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Question 90 - CPIM-Part-2 discussion

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If all other factors remain the same, when finished goods inventory investment is increased, service levels typically will:

A.
remain the same.
Answers
A.
remain the same.
B.
increase in direct (linear) proportion.
Answers
B.
increase in direct (linear) proportion.
C.
increase at a decreasing rate.
Answers
C.
increase at a decreasing rate.
D.
increase at an increasing rate.
Answers
D.
increase at an increasing rate.
Suggested answer: C

Explanation:

Finished goods inventory is a type of inventory that consists of the final products that are ready for sale to the customers. Finished goods inventory investment is the value of the finished goods inventory held by the company. Service level is a measure of customer satisfaction that indicates the percentage of customer orders that can be fulfilled from the available inventory. Service level typically will increase when finished goods inventory investment is increased, because more inventory means more ability to meet the customer demand. However, the relationship between service level and finished goods inventory investment is not linear, but rather asymptotic. This means that service level will increase at a decreasing rate as finished goods inventory investment increases. In other words, the marginal benefit of increasing finished goods inventory investment will diminish as the service level approaches 100%. This is because there is a limit to how much inventory can improve the service level, and beyond a certain point, the additional inventory will not have a significant impact on customer satisfaction.

asked 16/09/2024
ahmed kehli
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