CPSM Inventory Management 4 — Questions and Answers
Question 1: Under vendor-managed inventory (VMI), who is responsible for replenishment decisions?
- The buyer's procurement team
- A third-party logistics provider
- The supplier (Correct answer)
- A joint buyer-supplier committee
Correct answer: The supplier
In VMI, the supplier monitors the buyer's inventory levels and decides when and how much to replenish.
Question 2: Which measure expresses the probability that all customer demand during a replenishment cycle will be filled from available stock?
- Inventory turnover
- Cycle service level (Correct answer)
- Fill rate
- Order fulfillment lead time
Correct answer: Cycle service level
Cycle service level is the probability of not stocking out during a single replenishment cycle.
Question 3: A 'two-bin' replenishment system is a practical implementation of which inventory control approach?
- Periodic review (P system)
- Continuous review (Q system) (Correct answer)
- Just-in-time pull system
- Material requirements planning
Correct answer: Continuous review (Q system)
The two-bin system triggers a fixed replenishment order when the first bin is emptied, embodying the continuous review Q-system logic.
Question 4: Which carrying cost component represents the opportunity cost of funds tied up in inventory?
- Storage cost
- Obsolescence risk
- Capital (interest) cost (Correct answer)
- Insurance cost
Correct answer: Capital (interest) cost
Capital cost reflects the return foregone by investing money in inventory rather than in other opportunities.
Question 5: What is the primary advantage of cross-docking in a distribution network?
- Increases safety stock levels
- Eliminates or minimizes storage time by transferring goods directly from inbound to outbound (Correct answer)
- Reduces order frequency
- Enables first-in, first-out costing
Correct answer: Eliminates or minimizes storage time by transferring goods directly from inbound to outbound
Cross-docking transfers products from receiving docks directly to shipping docks, reducing or eliminating warehouse storage time.
Question 6: Which analysis technique categorizes inventory items by their value of usage to prioritize management effort?
- XYZ analysis
- ABC analysis (Correct answer)
- VED analysis
- FSN analysis
Correct answer: ABC analysis
ABC analysis ranks items by annual dollar usage: A items are high-value (~80% of spend), B items are medium, and C items are low.
Question 7: A company increases its order quantity but keeps demand constant. What happens to average cycle stock?
- Decreases proportionally
- Stays the same
- Increases (Correct answer)
- Varies unpredictably
Correct answer: Increases
Average cycle stock equals Q/2; as the order quantity (Q) increases, average cycle stock rises proportionally.
CPSM Inventory Management 4
Under vendor-managed inventory (VMI), who is responsible for replenishment decisions?