Certified Supply Chain Professional (CSCP) Practice Exam

Which of the following best describes the min-max system?

1. It allows for fixed quantities of orders at predetermined times

2. Inventory levels must never exceed a maximum level and reordering occurs at minimum levels

3. Reorders are placed based on forecasted demand only

4. It establishes a fixed point to stop ordering

The correct answer is: Inventory levels must never exceed a maximum level and reordering occurs at minimum levels

The min-max system is a widely used inventory management approach that focuses on maintaining stock levels within predetermined limits to ensure optimal inventory availability while minimizing excess. The correct answer highlights that inventory levels must not exceed a maximum threshold and that reordering occurs when inventory falls to a minimum level. This system ensures that there is enough stock to meet demand without overstocking. The use of minimum and maximum levels allows businesses to maintain a balanced inventory. The minimum level serves as a trigger for replenishment, ensuring that stock is ordered before it runs too low, thereby preventing stockouts that could disrupt operations or sales. At the same time, the maximum level prevents excessive inventory accumulation, which can tie up capital and increase holding costs. The other options do not accurately capture the essence of the min-max system. For example, simply ordering fixed quantities at set times does not incorporate the responsive nature of inventory levels based on actual usage or sales trends. Additionally, relying solely on forecasted demand does not take into account the actual inventory on hand, which is a critical aspect of the min-max approach. Finally, establishing a fixed point to stop ordering does not align with the dynamic nature of inventory management that min-max systems embody, where reordering is responsive to stock levels rather than fixed