CPIM Practice Exam

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What is hedge inventory primarily used to protect against?

Low product demand
Price decreases
Potential disruptive events
Excess production capacity

The correct answer is: Potential disruptive events

Hedge inventory is primarily utilized to safeguard against potential disruptive events. These can include a variety of unforeseen circumstances, such as natural disasters, geopolitical issues, supply chain interruptions, or other risks that could affect the availability of materials or products. By maintaining a buffer of hedge inventory, organizations can ensure they have sufficient stock on hand to continue operations and meet customer demand even when unexpected disruptions occur. This strategic approach allows businesses to mitigate risks associated with variability in supply, thereby promoting continuity and stabilizing production and sales. The nature of hedge inventory is proactive; it is not built to address issues that have already occurred but rather to prepare for uncertainties in the supply chain landscape. As a result, businesses can maintain their service levels and competitive advantage, even in the face of potential challenges.