APICS Updated CPIM-8.0 Exam Questions and Answers by aubree

Safety factor is a multiplier that is applied to the standard deviation of demand to determine the safety stock level. Safety factor remains constant while maintaining the same customer service level, as it reflects the desired probability of not stocking out. The higher the safety factor, the higher the customer service level, and vice versa. The other factors do not remain constant while maintaining the same customer service level. Reorder point (ROP) is the inventory level that triggers a replenishment order. ROP increases with increasing forecast error, as more safety stock is needed to cover the demand uncertainty. Safety stock is the inventory that is carried to protect against forecast errors and demand fluctuations. Safety stock increases with increasing forecast error, as more buffer is needed to avoid stockouts. Inventory investment is the total value of the inventory that is held in the system. Inventory investment increases with increasing forecast error, as more inventory is required to maintain the same customer service level. References: Safety Factor | APICS Dictionary Term of the Day, APICS CPIM 8 Planning and Inventory Management | ASCM

Increasing finished goods inventory investment will improve service levels by reducing the probability of stockouts. However, the relationship between inventory and service level is not linear, but rather asymptotic. This means that as inventory increases, service level increases at a decreasing rate, approaching a maximum value. Therefore, option C is correct. Option A is incorrect because service level will not remain the same when inventory changes. Option B is incorrect because service level will not increase in direct proportion to inventory. Option D is incorrect because service level will not increase at an increasing rate as inventory increases. References: CPIM Part 2 Exam Content Manual, Version 8.0, Section A: Demand Management, Subsection A.3: Demand Management and Customer Service, p. 10.