CPIM Practice Exam

In a system with a 95 percent customer service level, what is the first expected outcome if demand during lead time exceeds average demand?

1. The order point will be reached sooner.

2. There will be an overstock.

3. Safety stock will be sold.

4. There will be a stockout.

The correct answer is: Safety stock will be sold.

In a system that aims for a 95 percent customer service level, the expectation is to maintain sufficient inventory to meet demand most of the time. If demand during lead time exceeds the average demand, the first expected outcome is that safety stock will be sold. Safety stock acts as a buffer against variability in demand and supply. When actual demand spikes and surpasses the average level, the safety stock will be accessed to fulfill customer orders and maintain service levels. The usage of safety stock in this scenario helps to mitigate the risk of stockouts, which are unfavorable for customer satisfaction. While it's true that reaching the order point sooner might happen due to higher demand, it's not necessarily the immediate outcome as safety stock will be tapped first to handle the excess demand. Similarly, there might be a risk of overstock, but this typically relates to overall inventory management rather than a direct consequence of exceeding demand during lead time. Stockouts may occur if both the safety stock and regular inventory are depleted, but in this context, accessing safety stock is the immediate step taken to cover the additional demand.