CIPS L4M8 Exam - Topic 9 Question 15 Discussion

Actual exam question for CIPS's L4M8 exam

Question #: 15
Topic #: 9

Describe two negative factors associated with ordering excess inventory.

AExplanation:
In the decision to not run out of supplies, organizations can anticipate a peak were by it products will be in a high demand or a period of scarcity of raw materials and may want to increase the in-ventory. However, if this forecast is not accurate, it may lead the organization to holding excess inventory. This can expose the organization to some negative factors.
Acquisition Cost: The organization will incur an acquisition cost for the excess inventory which is inclusive of the cost of placing the order and the cost of purchasing the goods.
Holding Cost: The organization will spend more money holding the stock, trying to keep it in good condition by providing the required light, temperature, skilled handlers and so on.
Working Capital not adding value: This will off shoot the holding cost. Also valuable working capital in excess stock which in the time not adding value, can affect the liquidity of the business. This is also an opportunity cost and increase solvency.

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Suggested Answer: A

by Loreta at Mar 30, 2023, 02:42 PM

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Nathalie

7 months ago

Really? I thought excess inventory could be a safety net.

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Kimi

7 months ago

Disagree, sometimes it's better to have too much than too little.

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Annelle

7 months ago

Isn't it surprising how much working capital gets wasted?

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Ling

7 months ago

Totally agree, those holding costs can add up fast!

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Kate

7 months ago

Excess inventory ties up cash flow.

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Lashawnda

8 months ago

I recall that holding costs can really add up, especially with storage and maintenance, but I can't quite remember the specifics of how they impact overall profitability.

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Ronny

8 months ago

I feel like I might have mixed up the terms, but I know that excess inventory can also lead to spoilage or obsolescence, which is definitely a negative factor.

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Melissa

8 months ago

I think one negative factor is the opportunity cost of tying up capital in unsold goods. It’s similar to a practice question we did on inventory management.

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Lashawnda

8 months ago

I remember studying how excess inventory can lead to increased holding costs, but I'm not sure if there are other factors we discussed.

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Kara

8 months ago

Hmm, I'm a little unsure about this one. I think I'd want to dig deeper and check the custom profile parameters to make sure they're set up properly. The web console could be really helpful for that.

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Paola

8 months ago

The question is asking for the top-level directory, so I'll go with /var/ to be safe.

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