CPT Inventory Management & Supply Chain 4 — Questions and Answers
Question 1: A production facility uses a two-bin system for managing fastener inventory. What triggers a replenishment order in this system?
- When the first bin is emptied
- When the second bin is opened (Correct answer)
- When total inventory drops below safety stock
- When the supplier sends an automatic notification
Correct answer: When the second bin is opened
In a two-bin system, opening the second bin signals that a replenishment order should be placed while the second bin supplies demand during lead time.
Question 2: Which metric best measures how efficiently a company converts inventory investment into sales revenue?
- Days Sales Outstanding (DSO)
- Inventory Turnover Ratio (Correct answer)
- Gross Margin Return on Investment
- Fill Rate
Correct answer: Inventory Turnover Ratio
Inventory Turnover Ratio (COGS ÷ Average Inventory) measures how many times inventory is sold and replaced in a period, indicating conversion efficiency.
Question 3: A supplier consistently delivers materials two days earlier than the agreed lead time. How does this affect the buyer's safety stock calculation?
- Safety stock should increase to account for variability
- Safety stock can be reduced since lead time variability decreased (Correct answer)
- Safety stock remains unchanged as it only covers demand variability
- Safety stock should be eliminated since the supplier is reliable
Correct answer: Safety stock can be reduced since lead time variability decreased
Lower lead time variability reduces the uncertainty that safety stock must buffer, allowing a reduction in safety stock levels.
Question 4: What is the primary purpose of a Material Requirements Planning (MRP) system in production?
- To optimize warehouse layout for fastest picking
- To determine what materials are needed, in what quantity, and when (Correct answer)
- To track finished goods inventory at retail locations
- To schedule employee shifts based on production demand
Correct answer: To determine what materials are needed, in what quantity, and when
MRP calculates material requirements by working backward from the master production schedule to determine quantities and timing for components and raw materials.
Question 5: A plant manager notices that cycle count results consistently differ from system records for items stored near shipping docks. What is the most likely root cause?
- Inaccurate demand forecasting
- Receiving transactions not posted before items are moved (Correct answer)
- Inadequate safety stock levels
- Incorrect reorder point calculations
Correct answer: Receiving transactions not posted before items are moved
Items moved before receiving transactions are posted create a discrepancy between physical inventory and system records, a common issue in high-traffic dock areas.
Question 6: Which supply chain strategy involves holding minimal finished goods inventory and producing only in response to actual customer orders?
- Make-to-Stock (MTS)
- Assemble-to-Order (ATO)
- Make-to-Order (MTO) (Correct answer)
- Engineer-to-Order (ETO)
Correct answer: Make-to-Order (MTO)
Make-to-Order produces goods only after receiving a customer order, minimizing finished goods inventory but typically resulting in longer customer lead times.
Question 7: What does a high 'Days on Hand' (DOH) inventory metric typically indicate about a production operation?
- Efficient inventory management with fast turnover
- Strong customer service levels due to high stock availability
- Excess inventory that ties up working capital (Correct answer)
- Low carrying costs relative to competitors
Correct answer: Excess inventory that ties up working capital
High Days on Hand indicates inventory is held for longer before use or sale, tying up working capital and increasing carrying costs such as storage, insurance, and obsolescence risk.
CPT Inventory Management & Supply Chain 4
A production facility uses a two-bin system for managing fastener inventory.
What triggers a replenishment order in this system?