CPIM Practice Exam

Fluctuation inventory serves as a cushion against what?

1. Delivery delays

2. Forecast error

3. Seasonal demand peaks

4. Excessive production

The correct answer is: Forecast error

Fluctuation inventory is maintained to buffer against variability in demand and supply conditions. It specifically serves as a cushion against forecast errors, which are inherent in the process of predicting future demand. Forecast errors can arise from several factors, including unexpected changes in market trends, customer preferences, or even events that were not anticipated during the forecasting process. By having fluctuation inventory available, organizations can continue to meet customer demands even when actual demand deviates from forecasted figures. Other options, while they also represent challenges in inventory management, do not capture the primary purpose of fluctuation inventory. For instance, delivery delays may necessitate maintaining safety stock or seasonal inventory, which target different aspects of inventory strategy. Seasonal demand peaks require stocking up to accommodate predictable high-demand periods. Excessive production relates to the management of production processes rather than directly addressing fluctuations in demand and supply consistency. Therefore, while fluctuation inventory can help mitigate some of these issues, its primary function is specifically to counteract forecast errors.