CPIM Practice Exam

Which statement regarding average daily usage is correct?

1. It is calculated using total annual sales

2. It is used to determine days of supply

3. It is only relevant for seasonal products

4. It refers to the average cost of goods sold

The correct answer is: It is used to determine days of supply

Average daily usage is a critical metric in inventory management that reflects how much product is used or sold on average per day. This figure is essential for various operations, particularly in determining the days of supply. When businesses calculate average daily usage, they can forecast how quickly inventory will be depleted based on the current stock levels. This information helps in making informed decisions about when to reorder inventory to maintain sufficient stock levels and avoid stockouts. In the context of calculation, average daily usage is indeed derived from total annual sales, but the key aspect here is how this information informs inventory management practices, such as understanding days of supply. Knowing the average daily usage allows supply chain professionals to assess how long current inventory will last at the normal sales rate, which is essential for planning and maintaining optimal inventory levels. The other statements regarding average daily usage do not emphasize its direct role in inventory management practices as effectively as the correct choice. While average daily usage can be calculated from total annual sales, its primary application is in determining days of supply, making that statement the most accurate in this context.