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Module 2 Quiz Section A Chapter 1 – Solution

1. Maintaining a large safety stock of flu medicine in anticipation of a potential epidemic is an


example of 2-A-1-1-6

A. influencing demand.
B. managing and prioritizing demand.
C. planning demand.
D. communicating demand.

Planning demand is a component of demand management that may include planning for disasters
such as a potential epidemic by holding large amounts of safety stock.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

2. Which of the following is a best practice for managing and prioritizing demand? 2-A-1-1-21

A. Organizations should delegate lower-risk prioritization decisions to individual


salespersons.
B. Organizations should retain demand management and prioritization power solely
within the demand side of the organization.
C. Organizations should manage and prioritize demand when unexpected changes in
demand occur and capacity changes can be made without impacting costs or other
operations.
D. Organizations should make commitments for production sooner rather than later.

A best practice is to retain demand management and prioritization power in the demand side of
the organization rather than delegating the power to the supply organization. While the supply
side of the organization will provide critical input to the decision regarding the cost of changing
ongoing production activities, only the demand side of the organization has information on the
most valuable customers and marketing and sales goals.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

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3. The sum of the demand for an item for the past 12 months is 960 units. The demand for the
past three years’ May months was 92 units, 91 units, and 99 units. What is the seasonal index
for May? 2-A-1-2-25

A. 0.85
B. 1.175
C. 1.295
D. 10.213

The seasonal index for a given period is calculated as the average demand for the period divided
by the deseasonalized averaged demand for the period. First, calculate the average demand for
the period, which is (92 + 91 + 99)/3 = 94 units. Next, calculate the deseasonalized average
demand by dividing the sum of the demand for the 12 months by 12. Deseasonalized average
demand = 960/12 = 80 units. Finally, calculate the seasonal index = 94/80 = 1.175.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

4. Which of the following statements correctly identifies the purpose of the weights in a
weighted moving average? 2-A-1-2-22

A. To make data gathering and forecasting calculations simpler


B. To take account of mean average deviation
C. To be more sensitive to recent trends in demand
D. To put more emphasis on long-term influences on demand

A weighted moving average puts more emphasis on the most recent demand numbers than a
simple moving average does. Because of the weighting, it doesn't lag as far behind demand data
as a simple moving average. Its focus, therefore, is on recent trends, not the long term. It isn't
simpler.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

5. Which of the following represents a sound approach to tracking data to use in demand
forecasting? 2-A-1-2-14

A. Exclude consideration of competitors' activities.


B. Add cancellations and returns.
C. Include all product options.
D. Include data by ship date, not order date.

Forecast data should include demand for all product options as well as total demand for the
product. You want to know when items were in demand, not when they were shipped.

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Competitors' product introductions are likely to affect your forecasts. Returns and cancellations
should be subtracted from demand data when calculating actual demand.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

6. Which of the following smoothing constants would yield the same result as a naive forecast?
2-A-1-2-24

A. 0
B. 0.05
C. 0.50
D. 1.0

Generally speaking, firms use exponential smoothing constants that fall between 0.05 and 0.5.
The higher the constant, the more weight your forecast gives to the actual demand data from the
preceding period. A constant of 0.05 would give minimal weight to the preceding period. A
constant of 1.0 would yield the same result as a naive forecast, because it would include the
entire demand (100 percent) and none of the latest forecast amount (0 percent).
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

7. Referring to the demand table below, calculate forecasts for May using both the three-month
moving average (MA) and the naive forecasting methods. Which of the following statements
correctly identifies the two forecasts? 2-A-1-2-19

A. MA forecast = 20.33; naive forecast = 22


B. MA forecast = 20.67; naive forecast = 23
C. MA forecast = 21.33; naive forecast = 22
D. MA forecast = 22.00; naive forecast = 23

The three-month moving average forecast for May is 20.33, which is the average monthly
demand for the months from February through April (17 + 22 + 22)/3 = 61/3 = 20.33; the naive
forecast is taken from the period preceding the forecast period, which in this case is 22, the
actual demand for May. Note that the naive forecast (22) is more nearly accurate in this case,

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because it adjusts faster than the moving average. However, it could just as easily have been less
accurate if demand had changed in a different direction or by a different amount.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

8. A manufacturer of luxury boats gets a request from a customer to upgrade the seats on a boat
in work-in-process inventory. There is a demand time fence for the hull and engines and a
planning time fence for the furnishings. Which of the following is the minimum requirement
to make this change? 2-A-1-3-9

A. The master scheduler should make the change if it doesn’t delay the final schedule.
B. The salesperson should order this change without needing special approval.
C. Senior management should approve the change if the customer pays a change fee.
D. Senior management should approve this change for the cost of the seats only.

Complex products or services often have lengthy production or rollout cycles and thus multiple
time fences. A ship‘s hull may have one set of time fences, its engines another, and the
furnishings could have another set much later in production than the first two. Since the
furnishings are in the slushy zone, the master scheduler is allowed to decide whether the change
is cost-effective. While senior management might sometimes be involved in such a decision, it is
not the minimum requirement for changes in the slushy zone.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

9. Pyramid forecasting specifically incorporates which of the following principles of forecasting


by design? 2-A-1-2-10

A. Forecasts are always wrong.


B. Quantitative data are preferable to qualitative estimates.
C. Short-range forecasts are more reliable than long-range forecasts.
D. Product group forecasts are more reliable than single-product forecasts.

Product group forecasts are more reliable than single-product forecasts, so the pyramid technique
begins by forecasting demand for the product family and then disaggregates the demand to
generate single-product demand forecasts. This ensures alignment between forecasts for the
group and the components of the group. (This is not to imply that the technique ignores other
principles, only that it specifically relies upon the superior reliability of group forecasting.)
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

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10. Which one of the following statements identifies a beneficial result of including more periods
in a moving average? 2-A-1-2-20

A. Forecasts don't lag so far behind sales data.


B. The impact of the seasonal effect on demand is reduced.
C. Forecasting becomes more sensitive to cyclical changes.
D. The impact of random variations is reduced.

Including more periods in the calculation (six or 12 months instead of three, for example) further
reduces the effects of random variation. This is the only benefit. Otherwise, the data gathering
and calculations become more difficult and the forecasts lag further behind changes in demand,
making the forecasts less sensitive to trends and cycles.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

11. An organization has many part-time employees who can be sent home if orders are sluggish.
It also has standing contracts for busy periods with external producers. Which of the
following elements of demand management does this organization’s strategy focus on?
2-A-1-1-16

A. Communicating demand
B. Planning demand
C. Influencing demand
D. Managing and prioritizing demand

The organization has a highly variable capacity strategy in which they attempt to match supply to
demand as closely as possible by being flexible enough to increase or reduce capacity
spontaneously as demand changes. Matching strategies such as these require a focus on
communications so that the changes in supply can be proactive rather than reactive.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

12. Which of the following could improve the perceived reliability of the master scheduling
process if previous last-minute changes approved by salespersons have created schedule
havoc? 2-A-1-3-7

A. Time fences
B. Planning horizons
C. Available-to-promise (ATP)
D. Projected available balance (PAB)

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Time fences can help balance the need for a production system to maintain schedules and control
costs against the need for it to be flexible. Rescheduling, additional setups, rerouting, expediting,
overtime, and disrupted schedules for other items can all be direct costs of late changes, not to
mention the toll it takes on the perceived reliability of the MPS and on customer service.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

13. Referring to the table below, calculate a forecast for April using the three-month moving
average method. Based on your calculation, which of the following statements correctly
relates the forecast to the actual April demand of 22? 2-A-1-2-18

A. Demand and forecast are the same.


B. Demand exceeds forecast by 1.
C. Demand exceeds forecast by 2.
D. Demand exceeds forecast by 3.

The average demand for the three months from January through March is 20: (21 + 17 + 22)/3 =
60/3 = 20, so the forecast for April is 20, which is two less than the actual demand.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

14. The demand management person wants to execute an inventory reduction strategy in part by
first prioritizing sales of inventory nearing obsolescence. This person may best get buy-in
from the sales department by finding ways to 2-A-1-4-3

A. increase the lead time for orders shipped to customers.


B. lengthen the time to market for the new replacement product.
C. minimize order backlogs for other products.
D. reduce safety stocks for other products.

Salespersons desire to eliminate order backlogs, which means that sales staff is not typically
interested in minimizing inventories. To get buy-in for such an action from the sales department,
they would need some guarantees that the reductions would not harm customer service such as
would occur with order backlogs.
For more information, refer to Module 2, Section A, Chapter 1, Topic 4

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15. Referring to the table below, calculate a seasonalized forecast for the month of June,
assuming that the deseasonalized demand for January to June in a future year is 115. (Round
answer to whole numbers.) 2-A-1-2-28

A. 109
B. 110
C. 115
D. 121

The seasonal index is the seasonal average demand divided by the deseasonalized average. Since
the seasonal index and the deseasonalized demand for a future year are provided, you can
multiply the seasonal index by the deseasonalized demand to find the seasonalized forecast for
that future June. Since the seasonal index for June is 1.05, the June forecast in the upcoming year
would be the deseasonalized average of 115 multiplied by the June seasonal index: 115 x 1.05 =
120.75 (rounds to 121).
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

16. Basing a demand forecast for kitchen appliances on housing start data is an example of which
of the following? 2-A-1-2-15

A. Dependent demand forecasting


B. Pyramid forecasting
C. Intrinsic data
D. Extrinsic data

Basing a forecast for a product on data about economic indicators such as housing starts,
population trends, or employment statistics is forecasting based on extrinsic data, as opposed to
intrinsic data collected on the product itself. Historical analogy bases forecasts for one product
on data from a similar (analogous) product, not on data about economic trends.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

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17. Which of the following correctly identifies the mean absolute deviation (MAD) for the six
months in the example shown in the table below? 2-A-1-2-32

A. –8.00
B. 1.67
C. 2.00
D. 12.00

The MAD is the average amount by which the forecast differs from the actual demand. In this
example, MAD = (2 + 1 + 3 + 2 + 3 + 1)/6 = 12/6 = 2. MAD is "absolute" because numbers are
stated without regard to positive or negative signs. Tracking the absolute deviation provides
information for use in assessing the reliability of forecasts.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

18. If a restaurant chain performs hourly forecasting, which of the following will likely be
reduced, assuming that there is acceptable forecast error? 2-A-1-2-29

A. Underlying demand variability


B. Overhead costs
C. Seasonal index variability
D. Labor costs

Hourly projections are useful in determining all the capacity requirements of a restaurant—
numbers of workers to put on each shift, number of registers to maintain, number of tables, space
requirements, and so on—as well as in making decisions about food items to stock. Therefore,
labor and materials costs should be reduced. Overhead costs are generally fixed costs that could
be reduced more effectively by longer-term forecasting. Even if an organization forecasts
accurately, underlying demand variability will still exist. (It can only be better planned for so
supply variability can be reduced.)
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

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19. Which of the following scenarios shows proper application of the principles of
communicating demand? 2-A-1-1-9

A. A manager thanks a marketing person for properly communicating the results of an


underperforming advertising campaign in a timely basis, even though it was bad
news.
B. A demand manager produces a consensus demand plan in units and sends this version to
all stakeholders.
C. A salesperson delays noting that a large order is still uncertain so the order can still ship
on time if finalized.
D. An organization uses its modern information systems to provide sufficient structure for
ensuring that demand communications occur.

Communicating soon to minimize surprises is the principle that information communicated


promptly is of far greater value than delayed communications for any reason. Developing a
culture that rewards early sharing of good and bad news could improve demand communications
significantly.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

20. Which of the following is likely when a retailer of children's toys uses traditional forecasting
to anticipate demand (as does their wholesaler) and adds some safety stock to orders both to
smooth out the inevitable variations from the forecast and to replenish supplies after a
promotion (not communicated to their suppliers) that the retailer plans to have to liquidate
excess inventory? 2-A-1-2-35

A. High inventory holding costs for the retailer and high variability of demand for the
wholesaler
B. Low inventory holding costs for the retailer and high variability of demand for the
wholesaler
C. Low inventory holding costs for the retailer and low variability of demand for the
wholesaler
D. High inventory holding costs for the retailer and low variability of demand for the
wholesaler

The retailer will have high inventory holding costs even though they are having a promotion to
liquidate excess inventory, because they are perpetuating a cycle of overordering inventory due
to uncertain demand forecasts. The wholesaler will have high variability of demand, because
traditional forecasting and lack of communication about promotions will cause each stage of the
supply chain to compensate with greater safety stock. In short, the situation describes the
bullwhip effect.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

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21. Which of the following could have the unintended consequence of increasing demand
variability for an organization’s product or service? 2-A-1-2-2

A. Centralized demand planning


B. Culture of optimism in demand forecasting
C. Increased velocity of sharing sales data
D. Policy of avoiding promotional discounts

Demand plan error, such as incorrectly estimated results of marketing activities, and forecasting
bias, such as from a culture of overly optimistic demand forecasting, are types of demand
variability that directly contribute to supply variability because they result in producing too many
or too few products or the wrong product family mix. This can create an excess of inventory that
is not in demand and a shortage of inventory in demand.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

22. Which of the following conditions contributes to the supply chain phenomenon known as the
bullwhip effect? 2-A-1-2-1

A. Inaccurate demand forecasting


B. Shortened lead times
C. Small batch sizes
D. Just-in-Time production strategies

A major contributor to the bullwhip effect is inaccuracy in demand forecasting, which can lead to
ordering too much or too little stock, thus contributing to the effect's exaggerated peaks and
valleys of demand.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

23. An organization does research and then creates a schedule and budget for influencing
demand for a new product including promotions and advertisements. The activities are
performed well, but, after nine months, the sales are far below what was expected and the
product is abandoned. Which of the following aspects of the plan, do, check, act cycle did
these demand-influencing activities omit? 2-A-1-1-15

1. Plan
2. Do
3. Check
4. Act

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A. IV only
B. I and II only
C. II and III only
D. III and IV only

The organization performed the plan phase by doing research and organizing a schedule and
budget for influencing demand for the new product. It performed the do phase by executing these
plans. However, since it waited until too late to do anything to verify how well the plans were
working, it omitted the check phase. It also omitted the act phase because it performed no
replanning based on results from the check phase.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

24. Which of the following production strategies allows for mass customization without long
lead times? 2-A-1-3-3

A. Make-to-order
B. Make-to-stock
C. Lean production
D. Assemble-to-order

The assemble-to-order strategy incorporates some of the benefits of mass production and some
of the benefits of true customization by mass-producing components that can be assembled into
one of several different versions of a product after receipt of an order.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

25. Which of the following forms the basis for a naive demand forecast? 2-A-1-2-16

A. Data from the last demand period


B. Data from the average of the last several demand periods
C. Intuition
D. Analogy

Naive forecasting assumes that demand in the next period will equal demand in the last period. It
is a form of quantitative forecasting but lacks any analysis.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

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26. In regard to technology, CPFR may be said to depend fundamentally upon which of the
following? 2-A-1-1-20

A. Shared data
B. The internet
C. Its software of the same name
D. Third-party hosts

Although CPFR is enhanced by software, it is fundamentally a set of business practices for


synchronizing the operations of buyer and seller. It depends for success upon a willingness to
share data for forecasting, execution, assessments, and other functions. The data may be shared
on peer-to-peer networks, extranets, or third-party servers, and the internet is generally involved
as the medium for accessing the shared data. But technology is not at the heart of the matter;
sharing data in joint operations is.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

27. Which of the following is the most critical aspect of influencing demand with extended
supply chain partners? 2-A-1-1-13

A. Preventing shortage gaming by relying on partner order history over stated needs
B. Selling the benefits of changes using soft skills such as leadership
C. Clearly setting current requirements and expectations for each party
D. Fulfilling orders to the most profitable supply chain partners first

Influence over departments such as marketing and operations is not a given, and this is especially
the case when dealing with multiple organizations. Developing and maintaining influence
requires leadership skills and a certain amount of humility.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

28. Which of the following might cause cyclical movements in a time series of demand data?
2-A-1-2-7

A. Random changes in consumer sentiment


B. Steady decline in buying related to the product cycle
C. Recession
D. Holiday shopping

The business cycle correlates with alternating medium-term advances and declines in consumer
buying patterns. Cycles are not short-term fluctuations related to holidays or random events, nor

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are they steady trends in only one direction, such as might be caused by factors such as a product
cycle or demographics.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

29. What is the key question to ask when setting a customer service strategy? 2-A-1-3-14

A. Is the level of service sufficient to achieve all perfect orders?


B. Is the cost to achieve the level of service justified?
C. Is the level of service greater than customer expectations?
D. Is the cost of service as low as it can be (lean)?

When developing a customer service strategy, the key question to ask is "Does the cost
associated with achieving specified service performance represent a sound investment?"
Comprehensive evaluation of competitive performance and customer response to service
attributes can be used to formulate a basic strategy.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

30. The master schedule shows inventory on hand of 150 items, scheduled production of 500
items, and booked orders of 400 items. Which of the following is the correct number of
available-to-promise items? 2-A-1-3-12

A. 150
B. 250
C. 500
D. 650

Available-to-promise equals the inventory on hand plus scheduled production reduced by orders
already on the books (150 items + 500 items – 400 items = 250 items). The ATP continues to
decline as orders come in during the period.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

31. Moving average forecasts are generally superior to naive forecasts in correcting for which of
the following sources of variability? 2-A-1-2-17

A. Long-term trends
B. Short- to medium-term trends related to the seasons of the year
C. Very short-term fluctuations in demand attributable to no known cause
D. Cyclical movements correlated to economic indicators

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Moving averages are intended to even out random variations, but they don't react quickly enough
to account for cycles and trends.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

32. Which of the following numbers gives the correct March forecast using the data below and
the exponential smoothing approach? 2-A-1-2-23

 February forecast of 10,150 units


 February sales of 9,950 units with returns for refund of 50 units
 Exponential smoothing constant of 0.20

A. 10,100 units
B. 10,110 units
C. 10,120 units
D. 10,150 units

The forecast is 10,100 units if you use the exponential smoothing equation as follows: Forecast =
Previous Forecast + Alpha x (Demand – Forecast), where alpha is the smoothing constant, or, in
this instance, the forecast = 10,150 + .20 (9,900 – 10,150) = 10,100 units. (Demand for February
is 9,900 units, or sales minus refunds.) Alternately this can be calculated as (Alpha x Last
Period’s Demand) + [(1 – Alpha) x Last Period’s Forecast], which results in the same answer.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

33. Which of the following production strategies sometimes meets resistance from distribution
centers because of the increased demands for skills training and capacity expansion?
2-A-1-3-2

A. Assemble-to-order
B. Make-to-order
C. JIT
D. Make-to-stock

An assemble-to-order strategy may require warehouse or sales personnel to complete the final
stages of finishing a product, thus requiring workers to acquire new skills and, in some cases, the
facility to expand capacity to accommodate the finishing operations.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

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34. Which of the following is a best practice for the creation of demand plans? 2-A-1-1-8

A. Organizations should change the demand plan to match the business plan if it differs.
B. Organizations should use a one-year maximum planning horizon.
C. Organizations should revise the plan at most on a quarterly basis.
D. Organizations should include a mechanism for recording uncertainty in inputs.

Assumptions and uncertainties should be documented, reviewed, and challenged in the monthly
S&OP review process to validate that the demand plan is realistic. Knowledge of assumptions
and uncertainties will also help the organization determine the best way to arrive at a consensus
regarding demand plan numbers.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

35. If an organization has a demand manager position, this person’s direct supervisor should
2-A-1-1-3

A. still take the lead in pre-S&OP meetings because this position lacks sufficient authority.
B. place more weight on statistical forecasts than on demand planner overrides.
C. expect this position to provide item-level sales forecasts.
D. base performance measurements on the reliability of the overall demand plan.

Demand managers should be subject to metrics and challenging goals; performance


measurement and rewards should be based on the reliability of the overall demand plan. This
position should have sufficient authority to insist upon realistic plans and to generate consensus
among stakeholders.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

36. In collaborative demand management, communicating demand may involve which of the
following? 2-A-1-1-10

1. Manufacturers using retailers’ demand data rather than their own


2. Administrative processing of a customer’s order for delivery from a specific warehouse
3. Distributing a copy of the sales order to the customer
4. Controlling demand to the maximum extent possible through scheduling

A. I only
B. I and II only
C. I, II, and III only
D. I, II, III, and IV

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Supply chain managers can counteract demand variability by communicating demand effectively
to all parties in the supply chain. On a basic level this involves order processing. Sending copies
of sales orders to customers is a demand communications activity that helps provide
communications between the customer and production planning. Information sharing, especially
sharing of retail demand data among all other supply chain partners, is a primary goal of
communicating demand to reduce the bullwhip effect. Controlling demand is a demand
prioritization strategy.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

37. The prior period’s projected available balance (PAB) is 40 units. The master production
schedule for the period plans 30 units. Customer orders are 20 units, and the forecast is 30
units. What is the PAB if this period is within the slushy zone? 2-A-1-3-11

A. 40 units
B. 50 units
C. 60 units
D. 90 units

PAB after the demand time fence = Prior Period PAB + MPS – Greater of Forecast or Customer
Orders
40 units + 30 units – 30 units = 40 units
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

38. For product development, which is considered to be value-added? 2-A-1-4-4

A. An unnecessary handle that most customers say boosts confidence


B. Speed of delivery when most customers buy well in advance of need
C. Ability to customize the product for the small number of customers who want this
D. An extra-low price when most customers rank quality over price

When demand management is allowed to influence product and brand management, products
and services can be designed and branded to reflect what is valuable to the customer. Elements
that are not perceived as a value to the customer should be eliminated from the design of the
product-service package. This is a principle of lean thinking: If the customer does not understand
or value the results of a supply chain activity, it is not value-added and can be eliminated.
For more information, refer to Module 2, Section A, Chapter 1, Topic 4

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39. Which of the following would be the most effective method of keeping the demand plan
from being consistently biased toward overstated demand? 2-A-1-1-7

A. Hold the supply side of the organization accountable for its production levels.
B. Hold the demand side of the organization accountable for its request for product.
C. Treat the demand plan as a tentative request for product until a decision point is reached.
D. Treat the demand plan as a best estimate that will naturally be subject to error.

A key control to keep demand plans realistic is to treat the demand plan as a request for product
from the supply side of the organization. In making this request, the demand side of the
organization is stating that it is committed to creating this amount of demand and selling the
products in the requested amounts. Holding the demand side of the organization accountable for
the consequences of producing too much inventory can be an effective control over unrealistic
demand plans.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

40. Which of the following would promote accuracy and efficiency in the demand management
process? 2-A-1-1-2

A. Require headquarters sales staff to provide assumptions used in demand plan


numbers.
B. Require headquarters sales staff and marketing to each provide just simple forecast
numbers.
C. Require the demand forecast to be based solely on the statistical forecast results.
D. Require headquarters sales staff to make detailed demand forecasts during the first week
each month.

Organizations should ensure that demand plan numbers are explicitly linked to their underlying
assumptions. While input requirements should be simple, oversimplifying information requests
by asking only for a number leaves the persons responsible for consolidating or assessing the
various data and opinions with no information to help decide which of the various forecast
values should carry more weight.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

41. Demand and which of the following types of information typically flow from the end
customer upward in a service supply chain? 2-A-1-1-23

A. Order status
B. Specifications
C. Inventory status
D. Requirements

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Quality is said to be achieved if a product meets or exceeds customer expectations or
requirements. A simple supply chain involves participants from upstream (toward the origin) to
downstream (toward the ultimate consumer). Information flows upstream from the customer to
suppliers to aid in identifying the characteristics of the demand for the product.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

42. Which of the following is a situation in which an exponential smoothing technique should
have its smoothing constant reevaluated? 2-A-1-2-31

A. Random variation due to bullwhip effect


B. Bias due to worse effect of recession than expected
C. Bias due to a one-time large order by a government agency
D. Random variation due to underlying demand variability

Bias is “a consistent deviation from the mean in one direction (high or low). A normal property
of a good forecast is that it is not biased” (APICS Dictionary, 14th edition). In terms of
measuring errors, random variation is any amount of variation that, when averaged over multiple
periods, equals the average demand for the same periods. Bias requires correction; random
variation does not. Bias from temporary situations may not require changes to forecasting
models, but a change in trend or seasonal effect requires changes to the model or its smoothing
constants.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

43. Referring to the demand table below, calculate a three-month weighted moving average
forecast for April using a 1-2-3 weighting for January, February, and March, respectively.
Which of the following identifies the correct forecast for April using this method?
2-A-1-2-21

A. 20.17
B. 20.33
C. 20.67
D. 40.33

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The three-month weighted moving average forecast for April is 20.17: [(1 x 21) + (2 x 17) + (3 x
22)]/6 = (21 + 34 +66)/6 = 121/6 = 20.17. Did you remember to divide by the sum of the weights
(6) instead of by 3?
For more information, refer to Module 2, Section A, Chapter 1, Topic 2
44. When an organization has long lead times when matching customer orders to supply,
2-A-1-4-1

A. expediting orders can be a significant source of net profit for the organization.
B. salespersons should work to educate customers on lead time issues to set
expectations.
C. the organization can fail at meeting promised delivery requests but still increase customer
loyalty using other means.
D. if customers demand unrealistic delivery dates, salespersons should find ways to meet
these demands.

Matching customer orders is a basic requirement for customer satisfaction, loyalty, and
development of lifetime customers. All other means of relationship building can be ruined if a
supply failure occurs. Salespersons have been known to go to great lengths to retain customers
when supply failures occur, including making unrealistic promises that place undue stress and
risk on production. These methods are often highly unprofitable. Supply chain managers can
seek cooperation from sales to avoid such situations, for example, by having salespersons
communicate with customers to ensure that they understand the product’s lead time (and any
efforts under way to improve lead times).
For more information, refer to Module 2, Section A, Chapter 1, Topic 4

45. Which of the following is true of the people or metrics involved in supply chain
management? 2-A-1-2-36

A. Performance must be measured by ratios of profitability and velocity, not by a checklist.


B. Current supply chain performance is better quantitatively benchmarked against the
firm's desired performance than qualitatively benchmarked.
C. Supply chain management is the responsibility of a department-level manager who is
equal in hierarchy to other department heads.
D. Supply chain strategy and control of the related processes depend on having people
educated in functional thinking rather than supply chain thinking.

Numbers (quantitative) generally provide the most convincing supporting evidence in the
boardroom and investment analyst's office. If you're bragging about your cash-to-cash cycle, for
instance, you might say, "We've got it down from 50 days to 20, and that's below the industry
average." The other statements are false.

19
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

46. Which of the following would be included in a list of dependent demand items? 2-A-1-2-4

A. Shirts delivered to a retailer for stocking on shelves


B. Car mirrors delivered to an automotive dealership as repair parts
C. Computer audio subsystems delivered to a computer superstore for sale as upgrade items
D. Computer hard drives delivered to the computer manufacturer for installation
depending on customer request

Dependent demand items are components delivered for installation in finished products. The
same items may also be subject to independent demand when, like hard drives in the option
above, they are sold separately for purchase in repair operations or as upgrades. If the item is
ordered directly by the consumer, it is part of independent demand; if it is ordered for installation
in a parent product only, it is the subject of dependent demand.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

47. If a salesperson needs to expedite an order but the order would need to be filled by altering
production of items inside a planning time fence, with whom would the salesperson negotiate
this change? 2-A-1-3-8

A. Master scheduler
B. Senior management
C. Supply chain manager
D. The salesperson can make this change without needing approval.

A zone marked off by a planning time fence is slushy rather than frozen. Capacity and materials
are not as strongly committed as those inside a frozen zone. There is room to negotiate in a
slushy zone in the form of tradeoffs, and the master scheduler is allowed to make these decisions.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

48. Which of the following could appear in a planning (modular) bill of material? 2-A-1-3-13

A. All the parts required to produce a component for use in mass customization
B. All the parts necessary to manufacture one car radio
C. All the #10 nails intended for delivery to a chain of home improvement stores
D. All common components used in all of the organization’s tabletop radios

20
A planning (or modular) bill of material (BOM) is used to manage product options in master
scheduling. The master scheduling process is used to forecast the number of planning BOM
items needed in total for the period’s production.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

49. For make-to-stock production, the master production schedule includes production dates for
which of the following? 2-A-1-3-4

A. End items
B. Customer options
C. Product families
D. Components

The master production schedule includes dates of production for make-to-stock end items. (This
can be either finished products or, in a modular approach, components.)
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

50. An organization’s extended supply chain has both domestic and foreign demand for its
products and has multiple owned and partner-owned production plants. Which of the
following can synchronize all of these various plans for demand and supply? 2-A-1-1-5

A. Master production scheduling


B. Demand management
C. Supplier relationship management
D. Combination forecasting

Demand management is the art of synchronizing marketing and operations plans. Sources of
demand that could require coordination may include domestic and foreign demand or wholesale
and retail demand. Sources of supply that could require coordination may include plant
capacities or specialization and inventories in plants, warehouses, and retail locations.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

51. Demand forecasts are likely to be most accurate for which of the following items? 2-A-1-2-6

A. All cars
B. All full-size cars
C. All hybrid models
D. All SUV models

21
The forecast accuracy is likely to be greatest for all cars. The larger the aggregation, the more
accurate the forecast.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

52. Which of the following could reduce the likelihood of operations managers ignoring the
consensus plan agreed to in an S&OP meeting and following their own plans? 2-A-1-2-3

A. Actively listen to the operations manager's opinions and issues.


B. Remove time fences from becoming barriers to adapting to changes in demand.
C. Concentrate on the current plans and avoid dwelling on past operations variances.
D. Maintain a consistent demand planning process even if it has been inaccurate before.

Operations managers may start to distrust forecasts if they are consistently incorrect and nothing
is done to improve them. One potential method to help supply-side professionals to trust in the
forecasting process is to actively listen to operations managers' opinions and issues.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

53. What is a common method of aggregating products for demand planning purposes?
2-A-1-2-38

A. By life cycle stage


B. By forecast accuracy
C. By SKU
D. By customer

The APICS Dictionary, 14th edition, definition of demand planning states in part that, "Often,
families of items are aggregated in doing this planning. Aggregation also may occur by
geographical region or by life cycle stage."
For more information, refer to Module 2, Section A, Chapter 1, Topic 2
54. Which of the following is generally considered an important combination method in
forecasting because it can reduce bias, even though an effect such as groupthink could
increase bias? 2-A-1-2-30

A. Time series forecasts


B. Qualitative forecasts
C. Hour-by-hour forecasts
D. Random variation

22
Bias is “a consistent deviation from the mean in one direction (high or low). A normal property
of a good forecast is that it is not biased” (APICS Dictionary, 14th edition). Combination
methods combine quantitative methods with qualitative methods. Forecasters usually start by
generating a quantitative forecast (perhaps combining intrinsic and extrinsic forecasting
techniques) and then allow for adjustments to the forecast using qualitative methods. This
process often reduces bias, but overly optimistic forecast modifications from an effect such as
groupthink could increase bias.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

55. What is a best practice for when sales or managerial overrides are used in combination with
seasonally adjusted exponential smoothing? 2-A-1-2-37

A. Use recomposition to produce one set of forecast numbers for everyone.


B. Track the quantitative and qualitative forecasts separately.
C. Use decomposition to incorporate the overrides prior to seasonal adjustment.
D. Adjust future weightings so that sales or managerial overrides are not needed in the
future.

When using combination methods, both the quantitative forecast and the qualitatively adjusted
forecast can be measured separately for error to determine the degree to which qualitative
methods are helping or hindering forecasting.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

56. In a master scheduling grid, the planning horizon relates to the cumulative lead time in which
of the following ways? 2-A-1-3-10

A. The planning horizon is less than or equal to the cumulative lead time.
B. The planning horizon is equal or greater than the cumulative lead time.
C. The planning horizon is always equal to the cumulative lead time.
D. The planning horizon is always less than the cumulative lead time.

The planning horizon should be at least the cumulative lead time for the product.
For more information, refer to Module 2, Section A, Chapter 1, Topic 3

23
57. A demand forecast determined by a panel of all the salespeople in an organization may reach
an exaggerated, false conclusion due to which of the following situations? 2-A-1-2-12

A. Groupthink effect
B. Culture permissive of dissent
C. Use of intuition
D. Sole reliance on quantitative data in pyramid forecasting

Groupthink can distort the conclusions of a panel if a strong leader emerges with a convincing
but wrong-headed view or if all participants reinforce one another in reaching an exaggerated
conclusion. An entire sales force acting in concert may, however, benefit from experience,
collective knowledge of the broad market served by the organization, and even intuition.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

58. If an organization had the following sales and forecasting results over a three-month period,
what is the mean squared error? (Assume a smoothing constant of 0.3 and exponential
forecast rounding to the nearest whole unit.) 2-A-1-2-33

 April: Actual sales of 20 units, exponential forecast of 18 units


 May: Actual sales of 16 units, exponential forecast of 19 units
 June: Actual sales of 15 units, exponential forecast of 18 units

A. –4.6
B. 3
C. 5.3
D. 7.3

To find the mean squared error, first calculate the error for each month: April = 20 – 18 = 2; May
= 16 – 19 = –3; June = 15 – 18 = –3. Mean Squared Error = Sum of Squared Errors for Each
Period/Number of Periods = [(2)2 + (–3)2 + (–3)2]/3 = (4 + 9 + 9)/3 = 22/3 = 7.3.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

24
59. Which of the following would best reveal a situation in which salespersons changed demand
plan numbers to deliberately understate demand just to make their next quarter’s sales goals
easier to meet? 2-A-1-1-12

A. Look at the assumptions to see if they support changes in the demand plan.
B. Look at the supply plan from the same month last year to see if there is a pattern.
C. Look at the trend in the demand plan numbers to see if the forecast is low.
D. Look at the annual business plan targets to see if the new numbers will meet the plan.

For periods in which demand is projected to change significantly, managers can question why
the change occurred. Information on changes in assumptions for each period should indicate why
the demand plan was revised. The scenario mentioned in the question might show that there was
a significant change in demand but no significant change in assumptions during the given period.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

60. Which of the following is a type of assistance marketing could provide to a supply chain
manager when one product in a product family is having significant supply lead time
problems? 2-A-1-1-4

A. Substitution
B. Matching
C. Order promising
D. Demand generation

When supply cannot match demand, marketing can use demand-influencing techniques such as
advertising substitute products (for example, those from the same family) to shift demand to
those products.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

61. The key to synchronizing supply and demand is to 2-A-1-1-1

A. develop a sales and operations planning process that can be accomplished using one
meeting per month.
B. reach consensus on a demand plan and a production plan and share relevant
changes with supply chain partners.
C. develop a process that results in sales, marketing, and operations independently arriving
at the same demand numbers.
D. alter the demand plan to match the business plan goals.

25
The key to synchronizing supply and demand is to reach internal consensus on a demand plan
and a production plan and to share relevant plan changes with supply chain partners as they
relate to short-, medium-, and long-term plans and activities. Internally, supply and demand
synchronization takes place through sales and operations planning (S&OP), which takes place in
a series of meetings. Differences between the various internal department plans should be
expected.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

62. For which of the following items should demand be calculated rather than forecast?2-A-1-2-9

A. All Chevrolets
B. All Chevrolet Cobalts
C. All steering wheels for new Chevrolet Cobalts
D. All Chevrolet replacement parts

Steering wheels are a dependent demand item; the demand for dependent items should be
calculated from the forecast of demand for their parent items. Steering wheels are a component;
the new cars they go into are the parents. Replacement parts are sold, manufactured, and forecast
as independent items, not as dependent components.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

63. The impact of seasonality on demand in a fast-food restaurant might be measured in which of
the following ways? 2-A-1-2-34

I. Time of the year


II. Day of the week
III. Hour of the day

A. I only
B. III only
C. II and III only
D. I, II, and III

As a demand planning concept, "seasonality" refers to demand patterns influenced by time, not
just by the four seasons of the year. The restaurant business varies with the calendar, the day of
the week, and the time of day.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

26
64. Which of the following is a valid general observation about forecasts? 2-A-1-2-5

A. Typically, if aggregate-level forecasts are correct, item-level forecasts are also correct
(dependent demand).
B. Typically, forecasts are correct because they are based on dependent demand.
C. Forecasts are always wrong, so supply planner estimates should be used instead.
D. Forecasts are always wrong, but supply planner estimates should not be used
instead.

While aggregation does reduce the variability in forecasts, the first principle of forecasting is that
forecasts are (almost) always wrong. All forecasting techniques are subject to error, but it is
incorrect to think that forecasting should be avoided because of these inevitable errors. Relying
on supply planner estimates would be worse than relying on a forecast.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

65. Which of the following forecast techniques relies upon an expert panel that responds to
questionnaires and never meets face to face? 2-A-1-2-13

A. Historical analogy
B. Pyramid forecasting
C. Delphi method
D. Sales force consensus forecasting

The Delphi method uses information from a panel of experts who respond anonymously to
questionnaires. After several rounds of responses and critiques, a moderator produces a report
expressing the collective opinion of the group.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

66. Offering the choice of either waiting in line at a grocery store or using a self-checkout kiosk
is designed to do which of the following? 2-A-1-1-14

I. Plan demand
II. Communicate demand
III. Influence demand
IV. Manage and prioritize demand

A. II only
B. IV only
C. I and II only
D. III and IV only

Waiting in queues such as waiting in line is a demand management and prioritization activity
that allocates available supply (checkout tellers) to regulate peaks and valleys in demand
(number of customers needing to check out at a given time). Providing an automated kiosk is a
method of influencing demand to reduce the amount of demand on human checkout services.

27
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

67. Which of the following correctly identifies the deseasonalized monthly demand (to the
nearest whole number) for the first half of the calendar year in the example shown in the
table below? 2-A-1-2-27

A. 100
B. 105
C. 186
D. 630

The deseasonalized demand is the sum of the seasonal averages divided by the number of
periods (months) listed: (100 + 102 + 105 + 106 + 107 + 110)/6 = 630/6 = 105.
For more information, refer to Module 2, Section A, Chapter 1, Topic 2

68. In the CPFR model, which of the following tasks would be performed jointly by the
manufacturer (seller) and the retailer (buyer)? 2-A-1-1-18

A. Sales forecasting
B. Market data analysis
C. Vendor-managed inventory
D. POS (point-of-sale) forecasting

In the model, certain tasks are performed by the buyer/retailer (POS forecasting in this case),
certain tasks are performed by the seller/manufacturer (market analysis in this case), and those
tasks are reconciled in a joint session. The joint session to reconcile POS forecasting and market
analysis results in a shared sales forecast.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

28
69. Supply chain managers can be useful as intermediaries between manufacturing professionals
and which area that is often otherwise underrepresented in production planning? 2-A-1-4-5

A. Logistics
B. Procurement
C. Marketing
D. Shop floor control

Interfacing between the demand side of the organization and manufacturing planning and control
is a vital task for demand management, because most operations professionals are highly
specialized. According to research by Showalter and White, operations management literature
"exhibits a pronounced lack of marketing perspective." They also state that when the marketing
perspective is included it is treated "simply as a complicating constraint on the production
planning process." A formal demand management function and/or a demand manager can
represent product and brand management, marketing, and sales interests in operations-specific
technical terms.
For more information, refer to Module 2, Section A, Chapter 1, Topic 4

70. Which of the following demand management techniques is being employed when an
organization keeps a planned new version of its software system secret until after the busiest
shopping season is over? 2-A-1-1-11

A. Influencing demand
B. Planning demand
C. Communicating demand
D. Managing and prioritizing demand

Influencing demand involves analyzing the impact of product development, marketing, sales, and
operations decisions on demand and then working to change processes or the timing of certain
actions to meet system constraints. In this case, a new product introduction is timed to minimize
the impact on the old product’s sales.
For more information, refer to Module 2, Section A, Chapter 1, Topic 1

29