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CSCM practice questions

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Question 1Supply Chain Management Fundamentals and Strategy

A manufacturer keeps safety stock to protect against which specific supply chain risk?

  1. Supplier bankruptcy filings
  2. Product design obsolescence
  3. Demand and lead-time variability Correct answer.
  4. Currency exchange losses

Explanation

Safety stock is buffer inventory held to absorb uncertainty in demand and in replenishment lead time, so service levels are maintained when actual consumption or delivery timing deviates from plan. It is sized from variability and desired cycle service level, not from financial or design risks.

Question 2Supply Chain Management Fundamentals and Strategy

In the SCOR model, which process category covers activities such as order entry, scheduling delivery, and invoicing the customer?

  1. Deliver Correct answer.
  2. Return
  3. Plan
  4. Source

Explanation

Deliver encompasses all activities that fulfill demand, including order management, warehouse operations, transportation, and invoicing. Source covers procurement, Plan covers balancing demand and supply, and Return covers reverse flows.

Question 3Supply Chain Management Fundamentals and Strategy

Which statement best characterizes a push-based supply chain?

  1. Production is scheduled from forecasts before confirmed demand exists Correct answer.
  2. Orders are released by downstream consumption signals
  3. Inventory is deliberately eliminated at every echelon
  4. Production starts only after a customer order is received

Explanation

Push systems anticipate demand by producing to a forecast and pushing inventory downstream, which raises forecast-error exposure but supports economies of scale. Pull systems instead trigger activity from actual demand signals.

Question 4Supply Chain Management Fundamentals and Strategy

A company measures the percentage of order lines delivered on the customer's requested date. Which performance attribute is being measured?

  1. Order fulfillment reliability Correct answer.
  2. Cash-to-cash cycle time
  3. Inventory days of supply
  4. Supply chain adaptability

Explanation

Delivery performance against the customer's requested date is a reliability metric under the delivery attribute. Cash-to-cash and inventory days are asset-management metrics, and adaptability is a strategic responsiveness attribute.

Question 5Supply Chain Management Fundamentals and Strategy

Which cost is most directly reduced by consolidating less-than-truckload shipments into full truckloads?

  1. Transportation cost per unit shipped Correct answer.
  2. Cost of goods purchased
  3. Order processing cost
  4. Inventory carrying cost

Explanation

Consolidating loads raises equipment utilization and spreads fixed freight charges over more units, lowering transportation cost per unit. Carrying cost usually rises because consolidation delays shipment and increases inventory in transit or in stock.

Question 6Supply Chain Management Fundamentals and Strategy

Which is the primary purpose of sales and operations planning (S&OP)?

  1. Aligning demand, supply, and financial plans into one cross-functional plan Correct answer.
  2. Setting the annual audited financial statements
  3. Selecting third-party logistics providers
  4. Designing the physical distribution network

Explanation

S&OP is a monthly cross-functional process that balances demand and supply plans and reconciles them with financial targets, producing a single operating plan. It does not perform audit, provider selection, or network design work itself.

Question 7Supply Chain Management Fundamentals and Strategy

A firm holds a product in a central warehouse and postpones final configuration until orders arrive. Which strategy is this?

  1. Postponement Correct answer.
  2. Speculative production
  3. Vertical integration
  4. Forward buying

Explanation

Postponement, or delayed differentiation, keeps product in a generic form and completes differentiation close to the customer, reducing mismatch between supply and demand. Speculative production builds finished goods ahead of demand.

Question 8Supply Chain Management Fundamentals and Strategy

Which inventory classification method ranks items by annual usage value to focus control effort?

  1. FIFO costing
  2. Cycle counting
  3. Economic order quantity
  4. ABC analysis Correct answer.

Explanation

ABC analysis sorts items by annual usage value so that high-value A items receive tight control and low-value C items receive simpler rules. FIFO is a costing and rotation method, cycle counting is a verification technique, and EOQ is an order-size model.

Question 9Supply Chain Management Fundamentals and Strategy

A retailer sells 36,000 units per year with steady demand. Ordering cost is $50 per order and annual holding cost is $4 per unit. What is the economic order quantity?

  1. 600 units
  2. 1,200 units
  3. 949 units Correct answer.
  4. 1,500 units

Explanation

EOQ equals the square root of 2DS/H, so 2 × 36,000 × 50 divided by 4 gives 900,000, and its square root is about 949 units. This balances ordering and holding costs at the minimum total relevant cost.

Question 10Supply Chain Management Fundamentals and Strategy

Demand averages 200 units per week with a standard deviation of 30. Lead time is 2 weeks and the company targets a 2.0 safety factor. What safety stock is required?

  1. 170 units
  2. 60 units
  3. 120 units
  4. 85 units Correct answer.

Explanation

Safety stock equals the safety factor times the standard deviation of demand over the lead time. The lead-time standard deviation is 30 times the square root of 2, about 42.4, and multiplying by 2.0 gives roughly 85 units.

Question 11Supply Chain Management Fundamentals and Strategy

A company shortens the customer order cycle while holding total chain inventory constant. What is the most likely effect on the cash-to-cash cycle time?

  1. It increases because inventory turns fall
  2. It decreases because receivables are collected sooner Correct answer.
  3. It increases because payables are stretched
  4. It remains unchanged because inventory is constant

Explanation

Cash-to-cash equals days inventory plus days sales outstanding minus days payables outstanding. Faster order cycles shorten the collection period, reducing days sales outstanding and therefore the cycle. Inventory is stated as unchanged, so it cannot drive the result.

Question 12Supply Chain Management Fundamentals and Strategy

Under a continuous review policy, an item has average demand of 50 units per day, a lead time of 6 days, and a reorder point of 400 units. Approximately how many units of safety stock does the policy imply?

  1. 100 units Correct answer.
  2. 50 units
  3. 400 units
  4. 300 units

Explanation

The reorder point equals expected lead-time demand plus safety stock. Expected demand over the lead time is 50 times 6, or 300 units, so the remaining 100 units of the 400-unit reorder point represent safety stock.

Question 13Supply Chain Management Fundamentals and Strategy

Which situation best justifies selecting a responsive supply chain design rather than an efficient one?

  1. Short product life cycles with high forecast error and high margin Correct answer.
  2. Long lead times with predictable seasonal demand
  3. Commodity products with stable demand and thin margins
  4. High fixed capital intensity with low demand uncertainty

Explanation

Responsive designs suit products with unpredictable demand, short lives, and high contribution margins, where stockouts and markdowns outweigh the cost of flexibility. Efficient designs fit stable, low-margin, predictable products.

Question 14Supply Chain Management Fundamentals and Strategy

A firm reduces the number of distribution warehouses from eight to three. Which outcome is the most likely trade-off?

  1. Lower inventory and warehousing cost but longer customer delivery distance Correct answer.
  2. Higher inventory cost but shorter delivery distance
  3. No change in either cost or service level
  4. Lower transportation cost and shorter delivery distance

Explanation

Consolidating warehouses pools inventory and cuts facility and holding costs, but each remaining site serves a larger area, so outbound distance and delivery time typically increase. The classic trade-off is cost efficiency versus responsiveness.

Question 15Supply Chain Management Fundamentals and Strategy

A supplier agrees to hold inventory at its own site and transfer ownership only when the buyer withdraws goods. Which arrangement is this?

  1. Vendor-managed inventory with buyer ownership
  2. Consignment inventory Correct answer.
  3. Drop shipping
  4. Cross-docking

Explanation

In consignment the supplier retains title until the buyer consumes or withdraws the stock, shifting carrying risk upstream. Vendor-managed inventory concerns who plans replenishment, cross-docking concerns flow through a dock, and drop shipping concerns direct shipment to customers.

Question 16Supply Chain Management Fundamentals and Strategy

Which practice most directly mitigates the bullwhip effect caused by order batching?

  1. Increasing order quantities to gain quantity discounts
  2. Adding a layer of distributors to buffer demand
  3. Lengthening review periods to reduce ordering effort
  4. Shortening order cycles and sharing point-of-sale data Correct answer.

Explanation

Order batching amplifies demand variability upstream, and the remedy is to smooth replenishment through more frequent orders and visibility of true end demand such as POS data. Larger batches and longer review periods worsen the effect.

Question 17Supply Chain Management Fundamentals and Strategy

A product has annual demand of 12,000 units, a unit cost of $20, and a holding rate of 25 percent per year. What is the annual holding cost per unit?

  1. $2.50
  2. $20.00
  3. $5.00 Correct answer.
  4. $0.25

Explanation

Holding cost per unit equals unit cost times the annual holding rate, so $20 times 0.25 equals $5.00 per unit per year. This figure is the H term used in EOQ and related inventory models.

Question 18Supply Chain Management Fundamentals and Strategy

Which set of metrics best reflects the SCOR attribute of asset management efficiency?

  1. Upside supply chain flexibility and adaptability
  2. Total supply chain management cost and warranty cost
  3. Perfect order fulfillment and order fulfillment cycle time
  4. Cash-to-cash cycle time and inventory days of supply Correct answer.

Explanation

Asset management efficiency is measured by how effectively assets are used, captured by cash-to-cash cycle time, inventory days of supply, and asset turns. Delivery metrics, flexibility metrics, and cost metrics belong to other attributes.

Question 19Supply Chain Management Fundamentals and Strategy

A manufacturer wants to decouple a variable upstream process from a variable downstream process. Which lever does a decoupling point provide?

  1. A change in the product's bill of materials
  2. A contractual penalty for late delivery
  3. A planned inventory buffer at a defined stage of the chain Correct answer.
  4. A reduction in the number of suppliers

Explanation

The decoupling point is where a buffer, usually inventory, separates upstream processes driven by planning from downstream processes driven by actual demand. It allows each side to operate with different variability and scheduling logic.

Question 20Supply Chain Management Fundamentals and Strategy

Which is the clearest example of a strategic-level supply chain decision?

  1. Choosing the number and location of regional distribution centers Correct answer.
  2. Expediting a delayed customer order
  3. Selecting the daily delivery route for each vehicle
  4. Adjusting next week's production schedule

Explanation

Strategic decisions set long-lived structure such as facility count, location, and capacity, and they are costly to reverse. Routing, weekly scheduling, and expediting are tactical or operational decisions made within that structure.

Question 21Supply Chain Management Fundamentals and Strategy

A firm's demand forecast has a mean absolute deviation of 120 units and average demand of 800 units. What does the ratio of 0.15 represent?

  1. The cycle service level achieved
  2. The order fill rate
  3. Forecast error relative to average demand Correct answer.
  4. The inventory turnover ratio

Explanation

Dividing mean absolute deviation by average demand gives a relative measure of forecast error, sometimes called the coefficient of variation of forecast error, allowing comparison across products of different volume. It says nothing directly about service levels or turns.

Question 22Supply Chain Management Fundamentals and Strategy

A company's total logistics cost is $4 million on sales of $50 million, and it plans to cut transportation spend by $300,000. What is the direct effect on total cost as a percentage of sales, before any offsetting effects?

  1. A reduction of 0.6 percentage points Correct answer.
  2. A reduction of 6 percentage points
  3. A reduction of 1.2 percentage points
  4. No measurable change

Explanation

The saving is $300,000 divided by $50 million, or 0.006, which equals 0.6 percentage points of sales. Offsetting effects such as added inventory or lost sales would have to be netted separately.

Question 23Supply Chain Management Fundamentals and Strategy

A firm faces demand with a coefficient of variation of 0.9 and a contribution margin of 55 percent. Which combination of levers is most consistent with its competitive position?

  1. Flexible capacity, fast replenishment, and risk pooling through postponement Correct answer.
  2. Maximum scale economies and long production runs
  3. Single sourcing from the lowest-cost country with long lead times
  4. Minimal information sharing to avoid forecast bias

Explanation

High demand variability combined with high margin favors responsiveness, because stockouts and markdowns are expensive. Flexible capacity, rapid replenishment, and pooling risk through postponement reduce mismatch without sacrificing margin.

Question 24Supply Chain Management Fundamentals and Strategy

Two products share a common platform. Pooling their safety stock in a single generic buffer reduces total buffer only under which condition?

  1. Their unit costs are identical
  2. Their demand is perfectly positively correlated
  3. Their lead times are identical
  4. Their demand fluctuations are less than perfectly positively correlated Correct answer.

Explanation

Risk pooling lowers required buffer because independent or imperfectly correlated variations offset one another; the benefit shrinks as correlation approaches one. Identical cost or lead time is neither necessary nor sufficient for the pooling gain.

Question 25Supply Chain Management Fundamentals and Strategy

A firm's cash-to-cash cycle is 45 days, comprising 60 days of inventory, 30 days of receivables, and 45 days of payables. If it negotiates payables terms from 45 to 60 days, what happens to the cycle?

  1. It stays at 45 days
  2. It rises to 60 days
  3. It falls to 15 days
  4. It falls to 30 days Correct answer.

Explanation

Cash-to-cash equals inventory days plus receivables days minus payables days. Extending payables from 45 to 60 days adds 15 days of financing, so 60 plus 30 minus 60 equals 30 days. The cycle shortens because suppliers fund more of the working capital.

Question 26Supply Chain Management Fundamentals and Strategy

Which description best captures the scope of supply chain management as distinct from logistics management?

  1. It governs internal warehouse layout, picking routes, and storage slotting decisions within a single distribution center.
  2. It coordinates sourcing, conversion, and delivery activities across multiple firms to align material, information, and cash flows with end-customer demand. Correct answer.
  3. It sets the accounting rules used to value raw materials and work-in-process on the balance sheet at period end.
  4. It concentrates on moving finished goods from a factory dock to retail stores at the lowest freight cost per ton-mile.

Explanation

Supply chain management spans the whole network of upstream suppliers, internal operations, and downstream channels, integrating material, information, and financial flows around end-customer demand. Logistics is a narrower subset focused on movement and storage, and warehouse layout or inventory valuation are functional activities inside that subset rather than the discipline as a whole.

Question 27Supply Chain Management Fundamentals and Strategy

A specialty coffee roaster buys green beans from several origins and wants a structural choice that reduces dependence on any single source while still allowing volume leverage. Which sourcing posture fits best?

  1. Single sourcing with a long-term exclusive contract to maximize volume discounts.
  2. Spot purchasing on commodity exchanges for every shipment regardless of quality grade.
  3. Multiple sourcing with a small number of qualified suppliers per category. Correct answer.
  4. Vertical integration by purchasing the upstream plantations outright.

Explanation

Multiple sourcing across a limited set of qualified suppliers spreads risk of disruption and price exposure while keeping order volumes large enough for leverage and manageable supplier management effort. Single sourcing concentrates risk, vertical integration is a far larger capital commitment than the stated goal requires, and pure spot buying sacrifices quality assurance and supply continuity.

Question 28Supply Chain Management Fundamentals and Strategy

A firm's product line has become highly customized with frequent engineering changes, and forecast error is large. Which structural lever most directly supports this position in a supply chain strategy framework?

  1. Shifting to a make-to-stock model with finished goods held regionally.
  2. Adopting postponement so generic modules are built ahead and differentiated late. Correct answer.
  3. Extending payment terms to customers to stimulate earlier order placement.
  4. Reducing the number of suppliers to one per commodity to simplify coordination.

Explanation

When variety and uncertainty are high, postponement keeps work in a generic, forecastable state and delays differentiation until demand is visible, which is the standard response for responsive supply. Make-to-stock assumes stable, forecastable demand, supplier consolidation addresses risk rather than variety, and payment terms affect cash and demand timing but not the ability to serve volatile customized demand.

Question 29Supply Chain Management Fundamentals and Strategy

A distributor measures on-time delivery as the percentage of order lines shipped on or before the customer's requested date. Which change would make this metric a more faithful indicator of customer service performance?

  1. Measuring it only for the largest customers to reduce reporting effort.
  2. Reporting it as a monthly average so individual late lines are smoothed out.
  3. Measuring it against the date the customer originally requested, including lines later rescheduled at the customer's request. Correct answer.
  4. Replacing it with a measure of warehouse labor productivity per hour worked.

Explanation

Service metrics lose meaning when the promised date is quietly renegotiated, so anchoring the measure to the customer's original request date and counting rescheduled lines keeps the indicator honest. Restricting scope to big accounts, averaging away late lines, or substituting an internal productivity measure all obscure the customer's actual experience.

Question 30Supply Chain Management Fundamentals and Strategy

A manufacturer's cash-to-cash cycle is 70 days, made up of 85 days of inventory, 40 days of receivables, and 55 days of payables. Management wants to shorten the cycle by 20 days without changing customer payment terms or supplier payment terms. What inventory days figure achieves the target, all else equal?

  1. 85 days
  2. 65 days Correct answer.
  3. 70 days
  4. 50 days

Explanation

The cash-to-cash cycle equals inventory days plus receivable days minus payable days, so 85 + 40 - 55 = 70 days currently. Holding receivables at 40 and payables at 55, a 20-day reduction requires inventory days of 65, since 65 + 40 - 55 = 50, which is 20 days below 70.

Question 31Demand Planning and Forecasting

A supply chain manager is forecasting demand for a mature product line using a method that assigns equal weight to each of the last four periods. Which forecasting approach does this describe?

  1. Simple moving average Correct answer.
  2. Naive forecast
  3. Weighted moving average with declining weights
  4. Exponential smoothing with a high alpha

Explanation

A simple moving average averages a fixed number of recent periods and gives every observation in that window the same weight. The choice of window length drives responsiveness, but no period is weighted more than another.

Question 32Demand Planning and Forecasting

A planner needs to choose a forecast horizon. Which statement best describes the relationship between forecast horizon and forecast accuracy?

  1. Accuracy is unaffected by the horizon
  2. Accuracy generally decreases as the horizon lengthens Correct answer.
  3. Accuracy improves as the horizon lengthens
  4. Accuracy improves only for seasonal products

Explanation

Uncertainty compounds the further out a forecast reaches, so aggregate error typically grows with the forecast horizon. Short-horizon forecasts are therefore more reliable for operational decisions, while long-horizon forecasts should be treated with wider confidence intervals.

Question 33Demand Planning and Forecasting

A company measures forecast error using the mean absolute deviation (MAD). For the last five periods the absolute errors were 10, 20, 10, 30, and 30 units. What is the MAD?

  1. 25 units
  2. 20 units Correct answer.
  3. 10 units
  4. 100 units

Explanation

MAD is the average of the absolute errors across the periods. Summing 10 + 20 + 10 + 30 + 30 gives 100, and dividing by the five periods yields 20 units.

Question 34Demand Planning and Forecasting

Which component of a time series captures recurring, calendar-driven movements that repeat within a year?

  1. Level
  2. Random variation
  3. Seasonality Correct answer.
  4. Trend

Explanation

Seasonality is the repeating pattern tied to calendar periods such as months, quarters, or weeks within a year. Trend captures longer-term direction, while random variation reflects unexplained noise.

Question 35Demand Planning and Forecasting

A demand planner is aggregating forecasts across regions to support a capacity plan. Which effect typically causes aggregate forecasts to be more accurate than individual item-level forecasts?

  1. Aggregation increases the forecast horizon
  2. Aggregation removes seasonality entirely
  3. Aggregation smooths random variation across items Correct answer.
  4. Aggregation eliminates the need for safety stock

Explanation

When independent random errors are summed across many items, they tend to offset, so the aggregate series is smoother and easier to forecast. This is why top-down and hierarchical planning often show lower percentage error at higher levels of aggregation.

Question 36Demand Planning and Forecasting

Which statement correctly distinguishes a forecast from a plan?

  1. A plan is always derived from a forecast without management judgment
  2. A forecast states what the organization intends to do; a plan predicts what is likely to happen
  3. A forecast predicts what is likely to happen; a plan states what the organization intends to do Correct answer.
  4. A forecast and a plan are synonyms in demand management

Explanation

A forecast is an estimate of future demand based on data and assumptions, whereas a plan is a commitment to actions such as production, inventory, or promotions. Plans may deliberately differ from forecasts when management chooses to shape demand or build inventory.

Question 37Demand Planning and Forecasting

A product shows demand of 120, 130, 125, and 135 units over four periods. Using a three-period simple moving average, what is the forecast for period 5?

  1. 128.3 units
  2. 125 units
  3. 135 units
  4. 130 units Correct answer.

Explanation

The three-period moving average uses the most recent three periods: 130, 125, and 135. Their sum is 390, and dividing by three gives 130 units for the period 5 forecast.

Question 38Demand Planning and Forecasting

A planner applies exponential smoothing with alpha equal to 0.3. Last period's forecast was 200 and actual demand was 230. What is the forecast for this period?

  1. 221
  2. 230
  3. 209 Correct answer.
  4. 191

Explanation

Exponential smoothing updates the prior forecast by alpha times the forecast error: 200 + 0.3 x (230 - 200) = 200 + 9 = 209. A low alpha places more weight on history and dampens the response to the latest error.

Question 39Demand Planning and Forecasting

A demand planner observes that forecast bias is consistently positive over the last twelve months. What does this indicate?

  1. Forecast errors are purely random
  2. The forecasts have systematically overstated actual demand
  3. The forecasts have systematically understated actual demand Correct answer.
  4. The forecast horizon is too short

Explanation

Positive bias computed as actual minus forecast means actuals have exceeded forecasts on average, so demand was understated. Bias signals a systematic directional error that averaging metrics like MAD do not reveal.

Question 40Demand Planning and Forecasting

Which forecasting method is most appropriate for a brand-new product with no historical demand data?

  1. Naive forecast using last period actual
  2. Winter's triple exponential smoothing
  3. Analogous product or market research based forecasting Correct answer.
  4. Three-period moving average

Explanation

Without a demand history, quantitative time-series methods have no input to work from. Planners instead use analogies to similar launches, market research, or judgmental techniques to establish an initial forecast.

Question 41Demand Planning and Forecasting

A company computes a tracking signal by dividing the running sum of forecast errors by MAD. A tracking signal that moves well outside its control limits most likely indicates what?

  1. That MAD has been calculated incorrectly
  2. Normal random error requiring no action
  3. That demand has become perfectly stable
  4. A persistent bias that warrants revising the forecasting model Correct answer.

Explanation

The tracking signal monitors whether cumulative forecast errors are drifting in one direction relative to MAD. Values outside control limits suggest systematic bias, prompting a review of the model, assumptions, or data.

Question 42Demand Planning and Forecasting

A planner is selecting a smoothing constant for exponential smoothing on a series that has just experienced a genuine, sustained shift in level. Which choice best supports rapid adaptation?

  1. An alpha of zero
  2. A longer moving-average window
  3. A higher alpha value Correct answer.
  4. A lower alpha value

Explanation

A higher alpha gives more weight to the most recent observation, allowing the forecast to catch up quickly to a level shift. Lower alpha values produce smoother but slower-reacting forecasts.

Question 43Demand Planning and Forecasting

Demand for a product is stable with low variability, lead time is short and reliable, and forecast error is small. How should the safety stock level be set?

  1. Relatively high, because stable demand always requires buffer stock
  2. Relatively low, because both demand and lead-time uncertainty are small Correct answer.
  3. At zero, because stable demand cannot vary
  4. Equal to one period of average demand regardless of variability

Explanation

Safety stock protects against uncertainty in demand and lead time. When both are small, the required buffer is small, though rarely zero because some residual variability remains.

Question 44Demand Planning and Forecasting

A manufacturer uses a collaborative process in which sales, marketing, and operations jointly agree on a single demand plan. Which practice does this describe?

  1. Sales and operations planning consensus forecasting Correct answer.
  2. Independent departmental forecasting
  3. Naive extrapolation
  4. Qualitative Delphi forecasting

Explanation

Consensus forecasting within sales and operations planning brings functional stakeholders together to reconcile statistical forecasts with market intelligence into one agreed plan. This reduces functional silos and aligns supply with demand.

Question 45Demand Planning and Forecasting

A product has average monthly demand of 500 units, a seasonal index of 1.20 for December, and deseasonalized demand of 480 units. What is the seasonally adjusted forecast for December?

  1. 400 units
  2. 576 units Correct answer.
  3. 600 units
  4. 480 units

Explanation

The seasonal forecast multiplies the deseasonalized base by the seasonal index: 480 x 1.20 = 576 units. The index scales the underlying level up or down to reflect the expected seasonal pattern.

Question 46Demand Planning and Forecasting

A planner notices that a forecast model fits historical data extremely well but performs poorly on new periods. Which concept explains this outcome?

  1. Smoothing
  2. Bias
  3. Overfitting Correct answer.
  4. Seasonality

Explanation

Overfitting occurs when a model captures noise in the historical sample rather than the underlying pattern, so its accuracy fails to generalize to new data. Simpler models or out-of-sample validation help guard against it.

Question 47Demand Planning and Forecasting

A firm wants to compare forecast accuracy across two products whose demand volumes differ by a factor of ten. Which error measure is most appropriate for this comparison?

  1. Running sum of forecast errors
  2. Cumulative forecast error
  3. Mean absolute percentage error Correct answer.
  4. Mean absolute deviation

Explanation

MAPE expresses error as a percentage of actual demand, which normalizes for volume and allows comparison across products of different scale. Absolute measures such as MAD scale with volume and are harder to compare directly.

Question 48Demand Planning and Forecasting

A company wants to dampen the influence of recent outliers in a series that has a stable long-run level. Which adjustment to exponential smoothing best achieves this?

  1. Use a higher smoothing constant
  2. Set the seasonal index to one
  3. Use a lower smoothing constant Correct answer.
  4. Shorten the moving-average window

Explanation

A lower alpha reduces the weight placed on the latest observation, so a single outlier has less impact on the updated forecast. The tradeoff is slower response to genuine shifts in demand.

Question 49Demand Planning and Forecasting

A planner calculates a mean absolute percentage error of 12 percent, but several actual demand values in the dataset are very close to zero. What is the principal concern with interpreting this MAPE?

  1. MAPE systematically understates error at low volumes
  2. MAPE becomes unstable and can be inflated when actuals approach zero Correct answer.
  3. MAPE cannot be computed for any dataset with seasonality
  4. MAPE ignores the direction of forecast errors by design and is therefore invalid

Explanation

Because MAPE divides the error by the actual value, small actuals produce very large percentage errors and can distort the metric. Planners often use alternative measures such as MAD or a symmetric percentage error when low-volume periods are present.

Question 50Demand Planning and Forecasting

A firm decomposes demand into level, trend, and seasonal components and then applies separate smoothing to each. Which method does this describe?

  1. Naive seasonal decomposition
  2. Croston's method
  3. Simple exponential smoothing
  4. Holt-Winters triple exponential smoothing Correct answer.

Explanation

Holt-Winters, also called triple exponential smoothing, maintains separate smoothed estimates for level, trend, and seasonality. This lets the model track a trending series with recurring seasonal patterns.