Certified Supply Chain Professional (CSCP) Practice Exam

What is indicated when consistently positive tracking signals are recorded?

1. Accurate forecasting methods

2. High risk of stockouts

3. High inventory levels

4. Inaccurate forecasting methods

The correct answer is: High risk of stockouts

When consistently positive tracking signals are recorded, this indicates that the actual demand is consistently falling below the forecasted demand. In this context, tracking signals are used to measure the performance of demand forecasts against actual demand. A positive tracking signal signifies that the forecasts are overestimating demand, which can create situations where inventory levels may be higher than necessary because the organization has prepared for more demand than what is actually occurring. This can lead to excess stock and increased carrying costs. However, the presence of consistently positive tracking signals itself does not point towards high inventory levels; rather, it predicts a scenario where stockouts could potentially occur due to the mismatch between forecasted and actual demand. Therefore, accurately interpreting these signals is crucial. They reveal an opportunity to refine forecasting methods, potentially leading to more accurate estimates of demand and better alignment of inventory levels with true market needs. High stock levels or stockouts are subsequent concerns that organizations should be vigilant about when tracking signals indicate over-forecasting trends.