Align the Supply Chain to Support the Business Strategy

Question 1

In supply chain risk management, what does the term 'risk mitigation' refer to?

Taking actions to reduce the likelihood or impact of identified risks Accepting all potential risks and absorbing their financial consequences as they occur Documenting and cataloging every possible risk event in a formal register Transferring ownership of supply chain operations to a third-party provider

Correct Answer: Taking actions to reduce the likelihood or impact of identified risks

Risk mitigation specifically refers to proactive strategies and actions designed to reduce either the probability of a risk occurring or the severity of its impact on supply chain operations.

Accepting risks and absorbing consequences describes risk acceptance, which is a different risk response strategy. Transferring operations to a third party describes risk transfer or outsourcing, not mitigation. Documenting and cataloging risks in a register describes risk identification and assessment, which is an earlier step in the risk management process.

The key concept tested is understanding the distinction between risk mitigation and other risk response strategies within the supply chain risk management framework.

Question 2

A company purchases a new conveyor system for $80,000. It has a useful life of 10 years. The company expects to use it for production over the entire period. How should this purchase be classified in the company's budget?

As a capital expenditure allocated over the payback period only As a capital expenditure allocated over the asset's useful life As an operating expense recorded in the current fiscal year's budget As a maintenance expenditure spread across annual repair budgets

Correct Answer: As a capital expenditure allocated over the asset's useful life

A conveyor system costing $80,000 with a 10-year useful life is a capital expenditure that should be depreciated and allocated over its entire useful life, matching the cost to the periods that benefit from its use.

Recording it as an operating expense in a single year violates the matching principle and distorts that year's financial results. Allocating only over the payback period ignores the full useful life of the asset and conflates investment recovery with accounting depreciation. Classifying it as a maintenance expenditure mischaracterizes the nature of the purchase, since it is a new asset acquisition, not a repair or upkeep cost.

Key concept tested: capital expenditure classification and depreciation over useful life.

Question 3

A bakery produces cakes. Standard cakes like chocolate and vanilla are baked daily and placed on display shelves for walk-in customers. Which manufacturing environment best describes this bakery's approach?

Engineer-to-Order, since each cake recipe must be finalized before production begins Assemble-to-Order, since standard components are combined when customers arrive Make-to-Stock, since finished goods are produced ahead of customer demand Make-to-Order, since each cake is produced fresh for the customer's purchase

Correct Answer: Make-to-Stock, since finished goods are produced ahead of customer demand

Make-to-Stock is correct because the bakery produces standard finished cakes (chocolate, vanilla) in advance of customer demand and places them on shelves ready for immediate purchase, which is the defining characteristic of MTS.

Assemble-to-Order is wrong because there is no customer-triggered assembly of components at time of purchase. Make-to-Order is wrong because cakes are baked before any specific customer order is received. Engineer-to-Order is wrong because standard recipes already exist and no custom design work is needed.

The key concept tested is understanding Make-to-Stock manufacturing, where finished goods inventory is built based on forecasted demand rather than actual customer orders.

Align the Supply Chain to Support the Business Strategy

CPIM - Align the Supply Chain to Support the Business Strategy Example Questions

Question 1

Question 2

Question 3

Master Production & Inventory Management