Correct answer)
- Rework and scrap costs only
- Customer warranty claims and returns only
Correct answer: Prevention costs, appraisal costs, and internal and external failure costs
Total cost of quality (COQ) includes prevention costs (avoiding defects), appraisal costs (detecting defects), internal failure costs (defects caught inside), and external failure costs (defects reaching customers).
Question 4: Which global trade concept allows goods to be stored in a bonded facility without paying import duties until they are entered into commerce?
- Free trade agreement
- Foreign trade zone (FTZ) (Correct answer)
- Letters of credit
- Customs brokerage
Correct answer: Foreign trade zone (FTZ)
A Foreign Trade Zone (FTZ) is a designated area where goods can be stored, manipulated, or manufactured without formal customs entry, deferring or reducing duty payments.
Question 5: In supply chain risk management, 'supply chain resilience' refers to:
- The ability to achieve the lowest-cost supply chain structure
- The capacity to prepare for, withstand, and recover from disruptions to supply chain continuity (Correct answer)
- The ability to add capacity rapidly during demand peaks
- The speed of normal day-to-day operations
Correct answer: The capacity to prepare for, withstand, and recover from disruptions to supply chain continuity
Supply chain resilience is the adaptive capability to prepare for unexpected events, respond to disruptions, and recover to the original or a better state of operations.
Question 6: What does 'order cycle time' measure in distribution?
- The time from production completion to product putaway in the warehouse
- The total elapsed time from when a customer places an order to when it is delivered (Correct answer)
- The time to process a single order through the warehouse system
- The frequency with which customer orders are batched for picking
Correct answer: The total elapsed time from when a customer places an order to when it is delivered
Order cycle time (customer order cycle) spans from order placement to receipt, encompassing order processing, picking, packing, shipping, and delivery time.
CPIM Distribution, Logistics, and Global Supply Chain 2
What is the key principle behind 'vendor-managed inventory' (VMI)?