CPIM Inventory Management 4 — Questions and Answers
Question 1: Which inventory policy results in a variable order quantity placed at fixed time intervals?
- Fixed order quantity (FOQ)
- Fixed order period (FOP) (Correct answer)
- Min-max system
- Two-bin system
Correct answer: Fixed order period (FOP)
A fixed order period system reviews inventory at set intervals and orders a variable quantity to bring inventory to a target level.
Question 2: What is 'vendor-managed inventory' (VMI)?
- A system where the customer controls all replenishment decisions
- A collaborative arrangement where the supplier manages stock levels at the customer's location (Correct answer)
- Inventory held at the vendor's warehouse on consignment
- A method for vendors to set maximum price limits on inventory
Correct answer: A collaborative arrangement where the supplier manages stock levels at the customer's location
In VMI, the supplier monitors inventory levels at the customer's site and takes responsibility for replenishment decisions.
Question 3: How does increasing the service level target affect safety stock?
- Safety stock decreases proportionally
- Safety stock increases, but at a diminishing marginal rate at high service levels (Correct answer)
- Safety stock remains constant regardless of service level target
- Safety stock increases linearly with service level
Correct answer: Safety stock increases, but at a diminishing marginal rate at high service levels
Safety stock increases with higher service levels, but the relationship is non-linear — marginal increases in safety stock grow larger as service level approaches 100%.
Question 4: Which inventory metric measures the percentage of orders shipped complete and on time?
- Fill rate
- Perfect order rate (Correct answer)
- Inventory accuracy rate
- Customer service level
Correct answer: Perfect order rate
The perfect order rate measures the percentage of orders delivered complete, on time, undamaged, and with accurate documentation.
Question 5: In the context of CPIM, what does 'pipeline inventory' refer to?
- Inventory stored in distribution centers
- Inventory in transit between supply chain locations (Correct answer)
- Raw materials awaiting processing
- Finished goods in retail stores
Correct answer: Inventory in transit between supply chain locations
Pipeline inventory consists of items currently in transit — on trucks, ships, or between facilities — that have been shipped but not yet received.
Question 6: What is the impact of reducing lot sizes on work-in-process (WIP) inventory?
- WIP inventory increases because more setups are required
- WIP inventory decreases because items spend less time waiting in queue (Correct answer)
- WIP inventory is unaffected by lot size changes
- WIP inventory increases due to higher setup frequency
Correct answer: WIP inventory decreases because items spend less time waiting in queue
Smaller lot sizes reduce queue time between operations, decreasing average WIP inventory and lead times (per Little's Law).
Question 7: Which technique uses historical consumption data and exponential smoothing to forecast future demand for inventory planning?
- Regression analysis
- Moving average
- Exponential smoothing (Correct answer)
- Time series decomposition
Correct answer: Exponential smoothing
Exponential smoothing applies declining weights to historical data, with more recent periods receiving higher weight, making it efficient for inventory forecasting.
CPIM Inventory Management 4
Which inventory policy results in a variable order quantity placed at fixed time intervals?