CPP CPP Cost Management & Budgeting 2 — Questions and Answers
Question 1: What is 'SKU rationalization' in packaging cost management?
- Assigning rational numeric codes to all packaging SKUs for warehouse efficiency
- Reducing the number of packaging variants to eliminate complexity and lower costs (Correct answer)
- A method for calculating the rational economic order quantity for packaging
- Standardizing SKU label sizes across all product lines
Correct answer: Reducing the number of packaging variants to eliminate complexity and lower costs
SKU rationalization involves eliminating low-value or redundant packaging stock keeping units to reduce complexity, lower inventory costs, and improve supply chain efficiency.
Question 2: What is the purpose of a 'spend analysis' in packaging procurement?
- To forecast future packaging spending based on historical inflation rates
- To categorize and analyze all packaging expenditures to identify savings opportunities (Correct answer)
- To determine the maximum budget that can be spent on packaging per quarter
- To compare packaging spend against competitors in the same industry
Correct answer: To categorize and analyze all packaging expenditures to identify savings opportunities
A spend analysis systematically categorizes all packaging expenditures by supplier, category, and geography to identify consolidation opportunities, redundancies, and cost reduction levers.
Question 3: What does 'make vs. buy' analysis determine in a packaging context?
- Whether to manufacture packaging in-house or purchase it from external suppliers (Correct answer)
- Whether to invest in new packaging design or buy an existing product line
- Whether to buy packaging machinery outright or lease it
- Whether to use branded or private-label packaging for retail
Correct answer: Whether to manufacture packaging in-house or purchase it from external suppliers
Make vs. buy analysis compares the total cost and strategic implications of producing packaging internally versus purchasing it from outside suppliers.
Question 4: What is 'demand forecasting' and why is it important for packaging cost control?
- Predicting consumer demand for packaging designs through focus groups
- Estimating future packaging volume requirements to optimize order quantities and reduce costs (Correct answer)
- Forecasting raw material price changes to time purchasing decisions
- Predicting how quickly packaging machinery will need replacement
Correct answer: Estimating future packaging volume requirements to optimize order quantities and reduce costs
Demand forecasting estimates future packaging volume needs, enabling optimal order quantities that balance inventory holding costs against purchase price discounts.
Question 5: What is an 'economic order quantity' (EOQ) in packaging inventory management?
- The minimum order quantity required by packaging suppliers
- The optimal order size that minimizes total inventory holding and ordering costs (Correct answer)
- The quantity at which packaging becomes economically unviable to produce
- The maximum order size allowed under a packaging contract
Correct answer: The optimal order size that minimizes total inventory holding and ordering costs
EOQ is a formula-derived order quantity that minimizes the sum of inventory holding costs and ordering/setup costs for a packaging component.
Question 6: What is 'should-cost modeling' in packaging procurement?
- A model predicting how costs should change over a 5-year planning horizon
- An analytical approach to estimate what a packaging component should cost based on its materials, labor, and overhead (Correct answer)
- A compliance model for determining if supplier costs meet regulatory caps
- A benchmarking model comparing packaging costs against industry should-be standards
Correct answer: An analytical approach to estimate what a packaging component should cost based on its materials, labor, and overhead
Should-cost modeling breaks down a packaging component into its cost drivers (materials, labor, overhead, profit) to estimate a fair target cost and inform supplier negotiations.
CPP CPP Cost Management & Budgeting 2
What is 'SKU rationalization' in packaging cost management?