ERP Supply Chain and Inventory Management 2 — Questions and Answers
Question 1: Which inventory replenishment strategy triggers an order only when stock falls to a predetermined reorder point?
- Periodic review system
- Continuous review system (Correct answer)
- Just-in-Time replenishment
- Vendor-managed inventory
Correct answer: Continuous review system
A continuous review system (also called a fixed-order-quantity system) monitors inventory continuously and places an order whenever the reorder point is reached.
Question 2: In ERP supply chain modules, what does the term 'bullwhip effect' describe?
- Supplier lead time variability
- Demand signal amplification upstream through the supply chain (Correct answer)
- Inventory carrying cost spikes during peak season
- Warehouse capacity overflow caused by safety stock
Correct answer: Demand signal amplification upstream through the supply chain
The bullwhip effect refers to increasing swings in inventory orders up the supply chain as small demand fluctuations are amplified at each tier.
Question 3: A company uses ABC analysis for inventory classification. Which class typically represents the fewest SKUs but the highest annual spend?
- Class C
- Class B
- Class A (Correct answer)
- Class D
Correct answer: Class A
Class A items represent roughly 10-20% of SKUs but account for approximately 70-80% of total annual inventory value.
Question 4: What is the primary purpose of safety stock in an ERP inventory system?
- Reduce procurement cycle time
- Buffer against demand variability and supply uncertainty (Correct answer)
- Minimize warehouse storage costs
- Improve order picking accuracy
Correct answer: Buffer against demand variability and supply uncertainty
Safety stock acts as a buffer to protect against stockouts caused by unpredictable demand spikes or supplier delivery delays.
Question 5: Which supply chain metric measures the percentage of customer orders fulfilled completely and on time?
- Fill rate
- Perfect order rate (Correct answer)
- Inventory turnover
- Days sales outstanding
Correct answer: Perfect order rate
The perfect order rate measures the percentage of orders delivered complete, on time, damage-free, and with accurate documentation.
Question 6: In MRP logic, what is the difference between gross requirements and net requirements?
- Gross is forecasted demand; net is confirmed purchase orders
- Net requirements equal gross requirements minus on-hand inventory and scheduled receipts (Correct answer)
- Gross is customer demand; net is internal manufacturing demand
- Net requirements exclude safety stock from the calculation
Correct answer: Net requirements equal gross requirements minus on-hand inventory and scheduled receipts
Net requirements are calculated by subtracting available on-hand inventory and scheduled receipts from gross requirements.
Question 7: Which procurement method involves a long-term agreement with a supplier that sets pricing and terms but releases shipments as needed?
- Spot purchasing
- Blanket purchase order (Correct answer)
- Drop shipping
- Consignment agreement
Correct answer: Blanket purchase order
A blanket purchase order establishes pre-negotiated terms and pricing with a supplier, allowing the buyer to release individual shipments against it over time.
ERP Supply Chain and Inventory Management 2
Which inventory replenishment strategy triggers an order only when stock falls to a predetermined reorder point?