CPIM Practice Exam

What are stockout costs associated with?

1. Failures in quality control

2. Excess inventory write-offs

3. Costs arising from inventory shortages

4. Product returns and refunds

The correct answer is: Costs arising from inventory shortages

Stockout costs are specifically related to the costs that arise from inventory shortages. When a business does not have enough inventory to meet customer demand, it faces a variety of repercussions. These can include lost sales, customer dissatisfaction, potential damage to the company's reputation, and additional logistics costs to expedite re-supply. Essentially, stockouts directly impact a company's ability to fulfill orders, leading to both immediate financial losses and longer-term implications for customer loyalty. Understanding stockout costs is crucial for effective supply chain management because it emphasizes the importance of maintaining optimal inventory levels to meet demand without incurring unnecessary holding costs. This concept underscores the delicate balance that companies must achieve in their inventory management practices.