Question 98 - CPIM-Part-2 discussion

Inventory turns, also known as inventory turnover or stock turnover, is a measure of how many times a company sells and replaces its inventory in a given period.It is calculated as the ratio of cost of goods sold (COGS) to average inventory1. A higher inventory turnover indicates that the company is selling its inventory quickly and efficiently, while a lower inventory turnover indicates that the company is holding too much inventory or having difficulty selling its products.

Increasing safety stock to improve customer fill rate would result in a decrease in inventory turns, as it would increase the average inventory level.Safety stock is the extra inventory that is held to prevent stockouts and meet unexpected demand2.Customer fill rate is the percentage of customer orders that are fulfilled from available inventory without delay3. Increasing safety stock can improve customer fill rate by reducing the risk of stockouts and ensuring high service levels.However, increasing safety stock also increases the inventory carrying costs and risks, such as storage, handling, obsolescence, shrinkage, and opportunity costs4. Therefore, increasing safety stock is a trade-off between customer satisfaction and inventory efficiency.

The other options are not correct.Pipeline inventory is the inventory that is in transit between locations or stages in the supply chain5. Increasing safety stock would not affect pipeline inventory, as it is determined by the lead time and demand rate.Transportation costs are the expenses incurred for moving goods from one location to another6. Increasing safety stock would not affect transportation costs, as it is determined by the distance, mode, volume, and frequency of transportation.Sales revenue is the income generated from selling goods or services to customers7. Increasing safety stock would not affect sales revenue directly, as it is determined by the price and quantity of sales. However, increasing safety stock may have an indirect positive effect on sales revenue by improving customer satisfaction and loyalty.