CPL Inventory Control & Demand Planning 3 — Questions and Answers
Question 1: Which type of demand is derived from the demand for a finished product?
- Independent demand
- Dependent demand (Correct answer)
- Stochastic demand
- Lumpy demand
Correct answer: Dependent demand
Dependent demand for components and raw materials is calculated directly from the production schedule for parent items.
Question 2: A 'stockout' most directly results in which of the following costs?
- Holding costs
- Ordering costs
- Lost sales and customer dissatisfaction (Correct answer)
- Obsolescence costs
Correct answer: Lost sales and customer dissatisfaction
Stockouts cause lost revenue, emergency purchasing premiums, and long-term damage to customer relationships and loyalty.
Question 3: The bullwhip effect in supply chains is primarily caused by:
- Poor warehouse layout and picking processes
- Demand signal distortion as orders move upstream (Correct answer)
- Excessive safety stock at retail locations
- Inefficient transportation routing
Correct answer: Demand signal distortion as orders move upstream
Small fluctuations in consumer demand become amplified as each upstream tier adds its own safety stock buffer, creating large order swings.
Question 4: Which inventory valuation method results in the highest Cost of Goods Sold during periods of rising prices?
- FIFO (First-In, First-Out)
- LIFO (Last-In, First-Out) (Correct answer)
- Weighted average cost
- Specific identification
Correct answer: LIFO (Last-In, First-Out)
LIFO assigns the most recently purchased (highest-cost) items to COGS first, maximizing cost expenses when prices are rising.
Question 5: What is the purpose of a min-max inventory control system?
- To maintain inventory between a minimum trigger point and a maximum target level (Correct answer)
- To minimize total inventory across the supply chain
- To calculate maximum allowable order quantities
- To set minimum acceptable service levels
Correct answer: To maintain inventory between a minimum trigger point and a maximum target level
In a min-max system, an order is triggered when inventory falls to the minimum level, and the order quantity brings stock up to the maximum level.
Question 6: Phantom inventory occurs when:
- Inventory records show stock exists, but physical stock is absent or not locatable (Correct answer)
- Items are ordered but never received
- Safety stock levels are set too high
- Inventory is stored in multiple locations
Correct answer: Inventory records show stock exists, but physical stock is absent or not locatable
Phantom inventory (or 'ghost' inventory) creates inaccurate replenishment signals because the system believes product is available when it is not.
Question 7: In demand planning, 'seasonality index' is used to:
- Measure the volatility of supplier lead times
- Adjust baseline demand forecasts for predictable seasonal patterns (Correct answer)
- Calculate the safety stock for seasonal items
- Determine the optimal order cycle for seasonal products
Correct answer: Adjust baseline demand forecasts for predictable seasonal patterns
A seasonality index quantifies how much demand in a given period deviates from the annual average, enabling more accurate period-specific forecasts.
CPL Inventory Control & Demand Planning 3
Which type of demand is derived from the demand for a finished product?