CPIM Practice Exam

Which technique is primarily used to ensure minimum stock levels are maintained?

1. Lot-for-lot

2. Reorder point system

3. Periodic review system

4. Economic order quantity

The correct answer is: Reorder point system

The reorder point system is vital for maintaining minimum stock levels. This technique involves setting a specific inventory level at which new stock should be ordered to prevent stockouts. By monitoring current inventory levels against this predetermined reorder point, an organization can ensure that materials or products are replenished in a timely manner, thereby minimizing the risk of running out and avoiding potential disruptions in the supply chain. When inventory reaches this threshold, an order is triggered for a predetermined amount to restore stock levels. This system strikes a balance between carrying enough inventory to meet demand while avoiding excess stock that can lead to increased holding costs. It is especially useful in environments where demand is relatively stable and predictable. In contrast, lot-for-lot is focused on ordering just enough to cover the requirements for each period, which does not specifically cater to maintaining minimum stock levels. The periodic review system evaluates inventory at regular intervals but may not actively prompt action based on specific stock levels. Finally, the economic order quantity model aims to optimize the order size based on cost considerations without inherently ensuring minimum stock levels are maintained. Thus, the reorder point system distinctly prioritizes maintaining those essential minimum stock levels.