CLT common mistakes
CLT · Understand the traps and how to avoid them.
Computing a reorder point by multiplying average daily demand by lead time only, then selecting the answer that ignores safety stock.
Candidates memorize ROP = demand × lead time and forget that the formula is demand × lead time plus the safety-stock buffer; the distractor equal to the bare product is deliberately offered.
What to do instead
Before computing, write the full formula ROP = (average daily demand × lead time) + safety stock. If the stem gives a service level and demand standard deviation, use z × σ × √lead time for the safety-stock term rather than z × σ.
Treating inventory carrying cost as a single line item (usually capital cost) and ignoring storage, obsolescence, insurance, and handling when asked for total carrying cost.
The capital cost is the largest and most memorable component, so candidates stop there; exam stems often give each component separately and expect the sum.
What to do instead
Build a checklist of carrying-cost components (capital, storage/space, insurance, taxes, obsolescence/damage, handling) and total every component the stem provides before answering.
Confusing the economic order quantity cost trade-off: selecting the point where ordering cost is minimized or where unit price is lowest instead of where total annual ordering cost equals total annual holding cost.
Candidates reason that fewer orders or cheaper units must be better, which conflicts with the EOQ optimum at the intersection of the two cost curves.
What to do instead
Anchor on the EOQ condition: at Q*, annual ordering cost = annual holding cost, and total cost is minimized, not unit price. Compute both cost terms at the candidate quantity to verify.
Mixing up Incoterms responsibilities, e.g., assuming FOB means the seller pays main carriage or that CIF transfers risk at destination.
The three-letter codes look interchangeable and candidates confuse cost transfer with risk transfer, especially for C and D terms.
What to do instead
Memorize the two-part rule: for C terms the seller pays main carriage but risk passes at shipment (alongside the goods on board), while for D terms risk passes at destination. Map each code to a single point of cost and risk transfer and re-check the stem's specific question (cost vs. risk).
Reading a unit-load or pallet problem and answering with the number of cases per layer instead of the total cases per full pallet.
The stem supplies layer dimensions and pallet height, and candidates stop after the first division, missing the layers-per-pallet multiplication.
What to do instead
Always compute in two steps: cases per layer = floor(layer length / case length) × floor(layer width / case width); then cases per pallet = cases per layer × floor(usable pallet height / case height). State both numbers before choosing.
Choosing the lowest freight rate per mile or per hundredweight without converting to total landed cost including accessorials, fuel, and minimum charges.
Rate quotes are presented in different units and candidates compare headline numbers rather than normalizing to total shipment cost.
What to do instead
Convert every option to total cost for the shipment (rate × weight or distance, plus fuel surcharge, accessorials, and minimum charge) before comparing. Reject any option whose quoted basis differs from the others until normalized.
Misapplying ABC classification by ranking SKUs on unit cost or on unit volume alone rather than on annual dollar usage.
Candidates substitute the most visible metric (price per unit or units sold) for the correct annual-usage-value criterion.
What to do instead
Compute annual usage value = annual units × unit cost for each SKU, sort descending, then apply the cumulative-percentage cutoffs (roughly A = top 80%, B = next 15%, C = last 5%). Never classify on price or volume in isolation.
Confusing service metrics: reporting fill rate when the question asks for order cycle time, or cycle service level when it asks for fill rate.
All three are called 'service level' in practice, and candidates answer with the metric they know best rather than the one defined in the stem.
What to do instead
Match the definition to the stem: fill rate = units shipped / units ordered; cycle service level = probability of no stockout per cycle; order cycle time = elapsed time from order receipt to delivery. Underline the defined term in the question before answering.
Ignoring the direction of the variance when interpreting a bullwhip-effect scenario, concluding that demand variability decreases upstream.
Candidates associate consolidation and larger orders upstream with stability, reversing the actual amplification of variability toward the manufacturer.
What to do instead
Recall the bullwhip rule: order variability increases moving upstream from customer to supplier, even when end-customer demand is stable. Use that direction to eliminate reversed-cause options such as 'forecasting error is reduced by longer lead times'.
Selecting a mode or consolidation strategy based on speed alone when the stem specifies a cost or constraint (e.g., perishability, weight, or a required delivery window).
Candidates default to the fastest mode as 'best service' and overlook that the stem's binding constraint may make a slower, cheaper mode correct.
What to do instead
Extract the binding constraint from the stem first (transit time, cost cap, weight/volume, temperature control), then evaluate each option against that constraint. Speed wins only when time is the stated constraint.