CPIM Practice Exam

Which technique generates planned orders in quantities equal to net requirements?

1. Fixed order quantity

2. Mix-max system

3. Lot-for-lot

4. Periodic order quantity

The correct answer is: Lot-for-lot

The technique that generates planned orders in quantities equal to net requirements is known as lot-for-lot. This approach is focused on producing only what is necessary to meet demand, eliminating surplus inventory and carrying costs. By aligning planned order quantities directly with net requirements, organizations can effectively minimize waste and streamline their operations. This method is particularly advantageous in environments where demand can be variable and unpredictable, as it allows for a flexible response to changes without committing to larger order quantities that might not be needed. This leads to improved inventory turnover and better alignment with actual needs. In contrast, other techniques like fixed order quantity may generate orders based on pre-set amounts regardless of immediate demand, potentially leading to excess inventory. The min-max system involves setting minimum and maximum stock levels, prompting orders based on these thresholds rather than actual net requirements. Lastly, the periodic order quantity focuses on placing orders at specific intervals rather than in precise quantities needed at that time, which can also result in misalignment with net requirements. Thus, lot-for-lot stands out as the method that accurately reflects immediate needs through its ordered approach.