Certified Maintenance & Reliability Professional (CMRP) Practice Exam

What is the term used for optimizing inventory levels to minimize costs while meeting customer needs?

1. Just-in-time Inventory

2. Economic Order Quantity

3. Safety Stock Level

4. Reorder Point

The correct answer is: Economic Order Quantity

The term that describes the process of optimizing inventory levels to minimize costs while still meeting customer needs is Economic Order Quantity (EOQ). This model helps businesses determine the optimal quantity of inventory to order that will minimize the total costs associated with ordering and holding inventory. By calculating the EOQ, organizations can reduce excess inventory costs and ensure that they have enough stock to meet customer demand, which leads to improved customer satisfaction and better cash flow management. Just-in-time (JIT) inventory focuses on receiving goods only as they are needed in the production process, which also aims to minimize inventory costs but is distinct from the concept of EOQ. Safety stock level refers to the extra inventory kept on hand to prevent stockouts but does not directly address ordering frequency or quantity. Reorder point is the inventory level at which a new order must be placed to avoid running out of stock, focusing on timing rather than quantity optimization.