CPIM Practice Exam

What does a "mix-max system" define in inventory management?

1. An order point where a minimum quantity is set

2. A method for ranking products

3. An economic decision-making process

4. A system that generates random order quantities

The correct answer is: An order point where a minimum quantity is set

A mix-max system in inventory management establishes specific inventory levels that guide when orders should be placed. This system defines a minimum (or "min") quantity that triggers a reorder when stock levels dip below this threshold and a maximum (or "max") quantity that indicates how much inventory to order. The primary purpose of this approach is to maintain adequate stock levels to meet demand while minimizing excess inventory costs. It helps ensure that stock is replenished in a timely manner, striking a balance between holding costs and service levels. The other options relate to different aspects of inventory and decision-making processes. Ranking of products typically involves criteria for prioritizing items, while an economic decision-making process pertains more to cost analysis and strategy rather than inventory thresholds. Generating random order quantities does not align with the structured approach of a mix-max system, which emphasizes defined levels rather than variability. Thus, your choice effectively captures the essence of what a mix-max system entails in inventory management.