CPIM Practice Exam

What happens when a production strategy is dependent on forecasts?

1. Immediate production adjustments

2. Assured optimal inventory levels

3. Potential shortfalls or excess inventory

4. Stability in supplier relationships

The correct answer is: Potential shortfalls or excess inventory

When a production strategy is based on forecasts, the most significant consequence is the potential for shortfalls or excess inventory. This approach relies on predicting future demand, which is inherently uncertain. If the forecasts are inaccurate—either overestimating or underestimating the actual demand—companies may end up with either too much inventory, leading to increased holding costs and potential obsolescence, or too little inventory, resulting in stockouts and lost sales. This dependency on forecasts introduces variability and risk into the production process. Companies often struggle with maintaining the right balance between supply and demand due to errors in forecasting, changes in market conditions, or unforeseen events impacting consumer purchasing behaviors. Therefore, while a forecasting-based strategy can optimize some aspects of inventory management, it also exposes the supply chain to fluctuations and potential inefficiencies that can significantly impact overall performance.