Certified Supply Chain Professional (CSCP) Practice Exam

Up to what percentage can a supply chain's invested working capital be tied up in inventory?

1. 30%

2. 40%

3. 50%

4. 60%

The correct answer is: 50%

In supply chain management, it is recognized that a significant portion of invested working capital can be tied up in inventory. The correct answer reflects a common benchmark, as studies and industry standards often indicate that inventory can indeed account for up to 50% of a company's invested working capital. This benchmark is significant because it highlights the importance of inventory management in optimizing working capital. When inventory levels are too high, it not only ties up capital that could be used for other business needs but also increases costs related to storage, insurance, and potential obsolescence. Recognizing that inventory can represent a substantial percentage helps businesses focus on efficiencies and practices that can reduce unnecessary inventory and improve liquidity. While other choices suggest lower limits, they do not adequately represent the flexibility and common practices seen in various industries where operating with up to 50% of working capital in inventory is a feasible target. Thus, understanding this percentage is crucial for professionals aiming to optimize supply chain operations and financial performance.