CPIM (Basics of Supply Chain Management) 5 — Questions and Answers
Question 1: Which inventory policy triggers a replenishment order when on-hand inventory falls to a predetermined level, regardless of the time period?
- Periodic review (P) system
- Continuous review (Q) system (Correct answer)
- Min-max system
- MRP lot-for-lot policy
Correct answer: Continuous review (Q) system
A continuous review (Q) system monitors inventory constantly and places a fixed order quantity whenever the reorder point is reached.
Question 2: In supply chain network design, a 'hub-and-spoke' configuration primarily offers:
- Direct point-to-point shipping between all locations
- Consolidated shipments through central hubs to reduce per-unit transportation costs (Correct answer)
- Elimination of all intermediate warehousing
- Fastest possible delivery to end customers
Correct answer: Consolidated shipments through central hubs to reduce per-unit transportation costs
Hub-and-spoke networks consolidate shipments at central hubs to achieve economies of scale in transportation, trading speed for lower cost.
Question 3: Which term describes the practice of a supplier holding inventory at or near the customer's facility and retaining ownership until the customer uses it?
- Vendor-managed inventory (VMI)
- Consignment inventory (Correct answer)
- Safety stock
- Kanban replenishment
Correct answer: Consignment inventory
Consignment inventory means the supplier owns the goods until consumed by the customer, transferring financial risk to the supplier.
Question 4: A company's supply chain has a 'demand-driven' design. This means production is primarily triggered by:
- Annual sales forecasts updated quarterly
- Master production schedules set by corporate planning
- Actual customer orders or point-of-sale signals (Correct answer)
- Supplier lead times and minimum order quantities
Correct answer: Actual customer orders or point-of-sale signals
Demand-driven supply chains use real customer demand signals (pull) rather than forecasts (push) to trigger production and replenishment.
Question 5: When evaluating total cost of ownership (TCO) for a sourcing decision, which factor is often OVERLOOKED when only considering purchase price?
- Unit price per item
- Volume discounts from the supplier
- Hidden costs such as quality failures, transportation, and supplier management (Correct answer)
- The supplier's quoted lead time
Correct answer: Hidden costs such as quality failures, transportation, and supplier management
TCO analysis reveals costs beyond purchase price, including quality, logistics, ordering, holding, and risk costs that impact true sourcing cost.
Question 6: Which supply chain performance measure would BEST indicate how efficiently a company uses its assets to generate revenue?
- On-time delivery rate
- Inventory turnover ratio (Correct answer)
- Order fill rate
- Supplier defect rate
Correct answer: Inventory turnover ratio
Inventory turnover (cost of goods sold ÷ average inventory) indicates how efficiently assets tied up in inventory are being utilized to generate sales.
Question 7: A 'make-to-order' (MTO) production strategy differs from 'make-to-stock' (MTS) primarily in that MTO:
- Maintains large finished goods inventories to meet immediate demand
- Begins production only after a confirmed customer order is received (Correct answer)
- Uses longer lead times because of complex manufacturing processes
- Relies exclusively on automated production equipment
Correct answer: Begins production only after a confirmed customer order is received
MTO production is triggered by actual customer orders, eliminating finished goods inventory risk but resulting in longer customer lead times.
CPIM (Basics of Supply Chain Management) 5
Which inventory policy triggers a replenishment order when on-hand inventory falls to a predetermined level, regardless of the time period?