STUDY INFORMATION FOR EXAM CANDIDATES

CPIM PrepTest Module: Module 2

Master Planning of Resources

2006 All rights reserved. No part of the contents of this book may be reproduced or transmitted in any form or by any means without the written permission of the publisher.

ExamREVIEW PRO & ExamREVIEW PRESS

1 Demand for finished goods is an example of: A. B. C. D. Independent demand Dependent demand Mixed demand None of the choices

Notes:

ANSWER: A

Independent demand refers to the demand for an item that is unrelated to the demand for other items. Demand for finished goods is one such example. On the other hand, dependent demand refers to the demand that is directly related to or derived from the BOM structure for other items or products.

10

Notes:

2 Which of the following types of demand can be calculated? A. B. C. D. Independent demand Dependent demand Mixed demand None of the choices

11

Notes:

ANSWER: B

Dependant demands can be calculated, while independent demands have to be forecasted. Note that it is possible for an inventory item to have both dependent and independent demand at any given time.

12

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3 Which of the following refers to the planning process for predicting the demand of products and services based on forecasts?

A. B. C. D. E.

Demand Planning Demand Aggregation Demand summarization Demand Analyst None of the choices

13

Notes:

ANSWER: A

Demand Planning refers to the planning process for predicting the demand of products and services based on forecasts. By accurately forecasting customer demand, one can improve the level of customer service while decreasing costs through reducing demand uncertainty.

14

Notes:

4 You may achieve increasingly accurate demand forecasts by integrating volume predictions based on:

A. B. C. D. E.

price elasticity customer locations supply base optimization demand seasoning None of the choices

15

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ANSWER: A As mentioned by Manugistics, optimized demand management can be achieved as follow1: o use advanced price optimization to enhance revenue o achieve increasingly accurate demand forecasts by integrating volume predictions based on price elasticity o bring your supply and demand chains into balance, improving enterprise profitability and customer service (this is important) o adaptively manage volatile demand, short product life cycles, and dynamic market changes (this is important) o smooth demand over peak and valley periods (this is important) o determine the best product mix to optimize the profitability of existing assets o optimize price lists and customer quotes to maximize margins and gain market share o steer demand between products, understanding and leveraging product cannibalization and halo effects (this is VERY important)

http://www.manugistics.com/solutions/profitable_demand_management.asp
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Notes:

5 Optimized demand management can be achieved via which of the following ways (choose all that apply):

A. B. C. D. E. F.

advanced price optimization bring your supply and demand chains into balance adaptively manage volatile demand smooth demand over peak and valley periods determine the best product mix None of the choices

17

Notes:

ANSWER: A B C D E As mentioned by Manugistics, optimized demand management can be achieved as follow2: o use advanced price optimization to enhance revenue o achieve increasingly accurate demand forecasts by integrating volume predictions based on price elasticity o bring your supply and demand chains into balance, improving enterprise profitability and customer service (this is important) o adaptively manage volatile demand, short product life cycles, and dynamic market changes (this is important) o smooth demand over peak and valley periods (this is important) o determine the best product mix to optimize the profitability of existing assets o optimize price lists and customer quotes to maximize margins and gain market share o steer demand between products, understanding and leveraging product cannibalization and halo effects (this is VERY important)

http://www.manugistics.com/solutions/profitable_demand_management.asp
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Notes:

6 Actual usage might deviate significantly from the forecast due to which of the following reasons (choose all that apply):

A. B. C. D. E. F.

unusual usage activity that will probably not occur again the start of a significant new trend in the usage of the product. the wrong forecast formula being applied the wrong forecast method being applied price elasticity None of the choices

19

Notes:

ANSWER: A B C D

As stated by Jon Schreibfeder, "Today's competitive market requires accurate forecasts for the future demand of each product in inventory. We are constantly looking for ways to reduce the forecasting error (i.e., the difference between a forecast and the resulting usage). But these efforts are often frustrated by unusual activity imbedded in historic usage data"3. Based on Jons reasoning, actual usage might deviate significantly from the forecast because of: unusual usage activity that will probably not occur again in the future. the start of a significant new trend in the usage of the product. the wrong forecast formula or method being applied to the item.

http://www.effectiveinventory.com/article46.html
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7 Which of the following represents a better way of forecasting? A. B. C. D. E. identify items that might have experienced unusual usage activity and perform manual adjustment. identify AND correct items that might have experienced unusual usage activity on the spot. use computer simulation use advanced forecast modeling (AFM) techniques None of the choices

21

Notes:

ANSWER: A

Jon believes that one better way of forecasting is to identify, but not correct, items that might have experienced unusual usage activity. Buyers, planners, and/or salespeople review the list of items and determine whether unusual activity actually occurred, a significant new trend has begun, or the wrong forecasting method has been applied to the item. They can then manually adjust actual usage to reflect what usage would have been had no unusual activity occurred.

22

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8 Sporadic usage items are items that are: A. B. C. D. E. sold infrequently. sold frequently. sold seasonally. sol AS IS. None of the choices

23

Notes:

ANSWER: A

Sporadic usage items are items that are sold infrequently. It is not easy to forecast the demand of such items, and the key point to make here is that you must carefully avoid using an incorrect forecast method or you will risk stocking the wrong quantity of the wrong item in the wrong location at the wrong time.

24

Notes:

9 It is advisable to have the logic for determining when and how much to order depends on (choose 3):

A. B. C. D. E. F.

demand velocity stage in life cycle promotional events supplier base financial statement period None of the choices

25

Notes:

ANSWER: A B C

Calvin Lee suggests that the logic for determining when and how much to order should depend on SKU characteristics like demand velocity; stage in life cycle; and temporary impacts on demand, such as promotional events. He further points out that these characteristics can influence the amount of safety stock, the frequency of inventory status reviews, the forecast update cycle, and the order postponement decision.

26

Notes:

10 Data cleansing is MOST important: A. B. C. D. for the demand side for the supply side both for the demand side and the supply side None of the choices

27

Notes:

ANSWER: C

In any case, you must be sure that your data are cleansed of atypical outliers and patterns before it enters a forecasting model. In fact, data cleansing is important both for the demand side and the supply side: Demand data command the greatest attention in data cleansing. Supplier lead times also must be cleansed of anomalous values. One-time extraordinary lead times, which weather, natural disasters, or labor disputes can cause, must be cleansed so as to not distort the lead time estimates used in replenishment calculations4.

Op.Cit., Calvin Lee

28

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11 One-time extraordinary lead times can be caused by (choose all that apply): A. B. C. D. E. weather natural disasters labor disputes man made disaster None of the choices

29

Notes:

ANSWER: A B C D

In any case, you must be sure that your data are cleansed of atypical outliers and patterns before it enters a forecasting model. In fact, data cleansing is important both for the demand side and the supply side: Demand data command the greatest attention in data cleansing. Supplier lead times also must be cleansed of anomalous values. One-time extraordinary lead times, which weather, natural disasters, or labor disputes can cause, must be cleansed so as to not distort the lead time estimates used in replenishment calculations5.

Op.Cit., Calvin Lee

30

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12 Rate this comment: Short term forecasts are always more accurate than their long term counterparts. A. B. C. D. This is mostly true unless the short term forecasts use improper methods This is always true This is true only if the long term forecasts use improper methods None of the choices

31

Notes:

ANSWER: A

Short term forecasts are always more accurate than their long term counterparts. If the forecast time frame has to be long, you may consider the use of a time phased forecast process have your forecast spread out by day or week or month. As recommended by Calvin (above), such a forecast could better support manufacturing and warehouse capacity planning, work force assignments, sales forecasting, and budgeting. However, to obtain an accurate time-phased forecast, careful modeling of day-of-week, trend, and seasonal effects and consideration of supplier constraints within the demand chain are required.

32

Notes:

13 In order to obtain an accurate time-phased forecast, which of the following are required (choose all that apply):

A. B. C. D. E.

careful modeling of day-of-week, trend, and seasonal effects consideration of supplier constraints within the demand chain careful modeling of work flows consideration of customer constraints within the supply chain None of the choices

33

Notes:

ANSWER: A B

Short term forecasts are always more accurate than their long term counterparts. If the forecast time frame has to be long, you may consider the use of a time phased forecast process have your forecast spread out by day or week or month. As recommended by Calvin (above), such a forecast could better support manufacturing and warehouse capacity planning, work force assignments, sales forecasting, and budgeting. However, to obtain an accurate time-phased forecast, careful modeling of day-of-week, trend, and seasonal effects and consideration of supplier constraints within the demand chain are required.

34

Notes:

14 You may define and maintain forecasts:

A. B. C. D. E.

for any item at any level of your BOM. for certain items at the top 2 levels of your BOM. for certain items at the top 3 levels of your BOM. for only the top level items at any level of your BOM. None of the choices

35

Notes:

ANSWER: A

You may define and maintain forecasts for any item at any level of your BOM. You may forecast demand for products directly, or forecast product families and explode forecasts to individual products through your planning bills.

36

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15 When are forecasts consumed (choose the BEST answer)? A. B. C. D. E. each time your customers place order demand for the forecasted product. each time your customers place order demand for the entire line of products. each time you place manufacturing order for the promoted products. each time you place manufacturing order for the competing products. None of the choices

37

Notes:

ANSWER: A

Forecasts are consumed each time your customers place order demand for the forecasted product.

38

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16 Which of the following moving average techniques apply more weight on recent data (choose all that apply): A. B. C. D. Standard moving averages Exponential average Weighted average None of the choices

39

Notes:

ANSWER: B C The moving average is a way of calculating the average over a given time span. As the numbers change over time, the average reflects the change, but at a slower pace. o Standard moving averages apply equal weight to the numbers. It adds the closing number for a number of time periods and divides this total by the number of periods. This results in the average over a specific time period. o Exponential average puts more weight on recent data and less weight on past data. The exponential moving average applies a percentage of today's closing to yesterday's moving average. The formula used is as follow: Moving Average = ((today's close)*x) + ((yesterday's moving average)*x) while x = the selected percentage o Weighted average puts more weight on recent and less on past data as well. However, it works by multiplying each of the previous day's data by a predetermined weight.

40

Notes:

17 Which of the following moving average methods adds the closing number for a number of time periods and divides this total by the number of periods? A. B. C. D. Standard moving averages Exponential average Weighted average None of the choices

41

Notes:

ANSWER: A

The moving average is a way of calculating the average over a given time span. As the numbers change over time, the average reflects the change, but at a slower pace. o Standard moving averages apply equal weight to the numbers. It adds the closing number for a number of time periods and divides this total by the number of periods. This results in the average over a specific time period. o Exponential average puts more weight on recent data and less weight on past data. The exponential moving average applies a percentage of today's closing to yesterday's moving average. The formula used is as follow: Moving Average = ((today's close)*x) + ((yesterday's moving average)*x) while x = the selected percentage o Weighted average puts more weight on recent and less on past data as well. However, it works by multiplying each of the previous day's data by a predetermined weight.

42

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18 ABC Analysis is a method for determining: A. B. C. D. E. priority stock turns inventory level EOQ None of the choices

43

Notes:

ANSWER: A

To maintain accurate forecast for every item and to manage the demand for every item can be an exhaustive task no one can afford to do good on everything. With ABC Analysis, you can produce a list of priority you decide what is the most important item to take care of, and what items can receive less focus. To be precise, an ABC analysis determines the relative value of a group of inventory items based on your valuation criterion. "ABC" refers to the rankings you assign your items as a result of this analysis, where "A" items are ranked higher than "B" items, and so on.

44

Notes:

19 Which of the following statements correctly describe ABC Analysis?

A. B. C. D.

it determines the relative value of a group of inventory items based on your valuation criterion it determines the absolute value of a group of inventory items based on your valuation criterion it determines the relative composition of a group of inventory items based on your valuation criterion None of the choices

45

Notes:

ANSWER: A

To maintain accurate forecast for every item and to manage the demand for every item can be an exhaustive task no one can afford to do good on everything. With ABC Analysis, you can produce a list of priority you decide what is the most important item to take care of, and what items can receive less focus. To be precise, an ABC analysis determines the relative value of a group of inventory items based on your valuation criterion. "ABC" refers to the rankings you assign your items as a result of this analysis, where "A" items are ranked higher than "B" items, and so on.

46

Notes:

20 Many companies use ABC Analysis to: A. B. C. D. E. manage order levels. perform short term forecast. drive cycle counts. perform long term forecast. None of the choices

47

Notes:

ANSWER: C

Many companies use ABC Analysis to manage inventory: they drive their cycle counts based on the ABC classifications, where items of high value (A items) are counted very frequently, and items of lower value are counted less frequently. In fact, the use of ABC Analysis is not restricted to cycle counting. In the case of demand management, you may spend more resources on managing the demand for A items (and spend less to take care of B and C items). If safety stock is a way of reacting to rising demands, you may, for example, have all A items get 4 weeks of safety stock, all B items get 3 weeks, and all C items get 2 weeksetc.

48

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21 The primary drawbacks of the ABC approach are (choose all that apply): A. B. C. D. E. it is not clear whether the three classes can cover the length of priority periods. it is not clear whether % or decimal values should b used in the three classes. it is not clear whether the three classes suffice for longer term estimation period. it is not clear whether the three classes can capture the diversity and differences of the large number of SKUs many companies carry. None of the choices

49

Notes:

ANSWER: D

The ABC approach is believed to be flawed though. One primary drawback of this approach is that it is not clear whether the three classes can capture the diversity and differences of the large number of SKUs many companies carry.

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22 Which of the following statements correctly describe the Bullwhip effect (choose all that apply):

A. B. C. D. E. F.

Demand variability increases as one moves up the supply chain away from the retail customer Any small changes in consumer demand can result in large variations in orders placed upstream The supply network can oscillate in very large swings The supply network can oscillate in very small and frequent swings Any small changes in consumer demand can result in large variations in orders placed downstream None of the choices

51

Notes:

ANSWER: A B C

Demand variability increases as one moves up the supply chain away from the retail customer, and small changes in consumer demand can result in large variations in orders placed upstream. Eventually, the network can oscillate in very large swings as each organization in the supply chain seeks to solve the problem from its own perspective6.

http://www.quickmba.com/ops/bullwhip-effect/
52

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23 Bullwhipping effect is caused by variability and delays that are mostly the results of (choose all that apply):

A. B. C. D. E.

Overreaction to backlogs Shortage gaming Demand forecast inaccuracies Free return policies None of the choices

53

Notes:

ANSWER: A B C D

It is the variability coupled with time delays in the transmission of information up the supply chain and time delays in manufacturing and shipping goods down the supply chain that produce this kind of bullwhipping effect. The variability and delays are mostly the results of: o Overreaction to backlogs o Poor communication along the supply chain o Order batching produces larger orders which can produce more variance. o Shortage gaming (customers order more than they need during a period of short supply) o Demand forecast inaccuracies in fact, independent multiple forecasts in the demand chain is believed to be the first cause of the bullwhip effect. o Free return policies (this is especially true in the US where 30-day money back guarantee is the norm)

54

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24 Which of the following are NOT the basic determinants for the bullwhip effect (choose all that apply): A. B. C. D. E. F. G. the quality of the forecast the update frequency of the forecast the reorder frequency the reorder batch size protective buying speculative buying None of the choices

55

Notes:

ANSWER: G

Lee, Padmanabhan and Whang (1997) identified the basic determinants for the bullwhip effect7: o the quality of the forecast and its update frequency o the reorder frequency and the reorder batch size o the expectation of shortage, leading to protective buying o the special price schemes, leading to speculative buying

http://www.stud.fernuni-hagen.de/q5153735/research/bullwhiptop.htm
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25 Sometimes a decision maker along the chain may order in higher quantities than he receives customer orders. The most typical rationales include (choose 3):

A. B. C. D. E.

protection against stockout lot size economics speculative ordering price optimization labor agreement bargaining

57

Notes:

ANSWER: A B C

To reduce the impact of the effect, better communication and cooperation among chain members is the key. If information can flow through the chain timely and accurately, bullwhip effect can be minimized. Sometimes a decision maker along the chain may order in higher quantities than he receives customer orders. The most typical rationales are: o protection against stockout o lot size economics o speculative ordering

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26 The deliverables of S&OP are: A. B. C. D. E. F. G. key long term decisions. lower level long term decisions. lower level short term decisions. key short term decisions. MRP schedules. income statements. None of the choices

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ANSWER: A

S&OP is a formal process that consists of a series of meetings, finishing with a high level meeting where key long term decisions are made. In these meetings, data from various areas of your business is discussed. The end goal is an agreement between various departments on the best course of action to achieve the optimal balance between supply and demand and to meet your profitability goals. It's a tool that helps you properly manage your business8.

http://www.sopoverview.com/definition.htm
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27 Sales & Operations Planning is intended for achieving which of the following purposes (choose all that apply): A. B. C. D. E. F. increasing teamwork between cross functional areas facilitating the setting of targets allowing progress against the Business Plan to be reviewed putting your operational plan in line with your job shop flows facilitating the setting of internal controls None of the choices

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ANSWER: A B C

Shorts for Sales & Operations Planning, S&OP is intended for helping companies to maximize customer satisfaction and meet profitability goals by achieving an optimal balance of demand and supply. In theory, S&OP can: o increase teamwork between cross functional areas o put your operational plan in line with your Business Plan o facilitate the setting of targets o allow progress against the Business Plan to be reviewed

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28 Proper Sales & Operations Planning can contribute to which of the following results (choose all that apply): A. B. C. D. E. F. G. Reduced lead times Improved service levels Reduced inventory management costs Reduced obsolete inventory Reduce expediting costs Entire elimination of safety-stock None of the choices

63

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ANSWER: A B C D E

As suggested by Adexa9, proper S&OP can contribute to the following results: o Reduce lead times o Profitably deploy inventory across the enterprise o Synchronize material planning, capacity planning and allocation planning o Improve service levels o Reduce inventory management costs and obsolete inventory o Reduce expediting costs o Manage by/co products o Optimize safety-stock and raw-material levels

http://www.adexa.com/solutions/sales.asp
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29 Which of the following correctly describe the order of the stages of S&OP?

A. B. C. D. E.

Demand Review -> Supply Review -> Partnership Meeting -> Sales and Operations Planning Meeting Supply Review -> Demand Review -> Partnership Meeting -> Sales and Operations Planning Meeting Demand Review -> Sales and Operations Planning Meeting -> Supply Review -> Partnership Meeting Sales and Operations Planning Meeting -> Demand Review -> Supply Review -> Partnership Meeting None of the choices

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ANSWER: A

In the article Sales and Operations Planning overview, four stages of the S&OP process have been mentioned10: o Demand Review - chaired by the Sales and Marketing Director, attended by Sales and Marketing Managers plus development engineers where relevant. o Supply Review - chaired by the Logistics Director, and attended by manufacturing and planning personnel o Partnership Meeting - bringing together the demand and supply reviews and often chaired by the Finance Director o Sales and Operations Planning Meeting - full review and commitment to the plan, chaired by the Managing Director

10

http://www.bpic.co.uk/sop.htm
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30 During the S&OP process, Demand Review is often chaired by:

A. B. C. D. E.

the Sales and Marketing Director the Logistics Director the Finance Director the Managing Director None of the choices

67

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ANSWER: A In the article Sales and Operations Planning overview, four stages of the S&OP process have been mentioned11: o Demand Review - chaired by the Sales and Marketing Director, attended by Sales and Marketing Managers plus development engineers where relevant. o Supply Review - chaired by the Logistics Director, and attended by manufacturing and planning personnel o Partnership Meeting - bringing together the demand and supply reviews and often chaired by the Finance Director o Sales and Operations Planning Meeting - full review and commitment to the plan, chaired by the Managing Director

11

http://www.bpic.co.uk/sop.htm
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31 During the S&OP process, Partnership Meeting is often chaired by:

A. B. C. D. E.

the Sales and Marketing Director the Logistics Director the Finance Director the Managing Director None of the choices

69

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ANSWER: C In the article Sales and Operations Planning overview, four stages of the S&OP process have been mentioned12: o Demand Review - chaired by the Sales and Marketing Director, attended by Sales and Marketing Managers plus development engineers where relevant. o Supply Review - chaired by the Logistics Director, and attended by manufacturing and planning personnel o Partnership Meeting - bringing together the demand and supply reviews and often chaired by the Finance Director o Sales and Operations Planning Meeting - full review and commitment to the plan, chaired by the Managing Director

12

http://www.bpic.co.uk/sop.htm
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32 Rate this comment: For maximum effectiveness, the S&OP process should include sales forecasting.

A. B.

True False

71

Notes:

ANSWER: B

The S&OP process should NOT include sales forecasting. Sales Forecasts should be made ready prior to the S&OP meetings.

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33 Typically speaking, S&OP shall take a monthly look at product groups at least __________ months across the planning horizon.

A. 1- 2 B. 3- 5 C. 6- 12 D. 12- 24 E. 24- 36 F. None of the choices

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Notes:

ANSWER: C

Typically speaking, S&OP shall take a monthly look at product groups at least 6- 12 months across the planning horizon (some companies can go out as far as18 months). Phil Robinson suggests that the S&OP review should cover at least 15 months so must be at a family level (dividing the product range into less than 20 families of products) and in monthly time periods. In any case, for the S&OP process to be effective, active participation by the heads the business groups is essential.

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34 Data that will be put on the table during the S&OP process normally does NOT include: A. B. C. D. E. F. G. H. Current plan for each product group Current finished goods inventory Customer Service Sales forecasts Purchase Orders received Materials available Customer satisfaction level None of the choices

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ANSWER: G

Data that will be put on the table during the S&OP process normally includes: o Current plan for each product group o Current finished goods inventory o Customer Service o Sales forecasts o Purchase Orders received o Materials available o Manufacturing plans o Manufacturing capacity o Distribution capacity o Shipping capacity o Performance measures

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35 Which of the following items should you master schedule (choose all that apply): A. B. C. D. E. F. G. H. end items in a make-to-stock environment components in an assembly-to-order environment raw materials & components in a make-to-order environment item with critical impact on lower level components high-value materials long lead time materials key production resources None of the choices

77

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ANSWER: A B C D E F G

Why do you master schedule? Firstly, to provide stability to materials plans. Secondly, to manage the impact on key production resources. Thirdly, to ensure the proper execution of the production plan. Which items should you master schedule? end items in a make-to-stock environment components in an assembly-to-order environment raw materials & components in a make-to-order environment item with critical impact on lower level components high-value materials long lead time materials key production resources

78

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36 What should you use to validate your master schedules?

A. B. C. D. E. F.

CRP RCCP EOQ MRP-2 JIT None of the choices

79

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ANSWER: B

The traditional approach of Master Scheduling requires a Master Production Scheduler who calculates the schedule to present the results to production to make. Such an approach is nonparticipative. To be more participative approach, it is suggested that you run a planning meeting following the first cut schedule to involve production in the decision making process. You should use RCCP (rough cut capacity planning) to validate your master schedules.

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37 Time fences define regions that are mostly:

A. B. C. D.

short term. med term. long term. None of the choices

81

Notes:

ANSWER: C

In the ever changing world, proper scheduling and planning will be very difficult without the help of the various time fences. What are time fences? They are boundaries between different periods in the planning horizon. They define regions (that are short term) within which planning restrictions minimize costly disruption to shop floor and supplier schedules.

82

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38 Time fences can be established for which of the following (choose all that apply):

A. B. C. D. E. F.

planning demand release satisfaction cycle counting None of the choices

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ANSWER: A B C

From a scheduler and planner point of view, time fences can be used to provide guidelines to establish where various restrictions or changes in operating procedures take place. The 3 most popular time fences are: o planning time fence o demand time fence o release time fence

84

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39 Time fences should be established on what basis?

A. B. C. D. E.

per product family per product per flow line per workshop None of the choices

85

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ANSWER: A

You can define planning, demand, and release time fence days for your item based on the cumulative manufacturing lead time, cumulative total lead time, total lead time, or any predefined value. The time fences should be established on a per product family basis within the manufacturing operation. And once agreed, they should be published internally and strictly enforced by the master scheduler.

86

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40 Within the demand time fence, you may only consider:

A. B. C. D. E. F. G.

the actual demand. the forecast demand. Both A and B the outlined demand. the stabilized demand. A, C and D None of the choices

87

Notes:

ANSWER: A

The demand time fence is usually surrounded by the current date and a date within which the planning process does not consider forecast demand when calculating actual demand. Within the demand time fence, you may only consider the actual demand. Outside the demand time fence, you may consider the forecast demand.

88

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41 For discrete items within the planning fence, the planning process: A. B. C. D. cannot reschedule in order due dates or create new planned orders for the item to satisfy net demand requirements. cannot reschedule in order due dates but can create new planned orders for the item to satisfy net demand requirements. can reschedule in order due dates but cannot create new planned orders for the item to satisfy net demand requirements. None of the choices

89

Notes:

ANSWER: A

For discrete items within the planning fence, the planning process does not reschedule in order due dates or create new planned orders for the item to satisfy net demand requirements. However, the planning process can reschedule out or cancel an order when it determines that such orders create excess supply.

90

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42 For discrete items outside the planning time fence, the planning process should:

A. B. C. D.

suggest whether to create, change, and reduce entries on the master schedule. produce suggested rates of production within the planning time fence that differ from the current aggregate repetitive schedule. stop as soon as possible. None of the choices

91

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ANSWER: A For discrete items outside the planning time fence, the planning process should suggest whether to create, change, and reduce entries on the master schedule. For repetitive items, the planning process should produce suggested rates of production within the planning time fence that differ from the current aggregate repetitive schedule by no more than the acceptable rate increase and acceptable rate decrease you defined for your item.

92

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43 In the manufacturing process, the first time fence encountered is: A. B. C. D. the Demand Time Fence. the Planning Time Fence. the Look-ahead Time Fence. None of the choices

93

Notes:

ANSWER: A

In the manufacturing process, the final assembly stage starts at today's date and goes as far forward to cover the final stages of manufacture. The first time fence encountered is the Demand Time Fence. The period between the Demand Time Fence and the Planning Time Fence covers the lower level manufacturing process and the procurement time for each component. From today until the Planning Time Fence is the cumulative lead time of the product. The look-ahead period is the period that goes forward from the Planning Time Fence to the subsequent planning horizon.

94

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44 In the manufacturing process, from today until which Time Fence is the cumulative lead time of the product? A. B. C. D. the Demand Time Fence. the Planning Time Fence. the Look-ahead Time Fence. None of the choices

95

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ANSWER: B

In the manufacturing process, the final assembly stage starts at today's date and goes as far forward to cover the final stages of manufacture. The first time fence encountered is the Demand Time Fence. The period between the Demand Time Fence and the Planning Time Fence covers the lower level manufacturing process and the procurement time for each component. From today until the Planning Time Fence is the cumulative lead time of the product. The look-ahead period is the period that goes forward from the Planning Time Fence to the subsequent planning horizon.

96

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45 A firm order is an order that is frozen: A. B. C. D. E. in quantity. in time. in resources. both in quantity and in time. None of the choices

97

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ANSWER: D

A firm order is an order that is frozen, both in quantity and in time. Such order is no longer available for rescheduling. Most planning applications will automatically produce a planning time fence for a firm order if that order exists after the planning time fence date.

98

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46 Which of the following are the objectives of FAS (choose all that apply):

A. B. C. D. E.

keeps inventory to a minimum provides maximum flexibility to customers provides short lead times simplifies the control of complex assemblies None of the choices

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ANSWER: A B C D

Shorts for final assembly schedule, FAS is a schedule of end items either to replenish finished goods inventory or to finish the product for specific customers' orders in a "make-to-order" or "assemble-to-order" environment. The objective of such a schedule is to keep inventory to a minimum and at the same time providing maximum flexibility to the customers. It aims at providing short lead times to meet customer's needs quickly and simplifying the control of complex assemblies which have many different variations in configuration.

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47 The FAS is made up of: A. B. C. D. actual customer's orders received. inputs from the companys production plan. major stock assemblies. None of the choices

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ANSWER: A

MPS is the anticipated build schedule, whereas FAS is the actual build schedule. The FAS is made up of actual customer's orders received, whereas the MPS is a plan for manufacturing created from the companys production plan. Put it this way, the MPS provides stock of major assemblies to be used on the FAS, and the planning horizon of FAS is in general shorter than that of the MPS.

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48 Which of the following correctly describe the Two Level Master Scheduling process?

A. B.

It master schedules and builds key subassemblies first based on the anticipated demand, and then assembles the specific configurations only after receiving the customer orders. It master schedules and builds key subassemblies first based on the actual received order, and then assembles the specific configurations early before receiving the customer orders. It master schedules and builds key subassemblies first based on the actual received order, and then assembles the specific configurations as quick as possible. None of the choices

C. D.

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ANSWER: A

Companies operate in configure-to-order manufacturing environment are normally characterized by many different product configurations, each made from combinations of a few key subassemblies. Due to competitive pressures from the market, customer delivery lead times are often required to be far shorter than the manufacturing lead times. To achieve this, companies must start building products before customers place the orders. A common way of implementing the above is to master schedule and build key subassemblies first based on the anticipated demand, and then assemble the specific configurations only after receiving the customer orders. This is what we called the Two Level Master Scheduling process.

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49 Developing meaningful and useful performance measurements involve what steps (choose all that apply):

A. B. C. D. E. F.

defining the mission identifying the key results selecting measures for the key results identifying the pitfalls selecting measures for ALL results None of the choices

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ANSWER: A B C

If performance measurements are to help to achieve results, you must ensure that they relate directly to your business plan's mission and its key results. Developing meaningful and useful performance measurements is a three step process: o define the mission o identify the key results o select measures for the key results

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50 Which of the following is seen as the most frequent and important use of performance measurement?

A. B. C. D. E. F.

Operational planning and control Internal budgeting Departmental communications Work flow planning Job scheduling None of the choices

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ANSWER: A

Operational planning and control is seen as the most frequent and important use of performance measurement, because the shorter term operational planning and control horizon requires focus on the ongoing efficiency and effectiveness of the operation. Key results are mostly identifiable at this stage.

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51 Which of the following is the ratio of the net gain from a proposed business divided by its total costs?

A. B. C. D. E.

ROI NPV IRR RAE None of the choices

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ANSWER: A ROI: Shorts for Return on Investment, it is the ratio of the net gain from a proposed business divided by its total costs. It is seen as a great measure for illustrating how much each dollar of expense will yield in returns.

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52 Which of the following shows the difference between the present value of an investment's anticipated future savings and its costs?

A. B. C. D. E.

ROI NPV IRR RAE None of the choices

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ANSWER: B NPV: Shorts for Net Present Value, it is believed to be the most popular of all investment analysis techniques which shows the difference between the present value of an investment's anticipated future savings and its costs. It can highlight projects that have large up-front expenditures and dramatic expected returns in future years.

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53 The discount rate necessary to drive the NPV to zero is known as:

A. B. C. D. E. F. G.

BR EOE EOR BOR IRR NPV can never be driven to zero None of the choices

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ANSWER: E

IRR: Shorts for Internal Rate of Return, it is the discount rate necessary to drive the NPV to zero.

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54 Which of the following is the ratio of the total number of items shipped divided by the total number of items ordered? A. B. C. D. E. F. G. H. I. Item Fill Rate Line item fill rate Order fill rate On-Time Delivery Percentage Order-Entry Lead Time Order-Entry Accuracy Percent Variability in Lead Time Stock to sales ratio None of the choices

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ANSWER: A Item Fill Rate: the ratio of the total number of items shipped divided by the total number of items ordered. Line item fill rate: the ratio that measures the percentage of line items on the order shipped in their entirety. Order fill rate: the ratio that measures the percentage of orders shipped completely. On-Time Delivery Percentage: a ratio that has (generally) a value between 96-100% as a benchmark. Order-Entry Lead Time: a ratio that measures the time taken to take customer order. Order-Entry Accuracy: a ratio that measures the accuracy with which a customer order is interpreted and maintained. Percent Variability in Lead Time: a ratio that measures the level adjustment of the SKU to variation in pattern and quantity of demand. Stock to sales ratio: a ratio for comparing actual orders and forecasted orders for the purpose of keeping track of stock-outs, losses due to stock outs and any flaws in the existing forecasting system.

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55 Which of the following is the ratio that measures the time taken to take customer order? A. B. C. D. E. F. G. H. I. Item Fill Rate Line item fill rate Order fill rate On-Time Delivery Percentage Order-Entry Lead Time Order-Entry Accuracy Percent Variability in Lead Time Stock to sales ratio None of the choices

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ANSWER: E Item Fill Rate: the ratio of the total number of items shipped divided by the total number of items ordered. Line item fill rate: the ratio that measures the percentage of line items on the order shipped in their entirety. Order fill rate: the ratio that measures the percentage of orders shipped completely. On-Time Delivery Percentage: a ratio that has (generally) a value between 96-100% as a benchmark. Order-Entry Lead Time: a ratio that measures the time taken to take customer order. Order-Entry Accuracy: a ratio that measures the accuracy with which a customer order is interpreted and maintained. Percent Variability in Lead Time: a ratio that measures the level adjustment of the SKU to variation in pattern and quantity of demand. Stock to sales ratio: a ratio for comparing actual orders and forecasted orders for the purpose of keeping track of stock-outs, losses due to stock outs and any flaws in the existing forecasting system.

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56 Which of the following is the ratio that measures the percentage of orders shipped completely? A. B. C. D. E. F. G. H. I. Item Fill Rate Line item fill rate Order fill rate On-Time Delivery Percentage Order-Entry Lead Time Order-Entry Accuracy Percent Variability in Lead Time Stock to sales ratio None of the choices

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Notes:

ANSWER: C Item Fill Rate: the ratio of the total number of items shipped divided by the total number of items ordered. Line item fill rate: the ratio that measures the percentage of line items on the order shipped in their entirety. Order fill rate: the ratio that measures the percentage of orders shipped completely. On-Time Delivery Percentage: a ratio that has (generally) a value between 96-100% as a benchmark. Order-Entry Lead Time: a ratio that measures the time taken to take customer order. Order-Entry Accuracy: a ratio that measures the accuracy with which a customer order is interpreted and maintained. Percent Variability in Lead Time: a ratio that measures the level adjustment of the SKU to variation in pattern and quantity of demand. Stock to sales ratio: a ratio for comparing actual orders and forecasted orders for the purpose of keeping track of stock-outs, losses due to stock outs and any flaws in the existing forecasting system.

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57 To determine the rate in which Accounts Receivables are collected, which of the following formulas should be used?

A. B. C. D.

Receivable Turnover = Net Sales Average Net Accounts Receivable Receivable Turnover = Net Sales x Average Net Accounts Receivable Receivable Turnover = Gross Sales Average Net Accounts Receivable Receivable Turnover = (Gross Sales - Net Sales) Average Net Accounts Receivable

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ANSWER: A

To determine the rate which Accounts Receivables are collected: Receivable Turnover = Net Sales Average Net Accounts Receivable

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58 To determine the rate in which inventory is sold, which of the following formulas should be used?

A. B. C. D. E.

Inventory Turnover = Cost of Goods Sold / Average Inventory Inventory Turnover = Cost of Goods Sold x Average Inventory / 100 Inventory Turnover = Average Inventory / Cost of Goods Sold Inventory Turnover = (Cost of Goods Sold + Average Inventory) / Daily Inventory None of the choices

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Notes:

ANSWER: A

To measure how quickly inventory is sold: Inventory Turnover = Cost of Goods Sold / Average Inventory The higher the inventory turnover rate means the more efficiently a company is able to grow sales volume.

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59 To indicate how efficiently a firm utilizes its assets, which of the following formulas should be used?

A. B. C. D. E.

Asset Turnover = Net Sales / Average Total Assets Asset Turnover = Net Sales x 100 / Average Total Assets Asset Turnover = Gross Sales / Net Total Assets Asset Turnover = Gross Sales X Average Total Assets / Daily Assets Total None of the choices

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ANSWER: A

To indicate how efficiently a firm utilizes its assets: Asset Turnover = Net Sales / Average Total Assets The higher the total asset turnover ratio, the more efficiently a firms assets have been used.

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60 Benchmarking should be applied at least:

A. B. C. D. E.

monthly. quarterly. annually. every 5 years. None of the choices

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ANSWER: C

Benchmarking is a tool or methodology used to measure and compare your processes with those in other companies or industries. The goal of benchmarking is to increase your performance by adopting the best practices of your benchmarking partners. Since best practices are always evolving, benchmarking should be applied at least annually.

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End of module 2

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