Certified Supply Chain Professional (CSCP) Practice Exam

In decentralized inventory planning, how is inventory managed?

1. It is centralized at a main distribution center

2. Each stage independently determines its inventory

3. Inventory is managed by a corporate office

4. It follows a just-in-time approach

The correct answer is: Each stage independently determines its inventory

In decentralized inventory planning, inventory management involves allowing each stage of the supply chain to determine its inventory levels independently. This approach empowers individual units, such as departments, warehouses, or stores, to make decisions tailored to their specific needs and circumstances. Such flexibility can lead to a more responsive inventory system, as local managers can react quickly to changes in demand or supply conditions without waiting for approval from a centralized authority. This method can enhance service levels at different points in the supply chain because each unit can stock items based on its unique sales patterns and inventory turnover. It also reduces overhead associated with centralized decision-making processes, allowing for potentially lower transportation costs and improved overall efficiency. Centralized inventory management models, where inventory is controlled by a single corporate office or a main distribution center, may overlook local insights and needs, which can lead to inefficiencies. Likewise, a just-in-time approach requires precise timing and can be more rigid, often unsuitable for every stage of the supply chain. Decentralized inventory management, therefore, focuses on localized control and adaptability to meet immediate needs effectively.