CPIM-Part-2 Certified in Planning and Inventory Management(Part 2) Questions and Answers

 A work cell layout is a type of process layout that arranges equipment and workers according to the sequence of operations performed on a product or service. A work cell layout can improve space utilization by reducing the amount of floor space needed for production, eliminating unnecessary material handling and storage, and increasing the flexibility of the layout. A work cell layout can also reduce cycle time, improve quality, and enhance worker motivation. References: CPIM Exam Content Manual Version 7.0, Domain 6: Plan, Manage, and Execute Detailed Schedules, Section 6.2: Implement Detailed Schedules, Subsection 6.2.3: Describe the principles of work center design and layout (page 58).

A customer value proposition (CVP) is a statement that summarizes the benefits that a product or service offers to a target customer segment1. A CVP can help a company differentiate itself from its competitors by highlighting its unique value proposition (UVP), which is the main reason why customers should choose its product or service over others2. A CVP can also help a company communicate its value to its customers, increase customer satisfaction and loyalty, and improve its market position3.

One of the strategies that can improve the effectiveness of a CVP and enhance its differentiation in the market is to adopt best practices that improve product design. Product design is the process of creating a new product or service that solves a customer problem or fulfills a customer need4. By improving product design, a company can create products or services that are more desirable, feasible, and viable for its customers5. Some of the best practices that can improve product design are:

• Understanding the customer: conducting research and analysis to identify the customer segments, their jobs, pains, and gains, and their expectations and preferences. This can help create products or services that are tailored to the customer needs and wants, and deliver value that exceeds their expectations.
• Using the Value Proposition Canvas: a tool that helps design, test, create, and manage products and services that customers actually want. The Value Proposition Canvas consists of two parts: the Customer Profile, which describes the customer segment in terms of their jobs, pains, and gains; and the Value Map, which describes how the product or service creates value for the customer by addressing their jobs, relieving their pains, and creating their gains. The Value Proposition Canvas can help align the product or service with the customer needs and wants, and create a fit between them.
• Applying design thinking: a human-centered approach to innovation that integrates the needs of people, the possibilities of technology, and the requirements of business. Design thinking involves five phases: empathize, define, ideate, prototype, and test. Design thinking can help create products or services that are desirable for the customers, feasible for the technology, and viable for the business.
• Incorporating feedback loops: collecting and analyzing data from customers and stakeholders to measure the performance and impact of the product or service. Feedback loops can help validate the assumptions and hypotheses about the customer needs and wants, test the effectiveness of the value proposition, and identify areas for improvement or innovation.

Therefore, by adopting best practices that improve product design, a company can create products or services that deliver superior value to its customers, and differentiate itself from its competitors in the market.

References: 1: Customer Value Proposition Definition 3 2: Unique Value Proposition Definition 4 3: How to Write a Value Proposition (+ 6 Modern Examples) 5 4: Product Design Definition 5: What is Product Design? : Customer Discovery: The Ultimate Guide : Value Proposition Canvas – Download the Official Template 3 : What is Design Thinking? : Feedback Loop Definition

 A life cycle assessment (LCA) would be used to determine environmental aspects and impacts. Environmental aspects are the elements or characteristics of a product or service that can interact with the environment, such as emissions, energy use, water use, waste generation, etc. Environmental impacts are the effects or consequences of the environmental aspects on the environment, such as climate change, acidification, eutrophication, human health, biodiversity, etc1

A life cycle assessment (LCA) is a systematic analysis of the potential environmental impacts of products or services during their entire life cycle. During an LCA, you evaluate the potential environmental impacts throughout the entire life cycle of a product (production, distribution, use and disposal) by considering all the relevant environmental aspects and their interactions with the environment23

An LCA can help you:

• Identify the most significant environmental aspects and impacts of your product or service
• Compare the environmental performance of different products or services
• Find opportunities to reduce the environmental impacts and improve the environmental performance of your product or service
• Communicate the environmental benefits of your product or service to your customers, stakeholders, and regulators

Therefore, an LCA would be used to determine environmental aspects and impacts.

References: 1: Environmental Aspect Definition 2: Life-cycle assessment - Wikipedia 1 3: Life Cycle Assessment (LCA) - Complete Beginner’s Guide - Ecochain 2

The load on a work center is the total time required to complete all the work orders assigned to that work center. The load can be calculated by multiplying the quantity and the run time of each work order, and then adding them up. The formula is:

Load = (Q1 x R1) + (Q2 x R2) + … + (Qn x Rn)

Where Q is the quantity and R is the run time of each work order.

Using the data from the table, we can plug in the values and get:

Load = (10 x 8) + (15 x 9) + (12 x 7.5) + (20 x 10) + (8 x 6.5) = 80 + 135 + 90 + 200 + 52 = 557

Therefore, the load on this work center is 557 hours.

References: CPIM Exam Content Manual Version 7.0, Domain 6: Plan, Manage, and Execute Detailed Schedules, Section 6.3: Monitor Detailed Schedules, Subsection 6.3.2: Describe how to monitor input/output control (I/O) (page 60).

The sales and operations planning (S&OP) process is a cross-functional process that aligns the demand and supply plans of an organization. The S&OP process consists of several steps, such as data gathering, demand planning, supply planning, pre-S&OP meeting, executive S&OP meeting, and S&OP implementation. The output of the S&OP process is the production plan, which is a statement of the resources needed to meet the aggregate demand plan over a medium-term horizon. The production plan can be stated in different units of measure depending on the type of manufacturing environment. In a repetitive manufacturing environment, where the same or similar products are produced continuously or at regular intervals, the production plan can be stated in terms of the number of products planned for shipment. This unit of measure reflects the volume and mix of products that are expected to be sold and delivered to the customers. The number of products planned for shipment can also be used to calculate the capacity requirements, material requirements, and inventory levels for each product family.

References: CPIM Exam Content Manual Version 7.0, Domain 4: Plan and Manage Supply, Section 4.1: Develop Supply Plans, Subsection 4.1.2: Describe how to develop a production plan (page 36).

 When procuring for innovative products, the focus should be on the total landed cost, which is the sum of all costs associated with making and delivering products to the point where they are used. This includes not only the unit cost, but also the transportation, handling, inventory, taxes, duties, and other fees associated with the procurement process. By focusing on the total landed cost, procurement can evaluate the true value of innovative products and compare them with alternative solutions. Focusing on unit cost alone may overlook the potential benefits of innovation, such as improved quality, performance, or sustainability. Lead times and lot sizes are also important factors to consider, but they are not the main focus when procuring for innovation. References : CPIM Part 2 Exam Content Manual, Domain 4: Plan and Manage Supply, Section A: Supply Management Concepts and Approaches, Subsection 2: Procurement Strategies and Techniques, Page 17.

Collaborative planning, forecasting, and replenishment (CPFR) is a set of actions taken by supply chain partners to plan and communicate tasks to meet customer demand while reducing cost. It includes business planning, sales forecasting, and replenishment of raw materials and finished goods1. CPFR typically would be most effective for a regional headquarters for a large home improvement retailer, because this type of organization can benefit from the following advantages of CPFR:

• CPFR can strengthen the supply chain partner relationships between the regional headquarters and its suppliers, distributors, and stores, by enhancing trust, transparency, and coordination2.
• CPFR can provide analysis of sales and order forecast which improves the forecast accuracy, by using customer inputs and data from partners in the value chain, as well as advanced analytical tools and techniques3.
• CPFR can manage the demand chain and proactively eliminate problems before they appear, by identifying and resolving potential issues or conflicts in the planning, forecasting, and replenishment processes4.
• CPFR can allow collaboration on future requirements and plans, by involving all the relevant stakeholders in the decision-making process and aligning their goals and expectations5.
• CPFR can combine planning, forecasting and logistic activities, by integrating the best practices in sales and marketing (e.g. such as category management) to supply chain planning and execution processes2.

The other options are not as suitable for CPFR as a regional headquarters for a large home improvement retailer. A distributor with a few major customers and many smaller customers may not have enough incentives or resources to implement CPFR with all its customers, especially the smaller ones who may have low volumes or high variability in demand. A manufacturer that sells directly to a large number of firms may face challenges in coordinating and communicating with all its customers, as well as managing the complexity and diversity of their demand patterns. A company that has a large number of geographically dispersed suppliers may encounter difficulties in establishing trust and transparency with its suppliers, as well as ensuring the quality and reliability of their products or services.

Measurements are quantitative or qualitative data that indicate the magnitude, frequency, or impact of the problem. Measurements help to define the problem clearly, objectively, and specifically, as well as to establish a baseline for improvement. Therefore, what should be added to the problem statement to make it more useful is measurements that help describe the problem. For example, a more useful problem statement could be “We have observed that the inventory system causes 15% of plastic parts to be damaged or misplaced every month, resulting in $10,000 of additional costs and 5% of customer complaints.”

Up-to-date information about production order status is required to calculate the cost of work in process (WIP). WIP is the inventory of unfinished goods or partially completed products that are still in the production process1. The cost of WIP is the sum of the costs of the materials, labor, and overhead that have been incurred in the production process but have not yet been transferred to the finished goods inventory2. To calculate the cost of WIP, we need to know how much of each production order has been completed and how much remains to be done. This information can be obtained from the production order status, which is a report that shows the current status of each production order in terms of its quantity, start date, end date, completion percentage, and variance3. By using the production order status, we can determine the amount of WIP for each production order and for the entire production process. This can help us monitor and control the production efficiency, profitability, and quality4.

References: 1: Work In Progress (WIP) Definition 2 2: Work-in-Process (WIP) Accounting 3 3: Production Order Status Report 5 4: How to Calculate Work in Process Inventory 6

Implosion in distribution requirements planning (DRP) is the process of calculating the gross requirements for a supplying location based on the net requirements of its customers or demand sources1. Implosion is the opposite of explosion, which is the process of calculating the net requirements for a demand source based on the gross requirements of its customers or demand sources2. Implosion and explosion are used to synchronize the supply and demand across different levels of the distribution network3.

An example of implosion in DRP is gathering information from several field locations and aggregating it at the manufacturing facility. This example shows how the manufacturing facility, which is the supplying location, can determine its gross requirements by adding up the net requirements of its field locations, which are its customers or demand sources. This way, the manufacturing facility can plan its production and inventory levels to meet the demand from the field locations.

Providing a realistic basis for setting internal performance targets can be accomplished through benchmarking. Benchmarking is a process of comparing one’s own performance, processes, or practices with those of other organizations that are recognized as leaders or best in class in a specific area. Benchmarking can help identify gaps, strengths, weaknesses, opportunities, and threats in one’s own performance, as well as learn from the experiences and successes of others. Benchmarking can also help set realistic, achievable, and challenging goals and targets for improvement, based on external standards or benchmarks. Benchmarking can be done internally(within the same organization), externally (with other organizations in the same industry or sector), or functionally (with other organizations that perform similar functions or processes).

Beta testing is not a way of providing a realistic basis for setting internal performance targets. Beta testing is a stage of product development where a sample of potential users or customers test a product or service before it is released to the general public. Beta testing can help identify and fix any bugs, errors, or issues in the product or service, as well as collect feedback and suggestions for improvement. Beta testing can also help evaluate the usability, functionality, and quality of the product or service, as well as measure customer satisfaction and loyalty. Beta testing is not related to setting internal performance targets, as it is focused on the product or service, not the organization.

Breakthrough innovation is not a way of providing a realistic basis for setting internal performance targets. Breakthrough innovation is a type of innovation that creates significant value for customers and markets by introducing new products, services, or business models that are radically different from existing ones. Breakthrough innovation can help create competitive advantage, disrupt existing markets, or create new markets. Breakthrough innovation is not related to setting internal performance targets, as it is focused on the outcome, not the process.

Best practices are not a way of providing a realistic basis for setting internal performance targets. Best practices are methods or techniques that have been proven to be effective and efficient in achieving desired results or outcomes. Best practices can be derived from one’s own experience, research, or benchmarking. Best practices can help improve performance, quality, or productivity by adopting proven solutions or standards. Best practices are not related to setting internal performance targets, as they are focused on the implementation, not the measurement.

References := Benchmarking - Wikipedia, Benchmarking: Definition & Process | Study.com, What Is Benchmarking? Definition And Examples, What Is Beta Testing? Definition And Examples, What Is Breakthrough Innovation? Definition And Examples, What Are Best Practices? Definition And Examples

A statistical safety stock calculation is a method to determine the optimal amount of safety stock based on the demand variability, the lead time variability, and the desired service level. A statistical safety stock calculation would be appropriate for end items with stable demand, because these items have a predictable demand pattern and a low coefficient of variation. For items with unstable or unpredictable demand, such as components used in multiple end items, new products at time of introduction, or supply-constrained raw materials, a statistical safety stock calculation may not be accurate or reliable, and other methods such as judgmental or simulation-based approaches may be preferred. References: CPIM Part 2 Exam Content Manual, Domain 5: Plan and Manage Inventory, Section 5.4: Inventory Management Techniques, p. 29.

 The capacity requirements plan is used primarily to balance capacity and load at work centers. A work center is a location where one or more resources perform a specific operation or a group of operations. Capacity is the amount of time or output that a work center can offer for production activities. Load is the amount of time or output that a work center is required to produce based on the planned production schedule. Balancing capacity and load means matching the available capacity with the required load, so that there is no excess or shortage of capacity at any work center.

The capacity requirements plan is a report that shows the projected load and capacity of each work center over a planning horizon. It is derived from the master production schedule (MPS), which specifies the quantity and timing of finished goods to be produced, and the bill of materials (BOM), which specifies the components and materials needed for each finished good. The capacity requirements plan also uses the routing file, which specifies the sequence of operations and work centers required for each finished good, and the work center file, which specifies the capacity and availability of each work center. The capacity requirements plan can help to identify any gaps or surpluses in capacity at each work center and to take corrective actions, such as revising the MPS, rescheduling operations, adding or reducing resources, or outsourcing production.

The other options are not the primary uses of the capacity requirements plan. Calculating the level of available capacity is an input to the capacity requirements plan, not an output. The level of available capacity is determined by the work center file, which contains information such as shifts, hours, efficiency, utilization, and maintenance of each work center. Determining the overall product load profile is not a use of the capacity requirements plan, as it does not consider the product mix or demand variability. The overall product load profile is a general estimate of the total production volume or demand over a period of time. Determining the priority of orders is not a use of thecapacity requirements plan, as it does not consider the due dates or urgency of orders. The priority of orders is determined by using priority rules or dispatching methods, such as first-come-first-served (FCFS), shortest processing time (SPT), earliest due date (EDD), or critical ratio (CR).

References := Capacity Requirements Planning (CRP): Definition and Procedures, Capacity Requirements Planning (CRP Plan and Strategies) - ERP Information, Definition of Capacity Requirements Planning (CRP) - Gartner …

A sales forecast that is based solely on shipment history is a method that uses past sales data to predict future sales. This method assumes that the sales pattern will remain consistent over time, and does not account for any changes or fluctuations in demand or supply1. Therefore, this method can be distorted by any factors that affect the availability or delivery of the products, such as material shortages.

Material shortages are situations where the supply of raw materials, components, or finished goods is insufficient to meet the demand. Material shortages can be caused by various reasons, such as natural disasters, supplier issues, transportation disruptions, quality problems, or demand spikes2. Material shortages can have a negative impact on the sales forecast that is based solely on shipment history, because they can reduce the amount of products that can be shipped to customers, and thus lower the sales revenue. Material shortages can also create a backlog of orders that cannot be fulfilled in time, and thus create a gap between the actual and forecasted sales3.

The other factors listed in the question typically would not distort a sales forecast that is based solely on shipment history, because they do not affect the shipment history directly. Labor rate changes are changes in the wages or salaries paid to workers. They may affect the production costs and profits, but not necessarily the sales volume or revenue4. Currency exchange rates are the rates at which one currency can be exchanged for another. They may affect the competitiveness and profitability of international sales, but not necessarily the sales volume or revenue5. Customer demands are the needs and preferences of customers for products or services. They may affect the sales potential and market share, but not necessarily the sales volume or revenue.

According to the CPIM Exam Content Manual, a make-or-buy decision is a strategic decision that involves choosing between manufacturing a product or service internally or purchasing it from an external supplier1. A make-or-buy decision is based on a cost-benefit analysis that considers various factors, such as quality, cost, capacity, lead time, technology, and competitive advantage2.

Some of the potential reasons to make instead of buy a product may include:

• Maintain quality: Making a product internally may allow the firm to control and ensure the quality standards of the product, which may affect customer satisfaction and loyalty. Buyinga product from an external supplier may involve quality risks or uncertainties, especially if the supplier is located in a different country or has different quality systems3.
• Reduce cost: Making a product internally may reduce the total cost of ownership of the product, which includes not only the purchase price, but also the costs of transportation, inventory, inspection, warranty, and maintenance. Buying a product from an external supplier may incur higher total costs due to these factors.
• Keep confidential processes within the firm: Making a product internally may protect the firm’s proprietary or confidential processes that give it a competitive edge in the market. Buying a product from an external supplier may expose the firm’s processes to potential imitation or leakage.

Therefore, the correct answer is C. maintain quality, reduce cost, and keep confidential processes within the firm.

References:

• CPIM Exam Content Manual
• Make-or-Buy Decision Explained: How to Make Outsourcing Decisions
• Make or Buy Decision - What Is It, Examples, Factors, Advantages
• Make-or-Buy Decision - Overview, How It Works, Triggers
• Make or Buy Decision - Definition & Examples | Marketing Tutor

To successfully empower individuals to drive change, an organization should ensure everyone can clearly articulate the business’s vision and strategy. According to various sources, such as Forbes, Mercuri Urval, and LSA Global, one of the key factors for effective change leadership is to communicate a powerful and compelling change vision that inspires and motivates employees to support the change. A change vision is a statement that describes the desired future state of the organization after the change is implemented, and how it aligns with the overall business vision and strategy1. A clear and consistent change vision can help employees understand the purpose and benefits of the change, as well as their roles and responsibilities in the change process2. A change vision can also help create a sense of urgency, direction, and alignment among employees, as well as foster a culture of empowerment and participation3.

The other options are not sufficient or necessary to successfully empower individuals to drive change. Conducting thorough training programs for all levels of employees is important, but not enough to empower them to drive change. Training can help employees acquire the skills and knowledge needed to perform their tasks in the new situation, but it does not necessarily influence their attitudes, beliefs, or behaviors toward the change1. Aligning performance appraisals with the business’s vision is also helpful, but not essential to empower individuals to drive change. Performance appraisals can provide feedback, recognition, and incentives for employees who demonstrate the desired behaviors and outcomes related to the change, but they do not address the underlying motivations, emotions, or barriers that may affect employees’ willingness or ability to change4. Establishing and tracking broad change metrics on a quarterly basis is also useful, but not critical to empower individuals to drive change. Change metrics can help measure the progress and impact of the change initiatives, but they do not necessarily engage or involve employees in the change process or give them a sense of ownership or autonomy over the change5.

References: CPIM Part 2 Exam Content Manual, Domain 8: Manage Quality, Continuous Improvement, and Technology, Section 8.2: Continuous Improvement Concepts and Tools, p. 61-62; 5 Ways To Empower And Engage Employees To Lead Change - Forbes; How to successfully drive change in your organisation - Mercuri Urval; Empower Employees to Effect Change - 4 Ways | LSA Global; Empowering Teams to Drive Change Sustainably; Change Management Metrics: How To Measure Your Change Management Project.

ABC classification is an inventory categorization technique that divides items into three classes based on their usage value, which is the product of the number of units sold and the cost per unit. Class A items have the highest usage value and account for a large proportion of the total inventory value, but a small percentage of the number of items. Class B items have a moderate usage value and account for a moderate proportion of the total inventory value and the number of items. Class C items have the lowest usage value and account for a small proportion of the total inventory value, but a large percentage of the number of items1.

An advantage of applying ABC classification to a firm’s replenishment items is that it allows planners to focus on critical products. Replenishment items are items that are regularly ordered or produced to maintain a certain level of inventory. By using ABC classification, planners can prioritize the replenishment of class A items, which have the highest impact on the firm’s profitability and customer satisfaction. Planners can also apply different inventory management techniques and policies for each class of items, such as more frequent reviews, tighter controls, lower safety stocks, and higher service levels for class A items, and less frequent reviews, simpler controls, higher safetystocks, and lower service levels for class C items234. This way, ABC classification can help planners optimize the replenishment process and reduce costs, waste, and stockouts.

The other options are not advantages of applying ABC classification to a firm’s replenishment items, because they are either irrelevant or incorrect. ABC classification does not distinguish independent demand from dependent demand, which are two types of demand that depend on whether the item is sold to customers or used as a component in another item5. ABC classification does not provide better order quantities than the economic order quantity (EOQ), which is a formula that calculates the optimal order quantity that minimizes the total inventory costs6. ABC classification does not allow the firm to utilize time-phased order point (TPOP), which is a method that determines when to place an order based on the projected inventory position and the lead time7.

 One of the trade-offs that should be evaluated when determining where to place inventory in a multi-echelon supply chain network is the transportation cost and delivery time. A multi-echelon supply chain network is a system of interconnected stages or echelons that perform different functions, such as production, distribution, and retailing, to deliver products or services to the end customers1. Inventory placement is the decision of how much and where to hold inventory in the supply chain network to balance the costs and service levels2.

Transportation cost is the expense of moving products or materials from one echelon to another in the supply chain network. Transportation cost depends on factors such as distance, mode, volume, weight, fuel, and tariffs3. Delivery time is the duration of moving products or materials from one echelon to another in the supply chain network. Delivery time depends on factors such as speed, reliability, frequency, and congestion3.

There is a trade-off between transportation cost and delivery time when determining where to place inventory in a multi-echelon supply chain network. Generally, holding more inventory closer to the customers can reduce the delivery time and increase the service level, but it can also increase the transportation cost and the inventory holding cost4. On the other hand, holding less inventory farther from the customers can reduce the transportation cost and the inventory holding cost, but it can also increase the delivery time and decrease the service level4. Therefore, finding the optimal inventory placement requires balancing the transportation cost and delivery time trade-off.

Some of the methods or tools that can help evaluate the transportation cost and delivery time trade-off are:

• Network optimization: a technique that uses mathematical models to optimize the design and configuration of a supply chain network by minimizing the total costs (including transportation and inventory costs) while satisfying the service level requirements.
• Multi-echelon inventory optimization: a technique that uses mathematical models to optimize the allocation and sizing of safety stocks across multiple echelons of a supply chain network by minimizing the total costs (including transportation and inventory costs) while satisfying the service level requirements.
• Simulation: a technique that uses computer software to mimic the behavior and performance of a supply chain network under different scenarios and assumptions. Simulation can help evaluate the impact of different inventory placement strategies on the transportation cost and delivery time.

Therefore, transportation cost and delivery time is one of the trade-offs that should be evaluated when determining where to place inventory in a multi-echelon supply chain network.

References: 1: Multi-Echelon Inventory Optimization 2 2: Inventory Placement Definition 3 3: Transportation Cost Definition 4 4: The Tradeoff Between Inventory Costs And Transportation Costs : Supply Chain Network Design: Applying Optimization and Analytics to … 1

 Failure Mode and Effects Analysis (FMEA) is a systematic, proactive method for identifying and evaluating the potential causes and impacts of failures in a process, product, or service1. It aims to anticipate and prevent failures by assessing the relative effect and risk of different failure modes1.

The use of FMEA would be most appropriate prior to a new product introduction (NPI). During the NPI phase, FMEA can be used to identify potential failure modes in the design of the product and assess their potential effects on the product’s performance and reliability. This allows for proactive measures to be taken to mitigate or eliminate these risks before the product is launched. FMEA is particularly useful in the early stages of design, as it helps in making informed decisions that can improve the quality and safety of the product1.

In contrast, using FMEA after a one-time quality incident investigation (A) or during evaluation of a new market opportunity © may not be as effective, as these situations do not involve the design or development of a product or process. While FMEA can be used during the define phase of a Six Sigma project (B), its most impactful application is during the design phase of a new product, where it can significantly influence the final outcome.

Available-to-promise (ATP) is a business function that provides a response to customer order inquiries, based on resource availability1. It generates available quantities of the requested product, and delivery due dates. Therefore, ATP supports order promising and fulfillment, aiming to manage demand and match it to production plans1.

The most appropriate course of action when the customer requests an order of 100 units in Period 1, but the ATP is only 85 units, is to promise the 85 units in Period 1 and the remaining 15 units in the next possible ATP period. This way, the customer can receive a partial fulfillment of their order as soon as possible, and the rest of their order when more inventory becomes available. This approach also avoids overpromising or underdelivering, which can damage customer relationships and satisfaction.

The other options are not appropriate, because they either violate the master schedule, ignore the component availability, or disadvantage another customer. Increasing the MPS quantity in Period 1 by 15 units may not be feasible or desirable, because it may disrupt the production plan, increase costs, or create capacity issues. Promising the 100 units, and then checking on component availability may result in a failure to deliver, if the components are not available or sufficient. Promising the 100 units by removing 15 units from another customer’s order with a smaller revenue value may be unethical or unfair, and may also cause dissatisfaction or complaints from the other customer.

An effective single-sourcing relationship requires that the organizations must be mutually dependent. This means that both the customer and the supplier rely on each other for their success and benefit from the partnership. Mutual dependence can foster trust, collaboration, communication, innovation, and problem-solving between the parties. It can also reduce the risks of supply disruptions, quality issues, price fluctuations, and contract breaches. Mutual dependence can be achieved by aligning the goals, values, and strategies of the organizations, as well as by sharing information, resources, and risks. Demand for the customer’s products does not have to be stable for a single-sourcing relationship to work. In fact, single sourcing can help the customer cope with demand variability by ensuring a consistent supply of goods or services from the supplier. The supplier does not have to offer the lowest price per unit for a single-sourcing relationship to be effective. The customer may choose a single supplier based on other factors, such as quality, delivery, innovation, or reputation. The price per unit may not reflect the total cost of ownership, which includes other costs such as transportation, inventory, maintenance, and warranty. The organizations do not have to be located close to each other for a single-sourcing relationship to be successful. With advances in technology and logistics, distance is not a major barrier for communication and coordination between the customer and the supplier. Moreover, single sourcing can reduce the complexity of managing multiple suppliers across different locations. References := What Is Single Sourcing? (Plus Benefits and 7 Examples), Single Sourcing Vs Sole Sourcing Sourcing | CIPS, What Is Single Sourcing In Procurement And Why Is It Important?

Return on investment (ROI) is a financial ratio that measures the profitability of an investment relative to its cost. ROI is calculated by dividing the net income (or profit) generated by the investment by the total cost of the investment. ROI is decreased by any activity that reduces the net income or increases the cost of the investment. Increasing cost of sales is an activity that decreases ROI because it reduces the net income generated by the sales revenue. Cost of sales (or cost of goods sold) is the direct cost of producing or purchasing the goods or services sold by an organization. Cost of sales includes materials, labor, and overhead costs. Increasing cost of sales means that the organization spends more money to produce or acquire the same amount of goods or services, which lowers its profit margin and ROI.

References: CPIM Exam Content Manual Version 7.0, Domain 8: Manage Quality, Continuous Improvement, and Technology, Section 8.1: Develop Quality and Continuous Improvement Plans, Subsection 8.1.2: Describe how to develop a business case for quality and continuous improvement initiatives (page 74).

Obsolescence is the loss of value or usefulness of an item due to changes in technology, fashion, customer preferences, or other factors. Obsolescence is considered a carrying cost, because it is an expense associated with holding inventory over a period of time1. Carrying costs are the various costs a business pays for holding inventory in stock, such as warehousing, insurance, taxes, depreciation, and opportunity costs2. Obsolescence can increase the carrying costs of inventory,because it can reduce the demand and sales potential of the item, and may require the item to be written off or sold at a lower price3.

The other options are not considered carrying costs, because they are not related to holding inventory in stock. Setup is the cost of preparing a machine or a process for production. Transportation is the cost of moving goods from one place to another. Scrap rate is the percentage of defective or unusable units produced in a process. These costs are more related to production or distribution activities than inventory holding activities.

Carrying cost is the cost of holding inventory over a period of time. Carrying cost includes the cost of storage, insurance, taxes, obsolescence, spoilage, and opportunity cost of capital. Carrying cost is usually expressed as a percentage of the inventory value per year. An order point is the level of inventory that triggers a replenishment order. An order point is calculated based on the demand rate, the lead time, and the safety stock. An order point is used to maintain a balance between inventory availability and inventory cost. A planner who chooses to increase the order point for a raw material is most likely to increase the carrying cost, as a higher order point means a higher average inventory level, which in turn means a higher carrying cost. Increasing the order point may reduce the risk ofstockouts and improve customer service, but it also increases the inventory investment and its associated costs.

The other options are not likely to increase as a result of increasing the order point. Ordering cost is the cost of placing and receiving an order. Ordering cost includes the cost of processing, transportation, inspection, and setup. Ordering cost is usually expressed as a fixed amount per order. Ordering cost is not affected by the order point, but by the order quantity and the number of orders. Landed cost is the total cost of delivering a product or service to the customer. Landed cost includes the cost of production, transportation, taxes, duties, and fees. Landed cost is usually expressed as a percentage of the product or service value. Landed cost is not affected by the order point, but by the sourcing, pricing, and logistics decisions. Product cost is the total cost of producing a product or service. Product cost includes the cost of materials, labor, and overhead. Product cost is usually expressed as a variable amount per unit. Product cost is not affected by the order point, but by the production methods, techniques, and efficiency. References: CPIM Exam Content Manual Version 7.0, Domain 5: Plan and Manage Inventory, Section 5.1: Inventory Management Concepts, p. 30; Order Point; Carrying Cost.

Landed cost represents the total cost of a product on its journey from the factory floor to the buyer’s door. It includes the price of goods, shipment costs, insurance fees, customs duties, and any other charges incurred along the way1. Therefore, purchasing and delivering a purchased product to its final destination is the best representation of landed cost among the given options.

Combining smaller shipments to take advantage of bulk efficiencies is not a representation of landed cost, but rather a strategy to reduce it. Bulk efficiencies are the benefits or savings that result from purchasing or shipping large quantities of goods at once, such as lower unit prices, transportation costs, or handling fees. Combining smaller shipments to take advantage of bulk efficiencies can help lower the landed cost by reducing some of the charges involved in the delivery process2.

Supplier absorbing freight charges is not a representation of landed cost, but rather a condition or term of sale. Freight charges are the fees paid to transport goods from one place to another by land, sea, or air. Supplier absorbing freight charges means that the supplier pays for the freight charges and does not pass them on to the buyer. This can affect the landed cost depending on whether the sale is based on free on board (FOB) or cost, insurance, and freight (CIF) terms. FOB means that the buyer is responsible for the freight charges and other costs after the goods are loaded on board the carrier at the point of origin. CIF means that the supplier is responsible for the freight charges and other costs until the goods reach the point of destination3.

Duties levied on imports and exports are not a representation of landed cost, but rather a component or factor of it. Duties are taxes or fees imposed by a government on goods that are imported or exported across its borders. Duties can affect the landed cost by increasing the price of goods or adding extra charges to the delivery process. Duties can vary depending on the type, value, origin, or destination of the goods4.

References := Landed Cost: Meaning & Calculator | Freightos, Landed Cost | Definition, Calculation, Formula & Price, What Is Landed Cost? Definition And Examples, What is Landed Cost? - Definition | Meaning | Example

Process improvement is a method of analyzing and enhancing the production methods and techniques to increase productivity and performance. Process improvement aims to reduce costs, waste, defects, and errors, as well as to improve quality, efficiency, and customer satisfaction. When considering process improvement, the first approach that should be considered is making better use of existing resources. This means that the production system should optimize the utilization and allocation of the available resources, such as materials, labor, machines, and space. This can be achieved by implementing various techniques, such as lean manufacturing, six sigma, kaizen, or 5S. Making better use of existing resources can help to improve the process without requiring additional investment or expenditure.

The other options are not the first approaches that should be considered as part of process improvement. Hiring more skilled people to perform the job is not the first approach, as it may increase the labor cost and require more training and supervision. Hiring more skilled people may not necessarily improve the process if the existing methods and techniques are inefficient or ineffective. Buying better and faster equipment is not the first approach, as it may involve a large capital outlay and a long payback period. Buying better and faster equipment may not necessarily improve the process if the existing resources are underutilized or misallocated. Applying stricter quality control is not the first approach, as it may increase the inspection and testing cost and time. Applying stricter quality control may not necessarily improve the process if the existing methods and techniques are prone to errors or defects. References: CPIM Exam Content Manual Version 7.0,Domain 8: Manage Quality, Continuous Improvement, and Technology, Section 8.2: Continuous Improvement Concepts, p. 46; Process Improvement; Process Improvement Definition.

Customer relationship management (CRM) is a program that uses data and technology to manage the interactions and relationships with customers. CRM helps to understand the needs, preferences, and behaviors of customers, and to provide them with better products, services, and experiences. In a rapidly changing business environment, a primary advantage of an effective CRM program is earlier identification of shifts in customer preferences. This means that CRM can help to detect and anticipate the changes in customer demand, tastes, or expectations, and to respond accordingly. This can help to improve customer satisfaction, loyalty, and retention, as well as to gain a competitive edge in the market. CRM does not necessarily reduce forecast variability, which is the degree of difference between the actual demand and the forecasted demand. CRM does not necessarily reduce customer order changes, which are the modifications or cancellations of orders by customers. CRM does not necessarily reduce customer defections, which are the losses of customers to competitors or other alternatives. References: CPIM Exam Content Manual Version 7.0, Domain 3: Plan and Manage Demand, Section 3.1: Demand Management Concepts, p. 16; Customer relationship management; Customer Relationship Management (CRM) Definition.

Liability risk in the supply chain is the risk that a company may be held legally responsible for damages caused by its products or services, or by its business partners, such as suppliers, subcontractors, or customers1. Liability risk can result in financial losses, legal penalties, reputational damage, and customer dissatisfaction1.

One way to mitigate liability risk in the supply chain is to require traceability for components, which means the ability to track the origin, history, location, and status of a product or its parts throughout the supply chain2. Traceability can help a company to identify and prevent potential quality issues, defects, recalls, counterfeits, or frauds that may cause harm to the customers or the environment2. Traceability can also help a company to comply with regulatory standards, customer requirements, and social responsibility expectations2. Traceability can be achieved by using various methods, such as barcodes, RFID tags, serial numbers, blockchain, or cloud-based platforms3.

The other options are not effective ways to mitigate liability risk in the supply chain. Negotiating lower component cost may reduce the procurement expenses, but it may also compromise the quality and safety of the components, which may increase the liability risk. Pushing inventory to supplier locations may reduce the inventory carrying costs and risks, but it may also increase the dependency and vulnerability on the suppliers, which may expose the company to more liability risk. Using LTL shipments more frequently may reduce the transportation costs and emissions, but it may also increase the handling and damage risks of the products, which may affect the customer satisfaction and liability.

References : Understanding Supply Chain Risk: Liabilities | Avetta; What is Traceability in Supply Chain Management?; How to Achieve Supply Chain Traceability.

A chase operational strategy is one that adjusts production to match the demand pattern. This means that the inventory level is kept low, as the output is synchronized with the demand. This reduces the inventory cost, as there is less need for holding, ordering, and carrying inventory. A chase strategy also minimizes the risk of obsolescence, spoilage, or excess inventory.

A level operational strategy is one that maintains a constant output rate, production rate, or workforce level. This means that the inventory level fluctuates, as the output may not match the demand. This increases the inventory cost, as there is more need for holding, ordering, and carrying inventory. A level strategy also increases the risk of stockouts, overstocking, or waste.

A mixed-model operational strategy is one that produces several products with the same resources. This means that the inventory level varies, as the output depends on the product mix and the demand. This may increase or decrease the inventory cost, depending on the product characteristics, demand variability, and resource utilization. A mixed-model strategy also requires more flexibility and coordination in production planning and scheduling.

A hybrid operational strategy is one that combines elements of chase and level strategies. This means that the inventory level is balanced, as the output is partly adjusted to the demand and partly kept constant. This may increase or decrease theinventory cost, depending on the degree of adjustment and constancy. A hybrid strategy also requires more trade-offs and compromises in production decision making.

References:

• APICS Exam Handbook, page 12
• CPIM Part 1 Study Guide, page 19
• CPIM Part 2 Study Guide, page 17

Point-of-use storage is a stock location system that places inventory close to where it is needed in the production process, reducing transportation and handling costs and improving efficiency. It is often used in repetitive manufacturing, lean environment, where the demand is stable and predictable, and the inventory is replenished frequently. Fixed location and central storage are stock location systems that store inventory in a designated area, which may require more space and movement. Floating location is a stock location system that assigns inventory to any available space, which may cause confusion and inefficiency. References: CPIM Exam Content Manual Version 7.0, Domain 5: Plan and Manage Inventory, Section 5.2: Inventory Management Methods, p. 32.

A quantitative model is a mathematical representation of a real-world situation that involves numbers, variables, equations, and logic. A quantitative model can be used to support sales and operations planning (S&OP), which is a process of aligning the demand and supply plans of an organization at an aggregate level. To develop a quantitative model for S&OP, the following statements are most true:

• It is not necessary to capture all of the detail in order to create a useful model. In fact, too much detail can make the model complex, unrealistic, and difficult to solve. A useful model should capture the essential features of the situation and simplify the irrelevant or insignificant aspects1.
• Aggregation will be necessary to develop an appropriate model. Aggregation is the process of combining data or information into higher-level categories or groups. For example, products can be aggregated into product families, customers can be aggregated into market segments, and time periods can be aggregated into months or quarters. Aggregation can help reduce the size and complexity of the model, as well as improve its accuracy and reliability2.
• Clear objectives are necessary to begin the modeling process. Objectives are the desired outcomes or goals that the model aims to achieve or optimize. For example, an objective of S&OP could be to maximize profit, minimize cost, or balance inventory. Clear objectives can help define the scope, structure, and criteria of the model3.
• A significant level of effort is required to develop a model. Developing a model involves several steps, such as defining the problem, collecting and analyzing data, formulating and testing the model, implementing and validating the solution, and evaluating and improving the results. Each step requires careful planning, execution, and evaluation4.

References: CPIM Part 2 Exam Content Manual, Domain 3: Plan and Manage Demand, Section 3.1: Demand Management Concepts and Tools, p. 27-28; Quantitative Techniques Used in Sales & Operations Planning; Sales and Operations Planning (S&OP) 101| Smartsheet; Chapter 13 – Aggregate Planning - KSU; What is Sales and Operations Planning (S&OP) | Oracle; Aggregation and Disaggregation | SAP Help Portal.

The change in level of work-in-process (WIP) inventory is the most appropriate indicator to evaluate the effectiveness of the detailed capacity planning processes for a firm that produces a moderate variety of products to stock in a single plant. Detailed capacity planning is the process of determining the quantity and timing of resources, such as labor, equipment, and materials, needed to execute the master production schedule (MPS) at the work center level1. The MPS is a plan that specifies the quantity and timing of end items to be produced in a given time period2. The change in level of WIP inventory is a measure of the difference between the amount of WIP inventory at the beginning and at the end of a period3. WIP inventory consists of partially completed products or components that are waiting for further processing or assembly.

The change in level of WIP inventory can indicate how well the detailed capacity planning processes are aligned with the MPS and the actual demand. A positive change in WIP inventory means that more products or components are being produced than consumed, which implies that there is excess capacity or insufficient demand. A negative change in WIP inventory means that more products or components are being consumed than produced, which implies that there is insufficient capacity or excess demand. A zero or minimal change in WIP inventory means that the production and consumption rates are balanced, which implies that there is optimal capacity and demand. Therefore, by monitoring the change in level of WIP inventory, the firm can evaluate whether its detailed capacity planning processes are effective in meeting customer needs and expectations, as well as minimizing inventory costs and maximizing resource utilization.

The other options are not as appropriate indicators to evaluate the effectiveness of the detailed capacity planning processes for a firm that produces a moderate variety of products to stock in a single plant. Units of output per direct labor hour is a measure of labor productivity, which indicates how efficiently labor is used to produce output. However, labor productivity does not reflect the effectiveness of detailed capacity planning processes, because it does not account for other factors that affect production, such as equipment, materials, quality, or demand. Percentage of master schedule attained is a measure of schedule performance, which indicates how well the actual production matches the planned production. However, schedule performance does not reflect the effectiveness of detailed capacity planning processes, because it does not account for other factors that affect production, such as capacity constraints, resource availability, or customer satisfaction. Level of finished goods inventory is a measure of inventory management, which indicates how much inventory is available to meet customer orders. However, finished goods inventory does not reflectthe effectiveness of detailed capacity planning processes, because it does not account for other factors that affect production, such as product variety, lead time, or quality.

References: Detail Capacity Planning - Capacity Planning - Gaebler.com Resources …; Master Production Schedule (MPS) Definition | Operations & Supply Chain Dictionary; Work-in-Process Inventory: Definition & Example - Video & Lesson Transcript | Study.com; [Work-in-Process (WIP) Definition - Investopedia]; [Labor Productivity Definition - Investopedia]; [Labor Productivity: Definition & Statistics - Video & Lesson Transcript | Study.com]; [Schedule Performance Index (SPI) Definition - Investopedia]; [Schedule Performance Index (SPI) & Cost Performance Index (CPI) in Project Cost Management]; [Finished Goods Inventory: Definition & Formula - Video & Lesson Transcript | Study.com]; [Finished Goods Inventory: Definition & Example - Video & Lesson Transcript | Study.com].

According to the web search results, the production plan is a long-term plan that establishes the quantity and timing of the end products to be produced by the company1. The production plan is based on the forecasted demand, the available capacity, and the company’s strategic objectives2. The production plan is also used to authorize and guide the master schedule, which is a more detailed and short-term plan that specifies the quantity and timing of each end product to be produced in each time period3. The master schedule is derived from the production plan, and it must not exceed the production plan’s limits. Therefore, the major contribution of the production plan is to provide authorization for the master schedule.

The other options are not correct, because they are either irrelevant or inaccurate. The production plan does not establish demand by end item, but rather responds to the forecasted demand by end item. The production plan does not identify key resources to support the master schedule, but rather determines the overall resource requirements to meet the production targets. The production plan does not establish the weekly build schedule, but rather provides the basis for the weekly build schedule, which is a more detailed breakdown of the master schedule that specifies how many units of each end product will be built in each week.

References:

• Production Planning - Definition, Objectives, Types, Importance
• Production Planning in Manufacturing: Best Practices for Production Plans
• Master Production Schedule (MPS) - Definition & Examples | Marketing Tutor
• [Master Production Schedule (MPS) - Meaning & Process | Tallyfy]
• [Production Planning - an overview | ScienceDirect Topics]
• [Production Planning: Definition, Levels, Objectives and Factors]
• [What Is a Weekly Build Schedule? | Bizfluent]

The break-even point is the level of sales or output where the total revenue equals the total cost, and the profit is zero. The break-even point can be calculated in units or in dollars. To calculate the break-even point in units, the following formula can be used:

Break-even point in units = Fixed cost / (Selling price per unit - Variable cost per unit)

In this case, the fixed cost is $120,000, the selling price per unit is $20, and the variable cost per unit is $5. Plugging these values into the formula, we get:

Break-even point in units = 120,000 / (20 - 5) = 120,000 / 15 = 8,000

Therefore, the break-even point in units for Product X is 8,000. This means that the company needs to sell 8,000 units of Product X to cover its fixed and variable costs and make no profit or loss.

References: CPIM Exam Content Manual Version 7.0, Domain 8: Manage Quality, Continuous Improvement, and Technology, Section 8.1: Develop Quality and Continuous Improvement Plans, Subsection 8.1.2: Describe how to develop a business case for quality and continuous improvement initiatives (page 74).

A part that is sold as a service part and also used as a component in another part is called a dual-sourced item. A dual-sourced item has two sources of demand: the external demand from the customers who buy the service part, and the internal demand from the parent part that uses the component. The planning for a dual-sourced item should include both sources of demand in the gross requirements, so that the net requirements can be calculated correctly. The service part demand can be included in the gross requirements by using a planning bill of material, which is a special bill of material that shows the relationship between a parent item and its service parts. A planning bill of material allows the system to explode the service part demand to the component level and generate planned orders for both the service part and the component.

The other statements about the planning for this part are false. Its low-level code is not zero, because it is not an independent item. It has a higher low-level code than its parent item, because it is a component of another item. The material requirements for the part will not be understated, if both sources of demand are included in the gross requirements. It should have some safety stock, to protect against demand and supply uncertainties. References: CPIM Part 2 Exam Content Manual, Domain 4: Plan and Manage Supply, Section 4.2: Material Requirements Planning (MRP), p. 22-23.

Sales and operations planning (S&OP) is a process that aligns the sales plan, the production plan, the inventory plan, and the financial plan to achieve the business objectives. S&OP helps to balance supply and demand, optimize resources, reduce inventory costs, and improve customer service. S&OP is done on an aggregate or family level, and covers a sufficient span of time to make sure that the necessary resources will be available. S&OP also involves regular reviews and updates of the plans based on the changes in the market and the company’s performance.

Business planning is a process that defines the long-term vision, mission, goals, and strategies of the organization. Business planning provides the direction and framework for the operational plans, but does not address the specific issues of inventory management and financial performance.

Detailed material planning is a process that determines the quantity and timing of material requirements for each item or component in the production plan. Detailed material planning is based on the master schedule, which is derived from the S&OP. Detailed material planning does not address the alignment of sales and operations at an aggregate level.

Master scheduling is a process that translates the S&OP into a detailed plan for each product or service in a specific time period. Master scheduling specifies the quantityand timing of finished goods to be produced or delivered to meet the demand. Master scheduling is dependent on the S&OP, and does not address the coordination of sales and operations at an aggregate level.

References:

• APICS Exam Handbook, page 12
• CPIM Part 1 Study Guide, page 19
• CPIM Part 2 Study Guide, page 17
• Sales and Operations Planning (S&OP) 101| Smartsheet
• Sales, Inventory & Operations Planning - What It Is and How to Operate

A reduction in purchased lot sizes will reduce inventory levels. Purchased lot sizes are the quantities of inventory that a stage of the supply chain either produces or purchases at a given time1. Inventory levels are the amount of stock available throughout the distribution network2. By reducing the purchased lot sizes, a company can lower the amount of inventory it holds, which can reduce the inventory costs, such as holding costs, shortage costs, and order costs3.

Holding costs are the costs associated with storing and maintaining inventory, such as rent, utilities, insurance, taxes, depreciation, and obsolescence4. Shortage costs are the costs incurred when demand exceeds supply, such as lost sales, customer dissatisfaction, and backorder costs4. Order costs are the costs involved in placing and receiving orders, such as transportation, inspection, setup, and administrative costs4.

Reducing the purchased lot sizes can lower the holding costs by decreasing the average inventory in the supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer1. This is also known as cycle inventory1. Reducing the purchased lot sizes can also lower the shortage costs by increasing the frequency of orders and decreasing the lead time between orders5. This can help avoid stockouts and meet customer demand more consistently. Reducing the purchased lot sizes can also lower the order costs by optimizing the order quantity based on the trade-off between holding costs and order costs. This is also known as economic order quantity (EOQ).

Therefore, a reduction in purchased lot sizes will reduce inventory levels and inventory costs.

References: 1: Chapter 11 Flashcards by Amy Horton 3 2: Optimal Inventory Levels: Calculate & Manage Your Stock Levels 2 3: Inventory Levels Explained: The Highs & Lows Of Optimal Stock 1 4: Economic Order Quantity Model in Inventory Management 4 5: Dual sourcing: Advantages and disadvantages : Economic Order Quantity: What Does It Mean and Who Is It For5

The measurement that indicates there may be bias in the forecast model is the tracking signal. The tracking signal is a ratio of the cumulative forecast error to the mean absolute deviation (MAD). The cumulative forecast error is the sum of the differences between the forecasted and actual values over a period of time. The MAD is the average of the absolute values of the forecast errors. The tracking signal can help detect and measure the bias of a forecast model by comparing the magnitude and direction of the forecast errors. A positive tracking signal indicates that the forecast model is consistently over-forecasting, while a negative tracking signal indicates that the forecast model is consistently under-forecasting. A zero tracking signal indicates that there is no bias in the forecast model. A rule of thumb is that if the tracking signal exceeds a certain threshold, such as ±4, then there is a significant bias in the forecast model that needs to be corrected.

The other measurements do not indicate bias in the forecast model, but rather other aspects of the forecast accuracy or variability. The MAD is a measure of the average error or deviation of the forecast model from the actual values. The MAD does not indicate bias, as it does not consider thedirection or sign of the errors. A low MAD indicates a high accuracy of the forecast model, while a high MAD indicates a low accuracy of the forecast model.

The standard deviation is a measure of the dispersion or variation of the forecast errors around their mean. The standard deviation does not indicate bias, as it does not consider the direction or sign of the errors. A low standard deviation indicates a low variability or uncertainty of the forecast model, while a high standard deviation indicates a high variability or uncertainty of the forecast model.

The variance is a measure of the squared deviation or dispersion of the forecast errors around their mean. The variance does not indicate bias, as it does not consider the direction or sign of the errors. The variance is related to the standard deviation, as it is equal to the square of the standard deviation. A low variance indicates a low variability or uncertainty of the forecast model, while a high variance indicates a high variability or uncertainty of the forecast model.

References := Forecast KPI: RMSE, MAE, MAPE & Bias | Towards Data Science, A Critical Look at Measuring and Calculating Forecast Bias – Demand Planning, Forecast bias - Wikipedia

A purchase order is issued to the supplier for each delivery requirement is an activity that represents waste in a system. Waste is any activity or process that does not add value to the customer or the product, but consumes resources, time, or money. Waste can reduce the efficiency, productivity, and quality of the system, as well as increase the costs, defects, or delays. Waste can be classified into seven types: overproduction, inventory, transportation, motion, waiting, overprocessing, and defects1.

Issuing a purchase order to the supplier for each delivery requirement is an example of overprocessing waste. Overprocessing waste is any activity or process that is unnecessary or excessive for meeting the customer needs or specifications. Overprocessing waste can result from poor communication, unclear requirements, redundant tasks, or outdated procedures. Issuing a purchase order to the supplier for each delivery requirement is an overprocessing waste because it involves more paperwork, approvals, and transactions than needed. It can also create confusion, errors, or delays in the delivery process. A better way to eliminate this waste is to use a pull system, such as kanban2, that signals the supplier to deliver only when there is a demand from the customer.

The other options are not activities that represent waste in a system. More kanbans with smaller quantities are added to the supply chain is an activity that reduces waste in a system. Kanban is a pull system that uses visual signals, such as cards or containers, to indicate when and how much to produce or deliver. Kanban can help reduce waste by synchronizing the production and delivery processes with the customer demand, minimizing inventory levels, improving quality and efficiency, and preventing overproduction or underproduction3. Adding more kanbans with smaller quantities can help reduce inventory waste by lowering the holding costs, transportation costs, or obsolescence costs of inventory. It can also help reduce overproduction waste by producing or delivering only what is needed by the customer.

A kanban is eliminated from the system is an activity that reduces waste in a system. Eliminating a kanban from the system means reducing the number of signals or containers used in the production or delivery process. Eliminating a kanban from the system can help reduce waste by increasing the throughput and velocity of the process, reducing cycle times and lead times, improving responsiveness and flexibility, and enhancing customer satisfaction4.

A production forecast is issued to the supplier is not an activity that represents waste in a system. A production forecast is an estimate of the future demand or sales of a product or service. A production forecast can help plan and manage the production and delivery processes by determining how much and when to produce or deliver. A production forecast can help reduce waste by optimizing the use of resources and capacity, minimizing inventory levels and costs, improving service levels and quality, and avoiding stockouts or shortages5. Issuing a production forecast to thesupplier can help align the production and delivery processes with the customer demand and expectations.

References := The 7 Wastes With Examples: How to Identify Them | Lean Manufacturing, What Is Overprocessing Waste? Definition And Examples, Kanban - Wikipedia, How To Reduce Inventory With Kanban | Lean Manufacturing, Production Forecasting - an overview | ScienceDirect Topics

 In a make-to-stock (MTS) environment, improving estimates of customer demand would improve the trade-off between the cost of inventory and the level of customer service. MTS is a production strategy that manufactures products in anticipation of customer demand, based on forecasts. The main challenge of MTS is to balance the inventory costs and the customer service levels. Inventory costs include holding costs, ordering costs, and obsolescence costs. Customer service levels measure the ability to meet customer demand without delay or stockout. A trade-off exists between these two objectives, as higher inventory levels can increase customer service levels but also increase inventory costs, and vice versa.

Improving estimates of customer demand can help reduce the trade-off between inventory costs and customer service levels, as it can lead to more accurate production planning and inventory management. By forecasting demand more accurately, a company can avoid overproduction or underproduction, which can result in excess inventory or stockouts, respectively. By producing the right amount of products at the right time, a company can lower its inventory costs and increase its customer service levels.

Eliminating raw material stockouts would not improve the trade-off between inventory costs and customer service levels in a MTS environment, as it would not affect the finished goods inventory or the customer demand. Raw material stockouts are a supply issue that can disrupt the production process and cause delays or shortages in the finished goods. However, they do not directly impact the inventory costs or the customer service levels of the finished goods, which are determined by the demand forecasts and the production plans.

Decreasing the frozen time zone would not improve the trade-off between inventory costs and customer service levels in a MTS environment, as it would increase the variability and uncertainty in the production process. The frozen time zone is the period of time in which no changes can be made to the production schedule, as it is considered fixed and final. Decreasing the frozen time zone would allow more flexibility and responsiveness to changes in demand or supply, but it would also increase the risk of errors, disruptions, or inefficiencies in the production process. This could resultin higher production costs, lower quality, or longer lead times, which could negatively affect the inventory costs and the customer service levels.

Reducing manufacturing overtime would not improve the trade-off between inventory costs and customer service levels in a MTS environment, as it would reduce the production capacity and output. Manufacturing overtime is a way of increasing the production capacity and output by extending the working hours of the production resources, such as labor or equipment. Reducing manufacturing overtime would lower the production costs, but it would also lower the production output. This could result in insufficient inventory to meet customer demand, which could lower the customer service levels. References := Make-to-Stock (MTS) Definition, Make-to-Stock (MTS) vs Make-to-Order (MTO) | TradeGecko, Value Creation: Assessing the Cost-Service Trade-off

Full pegging is a method of tracing the relationship between supply and demand in a manufacturing system. Full pegging shows the link between each demand and its corresponding supply, as well as the link between each demand and the highest-level order that triggered it. Full pegging helps to identify the impact of changes in demand or supply on the production plan, and to make adjustments accordingly. Full pegging is most beneficial in an assemble-to-order (ATO) environment, where products are customized by assembling standardized components or modules according to customer specifications. In an ATO environment, full pegging can show the connection between the finished products, the components or modules, and the customer orders. This can help to optimize the inventory level, reduce lead time, and improve customer service.

Full pegging is not very useful in the other production environments. Distribute-to-order is a production strategy that delivers finished products from inventory to customers based on their orders. There is no customization or assembly involved in this strategy, so full pegging is not needed. Make-to-order is a production strategy that produces customized products from raw materials or components after receiving customer orders. There is no standardization ormodularization involved in this strategy, so full pegging is not applicable. Make-to-stock is a production strategy that produces standardized products in advance of customer demand, and stores them in inventory until they are sold. There is no customization or assembly involved in this strategy, so full pegging is not relevant. References: CPIM Exam Content Manual Version 7.0, Domain 4: Plan and Manage Supply, Section 4.1: Supply Planning Concepts, p. 23; Full Pegging; Assemble to order.

The bullwhip effect is a supply chain phenomenon that causes fluctuations in demand to amplify as they move upstream, from the consumer to the retailer, to the distributor and then to the producer1. The bullwhip effect can result in inefficiencies and costs such as excess inventory, lost revenues, superfluous capacity and poor customer service1.

One of the activities that would be effective to mitigate the bullwhip effect is to reduce lead times, which are the time intervals between placing an order and receiving the goods2. Reducing lead times can help to reduce the uncertainty and variability in demand, as well as improve the responsiveness and flexibility of the supply chain2. By reducing lead times, the supply chain partners can order less frequently and in smaller quantities, while still meeting customer demand. This can reduce the need for safety stock, cycle stock and pipeline stock, and thus lower the inventory carrying costs and risks2.

The other options are not effective activities to mitigate the bullwhip effect. Implementing track and trace technology, which is a method for tracking the origin, history, location and status of a product or its parts throughout the supply chain3, may help to improve the visibility and transparency of the supply chain, but it may not reduce the demand fluctuations or inventory imbalances caused by the bullwhip effect. Using a push system, which is a production system where goods are produced based on forecasted demand rather than actual customer orders4, may increase the risk of overproduction or underproduction, as well as create more inventory and waste in the supply chain. Increasing inventory, which is the stock of goods or materials held by a company to meet customer demand5, may increase the inventory carrying costs and risks, as well as tie up cash flow and working capital.

References : Lead Time Reduction: Definition & Benefits; The bullwhip effect: causes, intensity, and mitigation - Academia.edu; What is Traceability in Supply Chain Management?; Push vs Pull System: What Is The Difference?; Inventory Definition.