ERP Supply Chain and Inventory Management 3 — Questions and Answers
Question 1: A manufacturer calculates its Economic Order Quantity (EOQ). Which cost components are balanced in the EOQ formula?
- Transportation cost and warehouse rent
- Ordering cost and holding cost (Correct answer)
- Stockout cost and overstock cost
- Procurement price and inspection cost
Correct answer: Ordering cost and holding cost
EOQ minimizes total inventory cost by finding the order quantity at which ordering cost and holding (carrying) cost are equal.
Question 2: In an ERP system, which process converts planned orders into actual purchase orders or production orders?
- Available-to-Promise (ATP)
- Firming planned orders (Correct answer)
- Demand sensing
- Backflush posting
Correct answer: Firming planned orders
Firming a planned order converts an MRP-generated planned order into an actual purchase order or work order that can be executed.
Question 3: What does Days Inventory Outstanding (DIO) measure?
- Number of days until the next replenishment cycle
- Average number of days a company holds inventory before selling it (Correct answer)
- Lead time from purchase order to goods receipt
- Time between demand signal and shipment
Correct answer: Average number of days a company holds inventory before selling it
DIO (also called Days in Inventory) measures how many days on average a company holds inventory before it is sold or consumed.
Question 4: Which supply chain strategy is characterized by manufacturing products to a forecast before customer orders are received?
- Make-to-Order
- Engineer-to-Order
- Make-to-Stock (Correct answer)
- Assemble-to-Order
Correct answer: Make-to-Stock
Make-to-Stock (MTS) produces goods against a demand forecast so finished goods are available immediately when customer orders arrive.
Question 5: A company experiences frequent stockouts despite having high inventory levels. Which root cause is MOST likely?
- Insufficient reorder point thresholds
- Poor forecast accuracy driving misaligned inventory mix (Correct answer)
- Excessive safety stock levels
- Overstated supplier lead times
Correct answer: Poor forecast accuracy driving misaligned inventory mix
High overall inventory with frequent stockouts typically indicates a mismatch in inventory mix caused by inaccurate demand forecasting for specific SKUs.
Question 6: In ERP warehouse management, what is the purpose of a cross-docking operation?
- Store received goods in long-term warehouse locations
- Transfer inbound goods directly to outbound shipping with minimal storage (Correct answer)
- Automate picking routes using RFID tags
- Consolidate small supplier shipments into full truckloads
Correct answer: Transfer inbound goods directly to outbound shipping with minimal storage
Cross-docking moves products from inbound receiving directly to outbound shipping docks with little or no intermediate storage, reducing handling time and costs.
Question 7: Which ERP feature enables a company to promise customers a specific delivery date based on real-time inventory and production data?
- Material Requirements Planning (MRP)
- Available-to-Promise (ATP) (Correct answer)
- Vendor-Managed Inventory (VMI)
- Demand-Driven MRP (DDMRP)
Correct answer: Available-to-Promise (ATP)
Available-to-Promise (ATP) checks real-time availability of inventory and planned production to give customers an accurate and reliable delivery commitment.
ERP Supply Chain and Inventory Management 3
A manufacturer calculates its Economic Order Quantity (EOQ).
Which cost components are balanced in the EOQ formula?