Discuss APICS CPIM-Part-2 Exam Topic 1 Question 45

An analysis was done on a group of parts that showed a missed delivery resulting in lost sales on other product lines many times greater than the value of the initial lost sale. As a result, the company launched an initiative to increase the fill rate on these parts to 100%. Currently, they have raised the fill rate to 99%. As they continue the initiative, what effects are most likely expected?

AOperating costs and service level will both increase at the same rate.

BOperating costs will increase slower than service level,

COperating costs will increase faster than service level.

DNeither operating costs nor service level will increase.

Suggested Answer: C

Fill rate is the percentage of customer orders that are fulfilled without running out of inventory or placing backorders1. Fill rate is an important measure of customer service and inventory management efficiency. A high fill rate indicates that the company can meet customer demand in a timely and accurate manner, while a low fill rate suggests that the company is struggling to satisfy customer expectations.

Operating costs are the expenses associated with running a business, such as rent, utilities, wages, transportation, etc2. Operating costs are influenced by various factors, such as production volume, inventory level, technology, and quality. A high operating cost means that the company spends more money to produce and deliver its products or services, while a low operating cost means that the company spends less money to do so.

Service level is the measure of how well a company delivers its products or services to its customers, based on criteria such as availability, timeliness, quality, and satisfaction3. Service level is affected by various factors, such as demand variability, supply reliability, capacity utilization, and customer feedback. A high service level means that the company meets or exceeds customer expectations, while a low service level means that the company fails or falls short of customer expectations.

As the company continues its initiative to increase the fill rate on these parts to 100%, it is most likely that operating costs will increase faster than service level.This is because increasing the fill rate requires increasing the inventory level, which in turn increases the carrying costs, such as warehousing, insurance, taxes, and obsolescence4.Moreover, increasing the fill rate also requires reducing the variability and uncertainty in demand and supply, which may involve investing in more advanced technology, improving quality control, enhancing supplier relationships, or implementing demand management techniques5. These actions can also increase the operating costs of the company.

However, increasing the fill rate does not necessarily increase the service level at the same rate.This is because service level depends not only on fill rate, but also on other factors, such as delivery speed, order accuracy, product quality, and customer satisfaction6. Therefore, increasing the fill rate may not be enough to improve the service level significantly. In fact, there may be a point of diminishing returns, where increasing the fill rate beyond a certain level does not result in a proportional increase in service level. For example, increasing the fill rate from 95% to 99% may have a noticeable impact on service level, but increasing it from 99% to 100% may have a negligible impact on service level.

Get Premium CPIM-Part-2 Questions as Interactive Web-Based Practice Test or PDF Real Exam Format Detailed Explanations Instant Access Get Your Practice Test

24 comments · newest first

Lashon 9 months ago

Wait, how did they even get to 99%? That's surprising!

Sherell 9 months ago

Agree, costs will increase slower than service level.

Wenona 9 months ago

I doubt they can hit 100% without major costs.

Cortney 10 months ago

I think operating costs will definitely rise faster.

Claribel 11 months ago

Fill rate at 99% is impressive!

Ernest 11 months ago

From what I studied, it seems like achieving that last percentage point in fill rate often requires significant investment, so I lean towards option C.

Carole 11 months ago

I’m a bit confused about the relationship between costs and service levels. I feel like they might increase together, but I can't recall the specifics.

Celestine 11 months ago

I think we practiced a similar question where we concluded that operating costs tend to rise more steeply as you push for higher service levels.

Dorsey 12 months ago

I remember discussing how increasing fill rates can lead to higher operating costs, but I'm not sure if it would be faster than the service level increase.

Larae 12 months ago

This seems straightforward to me. If they're increasing the fill rate, that means they're holding more inventory, which will drive up operating costs. But it should also improve the service level, so I think the answer is B.

Ronna 12 months ago

I'm a bit confused on this one. Increasing the fill rate should improve the service level, but how does that affect the operating costs? I'll need to review my notes on inventory management to make sure I understand the dynamics here.

Myong 1 year ago

Okay, let's see. If they're trying to increase the fill rate to 100%, that's going to require more inventory, which should increase operating costs. But it should also improve the service level, so I'm guessing the answer is B.

Pok 1 year ago

Hmm, this seems like a tricky one. I'll need to think through the relationship between fill rate, operating costs, and service level to figure out the best answer.

Laurel 1 year ago

I'm going with B. The company is already doing a great job, so the incremental improvements shouldn't be too painful. Plus, they'll probably get a nice boost in customer satisfaction.

Angelo 1 year ago

D is just wishful thinking. There's no such thing as a free lunch in business, so operating costs and service level are bound to go up.

Amber 1 year ago

Hmm, I'm not so sure. Reaching 100% fill rate might require significant investments in inventory and logistics, so C could be the correct answer.

Gilberto 10 months ago

↳ replying to Amber

I agree with Lashon. 100% fill rate is tough.

Jacob 10 months ago

↳ replying to Amber

But what about B? Maybe costs won't spike as much.

Lashon 10 months ago

↳ replying to Amber

I think C makes sense. Costs will rise quickly.

Novella 10 months ago

↳ replying to Amber

I’m leaning towards A. Both will increase together.

Sherita 1 year ago

I think operating costs will increase slower than service level because of efficiency improvements.

Layla 1 year ago

I think the answer is B. The company is already at a 99% fill rate, so increasing it further won't require a huge investment, and the improved service level will outweigh the incremental costs.

Cecilia 1 year ago

I disagree, I believe operating costs and service level will both increase at the same rate.

Lili 1 year ago

I think the operating costs will increase faster than service level.

APICS CPIM-Part-2 Exam - Topic 1 Question 45 Discussion