CPIM Practice Exam

What is the likely effect of grouping a large seasonal order with regular monthly orders from smaller customers?

1. Average annual inventory will be higher.

2. Production costs will be higher.

3. Demand will be less lumpy.

4. The major customer's service level will suffer.

The correct answer is: Average annual inventory will be higher.

Grouping a large seasonal order with regular monthly orders from smaller customers most likely leads to a scenario where average annual inventory will be higher. This occurs because the larger order, when combined with the steady flow of orders from smaller customers, can result in fluctuating inventory levels throughout the year. When seasonal demand is consolidated, it may require maintaining a larger stock to meet the peaks in demand during certain times of the year, as opposed to distributing orders more evenly throughout the year. This can lead to excess inventory being held in anticipation of fulfilling that larger seasonal order, in addition to the ongoing demand from smaller regular orders. This combination of factors results in a higher average annual inventory compared to managing these orders separately, where inventory levels could be more optimized and balanced to actual demand patterns throughout the year.