Free Certified Supply Chain Professional (CSCP) Internal Operations and Inventory Questions and Answers — Questions and Answers
Question 1: A manufacturing company uses a planning system to determine the quantity and timing for acquiring dependent demand items, such as raw materials and subassemblies, needed to create its finished goods. The system uses the Master Production Schedule (MPS) as a primary input. Which system is being described?
- Distribution Requirements Planning (DRP)
- Enterprise Resource Planning (ERP)
- Material Requirements Planning (MRP) (Correct answer)
- Capacity Requirements Planning (CRP)
Correct answer: Material Requirements Planning (MRP)
Material Requirements Planning (MRP) is the system used to manage inventory for dependent demand items. It takes the Master Production Schedule (MPS) for end products and 'explodes' it into a detailed schedule for the raw materials and components required, ensuring they are available when needed for production.
Question 2: A company is implementing a Lean manufacturing strategy focused on reducing waste. A team observes that operators are frequently walking long distances to retrieve tools and parts, which does not add value to the product. According to the seven wastes (Muda), which type of waste does this represent?
- Overproduction
- Motion (Correct answer)
- Transportation
- Waiting
Correct answer: Motion
Unnecessary motion refers to the movement of people or equipment that does not add value to the product. In this scenario, operators walking to get tools is a classic example of wasted motion. Transportation waste, by contrast, refers to the unnecessary movement of the product or materials themselves.
Question 3: A company wants to decrease its total annual inventory costs. An analyst notes that by increasing the size of each purchase order, the company can reduce the total number of orders placed per year. Which of the following statements correctly describes the trade-off involved in this decision?
- Increasing the order size will decrease both ordering costs and carrying costs.
- Increasing the order size will increase ordering costs but decrease carrying costs.
- Increasing the order size will have no effect on either cost category.
- Increasing the order size will decrease total ordering costs but increase total carrying costs. (Correct answer)
Correct answer: Increasing the order size will decrease total ordering costs but increase total carrying costs.
This question describes the fundamental trade-off in the Economic Order Quantity (EOQ) model. Placing larger, less frequent orders reduces the annual cost associated with placing orders (ordering costs). However, larger orders result in higher average inventory levels, which increases the annual cost of holding or storing that inventory (carrying costs).
Question 4: In a competitive market for consumer electronics, features such as a high-resolution screen and a minimum one-year warranty are considered standard. However, a brand's ability to offer a significantly longer battery life than its competitors consistently results in higher sales. In this context, the longer battery life serves as what?
- An order qualifier
- A market disruptor
- An order winner (Correct answer)
- A cost of quality
Correct answer: An order winner
An order winner is a criterion that differentiates the products or services of one firm from those of another, ultimately winning the customer's business. In this case, the standard features (screen, warranty) are order qualifiers—the minimum requirements to be considered by the customer. The superior battery life is the differentiating feature that wins the sale.
Question 5: Which of the following is the primary function of a Master Production Schedule (MPS)?
- To provide a detailed, item-level forecast of customer demand over a long-range horizon.
- To state the specific quantities of end products that a company plans to build in a given time period. (Correct answer)
- To calculate the gross and net requirements for all raw materials and purchased components.
- To balance the available production capacity with the overall business plan and sales objectives.
Correct answer: To state the specific quantities of end products that a company plans to build in a given time period.
The Master Production Schedule (MPS) is a formal plan that specifies the quantity of each finished product (end item) to be produced and when it will be produced. It disaggregates the aggregate production plan and serves as the primary input for the Material Requirements Planning (MRP) system. It is a statement of what will be built, not a forecast of demand.
Question 6: A company stocks a product where the cost of raw materials has been steadily increasing. The company uses an inventory valuation method that assumes the most recently purchased units are the first ones to be sold. During this period of rising costs, which effect will this method have on the company's financial statements compared to FIFO?
- It will result in a lower Cost of Goods Sold (COGS) and a higher ending inventory value.
- It will result in a higher Cost of Goods Sold (COGS) and a lower ending inventory value. (Correct answer)
- It will result in a higher gross profit and a higher reported net income.
- It will have no significant impact on the financial statements.
Correct answer: It will result in a higher Cost of Goods Sold (COGS) and a lower ending inventory value.
The method described is Last-In, First-Out (LIFO). In an environment of rising costs, LIFO matches the most recent (and therefore more expensive) costs against revenues, resulting in a higher Cost of Goods Sold (COGS). This, in turn, leads to lower reported gross profit and net income. The inventory remaining on the balance sheet is valued at the older, lower costs.
Free Certified Supply Chain Professional (CSCP) Internal Operations and Inventory Questions and Answers
A manufacturing company uses a planning system to determine the quantity and timing for acquiring dependent demand items, such as raw materials and subassemblies, needed to create its finished goods.
The system uses the Master Production Schedule (MPS) as a primary input.
Which system is being described?