exam content manual

8/9/2019 Exam Content Manual

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APICS CPIMExam Content Manual

This manual is in effect fromJanuary 1, 2014–December 31, 2014

Visit apics.org/ecmerrata for 2014 APICS CPIM Exam Content Manual errata.Internet links cited in the bibliographic references can be found in a more usable format on the APICS website

at apics.org/cpim.

The references in this manual have been selected solely on the basis of their educational value to the APICSCPIM certification program and on the content of the material. APICS does not endorse any service or othermaterials that may be offered or recommended by the authors or publishers of books and publications listed inthis manual.

©2014 APICS The Association for Operations Management

8430 West Bryn Mawr Avenue, Suite 1000Chicago, IL 60631-3439 USAPhone: 1-800-444-2742 or +1-773-867-1777Fax: +1-773-639-3000

No portion of this document may be reproduced under any circumstances. CPIM is a registered trademark of APICS.


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Letter to CandidatesDear Candidate:

For nearly 40 years, the Certified in Production andInventory Management (CPIM) program has beenrecognized as the international standard for individualassessment in the field of production and inventory

management. Initiated by APICS in 1973, it provides acommon basis for individuals and organizations toevaluate their knowledge of this evolving field. APICShas administered more than 1 million tests in over 40countries, and more than 100,000 professionals haveearned the APICS CPIM designation—3,000 of them atthe Fellow level. The mission of the APICS CPIMprogram is to be the premier professional certification forsupply chain and operations management that tests thecandidate’s knowledge and understanding of theprinciples and practices of production and inventorymanagement. The APICS CPIM program is designed toeducate individuals in the concepts, tools, terminology,and integration of topics within the supply chain and

operations management function and to test candidates’in-depth knowledge of these concepts. APICS hasworked to ensure that APICS CPIM exams areconsistently reliable and that the highest professionalstandards are used to develop and administer theprogram.

Because organizations operate in a dynamicallychanging international world, the APICS body ofknowledge continues to grow to include recognizedconcepts and tools to improve organizationalcompetitiveness. The CPIM Exam Content Manual isupdated regularly to reflect these changes in the body of

knowledge and to assist candidates in theirunderstanding of the scope of material covered in theprogram.

Using a typical business process orientation, the APICSCPIM program integrates individual modules in aprogression of increased understanding. It is highly recommended that candidates follow this sequence ofexaminations to increase both understanding andsuccess.

1. Entry module—Basics of Supply ChainManagement: Terminology and basic concepts

related to managing the complete flow of materialsfrom suppliers to customers

2. Core competency modules—Master Planning ofResources, Detailed Scheduling and Planning,Execution and Control of Operations: Availablemethodologies and techniques to drive processesand the application of these techniques

3. Capstone module—Strategic Management ofResources: Choosing the appropriate structures andmethodologies to achieve organizational strategicobjectives and an understanding of the integration ofoperations within the context of the organization

The following is a summary of each of the APICS CPIMmodules.

Basics of Supply Chain ManagementAs the introductory module, Basics of Supply ChainManagement covers, at an overview level, the materialpresented in depth in the other four modules.Experience has shown us that APICS CPIMcandidates who master the material in Basics ofSupply Chain Management first find the othermodules easier to understand; therefore, westrongly recommend that all APICS CPIM candidatesstart with this module.

This module provides basic definitions and concepts forplanning and controlling the flow of products or servicesinto, through, and out of an organization. It explainsfundamental relationships among the activities that occurin the supply chain from suppliers to customers. Inaddition, the module covers types of manufacturing andservice systems, forecasting, master planning, materialrequirements planning, capacity management,production activity control, purchasing, inventorymanagement, and distribution. Four managementphilosophies are covered: enterprise resources planninglean, quality management, and the theory of constraints.

Master Planning of ResourcesIn Master Planning of Resources, candidates explore

processes used to develop sales and operations plans;identify and assess internal and external demand andforecasting requirements; plan a distribution network andreplenishment in a distribution environment; and gain anunderstanding of the importance of producing achievablemaster schedules that are consistent with businesspolicies, objectives, and resource constraints. Themodule focuses on developing and validating a plan ofsupply; relating management of demand tomanufacturing, distribution and service environments;and developing and validating the master schedule.


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Detailed Scheduling and PlanningIn Detailed Scheduling and Planning, candidates focuson the various techniques for material and capacityscheduling. This module includes detailed descriptionsof material requirements planning, capacityrequirements planning, inventory managementpractices, and procurement and supplier planning.Techniques such as material and capacity-constrainedscheduling are included that are applicable to a variety

of manufacturing and service organizations. Candidateswill also become familiar with supplier partnerships,lean inventory principles, and outsourcing strategiesand techniques.

Execution and Control ofOperations Execution and Control of Operations focuses on fourmain areas: execution of operational plans andschedules, control of the work completed and theanalysis of results, the management of andcommunication in the workplace, and the importance ofutilizing appropriate design principles. The module

explains techniques for scheduling and controllingoperations within available capacity and deals with theexecution of quality initiatives, cost management, andproblem solving. Finally, this module presentstechniques for making the most of resources, theenvironment, and continuous improvement activities.

Strategic Management of ResourcesIn Strategic Management of Resources, candidatesexplore the relationship of existing and emergingprocesses and technologies to operations strategy andsupply chain-related functions for both manufacturingand service organizations. The module addresses threemain topics: understanding the business environment,developing operations strategy, and implementingoperations strategy. For maximum comprehension,candidates are strongly encouraged to be familiar withthe information and concepts outlined in the other APICSCPIM modules before taking this course. Historicalperformance data confirms that candidates whosuccessfully complete the other four modulesapproximately double their chances of passing theStrategic Management of Resources capstonemodule.

The APICS CPIM program continues to evolve,

incorporating relevant and current concepts andtechniques into the body of knowledge, such as supplychain management, lean, service industries,globalization, theory of constraints, sales and operationsplanning, outsourcing, critical chain, and sustainability.APICS CPIM is an outstanding educational program,and APICS relies on your comments and suggestions tomaintain and improve the program for future candidates.We wish you success in your pursuit of your operationsmanagement knowledge.

Stephen N. Chapman, PhD, CFPIM

Chair, CPIM Subcommittee


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IntroductionThis exam content manual provides assistance for thosestudying in the production and inventory managementfield, developing and conducting educational coursesand workshops, and preparing for the certificationexaminations. The objective of this manual is to outlinethe APICS CPIM body of knowledge, which the APICS

Certification Committee has organized into five modules:

Basics of Supply Chain Management Master Planning of Resources Detailed Scheduling and Planning Execution and Control of Operations Strategic Management of Resources

In this manual, each module begins with a statement ofthe scope of the subject matter, followed by a descriptiveoutline of the content. Key terminology for the particularmodule is provided, as well as a bibliography of thereferences. Each module concludes with samplequestions typical of those that appear on theexaminations. The correct answers for the samplequestions, with brief explanations of why they arecorrect, appear at the end the manual.

The recommended procedure for mastering the subjectmatter is to review the content outline, which defines thematerial, and then to study each topic, using thereferences. At the end of each major section is a list ofthe references that apply to the topics in that section.The first number indicates the sequence number for thereference in the Bibliography section, and the numbersin parentheses indicate the chapter(s) within thatreference. These outlines form the content and structure

for the certification examinations. As such, having themost current exam content manual is essential, as it isrevised annually. Candidates should understand thedefinitions of the key terms in the content outline, as wellas the outlined techniques—why and how to apply themand which ones to select for different situations.

New developments in the state of the industry may bedescribed in current literature. Sufficient references aregiven for each topical area to provide differentapproaches to material covered in each module anddifferent styles of presenting it. Reading the availableAPICS periodical material, including APICS magazine,

the Production and Inventory Management Journal , andthe APICS Operations Management Now e-newsletterwill help you maintain an awareness of changes in thestate of this discipline.

About the APICS CPIMExaminationsCandidates answer a predetermined number ofquestions to assess their knowledge in key areas. Eachof the APICS CPIM exams (except Basics of SupplyChain Management) consists of 75 multiple-choice

questions. The Basics exam consists of 105 multiple-choice questions. There is a three-hour time limit foreach APICS CPIM exam. For more information abouttesting and registration policies and procedures you candownload the bulletins from the APICS website atapics.org/cpim, or call APICS Customer Service at1-800-444-2742 (United States and Canada) or+1-773-867-1777

Students who successfully complete CPIM examinationsmay be eligible to receive hours of college creditrecommendations from the New York State RegentsResearch Fund, National College CreditRecommendation Service, based on an academicevaluation of student learning outcomes. The semesterhours of undergraduate credit per exam are as follows:

• BSCM: 3 semester hours • MPR: 2 semester hours • DSP: 2 semester hours • ECO: 2 semester hours • SMR: 3 semester hours

Detailed information about the outcomes and creditrecommendations is available at nationalccrs.org.Transcripts are available through APICS.

Question FormatThe questions on the CPIM examination are intended totest a candidate’s understanding of the CPIM body ofknowledge. In addition, it is helpful to understand thevarious formats of questions on the examination. Thefollowing five examples illustrate the types of multiple-choice questions that may be found on the examination.

For Example 1, choose the response that bestcompletes the statement.

Example 1: The key to a successful production planis

(A) capacity requirements planning.(B) material requirements planning.(C) dynamic priority planning.(D) adequate production capacity.(The correct answer is D.)

For Example 2, choose the response that best answersthe question.


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Example 2: Which of the following approachesenables MRP techniques to be used for planningand controlling independent demand items?

(A) pegged orders(B) two-bin system(C) time-phased order point(D) reorder point(The correct answer is C.)

For Example 3, choose the one response that does NOT correctly complete the statement.

Example 3: Group technology identifies thesimilarities among all of the following EXCEPT:

(A) costs(B) parts(C) shapes(D) processes(The correct answer is A.)

For Example 4, another type of multiple-choice question,

there are two or more statements, or possibilities. Thequestion, and the statements, are always followed byfour-answer choices labeled A, B, C, and D. Whenanswering multiple-choice questions of this type, readeach question and the statements carefully to determinewhether each statement (I through IV) is true or false.

Next, look at the four choices. While this form ofquestion is increasingly less common, the correctresponse requires determining if one or a combination ofchoices best answers the question. In Example 4, youshould choose option A if you believe statements I andIII are true. You should choose option B if you believe

statements I and IV are true. You should choose optionC if you believe statements II and III are true. Finally,you should choose option D if you believe statements IIand IV are true.

Example 4: If a company changes from make-to-stock to assemble-to-order, the effects on inventorylevels are which two of the following?

I. Lower finished-goods inventoryII. Higher finished-goods inventoryIII. Lower work in processIV. Higher work in process

(A) I and III(B) I and IV(C) II and III(D) II and IV(The correct answer is B.)

Example 5 is similar to Example 4, but the number ofpossible combinations is greater. The best strategy foranswering these questions is to consider eachstatement, decide whether it is true, and then search for

the correct combination. If the combination you seek isnot given, reconsider each statement carefully.

Example 5: Management policies and decisionsabout which of the following have a direct impact oninvestment?

I. Customer service levelsII. Intra-company transportation modesIII. Placement of distribution centersIV. Types of production processes

(A) I and II only(B) III and IV only(C) I, II, and IV only(D) I, II, III, and IV(The correct answer is D.)

Examples 6 and 7 ask for a judgment or evaluation ofthe MOST or LEAST appropriate choice. The judgmentis not one person’s opinion, but is the accepted choiceaccording to the APICS body of knowledge. Example 6asks for the MOST appropriate choice. Example 7 calls

for the LEAST appropriate choice.

Example 6: The MOST significant advantage ofaggregating demand data before they are stored isthat

(A) information about demand is lost.(B) there is risk of input error in the aggregationprocess.(C) data will usually be inconsistent withfinancial information.(D) the processing time required to aggregate isextensive.

(The correct answer is A.)

Example 7: Which of the following lot-sizingcalculations would be LEAST sensitive tochanges in unit costs?

(A) least total cost(B) period order quantity(C) part period balancing(D) lot-for-lot(The correct answer is D.)


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Taking the Test

The test is designed to evaluate a candidate’sknowledge of the subject matter. Therefore, the key tosuccess is a thorough understanding of the subjectmatter. All questions are based on the current CPIMbody of knowledge as defined in the exam contentmanual.

When you start your exam, read all the directionscarefully. Be sure you understand the directions beforeyou begin to answer any questions.

Read each question carefully and thoroughly. If aquestion includes stimulus material such as a table,graph, or situation, be sure to study it before you answerthe question. Take care to avoid assuming informationnot given, as well as assuming you know what is beingasked without reading the question completely, orsecond-guessing the question. Every effort has beenmade to avoid misleading wording and to providesufficient information for each question.

Choose the best answer from the choices given. Do notlook for hidden tricks or exceptions to the norm. Foreach question, one and only one of the four choicesrepresents the correct answer.

Once you begin the test, approach the questions inorder, but do not waste time on those that are unfamiliaror seem difficult to you. Go on to the other questions andreturn to the difficult ones later if you have time. If youhave some knowledge about a particular question, youmay be able to eliminate one or more choices asincorrect. Your score on the test will be based on thenumber of questions you answer correctly, with no

penalty for incorrect answers; therefore, it is to youradvantage to guess rather than not answer a question.Avoid changing an answer unless you are absolutelycertain that you marked the wrong answer.

Interpreting Test ScoresScoring is based on your correct responses. There is nopenalty for incorrect answers. The omission of ananswer will be counted the same as an incorrect answer.

For each examination, you receive a score for the totaltest. All candidates will also receive diagnosticinformation on their performance.

Studying for the APICSCPIM ExamAPICS offers a number of resources to help individualsprepare for the APICS CPIM examinations.

APICS CPIM ReferencesBibliography. The APICS CPIM examinationsubcommittees have identified a number of referencesfor each APICS CPIM module. These are listed in thebibliography section of each module. All referencescontain excellent material that will assist in testpreparation. For additional information on the APICSCPIM references, visit the APICS website at apics.org/cpim, or call APICS Customer Service at

1-800-444-2742 (United States and Canada) or+1-773-867-1777.

A candidate may discover that the material covered inone reference duplicates material covered in anotherreference. Both sources are included as references toprovide candidates some discretion in selecting testpreparation materials that they find accessible andunderstandable. For instance, a candidate who uses aspecific reference in preparing for a certification examthat he or she passed may feel comfortable using thatsame reference to prepare for other certification exams.In deciding if a single reference is sufficient, candidates

should assess their own levels of knowledge againstboth the descriptive examination specifications and thedetailed topic list contained in the respective module’scontent outline. If there are any areas of weakness, thecandidate should consult another reference as part ofthe test preparation process.

The CPIM scaled score range is 265–330:

265–299: Fail

300–330: Pass

320 and greater: Fellow level


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Use of References Across Exam ModulesWhile these references do not cover the CPIM body of knowledge extensively, they do cover the material a successfulcandidate is required to know.

References Author(s) BSCM MPR DSP ECO SMR

APICS Dictionary , 14th ed., 2013 APICS X X X X XAPICS CPIM Basics of Supply Chain ManagementReprints, 2009

APICS ExamCommittee

X

APICS CPIM Detailed Scheduling and Planning

Reprints, 2010

APICS Exam

CommitteeX

APICS CPIM Execution and Control of OperationsReprints, 2011

APICS ExamCommittee

X

APICS CPIM Master Planning of ResourcesReprints, 2010

APICS ExamCommittee

X

Designing and Managing the Supply Chain , 3rded., 2008

Simchi-Levi,Kaminsky, Simchi-Levi

X

Introduction to Materials Management , 7th ed.,2012

Arnold, Chapman,Clive

X X X

Juran’s Quality Handbook , 6th ed., McGraw Hill,2010

Juran, DeFeo X

Lean Production Simplified , 2nd ed., 2007 Dennis X X

The Lean Toolbox , 4th ed., 2009 Bicheno, Holweg XManufacturing Planning and Control for SupplyChain Management , APICS/CPIM CertificationEdition, 2011

Jacobs, Berry,Whybark, Vollmann

X X X

Making Sustainability Work , 2008 Epstein X

Project Management , 11th ed., 2013 Kerzner X

Strategic Management of Resources ReferencesSourcebook, 2009

APICS X

It is not practical to list all texts that contain excellent material. Although not currently primary references for the exams,the following chart shows texts that have been used previously for both the CPIM body of knowledge and APICS CPIMcourseware. These are still excellent and viable references for APICS CPIM candidates to study.

References Author(s) BSCM MPR DSP ECO SMRCapacity Management , 2008 Blackstone XDistribution Planning and Control , 2nd ed., 2004 Ross XA Guide to the Project Management Body ofKnowledge ,4th ed., 2008

Project ManagementInstitute StandardsCommittee

X

Introduction to Materials Management , 6th ed.,2008

Arnold, Chapman,Clive

X X X

Juran’s Quality Planning and Analysis , 5th ed.,2007

Gryna, Chua, DeFeo X

Lean Six Sigma , 2002 George XManufacturing Planning and Control Systems forSupply Chain Management , 5th ed., 2005

Vollmann, Berry,Whybark, Jacobs

X X X

Master Scheduling in the 21st Century, 2003 Wallace, Stahl XProject Management , 7th ed., 2008 Meredith, Mantel XProject Management , 10th ed., 2009 Meredith, Mantel XSales & Operations Planning: The How-toHandbook , 3rd ed., 2008

Wallace, Stahl X

Sales Forecasting: A New Approach , 2002 Wallace, Stahl XService Management and Operations , 2nd ed.,2000

Haksever, Render,Russell, Murdick

X


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The serious student of operations management who wishes to stay current with the state of the art will take advantage ofpublications such as those listed in the APICS Educational Resources Brochure (stock #01041), a comprehensivebrochure featuring APICS reference materials. To receive the brochure, call APICS Customer Service at 1-800-444-2742(United States and Canada), or +1-773-867-1777, or visit apics.org/shopapics.

Content outline. The content outline for each moduleprovides an overview of the major topics included in thatmodule. Each major topic is denoted by a Romannumeral and is followed by a list of the references thatare particularly relevant to that topic.

APICS Dictionary . The APICS Dictionary , 14th edition,is an essential publication that applies to the examcontent manual and exams. Within the profession,terminology varies among industries, companies, andthe academic community. Each examination usesstandard terminology as defined in the APICSDictionary . Recognizing the terms and understandingtheir definitions are essential.

Reprints. The committee responsible for the examcontent manual and examination selects articles that areparticularly applicable to the curricula and exam

preparation. These articles then are reprinted in module-specific collections. The reprints are included in thereferences for each module.

TerminologyIn studying for the APICS CPIM certification, candidatesmay discover multiple terms used to denote the sametechnique. Examples of this include ”sales andoperations planning” versus “production planning” and“master production schedule” versus “master schedule”.APICS has attempted to provide consistency across allmodules with recognized and preferred terminology.However, synonyms are often used by authors in the

various references used to compile the body ofknowledge. Candidates are encouraged to be familiarwith all terms and concepts listed within each outline andkey terminology section, using the APICS Dictionary asthe primary guide for definitions.


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Additional Resources forAPICS CPIM Candidates

In addition to the cited references, it may be helpful foryou to pursue chapter-sponsored courses, collegecourses, APICS workshops, self-study courses, orcourses offered by the APICS network of AuthorizedEducation Providers (AEPs) as a means of learning the

body of knowledge that is tested in the certificationprogram. A wide variety of courses is available. As withany investment, you should research various coursesbefore choosing one.

For courses, visit the Partner and Event Finder on theAPICS website at apics.org/finder or call APICSCustomer Service at 1-800-444-2742 (United States andCanada) or +1-773-867-1777.

APICS CPIM Instructor-Led ReviewCoursesAvailable for each module of the APICS CPIM program,APICS CPIM review courses are designed for classroomreview of the key principles and concepts for eachcontent area. This Exam Content Manual (ECM) is usedas the basis for the content in the CPIM ReviewCourses. It is important to understand that CPIM Reviewcourses are intended to assist the candidate in reviewingthe body of knowledge and are not necessarilyeducation. There will likely be some content in APICSreview courses not covered by the exams. Coursedevelopers and/or instructors may believe that additionalmaterial needs to be taught or included in the glossary toensure understanding of the body of knowledge that canbe tested. They also may decide that a concept or term

is adequately covered by the definitions in the APICSDictionary or the CPIM ECM Glossary and not cover it inthe course. These differences sometime lead candidatesto perceive a potential disconnect between thecourseware and the exam, when in fact they are bothcovering the same body of knowledge.

APICS CPIM review courses do not “teach the test” and,in many areas, they review but do not teach concepts.All APICS review courses provide a thorough review ofthe subject matter, but none should be used without themost current CPIM Exam Content Manual as a means todirect the candidate’s study.

Note: The review course participant workbook is not astand-alone reference or comprehensive single sourceand should be used only by a participant attending aninstructor-led review course.

For courses, visit the Partner and Event Finder on theAPICS website at apics.org/finder or call APICSCustomer Service at 1-800-444-2742 (United States andCanada) or +1-773-867-1777.

Independent Study CoursesAPICS correspondence courses offer professionals aunique home-study alternative to the classroom.Correspondence courses are designed and conducted

for APICS by the MGI Management Institute. For moreinformation on course availability, contact APICSCustomer Service at 1-800-444-2742 (United States andCanada), or +1-773-867-1777.

APICS Educational ProgramsAPICS offers a variety of educational programs,including workshops in supply chain and operationsmanagement and an annual international conferenceand exposition. For a complete list of APICS learningopportunities and information on course availability, callAPICS Customer Service at 1-800-444-2742 (UnitedStates and Canada), or +1-773-867-1777.

APICS Online Study ToolsThe new APICS CPIM Study Tools are anonline resource for APICS CPIM students tocomplement self study or instructor-led courses.APICS CPIM Study Tools can be accessed atapics.org. For more information, please contactAPICS Customer Service at 1-800-444-2742 (UnitedStates and Canada), or +1-773-867-1777.


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APICS Certified Fellowin Production andInventory Management(CFPIM)

The distinguishing characteristic of a Certified Fellow inProduction and Inventory Management (CFPIM) is thewillingness to share acquired knowledge with othersthrough presenting, teaching, publishing, andparticipating in APICS educational activities. Thisknowledge sharing must take place above and beyond acandidate's normal job duties and be directly related tothe APICS CPIM body of knowledge.

To obtain the APICS CFPIM designation, an applicationform must be filled out and submitted to the APICScorporate office. Points are awarded based on thefollowing criteria: APICS CPIM exams passed,

presentations, high scores on APICS CPIM exams (320or greater), published works, classroom teaching, andvarious volunteer or/ practitioner activities. To obtaincopies and a more detailed explanation of the CFPIMguidelines and application, contact APICS CustomerService and request stock #09052, or visit the APICSwebsite at apics.org/cfpim.

APICS CPIMCertificationMaintenance:ContinuingProfessionalDevelopment

The Importance of CertificationMaintenance

The growing number of individuals choosing to pursueprofessional development through the APICS CPIMprogram indicates a strong awareness that continuingeducation and skills development are essential tomeeting the information and technological challenges intoday’s rapidly evolving workplace and globalmarketplace. Professional development opens doors toindividual career opportunities and organizationalsuccess.

Although APICS CPIM recognition and maintenance arevoluntary programs, they equally demonstrate one’scommitment to achieving the highest level ofprofessional development and standards of excellence.

Both the APICS CPIM certification and APICS CPIMcertification maintenance programs demonstrate one’scommitment to achieving the highest level ofprofessional development and standards of excellence.

The APICS CPIM certification maintenance programupholds both the objectives of the APICS CPIM programand the APICS vision to promote lifelong learning. Thisflexible program recognizes that individuals are atvarious levels in their careers, come from manyindustries, have different educational needs and careergoals, and have varying degrees of access to continuingeducation. Thus, requirements for maintainingcertification can be met through multiple sources and avariety of professional development activities intended tohelp prepare for the challenges ahead and maintain aprofessional edge by

• preserving the currency of hard-earned

certification credentials expanding yourknowledge of the latest industry practices

• expanding your knowledge of the latest industrypractices reinforcing skills

• exploring new technology solutions

• reinforcing skills

• improving job performance

• demonstrating commitment to excellence

• increasing competitive advantage.

To promote professional growth and lifelong learning,APICS CPIM and CFPIM designees must complete thecertification maintenance program every five years.

Complete details on how to maintain your designationwill be mailed to candidates upon successful completionof the certification requirements.

APICS Code of EthicsWhen you start an examination, you will be asked topledge to abide by the APICS Code of Ethics. Oncecertified, you pledge to continue your education toincrease your contribution to the supply chain andoperations management profession. After achieving thefellow level of certification (CFPIM), you pledge also to

share your APICS CPIM knowledge with others byparticipating in APICS research and educationalactivities at local, district, national, and internationallevels.

The APICS Code of Ethics is as follows:

• Maintain exemplary standards of professionalconduct


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• Not misrepresent your qualifications, experience, oreducation to APICS or others you serve in aprofessional capacity

• Respect and not violate the United States Copyrightof all APICS materials, including but not limited tocourseware, magazine articles and other APICSpublications, APICS conference presentations, andCPIM and CSCP examination resources. In thissame spirit, you must not violate the copyright ofother organizations and individuals in yourprofessional capacity

• Not engage in or sanction any exploitation of one’smembership, company, or profession

• Encourage and cooperate in the interchange ofknowledge and techniques for the mutual benefit ofthe profession

• Inn your professional capacity, respect thefundamental rights and dignity of all individuals. Youmust demonstrate sensitivity to cultural, individual,and role differences, including those due to age,gender, race, ethnicity, national origin, religion,sexual orientation, disability, language, and socio-economic status

• In your professional capacity, not engage inbehavior that is harassing or demeaning to othersbased on factors including, but not limited to, age,gender, race, ethnicity, national origin, religion,sexual orientation, disability, language, or socio-economic status

• Adhere to this Code of Conduct and its application toyour professional work. Lack of awareness ormisunderstanding of an ethical standard is not itselfa defense to a charge of unethical conduct

• Contact the Ethics Committee when uncertainwhether a particular situation or course of actionviolates the Code of Conduct

• Not to become the subject of public disrepute,contempt, or scandal that affects your image orgoodwill.

Failure to abide by APICS Code of Ethics policy may

result in sanctions up to and including decertification.


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Basics of Supply Chain

Management

Effective for January 1, 2014–December 31, 2014,exams.

EXAMINATION COMMITTEE

Mark C. Hardison, CFPIM, CSCP (Chair)Catalent Pharma Solutions

Rebecca B. Hallock, CPIMMarilyn M. Helms, D.B.A., CFPIM, CIRM, CSCP,

CQM/OE, Dalton State CollegeRamona Memmott, CPIM

Tahitian Noni InternationalBlair R. Williams, CFPIM, CSCP

NYU-Polytechnic University, Tech. Ed. Inc.

Scope of the Subject MatterPlease read the introductory materials in this manual foressential information pertaining to the examination.

The subject matter of Basics of Supply ChainManagement is assumed as a prerequisite for the otherAPICS CPIM modules, which cover similar topics but ingreater depth.

The first section of the content outline covers basicbusiness-wide concepts, including an understanding ofthe various supply chain environments. Commonmanagement concepts and techniques—supply chainfundamentals, operating environments, financial

fundamentals, enterprise resources planning, lean,quality fundamentals, and the theory of constraints—arepresented.

The second section of the outline covers demandmanagement, including a basic understanding of howmarkets shape demand, how customers in thesemarkets define value for the goods and services theydesire, then managing all demands for goods andservices to support the marketplace.

The third section of the outline covers transformation ofdemand into supply and includes the design of products

(goods and services), processes, and informationsystems. The fundamentals of planning, priorities andcapacity, execution, controls, and performancemeasures are discussed.

The fourth section of the content outline is devoted tosupply issues covering inventory costs, functions, andmetrics. It provides an overview of suppliermanagement, demand management, and monitoringsupplier performance. Physical distribution systems

encompass transportation, warehousing, reverselogistics, and distribution requirements planning.

The successful candidate will understand and be able todiscuss the major management philosophies used in asupply chain. Emphasis is on manufacturing, but theexamination also covers the distribution, service, andretail industries. This understanding includes thefundamental relationships in the design, planning,execution, monitoring, and control that occur. Thecandidate should also understand

• fundamental relationships among supply chainactivities

• enterprise resources planning

• lean

• quality management

• the theory of constraints.

Basics of Supply Chain ManagementContentThe following table identifies the four main topics of theexam. The relative importance of these topics varies

among industries, but the figures show the percentagedesignated for each section of the exam.

Diagnostic part Main topic Percentage ofexam

I Business-wideConcepts

25%

II DemandManagement

25%

III Transformationof Demand into

Supply

25%

IV Supply 25%

Content OutlineI. Business-wide Concepts

In this section, common management concepts andtechniques—supply chain fundamentals, operatingenvironments, financial fundamentals, enterpriseresources planning, lean, quality fundamentals, andtheory of constraints—are presented.

A. Supply Chain Fundamentals : The concept of aglobal network used to deliver products and servicesfrom raw materials to end consumers through anengineered flow of information, physical distribution,and cash. It includes managing conflicts that occurwithin the supply chain. Businesses are also calledupon to voluntarily demonstrate social responsibilityin operating their supply chains.1. A supply chain is a network of retailers,

distributors, transporters, storage facilities, and


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suppliers that participate in the production,delivery and sale of a product or service to theconsumer. It also includes moving items fromthe consumer back to the producer.

2. Supply chain conflicts exist among tradingpartners such as synchronizing supply withdemand, minimizing inventory investment,maximizing customer service, and managingtotal cost.

3. Organizational conflicts exist between finance,sales, production, marketing, engineering, andplanning functions within a business. Examplesinclude: too much inventory versus too littleinventory; large batches versus small batches;releasing product now versus releasing productwhen correct; and expediting orders versus notexpediting.

4 The United Nations Global Compact addressescorporate sustainability in the world economy byasking companies to embrace, support, and

enact a set of core values in the areas of humanrights, labor standards, the environment, andanticorruption.

B. Operating Environments : Environments are themarket-driven production strategies that determinespecific operating decisions.

1. The definition and impact of the operatingenvironment depend on customer expectations,cumulative lead times, inventory, sustainability,product design, and life cycles.

2. Process choices for products and servicesinclude flow, intermittent, and project.

3. Production environment strategies includeengineer-to-order, make-to-order, assemble-to-order, make-to-stock, and remanufacturing.

C. Financial Fundamentals : Basic financial statementsdefine the financial reporting common to mostbusinesses. Underlying costs and analysis termsprovide further understanding of statementinformation and often serve as the basis formanagement decisions.

1. Balance sheets, income statement, and cashflow statement make up the standard financialreporting tools.

2. Financial reporting must take into account thecost of goods sold, general and administrativecosts, and fixed versus variable costs.

3. Financial data are used to analyze cash flow,profit and loss, margin and throughput, inventoryvelocity, and the make-or-buy decision as itrelates to total cost.

D. Enterprise Resources Planning (ERP): ERP is aframework for organizing, defining, andstandardizing the business processes necessary toeffectively plan and control an organization so that itcan use its internal knowledge to seek externaladvantage. The objective for using ERP is the cross-functional integration of planning, executing,controlling, and measuring functions required toeffectively operate a business organization to meetcustomer expectations. Key characteristics of ERPinclude its use as an integrated knowledge anddecision-making tool, cross-functional alignment ofthe organization, the closed loop (feedback)mechanism, what-if simulation capabilities, andintegrated financial data and performancemeasurement functions.

E. Lean: Lean is a philosophy that emphasizes the

minimization of the amount of all the resources(including time) used in the various activities of theenterprise.

1. Lean objectives are comprised of the eliminationof waste, providing value from the customer’sperspective and continuous improvement.

2. Key characteristics include flow manufacturing,process flexibility, quality at the source, supplierpartnerships, employee involvement, totalproductive maintenance, pull systems, and workcells.

F. Quality Fundamentals: Quality management focuseson customer needs using a variety of tools andtechniques. The objective of quality management isto increase profitability and customer satisfaction. Itincorporates concepts such as: quality control tools,quality costs, quality function deployment, employeeinvolvement and empowerment, continuous processimprovement, six sigma, variation, process capabilityand control, and benchmarking.

G. Theory of Constraints (TOC): A philosophy thatfocuses the resources of an organization onmanaging throughput and financial performance.Key characteristics and techniques include productflow analysis; throughput accounting; constraintsmanagement; and continuous improvement.

References: 1; 2; 3 (chapters 1–2, 6, 9, 14–16); 4; 5; 6

II. Demand Management


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This section covers sources of demand for goods andservices, including a basic understanding of markets,voice of the customer, and an overview of demandplanning.

A. Market Driven : Consumer needs, competitivesources, economic conditions, and governmentregulations determine the demand experienced bysuppliers.

B. Voice of the Customer: Actual customer worddescriptions of the functions and features thatcustomers desire for goods and services

C. Demand Management : Demand management is thefunction of recognizing all demands for goods andservices to support the marketplace. Demandmanagement serves as a key input into the salesand operations plan and master productionschedule.

1. Sources of independent demand that must beconsidered are forecasts along with customer,

service, replenishment, and inter-companyorders.

2. Forecast management consists ofunderstanding the principles of forecasting, thecharacteristics of demand, various forecastingtechniques, forecast error measurement, andmanaging the variability of demand.

3. Order processing occurs upon receipt of acustomer’s order. Goods or services will befulfilled based on the operating environment.

References: 1; 2; 3 (chapters 1, 8, 16)

III. Transformation of Demand into Supply

This section includes the design of products andservices, capacity management, planning, execution andcontrol, and performance measurements.

A. Product and Process Design : Design affects productand process; the resulting framework of planningsystem parameters; and the requirement for dataappropriate in source, content, and accuracy.Collaboration with customers and suppliers willimprove product and process design.

1. Products and the processes used to make themare designed to create products more appealingto customers, to improve productivity,competitiveness, and sustainability.

2. Information systems should follow product andprocess design. Data governance is necessaryto ensure data record accuracy.

B. Capacity Management : The function of establishing,measuring, monitoring, and adjusting limits or levelsof capacity to execute all schedules. Capacitymanagement encompasses resource requirementsplanning, rough-cut capacity planning, capacityrequirements planning, input/output controls, andconstraints management.

C. Planning: The process of setting goals for theorganization and choosing how to use theorganization’s resources to achieve them. Thesedifferent planning techniques vary depending ontraditional, lean, or theory of constraints operatingenvironments.

1. Strategic planning/hoshin planning

2. Business planning

3. Sales and operations planning and resourcerequirements planning

4. Master production scheduling and rough cut

capacity planning

5. Material requirements planning and capacityrequirements planning

6. Final assembly scheduling and input/outputcontrol

7. Drum-buffer-rope and constraint management

8. Advanced planning and scheduling

9. Project management

D. Execution and Control : The interrelationshipsbetween production activity control techniques(input/output control, kanban, constraintsmanagement) and planning schedules aresynchronized to meet customer servicerequirements.

1 The output of material requirements planning isused to execute the production plan andmaterial releases.

2. Operations are executed using forward,backward, finite, infinite, mixed model, kanban,or constraint scheduling.

3 Techniques for maintaining and communicatingshop floor order status include capacity control,production reporting, priority control, and flowcontrol.

4. An important part of execution and control isfocusing on quality assurance by measuringquality, monitoring process variation, andimproving process control.


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E. Performance Measurements : Key performanceindicators are metrics used to weigh organizationalperformance against strategic and tactical goals.

References: 1; 2; 3 (chapters 1–7, 9–11, 14–16)

IV. Supply

This section includes the actual or planned provision of aproduct, component, or service and its sustainability.

A. Inventory : Those stocks or items used to supportproduction (raw materials and work-in-processitems), supporting activities (maintenance, repair,and operating supplies), and customer service(finished goods and service parts).

1. Inventories can be classified according to theirfunctions. This includes transportation; lot size;anticipation, fluctuation, hedge, maintenance,repair, and operating (MRO), and buffer.

2. Inventories are monitored using the followingmethods: physical inventory, ABC classification,cycle counting, record accuracy, days of supply,and inventory turns.

3. Inventories can be replenished using push orpull systems.

4. Inventory management decisions must consider:item costs, carrying costs, ordering costs,stockout costs, and capacity-associated costs.These include strategies and policies related tocustomer service and return on investment.

5. There are four methods accounting uses tovalue inventory: first in first out, last in first out,average cost, and standard cost.

B. Purchasing Cycle : The function and responsibility forunderstanding demand; sourcing, procuringmaterials, supplies, or services; receiving goods;and approving invoices for payment.

1. The purchasing process begins with any of thefollowing signals: requisition, MRP output,kanban, and buffer.

2. Sourcing includes supplier selection,certification, agreements, and partnerships,including vendor-managed inventory (VMI).Total acquisition costs must be considered.

3. Order processing includes purchase release,defining terms and conditions, and monitoringsupplier performance.

4. Order completion includes receipt of goods andapproval of invoice.

C. Distribution : The link between the supplier and thecustomer to deliver products and services isfacilitated by transportation, warehousing,distribution inventory, distribution channels, andreverse logistics. Total system cost is used fordecision-making.

1. Global distribution encompasses the movementof goods around the world. Decision factorsinclude lead time, tariffs and regulatorycompliance.

2. Transportation is the function of planning,scheduling, and controlling activities related tomode, carrier type, and movement of inventoriesinto and out of an organization.

3. Warehousing consists of the activities related toreceiving, storing, and shipping materials.

4. Distribution inventory typically consists ofservice parts and finished goods located in adistribution system.

5. A distribution channel is the route, from rawmaterials through consumption, along whichproducts travel. A transaction channel is adistribution network that deals with change ofownership of goods and services including theactivities of negotiation, selling, and contracting.

6. Reverse logistics is a complete supply chaindedicated to the reverse flow of products and

materials for the purpose of returns, repair,remanufacture, or recycling.

7. The total-cost concept takes the position that alllogistical decisions providing equal servicelevels should favor the option that minimizes thetotal logistical costs across all areas versus acost reduction in a single area.

References: 1; 2; 3 (chapters 7, 9–13, 15)

Key TerminologyAn understanding of the following list of terms isrecommended. The list is intended to be thorough but

not exhaustive. The candidate is also expected to befamiliar with the definitions of terms identified in thecontent outline. Definitions of these terms can be foundin the APICS Dictionary , 14th edition.

AABC classificationadvanced planning and scheduling (APS)


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advance ship notice (ASN)andonanticipation inventoriesassemble-to-orderassembly lineassignable causeavailable inventoryavailable-to-promise (ATP)average inventory

Bbackflushbackhaulingbacklogbackorderback schedulingbalance sheetbar codebatchbatch pickingbiasbill of lading (uniform)bill of material (BOM)

bonded warehousebottleneckbreak-bulkbreak-even pointbufferbuffer managementbullwhip effectbusiness plan

Ccapable-to-promise (CTP)capacity availablecapacity management

capacity planningcapacity requirements planning (CRP)carrying costcash flowcause-and-effect diagramcellular manufacturingcentralized inventory controlcertified supplierchase production methodclosed-loop MRPcommon carriercomponentconsignmentconstraintcontinuous process improvement (CPI)continuous productioncontinuous replenishmentcontract carriercontrol chartcontrol limitcost of goods soldcost of poor qualitycritical chain methodcritical path method (CPM)

cross-dockingcumulative lead timecustomer relationship management (CRM)customer servicecustoms brokercycle countingcycle stockcycle time

Ddays of supplydecentralized inventory controldecoupling inventorydelivery lead timedemand lead timedemand managementdemand planningdemonstrated capacitydemurragedependent demanddetentiondirect labordirect material

discrete manufacturingdiscrete order pickingdispatchingdistributiondistribution centerdistribution channeldistribution inventorydistribution requirements planning (DRP)distribution warehousedock-to-stockdrop shipdrum-buffer-rope (DBR)drum schedule

duty

Eeconomic order quantity (EOQ)efficiencyelectronic data interchange (EDI)employee empowermentemployee involvement (EI)engineer-to-orderenterprise resources planning (ERP)explodeexternal failure costsexternal setup timeextrinsic forecasting method

Ffield servicefinal assembly schedule (FAS)finished goods inventoryfinite forward schedulingfinite loadingfirm planned order (FPO)five focusing stepsfive Ss


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five whysfixed-location storagefixed order quantityfixed overheadfixed-position manufacturingflowchartflow processingflow shopfluctuation inventoryforecastforecast errorforward schedulingfour Ps (product, price, place, promotion)freight consolidationfreight forwarderfunctional layout

GGantt chartgembagenchi genbutsugeneral and administrative expenses (G&A)generally accepted accounting practices (GAAP)

green reverse logisticsgross margingross requirement

Hhanseihedge inventoryheijunkahistogramhoshinhoshin planning

I

idle capacityincome statementincotermsindented bill of materialindependent demandinfinite loadinginput/output control (I/O)intermittent productionintermodal transportinternal failure costsinternal setup timeinterplant demandin-transit inventoryintrinsic forecast methodinventory accuracyinventory adjustmentinventory bufferinventory controlinventory managementinventory ordering systeminventory turnover

J jidoka jishuken job costing job shop job shop scheduling

Kkaizenkanbankey performance indicator (KPI)

Llanded costlead timelead-time offsetleading indicatorlean productionlevel of servicelevel production methodlevel scheduleliabilitiesline haul costs

loadload levelinglogisticslotlot controllot-for-lotlot sizelot-size inventory

Mmaintenance, repair, and operating (MRO) suppliesmake-or-buy decisionmake-to-order

make-to-stockmanufacturing calendarmanufacturing lead timemanufacturing ordermanufacturing philosophymanufacturing processmanufacturing resource planning (MRP II)market drivenmarket strategymass customizationmaster planningmaster production schedule (MPS)master schedulematerial requirements planning (MRP)materials handlingmaterials managementmean absolute deviation (MAD)milk runmin-max systemmixed-model productionmixed-model schedulingmodularization


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run time

Ssafety stocksales and operations planning (S&OP)sales plansawtooth diagramscatter chartscatterplotscheduled receiptschedulingscrapseasonal inventoryseasonalitysenseiserviceservice industryservice partssetupsetup timeShingo’s seven wastesshipping manifestsingle-level bill of material

single-source suppliersix sigmaSMARTsplit lotspreadstandard costsstandard timestart datestatistical process control (SPC)stockkeeping unit (SKU)stockout costsstockout percentagestore

strategic plansubcontractingsummarized bill of materialsuppliersupplier certificationsupplier lead timesupplier partnershipsupplier relationship management (SRM)supply chainsupply chain managementsustainability

Ttactical plan(s)takt timetariffterminalterminal-handling coststerms and conditionstheory of constraints (TOC)theory of constraints accountingthird-party logistics (3PL)

throughputtime buckettime buffertime fencetime-phased order point (TPOP)tolerancetotal cost curvetotal cost of ownership (TCO)total coststotal line-haul costtotal productive maintenance (TPM)total quality management (TQM)traceabilitytracking signaltraffictransaction channeltransit inventorytransit timetransportationtransportation inventorytrendtruckload carrierstwo-bin inventory system

two-card kanban system

UU-linesuniform plant loadingunit costUnited Nations Global CompactUN Global Compact Management Modelunit loadsunit of measureunitizationupstreamutilization

Vvalue addedvalue analysisvalue chain analysisvalue streamvalue stream mappingvariable costvarianceVATI analysisvelocityvendor-managed inventory (VMI)visual review systemvoice of the customer (VOC)

Wwait timewall-to-wall inventorywarehousingwastewave pickingwaybill


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wayswhat-if analysiswhere-used listwork cellwork centerwork in process (WIP)work order

Yyield

Zzonezone picking

Supplemental GlossaryThe following concepts, not found in the APICSDictionary , 14th edition, will be helpful in preparing for

the Basics of Supply Chain Management (BSCM)examination.

Data governance —The overall management of theaccessibility, usability, reliability, and security of dataused to ensure data record accuracy.

Lean six sigma —A combined approach for processimprovement and problem solving based on lean and sixsigma methodologies.

Risk management —Risk management is a systematicapproach to minimizing an organization’s exposure touncertainty.

BibliographyAll test candidates should familiarize themselves with thefollowing references for this examination. Therecommended references pertaining to the diagnosticareas are listed at the end of each section of the contentoutline. The text, Introduction to Materials Management,covers the majority of the material for this module. Theother references provide coverage of some of the topicareas and can enhance candidates’ understanding of thebody of knowledge. Please see the AdditionalResources section in the introduction to this manual for alist of past references that can also be used for study. Allprinted references are available fromapics.org/shopapics.

References

1. APICS CPIM Basics of Supply Chain ManagementReprints, 2009.

2. APICS Dictionary , 14th ed., 2013.

3. Arnold, J.R. Tony, S.N. Chapman, and L.M. Clive,Introduction to Materials Management , 7th ed.,Prentice Hall, 2012.

4. Dennis, P., Lean Production Simplified: A Plain- Language Guide to the World’s Most PowerfulProduction System , 2nd ed., Productivity Press,2007.

5. * United Nations Global Compact: CorporateSustainability in the World Economy. 2011. UNGlobal Compact Office.

6. * UN Global Compact Management Model:Framework for Implementation . 2010. DeloitteTouche Tohmatsu. Welcome message by GeorgKell. Foreword by John Connolly.

*Internet links cited in the bibliographic references above can be foundat http://www.apics.org/careers-education-professional-development/certification/ cpim/primary-references.


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Sample QuestionsThe following ten questions are similar in format andcontent to the questions on the exam. These questionsare intended for practice—that is, to enable you tobecome familiar with the way the questions are asked.The degree of success you have in answering thesequestions is not related to your potential for success onthe actual exam, and should not be interpreted as such.

Read each question, select an answer, and check yourresponse with the explanation on page 46.

1. The shipping buffer in the drum-buffer-ropescheduling process serves which of the followingfunctions?

(A) It is used to create the master productionschedule.

(B) It provides protection for the order due date.(C) It provides protection to the constraint.(D) It is used to release work to the floor.

2. When using the 5S approach, which step isimplemented last?

(A) Sequence(B) Sustain(C) Straighten(D) Self-discipline

3. Which of the following documents is best used tounderstand a company's ability to pay its bills?

(A) Cash flow statement(B) Income statement(C) Balance sheet

(D) Market-share report

4. Which of the following statements about forecastingis true?

(A) Forecasts are more accurate for individualproducts.

(B) Forecasts are most useful for items withdependent demand.

(C) Forecasts should include an estimate of error.(D) Forecasts typically are more accurate when

projected over a longer period.

5. Intrinsic forecast data should be based on which ofthe following considerations?

(A) Judgment, intuition, and informed opinions(B) Economic indicators(C) Shipment history(D) Sales history

6. Which of the following approaches represents thelongest planning range in capacity management?

(A) Capacity requirements plan(B) Resource requirements plan(C) Rough-cut capacity plan(D) Input/output control

7. An order of 10 components requires 16 standardhours. How much time should be allocated if thework center has an efficiency of 80 percent and autilization of 80 percent?

(A) 22.40 hours(B) 10.24 hours(C) 16.00 hours(D) 25.00 hours

8. The primary objective of a random-location storagesystem is to improve

(A) distribution(B) kitting(C) access to stock(D) use of space

9. Which of the following types of carriers lease or owntheir equipment, operate it themselves, and aretypically company-owned?

(A) Common(B) Contract(C) Private(D) Parcel

10. What type of inventory creates independencebetween supply and the use of material?

(A) Cycle(B) Transit(C) Decouple(D) Hedge


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Answers to SampleQuestionsNote: References to the content outline appear inparentheses.

Basics of Supply Chain Management

1. B (IG2) A shipping buffer prevents missed duedates. A is incorrect because the drum is the rate ofproduction set by the system’s constraint. C isincorrect because a constraint buffer is used tobuffer the constraint. D is incorrect because the ropeis the communications process for releasing work.

2, B (IE1) The order of the five Ss approach is sort,straighten, shine, standardize, and sustain. A isincorrect because sequence is not one of the fiveSs. C is incorrect because straighten is the secondstep. D is incorrect because self discipline is not oneof the five Ss.

3. A (IC1) A cash flow statement shows the flow ofcash and its timing into and out of an organization.B is incorrect because an income statement showsprofit and loss over a period of time. C is incorrectbecause a balance sheet shows the resourcesowned, the debts owed, and the owner’s equity at agiven point in time. D is incorrect because a marketshare report indicates how well a firm is doing in themarket.

4. C (IIC2) Forecasts are usually wrong, therefore,every forecast should include an estimate of error.

A is incorrect because forecasts are more accuratefor families or groups. B is incorrect becauseforecasts are used for independent demand items.D is incorrect because forecasts are more accuratefor near-term periods.

5. D (IIC2) Intrinsic forecast data is based on interiorfactors such as sales history. A and B are incorrectbecause these are extrinsic data. C is incorrectbecause shipment history may not show the actualdemand if product was unavailable for shipment.

6. B (IIIB) Resource requirements planning is long-

range capacity planning completed at the productionplan level. A is incorrect because capacityrequirements planning is done at the MRP level. C isincorrect because rough-cut capacity planning isdone at the master schedule level. D is incorrectbecause input/output control is completed duringexecution of the plan and is the shortest planningrange.

7. D (IIIB) To calculate how much actual time will beneeded to complete 16 standard hours of work,

divide the capacity required by the efficiency timesthe utilization (actual time = capacity required /(efficiency) (utilization) (actual time = 16 / (80%)(80%). A is incorrect because it was incorrectlycalculated by multiplying the 16 hours required by 40percent (the difference in the capacity and utilizationfrom 100 percent) and adding the amount to the 16hours required ((16 × 40% = 6.4), then (16 + 6.4 =22.4)). B is incorrect because it was incorrectlycalculated by multiplying efficiency and utilizationand then multiplying the required standard hours(80% × 80% = .64, then .64 × 16 = 10.24). C isincorrect because it is the standard hours requiredand does not consider the efficiency and utilizationof the operation.

8. D (IVC3) Random-location storage enables parts tobe placed in any space that is empty. This methodoften required less storage space than a fixed-location storage method. A is incorrect becausedistribution is the activities associated with themovement of material from the manufacturer to thecustomer. B is incorrect because kitting is the

process of constructing and staging kits. C isincorrect because access to stock is usually anadvantage of fixed-location storage.

9. C (IVC2) Private carriers lease or own their owntransportation equipment. Operating costs includenot only investment in equipment, but insurance,permits and maintenance expenses as well. Mostare company-owned and haul only their own goods.A is incorrect because common carriers carry goodsfor anyone wanting their services. B is incorrectbecause contract carriers haul only for those withwhom they have a contract. D is incorrect because

parcel carriers carry goods for the public.

10. C (IVA3) Decoupling creates independence betweensupply and use of material. A is incorrect because itis lot size inventory. B is incorrect because it isinventory in transit between locations. D is incorrectbecause hedge is a form of inventory buildup tobuffer against some event that may not happen.

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