CPIM Practice Exam

What is the principle behind the period order quantity method?

1. It requires a set number of items per order

2. It matches the maximum inventory level

3. It equals net requirements for multiple periods

4. It minimizes the cost per item

The correct answer is: It equals net requirements for multiple periods

The principle behind the period order quantity method focuses on meeting net requirements over multiple periods. This approach involves calculating the total demand for a series of time periods and determining how much inventory needs to be ordered to meet that demand while considering factors such as lead time and safety stock. By aligning orders with projected needs across several periods, this method ensures that inventory levels are effectively managed, thus preventing shortages and overstock situations. The idea is to create an efficient ordering strategy that not only addresses immediate needs but also anticipates future demands, leading to better inventory control. When utilizing this method, organizations can more efficiently balance the inventory they hold against anticipated sales or production requirements, ultimately creating a smoother operation within the supply chain.