Certified Supply Chain Professional (CSCP) Practice Exam

What does positive standard deviation indicate regarding demand?

1. Demand exceeds forecast (stockout)

2. Demand equals forecast

3. Demand is less than forecast

4. Demand is highly predictable

The correct answer is: Demand exceeds forecast (stockout)

A positive standard deviation in the context of demand indicates variability or dispersion of demand values around the mean. When standard deviation is positive, it signifies that there is a range of values for demand rather than a single, constant figure. This variability can lead to scenarios where actual demand exceeds forecasted demand, resulting in stockouts if the inventory is not sufficiently planned to accommodate these fluctuations. When demand exceeds the forecast due to the normal variability reflected in the positive standard deviation, organizations often face challenges in meeting customer needs, leading to stock shortages. It highlights the importance of incorporating variability into demand planning and safety stock calculations, ensuring that the supply chain can respond effectively to unforeseen spikes in demand. In contrast, a zero or negative standard deviation would suggest a consistent or predictable demand, where actual demand closely aligns with forecasts. Such scenarios would be less risky regarding inventory levels. However, a positive standard deviation indicates potential discrepancies that could result in stockouts if not managed properly, hence reinforcing the importance of adequate inventory strategies in forecasting and planning.