APICS CPIM-Part-2 - Certified in Planning and Inventory Management(Part 2)

In a make-to-order (MTO) environment, the production process is triggered by customer orders, which means there is no finished goods inventory or work-in-process inventory to consider in the sales and operations planning (S&OP) process. The available-to-promise (ATP) data is not an input to the S&OP process, but rather an output that indicates the quantity and date of products that can be promised to customers based on the current supply plan. The projected backlog of customer orders, on the other hand, is an important input to the S&OP process, as it reflects the current and future demand for the products and services offered by the organization. The projected backlog can help the organization plan its capacity, resources, materials, and delivery schedules to meet customer expectations and optimize profitability. References: CPIM Part 2 Exam Content Manual, Domain 3: Plan and Manage Demand, Section 3.1: Demand Management Concepts and Tools, p. 27-28.

The bullwhip effect is a supply chain phenomenon that causes fluctuations in demand to amplify as they move upstream, from the consumer to the retailer, to the distributor and then to the producer1. The bullwhip effect can result in inefficiencies and costs such as excess inventory, lost revenues, superfluous capacity and poor customer service1.

One of the activities that would be effective to mitigate the bullwhip effect is to reduce lead times, which are the time intervals between placing an order and receiving the goods2. Reducing lead times can help to reduce the uncertainty and variability in demand, as well as improve the responsiveness and flexibility of the supply chain2. By reducing lead times, the supply chain partners can order less frequently and in smaller quantities, while still meeting customer demand. This can reduce the need for safety stock, cycle stock and pipeline stock, and thus lower the inventory carrying costs and risks2.

The other options are not effective activities to mitigate the bullwhip effect. Implementing track and trace technology, which is a method for tracking the origin, history, location and status of a product or its parts throughout the supply chain3, may help to improve the visibility and transparency of the supply chain, but it may not reduce the demand fluctuations or inventory imbalances caused by the bullwhip effect. Using a push system, which is a production system where goods are produced based on forecasted demand rather than actual customer orders4, may increase the risk of overproduction or underproduction, as well as create more inventory and waste in the supply chain. Increasing inventory, which is the stock of goods or materials held by a company to meet customer demand5, may increase the inventory carrying costs and risks, as well as tie up cash flow and working capital.

References : Lead Time Reduction: Definition & Benefits; The bullwhip effect: causes, intensity, and mitigation - Academia.edu; What is Traceability in Supply Chain Management?; Push vs Pull System: What Is The Difference?; Inventory Definition.

Producing to backorders means that the company only produces goods when there is a confirmed customer order. This strategy is most appropriate during times of highly fluctuating demand, as it allows the company to avoid holding excess inventory that may incur high carrying costs and become obsolete. Producing to backorders also enables the company to adjust its workforce according to the actual demand, which can be easily changed as the question states. This strategy can improve customer satisfaction, as the products are tailored to the specific needs and preferences of each customer. However, producing to backorders also has some drawbacks, such as longer lead times, higher production costs, and lower economies of scale.

The other strategies are less suitable for highly fluctuating demand. Producing at a constant level means that the company produces goods at a fixed rate regardless of the demand fluctuations. This strategy can result in either excess inventory or stockouts, depending on whether the demand is lower or higher than the production level. Producing to the sales forecast means that the company produces goods based on the projected demand for a certain period. This strategy can be effective if the forecast is accurate, but it can also lead to inventory imbalances if the forecast is inaccurate or if there are unexpected changes in demand. Producing to demand means that the company produces goods based on the current demand in the market. This strategy can be responsive and flexible, but it can also be challenging to implement, as it requires high visibility, coordination, and agility in the supply chain.

References : CPIM Part 2 Exam Content Manual, Domain 4: Plan and Manage Supply, Section B: Production Planning and Control, Subsection 1: Production Strategies and Techniques, Page 19.

A bill of resources is a tool that is used to evaluate the impact that a production plan has on capacity. A bill of resources is a document that lists the required resources, such as machines, labor, materials, and space, for each product or service in the production plan1. A bill of resources can help estimate the total capacity requirements for the production plan, as well as the capacity utilization and availability for each resource2. A bill of resources can also help identify potential capacity gaps, bottlenecks, or excesses, and evaluate alternative production plans or resource allocations3.

A bill of resources can be created by using the following steps4:

Step 1: Identify the products or services in the production plan and their quantities and timings.

Step 2: Identify the resources needed for each product or service and their quantities and timings. This can be done by using tools such as product routings, process maps, or work breakdown structures.

Step 3: Aggregate the resource requirements for each product or service and for the entire production plan. This can be done by using tools such as spreadsheets, tables, or charts.

Step 4: Compare the resource requirements with the resource capacities and availability. This can be done by using tools such as capacity planning matrices, load profiles, or resource histograms.

Step 5: Analyze the results and make adjustments or recommendations. This can be done by using tools such as what-if analysis, simulation, or optimization.

Therefore, a bill of resources is a tool that is used to evaluate the impact that a production plan has on capacity.

References: 1: Bill of Resources Definition 1 2: Capacity Planning Definition 2 3: Capacity Planning Tools 3 4: How to Create a Bill of Resources 4

A fishbone diagram, also known as a cause-and-effect diagram or an Ishikawa diagram, is a tool for identifying and analyzing the possible causes of a problem or an effect. It is often used in quality management to find the root causes of defects or errors. A fishbone diagram has a main branch that represents the problem or effect, and several sub-branches that represent the categories of causes, such as people, processes, equipment, materials, environment, etc. Each category can have further sub-branches that represent more specific causes. A fishbone diagram would help a service organization determine the source of a quality-of-service issue by allowing them to visualize and organize the potential factors that contribute to the problem and identify the most likely cause. References: CPIM Part 2 Exam Content Manual, Domain 8: Manage Quality, Continuous Improvement, and Technology, Section 8.1: Quality Management Concepts and Tools, p. 59-60.

A reduction in purchased lot sizes will reduce inventory levels. Purchased lot sizes are the quantities of inventory that a stage of the supply chain either produces or purchases at a given time1. Inventory levels are the amount of stock available throughout the distribution network2. By reducing the purchased lot sizes, a company can lower the amount of inventory it holds, which can reduce the inventory costs, such as holding costs, shortage costs, and order costs3.

Holding costs are the costs associated with storing and maintaining inventory, such as rent, utilities, insurance, taxes, depreciation, and obsolescence4. Shortage costs are the costs incurred when demand exceeds supply, such as lost sales, customer dissatisfaction, and backorder costs4. Order costs are the costs involved in placing and receiving orders, such as transportation, inspection, setup, and administrative costs4.

Reducing the purchased lot sizes can lower the holding costs by decreasing the average inventory in the supply chain due to either production or purchases in lot sizes that are larger than those demanded by the customer1. This is also known as cycle inventory1. Reducing the purchased lot sizes can also lower the shortage costs by increasing the frequency of orders and decreasing the lead time between orders5. This can help avoid stockouts and meet customer demand more consistently. Reducing the purchased lot sizes can also lower the order costs by optimizing the order quantity based on the trade-off between holding costs and order costs. This is also known as economic order quantity (EOQ).

Therefore, a reduction in purchased lot sizes will reduce inventory levels and inventory costs.

References: 1: Chapter 11 Flashcards by Amy Horton 3 2: Optimal Inventory Levels: Calculate & Manage Your Stock Levels 2 3: Inventory Levels Explained: The Highs & Lows Of Optimal Stock 1 4: Economic Order Quantity Model in Inventory Management 4 5: Dual sourcing: Advantages and disadvantages : Economic Order Quantity: What Does It Mean and Who Is It For5

External sustainability reporting and verification is an opportunity for a company to communicate its performance in terms of environmental, social, and governance (ESG) aspects. ESG performance refers to how a company manages its impacts and risks on the natural environment, the society, and its own governance structure. By reporting and verifying its ESG performance, a company can demonstrate its commitment to sustainability, transparency, and accountability to its stakeholders, such as investors, customers, employees, regulators, and the public. External sustainability reporting and verification can also provide a company with various benefits, such as improved reputation, enhanced stakeholder trust, increased operational efficiency, reduced costs, and better decision making123.

Available-to-promise (ATP) is a business function that provides a response to customer order inquiries, based on resource availability1. It generates available quantities of the requested product, and delivery due dates. Therefore, ATP supports order promising and fulfillment, aiming to manage demand and match it to production plans1.

The most appropriate course of action when the customer requests an order of 100 units in Period 1, but the ATP is only 85 units, is to promise the 85 units in Period 1 and the remaining 15 units in the next possible ATP period. This way, the customer can receive a partial fulfillment of their order as soon as possible, and the rest of their order when more inventory becomes available. This approach also avoids overpromising or underdelivering, which can damage customer relationships and satisfaction.

The other options are not appropriate, because they either violate the master schedule, ignore the component availability, or disadvantage another customer. Increasing the MPS quantity in Period 1 by 15 units may not be feasible or desirable, because it may disrupt the production plan, increase costs, or create capacity issues. Promising the 100 units, and then checking on component availability may result in a failure to deliver, if the components are not available or sufficient. Promising the 100 units by removing 15 units from another customer’s order with a smaller revenue value may be unethical or unfair, and may also cause dissatisfaction or complaints from the other customer.

The cash-to-cash cycle time is a financial metric that measures the time it takes for a company to convert its cash outflows into cash inflows. The cash-to-cash cycle time is calculated by adding the days of inventory outstanding (DIO), the days of sales outstanding (DSO), and the days of payablesoutstanding (DPO), and then subtracting the days of payables deferred (DPD). The cash-to-cash cycle time can be shortened by reducing any of the components, except for DPD, which should be increased. Reducing which measure by 10% would contribute most to shortening the cash-to-cash cycle time depends on the relative values of each component. However, given the information below, reducing accounts receivable by 10% would have the greatest impact.

The current cash-to-cash cycle time is:

Cash-to-cash cycle time = DIO + DSO + DPO - DPD = 60 + 90 + 30 - 15 = 165 days

If accounts receivable is reduced by 10%, then DSO becomes 81 days (90 x 0.9). The new cash-to-cash cycle time is:

Cash-to-cash cycle time = DIO + DSO + DPO - DPD = 60 + 81 + 30 - 15 = 156 days

The difference is 9 days, which is the largest reduction among all the measures.

If inventory value is reduced by 10%, then DIO becomes 54 days (60 x 0.9). The new cash-to-cash cycle time is:

Cash-to-cash cycle time = DIO + DSO + DPO - DPD = 54 + 90 + 30 - 15 = 159 days

The difference is 6 days, which is smaller than reducing accounts receivable.

If accounts payable is reduced by 10%, then DPO becomes 27 days (30 x 0.9). The new cash-to-cash cycle time is:

Cash-to-cash cycle time = DIO + DSO + DPO - DPD = 60 + 90 + 27 - 15 = 162 days

The difference is 3 days, which is smaller than reducing accounts receivable and inventory value.

If cost of capital is reduced by 10%, then it has no direct effect on the cash-to-cash cycle time, as it is not a component of the formula. However, it may affect the profitability and liquidity of the company indirectly.

Therefore, reducing accounts receivable by 10% would contribute most to shortening the cash-to-cash cycle time, given the information below.

References: CPIM Exam Content Manual Version 7.0, Domain 4: Plan and Manage Supply, Section 4.2: Implement Supply Plans, Subsection 4.2.3: Describe how to implement financial management techniques (page 40).

 A queue is the number of hours that a work order sits in front of a work center before it starts. It also includes the move time required to physically move partially completed items from the previous operation to the next work center1. A queue is used to provide a buffer between the time that a component arrives at a machine or work center and when the operation actually starts2. A queue can help to neutralize delays in previous operations and to reduce the waiting time and flow time of the work orders3.

An order that moves into a work center on schedule following completion of a previous operation will move into the queue in priority sequence. This means that the order will be placed in the queue according to its priority level, which is determined by the priority control technique used for the production system. A priority control technique is a method of determining the sequence and timing of production orders in a manufacturing system4. Some examples of priority control techniques are first-come, first-served (FCFS), shortest processing time (SPT), earliest due date (EDD), and critical ratio (CR). Depending on the priority control technique, an order may move to the beginning, end, or middle of the queue.

An order will not necessarily move to the end or the beginning of the queue, as these positions depend on the priority level of the order and the other orders in the queue. An order will not move into the queue when there is capacity available, as this implies that there is no queue at all. Capacity is the amount of time or resources available for production at a work center5. Capacity can be affected by factors such as machine availability, labor skills, setup time, and maintenance. Capacity planning is a function of determining and adjusting the optimal level of resources needed to meet the demand5.