Certified Supply Chain Professional (CSCP) Practice Exam

What does the order point system determine?

1. The total quantity of inventory to order

2. The inventory level at which reordering is needed

3. The maximum stock level to maintain

4. The time required for an order to arrive

The correct answer is: The inventory level at which reordering is needed

The order point system is a crucial component of inventory management, specifically designed to ensure that stock levels are maintained effectively without running into shortages. The purpose of an order point system is to establish a specific inventory level, known as the reorder point, at which inventory is low enough that a new order should be placed. This is a proactive measure that allows businesses to replenish inventory before it reaches critically low levels, thereby ensuring that there is always enough stock on hand to meet customer demand. When inventory levels drop to the predetermined reorder point, it triggers the ordering process, allowing for timely replenishment. This contributes to efficient supply chain operations, minimizes the risk of stockouts, and helps maintain service levels. In contrast, determining the total quantity of inventory to order relates to concepts such as Economic Order Quantity (EOQ), which focuses on how much to order rather than when to order. The maximum stock level pertains to inventory control measures designed to avoid carrying excess stock, while the time for an order to arrive deals specifically with lead times and does not directly relate to the reorder point itself. Thus, the correct response highlights the specific functionality of the order point system within inventory management.