CPSM Inventory Management 5 — Questions and Answers
Question 1: In supply chain management, 'shrinkage' refers to which type of inventory loss?
- Planned consumption of raw materials
- Unexplained loss due to theft, damage, or administrative errors (Correct answer)
- Normal spoilage built into the production plan
- Quantity discounts reducing unit cost
Correct answer: Unexplained loss due to theft, damage, or administrative errors
Shrinkage is unplanned inventory reduction from theft, damage, spoilage, or record-keeping errors.
Question 2: Which replenishment strategy produces a 'saw-tooth' pattern in inventory level graphs?
- Just-in-time with daily deliveries
- Fixed-order-quantity (EOQ) system (Correct answer)
- Make-to-order production
- Kanban with multiple cards
Correct answer: Fixed-order-quantity (EOQ) system
EOQ systems show a saw-tooth pattern because inventory drops steadily as demand is met, then jumps back up when a fixed order arrives.
Question 3: Which performance metric measures the percentage of line items or orders shipped complete on the first shipment attempt?
- Order cycle time
- Perfect order rate
- Fill rate (Correct answer)
- Inventory accuracy rate
Correct answer: Fill rate
Fill rate measures the fraction of customer demand satisfied immediately from stock, often expressed per order line or per unit.
Question 4: A pharmaceutical company prioritizes inventory based on criticality to patient care regardless of cost. This approach is called:
- ABC analysis
- VED (Vital, Essential, Desirable) analysis (Correct answer)
- FSN (Fast, Slow, Non-moving) analysis
- SDE (Scarce, Difficult, Easily available) analysis
Correct answer: VED (Vital, Essential, Desirable) analysis
VED analysis classifies items by operational criticality rather than monetary value, making it common in healthcare and maintenance settings.
Question 5: When demand is uncertain, increasing the desired service level from 90% to 99% has what effect on required safety stock?
- Safety stock decreases because fewer stockouts occur
- Safety stock increases, but at a diminishing marginal rate (Correct answer)
- Safety stock increases proportionally
- Safety stock is unaffected by service level
Correct answer: Safety stock increases, but at a diminishing marginal rate
Safety stock grows with higher service levels but requires disproportionately larger amounts for each incremental percentage point near 100%.
Question 6: Which inventory reduction technique involves sharing real-time demand and inventory data across supply chain partners to reduce safety stock needs?
- Postponement
- Collaborative Planning, Forecasting and Replenishment (CPFR) (Correct answer)
- Drop shipping
- Consignment stocking
Correct answer: Collaborative Planning, Forecasting and Replenishment (CPFR)
CPFR reduces uncertainty—and therefore safety stock—by enabling trading partners to collaborate on forecasts and replenishment plans using shared data.
Question 7: What does a negative cash-to-cash (C2C) cycle time indicate for a retailer?
- The company is losing money on every sale
- The company collects from customers before it must pay its suppliers (Correct answer)
- Inventory turns are below industry average
- Working capital requirements are excessive
Correct answer: The company collects from customers before it must pay its suppliers
A negative C2C cycle means the retailer receives payment from customers before payment to suppliers is due, effectively using supplier credit to fund operations.
CPSM Inventory Management 5
In supply chain management, 'shrinkage' refers to which type of inventory loss?