CIPS L6M9 Supply Network Design Exam Practice Test

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Total 84 questions
Question 1

Maxi Ltd is a medium-sized manufacturing organisation in the automotive industry that creates engines for cars. It has traditionally worked well with its suppliers, with strong relationships and regular meetings. There are currently around 15 suppliers who provide parts to Maxi Ltd.

Due to changing customer demands, Maxi Ltd will, from next month, modify the manufacturing of some of its products. Product X is being made more environmentally friendly, with output of CO2 being reduced by 32%. The product will take longer to produce, but there will be no additional cost to customers for this.

Maxi ltd are considering outsourcing the manufacturing of Product Y as it is not a product which is routinely ordered by customers. This will allow Maxi Ltd to focus on other products which generate higher revenues for the company. The concern within the Board of Directors is that if demand increases for this product, an outsourced company may not be able to cope with higher numbers of orders.

Product Z is an extremely popular item and oftentimes Maxi Ltd does not have the capacity to fulfil all orders. Consideration has been given to increasing the size of the factory, but this has been discarded as risky as demand is not guaranteed. The product has been available on the marketplace for a short amount of time and sales are continuing to increase, but the company believes this will soon plateau. To deal with current demand, the marketing team is working on campaigns to invite customers to make orders for this product at certain times of the year when product X is not being created in the factory. This means resources can be reallocated to the creation of product Z.

What capacity strategy is being used for product Z?



Answer : D

The marketing team is encouraging customers to make orders at specific times of the year, when product X is not being produced, to better allocate resources. This is a classic example of demand smoothing, where businesses adjust demand patterns to match available capacity. (LO 1.3)


Question 2

Jed is the Operations Manager at a cake manufacturer and is trying to determine the optimum capacity of the factory.

Which of the following would be true if the factory achieves optimum capacity? Select ALL that apply.



Answer : B, C

Optimum capacity is achieved when:

Customer demand is met (B)

Production costs are minimized (C)

Incorrect options:

(A) is false because optimum capacity isn't necessarily the physical limit

(D) is false because the factory should be operating at a profit, not breakeven

(E) is false because the lowest cost per unit is achieved, not the highest

(F) is false because inventory levels should be minimized, not maximized (to reduce storage costs)

(See LO 1.3, p.46)


Question 3

A jewelry manufacturer has recently acquired the mining company that supplies the precious metals used in its jewelry production.

What is this an example of?



Answer : D

Backward vertical integration occurs when a company acquires a supplier or producer that is further upstream in the supply chain. In contrast, forward vertical integration happens when a company buys a retailer or distributor further downstream.

Note: Forward horizontal and backward horizontal integration do not exist---these are trick options. (See LO 1.2, p.42)


Question 4

Who are the four business players in the Value Net? Select ALL that apply.



Answer : A, C, E, F

The Value Net consists of suppliers, customers, competitors, and complementors. Unlike a supply chain, which focuses on material and information flow, the Value Net is about creating business value.

Supplier: Provides goods/services

Customer: Purchases goods/services

Competitor: Competes in the same market

Complementor: A business that enhances your product/service offering

Buyer and distributor are not primary players in the Value Net. (See LO 1.2, p.31)


Question 5

Company A manufactures wheels for Company B, which manufactures cars. Traditionally, Company A would complete the wheels and conduct quality assessments before sending them to Company B, which would then begin assembling cars. However, a new CEO at Company B has introduced a technology system that enables simultaneous production, meaning Company B starts manufacturing cars at the same time Company A begins producing wheels.

What is this new system known as?



Answer : C

Start to start means two different organisations at different levels of the supply chain begin their work simultaneously rather than sequentially. This is the opposite of a start to finish system, where the next process starts only when the previous one is completed. (See LO 1.2, p.19)


Question 6

Ping Lin Ltd is a toy manufacturer based in Chin

a. The company has a complex supply chain involving raw material suppliers, retailers, international distributors, and logistics firms. Zeng, a Logistics Coordinator, has noticed irregularities in the ordering of materials in the lower part of the supply chain. Combined with irregular consumer buying patterns, this poses a risk to the organisation.

What is this phenomenon known as?



Answer : B

The Bullwhip Effect describes how small changes in demand at the consumer level create larger variances in supply chain orders upstream. It leads to inefficiencies, overstocking, or shortages.

Note: This is also known as the Forrester Effect (not 'Forrest Effect'---that was a trick!). A famous real-world example occurred during COVID-19, when panic-buying caused toilet paper shortages.

For more insights, read: The Bullwhip Effect & Toilet Paper Shortages (See LO 1.1, p.12)

For more insights, read: The Bullwhip Effect & Toilet Paper Shortages (See LO 1.1, p.12)


Question 7

Which of the following are disadvantages of the small-capacity strategy in capacity planning? Select ALL that apply.



Answer : A, B

The small-capacity strategy means a company deliberately produces below optimal capacity. This provides agility and flexibility to respond to market changes and allows for customer personalisation. However, the disadvantages include:

Higher production costs (lack of economies of scale)

Weaker ability to compete on price (since larger-capacity businesses have lower production costs)

Options C and D are disadvantages of large-capacity strategy, not small-capacity. (See LO 1.3)


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