CPIM Practice Exam

Which basic production planning strategy is designed to build inventory and avoid excess capacity costs?

1. Chase strategy

2. Level production strategy

3. Product-based strategy

4. Demand matching strategy

The correct answer is: Level production strategy

The level production strategy is specifically designed to maintain a steady production rate, allowing a company to build inventory during periods of low demand and utilize that inventory during peak demand periods. By keeping production levels constant, businesses can avoid the costs associated with rapidly fluctuating production rates and reduce the costs tied to excess capacity. This approach minimizes the risk of underutilization of resources and helps ensure that there is sufficient inventory on hand to meet customer demand without needing to ramp up production dramatically at any given time. In contrast, other strategies, such as the chase strategy, focus primarily on matching production levels to fluctuating demand rather than building inventory, leading to potential excess capacity concerns. Similarly, product-based and demand matching strategies do not inherently aim to build inventory over time in a systematic manner like the level production strategy does. Thus, the level production strategy stands out for its ability to create a buffer of inventory while efficiently managing production costs.