CPIM Demand Management 3 — Questions and Answers
Question 1: In a make-to-order environment, the demand management function primarily focuses on:
- Building finished goods safety stock
- Managing the customer order backlog and promising delivery dates (Correct answer)
- Generating long-range capacity plans only
- Setting finished goods reorder points
Correct answer: Managing the customer order backlog and promising delivery dates
In make-to-order environments there is no finished goods inventory buffer, so managing customer orders and accurate order promising are the core demand management activities.
Question 2: Which forecasting technique is most appropriate when there is no historical data available for a new product?
- Exponential smoothing
- Time series decomposition
- Market research and analogous product analysis (Correct answer)
- Regression against past sales
Correct answer: Market research and analogous product analysis
Without historical data, qualitative methods such as market research or comparison to analogous products are necessary to generate initial demand estimates.
Question 3: The Master Production Schedule (MPS) consumes the forecast by:
- Adding forecast quantities to customer orders
- Using actual customer orders to replace forecast in the near-term planning horizon (Correct answer)
- Averaging forecast and actual orders for all periods
- Eliminating the forecast once a customer order is received for any item
Correct answer: Using actual customer orders to replace forecast in the near-term planning horizon
As actual orders are received, they consume (replace) the forecast in the near-term horizon so that the MPS reflects real demand rather than double-counting.
Question 4: A company experiences a sudden one-time spike in demand due to a competitor going out of business. When updating the forecast, the planner should:
- Include the spike in the historical data to improve future forecasts
- Treat the spike as an outlier and exclude or dampen it from forecast calculations (Correct answer)
- Double the forecast for the next three periods as a precaution
- Switch to a qualitative method permanently
Correct answer: Treat the spike as an outlier and exclude or dampen it from forecast calculations
One-time non-recurring events are outliers that distort the statistical forecast and should be excluded or dampened so they don't inflate future predictions.
Question 5: Which of the following best describes 'dependent demand'?
- Demand derived directly from customer orders or market forecasts
- Demand calculated from the requirements for a parent item (Correct answer)
- Demand that varies randomly around a mean
- Demand that follows a seasonal pattern
Correct answer: Demand calculated from the requirements for a parent item
Dependent demand is derived mathematically from the demand for a parent assembly or finished good, such as component parts required per unit of finished product.
Question 6: Safety stock is primarily designed to protect against:
- Inaccurate bills of material
- Variability in demand and/or supply lead time (Correct answer)
- Machine breakdowns on the shop floor
- Supplier price increases
Correct answer: Variability in demand and/or supply lead time
Safety stock buffers against uncertainty in demand levels and supplier lead times to maintain a desired customer service level.
Question 7: A planner is evaluating two forecasting models. Model A has a MAD of 50 and Model B has a MAD of 80 for the same item. Which model should be preferred and why?
- Model B, because larger MAD indicates more conservative estimates
- Model A, because lower MAD indicates smaller average forecast errors (Correct answer)
- Model B, because it reacts more quickly to demand changes
- Neither; MAD alone is insufficient to select a model
Correct answer: Model A, because lower MAD indicates smaller average forecast errors
A lower MAD means the forecast errors are smaller on average, indicating Model A is the more accurate model for this item.
CPIM Demand Management 3
In a make-to-order environment, the demand management function primarily focuses on: