CPIM Practice Exam

Which production strategy avoids idle capacity but risks issues with inaccurate forecasting?

1. Lean strategy

2. Chase strategy

3. Cellular strategy

4. Level strategy

The correct answer is: Level strategy

The level strategy is designed to maintain a consistent production rate regardless of fluctuating demand levels. This approach aims to minimize the risk of idle capacity by ensuring that production is spread evenly over time, which can help in utilizing equipment and workforce efficiently. However, the downside of a level strategy is its reliance on accurate forecasting. Since production rates are maintained at a steady state, any inaccuracies in demand forecasts can lead to significant issues. If demand is underestimated, there may not be enough product available to meet customer needs, resulting in stockouts. Conversely, if demand is overestimated, excess inventory can accumulate, leading to increased holding costs and potential obsolescence. Understanding the balance of maintaining an efficient operational level while accurately predicting demand is crucial. The level strategy aims for operational stability but poses risks when forecasts do not match actual market conditions, which is a fundamental aspect of supply chain management.