CPIM Practice Exam

Under which circumstances do firms typically make-to-stock?

1. When demand is unpredictable

2. When many product options exist

3. When delivery times are shorter than production time

4. When customers require special engineering

The correct answer is: When delivery times are shorter than production time

Firms typically make-to-stock in scenarios where they can predict customer demand with a reasonable degree of certainty and need to maintain a quick response to that demand. The correct context for this practice arises when delivery times need to be shorter than the production time because it allows companies to pre-manufacture products and have them ready for immediate shipment. This strategy helps businesses ensure they can meet customer orders right away, thus enhancing customer satisfaction and reducing lead times. In contrast, unpredictable demand would complicate inventory management, making it less likely for a firm to successfully implement a make-to-stock strategy. Additionally, offering many product options can lead to challenges in inventory control and complexity in managing stock levels. Special engineering requirements also necessitate a more customized approach, typically leading firms to make-to-order rather than make-to-stock, given the unique specifications involved.