CIPS

L5M10
ELECTIVE Logistics Management
QUESTION & ANSWERS

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QUESTION 1

Logistics is the flow of goods along a supply chain. Is this sentence true?

A. no- logistics is the management of supply and demand along the supply chain
B. yes- logistics is the flow of goods, but only downwards along the supply chain
C. yes but logistics also includes the flow of intangible items such as information and knowledge
D. no- logistics is the management of suppliers

Correct Answer: C

Explanation/Reference:

3 is the correct answer- although logistics IS the flow of goods, it is ALSO the flow of intangibles such
as information and knowledge. This is from p.3 of the study guide. Remember to think first- is the
sentence true or false, you can then discount 2 of the options. Between the two options left, there is
usually an obviously incorrect answer. Here the answer is YES so we discount options 1 and 4.
Between 2+3 option two is incorrect so option 3 must be right.

QUESTION 2

Paul is a Warehouse Manager at a large online retailer. He is conducting an analysis into his current
inventory and plans to use an ABC method to classify his inventory. Which of the following classes of
items would his most expensive products fall under?
A. A
B. B
C. C
D. any- an ABC analysis does not categorise by cost

Correct Answer: A

Explanation/Reference:

The most valuable items are in the A category. This usually represents around 10-20% of the stock.
See p.9 of the study guide for more on ABC. Note this is sometimes also called Pareto Inventory
Categorisation.

QUESTION 3

What is the name of the common indicator, often expressed as a percentage of time when an
organisation's core resource (equipment and people) is involved in the production or transformation
of resource?

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A. downtime rate
B. waiting rate
C. production rate
D. utilisation rate

Correct Answer: D

Explanation/Reference:

This is the definition of utilisation rate as found on p.132. To calculate the capacity utilisation rate the
formula is = throughput rate divided by design capacity.

QUESTION 4

When looking at a Total Cost of Ownership Model to determine the true cost of holding inventory,
which of the following costs would not be included within the calculation?

A. pilferage
B. obsolescence
C. warehouse staff uniforms
D. insurance

Correct Answer: C

Explanation/Reference:

Warehouse staff uniforms would come under overheads for the business not the cost of holding
inventory. The other three are costs of holding inventory. Pilferage = theft. Obsolescence = stock
going bad so it can't be sold (e.g. past an expiry date) and insurance is a cost of storing the items
(most warehouses are insured in case of fire or theft). Other TCO considerations for inventory are
listed on p.27 and include handing costs and management costs.

QUESTION 5

Which of the following pieces of information would you require to calculate a 'BOM explosure'? Select
TWO

A. materials required to complete an order

B. price of the materials
C. current inventory levels
D. lead-time of the materials

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Correct Answer: A,C

Explanation/Reference:

1 and 3 are correct. A BOM Explosure is a Bill of Materials Explosure- the process of calculating the
materials required to satisfy an order after deducting current inventory levels and anticipated
deliveries from suppliers. This is from p.182. BOM explosure sounds made up but it's a real thing, this
link explains it well: https://help.sap.com/doc/saphelp_me60/6.0.4/en-
US/1d/c1ba538c95b54ce10000000a174cb4/content.htm?no_cache=true

QUESTION 6

Which of the following will you put into box 2?

A. make to order
B. make to stock
C. engineer to order
D. assemble to order

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Correct Answer: A

Explanation/Reference:

The correct answers are as follows:

QUESTION 7

Yolo Inc is a low cost manufacturer and has very tight profit margins. In order to remain profitable it is
vital that logistics contributes to the reduction of costs wherever possible. In terms of transportation
of goods, which of the following strategies would best help this aim?

A. run a competitive tender once per year to ensure the cheapest logistics company is contracted
B. manage inbound logistics to strict KPIs to reduce the waste of time and materials
C. ensure there are no activities completed that do not provide 'value add' to the company
D. ensure the fleet is branded with Yolo Inc's logo to ensure more customers are aware of the brand

Correct Answer: B

Explanation/Reference:

Option 2 will help reduce costs. Option 1 won't be save money as running tender exercises are costly
and where companies are only guaranteed a 1 year contract, their prices might not be the most
competitive as they won't value your business as much. You may find that working in partnership with
a logistics company long term helps to keep costs low. Option 3 is incorrect as not all activities
completed by logistics can add value- some things just have to be done. There is no 'added value' in
transportation for example, but goods do have to be moved. Option 4 is incorrect as this won't reduce
costs. See p.53 and the section on 'cost as a business strategy' for more details.

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QUESTION 8

In an organisation which has implemented the Theory of Constraint into its manufacturing division,
which of the following is true?

A. inventory is seen as a liability

B. inventory is seen as an asset
C. inventory is not held
D. inventory is held by the customer

Correct Answer: A

Explanation/Reference:

Inventory is seen as a liability in the Theory of Constraint. This differs to traditional accounting
practices which views inventory as an asset. See p.141-142

QUESTION 9

Baby Ltd is a manufacturer of prams. Each quarter it manufactures 100 prams. In Q1 Baby Ltd sold 78
prams. A customer phones Baby Ltd in March asking if they can order 3 prams for the following
month. Is there Availability to Promise?

A. yes- as there were 22 prams unsold last quarter

B. yes- 100 prams will be manufactured in Q2 so the customer can order one of these
C. maybe - this will depend on the number of customer orders received already for Q2
D. maybe - the customer must wait until Q2 to be sure

Correct Answer: C

Explanation/Reference:

3 is correct. Providing the company has less than 122 orders for Q2, (100 prams it manufactures this
quarter plus the 22 unsold from Q1) there is Availability to Promise. Without knowing how many
prams have been ordered so far for Q2, it's uncertain whether this customer can buy a pram or not. If
there is a huge order for 120 prams in April, then Baby Ltd cannot fulfil the order to the customer who
phoned. If there have only been 45 prams reserved in April, then yes there would be Availability to
Promise. For more on Availability to Promise see p.182.

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QUESTION 10

Cleo Manufacturing has recently introduced a new Electronic Data Interchange (EDI) system. Which of
the following is an advantage of using this type of technology?

A. it replaces emails
B. it allows humans to check the work for accuracy
C. it is cheap to introduce
D. it simplifies the supply chain

Correct Answer: A

Explanation/Reference:

EDI can replace emails. The other answers are incorrect. EDI takes out all human functions of placing
orders, with the idea being that this reduces the likelihood of errors. EDI is not cheap to introduce and
doesn't affect the supply chain- the supply chain remains the same. All that happens is orders are
places via spreadsheet formulas and done automatically. See p.81 for further details on EDI

QUESTION 11

A Transport Management System comprises of several functions, which of the following is not one of
these functions?

A. planning and decision making

B. transport execution
C. fleet maintenance
D. measurement and reporting

Correct Answer: C

Explanation/Reference:

Fleet maintenance isn't one of the 4 functions of a Transport Management System. The other three
are, and the one missing is 'transport follow up'. This is from p.91 of the study guide.

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