CPIM Demand Management & Forecasting 4 — Questions and Answers
Question 1: In a 4-period simple moving average, if the most recent period's actual demand is unusually high due to a one-time event, the best action is to:
- Permanently increase the forecast
- Remove the outlier and use adjusted data (Correct answer)
- Switch to a naive forecast
- Double the smoothing constant
Correct answer: Remove the outlier and use adjusted data
Outliers from one-time events should be removed or adjusted before computing the moving average to prevent distortion of future forecasts.
Question 2: The Sales & Operations Planning (S&OP) process reconciles which two plans?
- Master production schedule and purchase orders
- Demand plan and supply/capacity plan (Correct answer)
- Sales forecast and financial budget only
- Distribution requirements plan and vendor schedules
Correct answer: Demand plan and supply/capacity plan
S&OP balances the demand plan (sales forecast) against the supply/capacity plan to create an aligned business plan.
Question 3: Which forecasting error metric penalizes large errors more heavily than small ones?
- Mean Absolute Deviation (MAD)
- Mean Absolute Percentage Error (MAPE)
- Mean Squared Error (MSE) (Correct answer)
- Tracking signal
Correct answer: Mean Squared Error (MSE)
MSE squares each error before averaging, which disproportionately penalizes large forecast errors compared to MAD or MAPE.
Question 4: Which scenario best justifies using a qualitative forecasting method over a quantitative one?
- A mature product with 5 years of stable sales history
- A new product launch with no historical data (Correct answer)
- A seasonal product with consistent patterns
- A commodity with industry price indices
Correct answer: A new product launch with no historical data
Qualitative methods such as market research or expert opinion are necessary when no historical data exists, such as for new product introductions.
Question 5: A distribution center serving multiple retail stores aggregates their demand before forecasting. This technique leverages:
- Pooling effect reducing total variability (Correct answer)
- Bullwhip effect amplification
- Demand disaggregation noise
- Independent demand multiplication
Correct answer: Pooling effect reducing total variability
Aggregating demand across multiple locations pools variability, reducing total forecast error through statistical averaging of independent demand streams.
Question 6: Which of the following causes the bullwhip effect in a supply chain?
- Perfect information sharing between trading partners
- Small order batching and demand signal amplification upstream (Correct answer)
- Consistent replenishment with no lead time variability
- Direct-to-consumer sales bypassing distributors
Correct answer: Small order batching and demand signal amplification upstream
The bullwhip effect is caused by demand signal distortion as orders move upstream, amplified by order batching, lead time variability, and lack of information sharing.
Question 7: When decomposing a demand time series, which component represents the overall long-term upward or downward movement in demand?
- Seasonal index
- Cyclical component
- Trend component (Correct answer)
- Irregular component
Correct answer: Trend component
The trend component captures the long-term direction of demand, whether consistently increasing, decreasing, or flat over time.
CPIM Demand Management & Forecasting 4
In a 4-period simple moving average, if the most recent period's actual demand is unusually high due to a one-time event, the best action is to: