Supply Chain Exam 2 (Chapter 11)

1) Even though a firm may have a low cost strategy, supply-chain strategy can select suppliers primarily on response or differentiation.

Answer: FALSE

2) The supply chain for a brewery would include raw ingredients such as hops and barley but not the manufactured goods such as bottles and cans.

Answer: FALSE

3) When using the low-cost strategy for supply chain management, a firm should use buffer stocks to ensure speedy supply.

Answer: FALSE

4) Savings in the supply chain exert more leverage as the firm’s net profit margin decreases.

Answer: TRUE

5) A firm that employs a response strategy should minimize inventory throughout the supply chain.

Answer: FALSE

6) Supply chain decisions are not generally strategic in nature, because purchasing is not a large expense for most firms.

Answer: FALSE

7) Because service firms do not acquire goods and services externally, their supply chain management issues are insignificant.

Answer: FALSE

8) Which of the following characteristics is NOT common to all four of Darden Restaurants’ supply channels?
A) supplier qualification
B) product tracking
C) independent audits
D) refrigeration
E) just-in-time delivery

Answer: D) refrigeration

9) Which of the following would NOT typically be considered as part of a manufacturing firm’s supply chain?
A) suppliers
B) distributors
C) wholesalers
D) retailers
E) landscaping contractors

Answer: E) landscaping contractors

10) In most manufacturing industries, which of the following would likely represent the largest cost to the firm?
A) transportation
B) purchasing
C) insurance
D) financing
E) advertising

Answer: B) purchasing

11) Among which of the following industries are purchasing costs the LOWEST percentage of sales?
A) automobiles
B) petroleum
C) restaurants
D) lumber
E) chemicals

Answer: C) restaurants

12) Which of the following is a primary supplier selection criterion for a firm pursuing a differentiation strategy?
A) product development skills
B) cost
C) capacity
D) speed
E) flexibility

Answer: A) product development skills

13) For which corporate strategy(ies) should supply chain inventory be minimized?
A) low cost
B) response
C) differentiation
D) low cost and response
E) low cost and differentiation

Answer: E) low cost and differentiation

14) Which of the following statements is true regarding the leverage of supply chain savings?
A) Supply chain leverage is about the same for all industries.
B) Supply chain savings exert more leverage as the firm’s purchases are a smaller percent of sales.
C) Supply chain savings exert more leverage as the firm’s net profit margin decreases.
D) Supply chain leverage depends only upon the percent of sales spent in the supply chain.
E) None of the above is true.

Answer: C) Supply chain savings exert more leverage as the firm’s net profit margin decreases.

1) Outsourcing refers to transferring a firm’s activities that have traditionally been internal to external suppliers.

Answer: TRUE

2) Outsourcing is a form of specialization that allows the outsourcing firm to focus on its key success factors.

Answer: TRUE

3) The objective of the make-or-buy decision is to help identify the products and services that can be obtained externally.

Answer: TRUE

4) Outsourcing:
A) transfers traditional internal activities to outside vendors.
B) utilizes the efficiency that comes with specialization.
C) allows the outsourcing firm to focus on its key success factors.
D) All of the above are true of outsourcing.
E) None of the above is true of outsourcing.

Answer: D) All of the above are true of outsourcing.

5) The transfer of some of what are traditional internal activities and resources of a firm to outside vendors is:
A) a standard use of the make-or-buy decision.
B) not allowed by the ethics code of the Supply Management Institute.
C) offshoring.
D) outsourcing.
E) keiretsu.

Answer: D) outsourcing.

1) With the "many suppliers" sourcing strategy, the order usually goes to the supplier that offers the highest quality.

Answer: FALSE

2) Vertical integration, whether forward or backward, requires the firm to become more specialized.

Answer: FALSE

3) A fast-food retailer that acquired a spice manufacturer would be practicing backward integration.

Answer: TRUE

4) Keiretsu refers to a company coalition that is part collaboration, part purchasing from many suppliers, and part vertical integration.

Answer: FALSE

5) Which one of the following is NOT one of the six sourcing strategies?
A) negotiation with many suppliers
B) vertical integration
C) keiretsu
D) short-term relationships with few suppliers
E) virtual companies

Answer: D) short-term relationships with few suppliers

6) A disadvantage of the "few suppliers" sourcing strategy is:
A) the risk of not being ready for technological change.
B) the lack of cost savings for customers and suppliers.
C) possible violations of the Sherman Antitrust Act.
D) the high cost of changing partners.
E) the suppliers are less likely to understand the broad objectives of the procuring firm and the end customer.

Answer: D) the high cost of changing partners.

7) Which sourcing strategy is particularly common when the products being sourced are commodities?
A) few suppliers
B) many suppliers
C) keiretsu
D) vertical integration
E) virtual companies

Answer: B) many suppliers

8) Which of the following is NOT an advantage of the "few suppliers" sourcing strategy?
A) suppliers have a learning curve that yields lower transaction and production costs
B) suppliers are more likely to understand the broad objectives of the end customer
C) less vulnerable trade secrets
D) creation of value by allowing suppliers to have economies of scale
E) suppliers’ willingness to provide technological expertise

Answer: C) less vulnerable trade secrets

9) Which of the following is NOT a condition that favors the success of vertical integration?
A) availability of capital
B) availability of managerial talent
C) sufficiently high demand
D) small market share
E) All of the above favor the success of vertical integration.

Answer: D) small market share

10) Which of the following best describes vertical integration?
A) sell products to a supplier or a distributor
B) develop the ability to produce products that complement the original product
C) produce goods or services previously purchased
D) develop the ability to produce the specified good more efficiently than before
E) build long-term partnerships with a few suppliers
Answer: C

Answer: C) produce goods or services previously purchased

11) A fried chicken fast-food chain that acquired feed mills and poultry farms has performed which of the following?
A) horizontal integration
B) forward integration
C) backward integration
D) current transformation
E) job expansion

Answer: C) backward integration

12) Vertical integration appears particularly advantageous when the organization has:
A) a very specialized product.
B) a large market share.
C) a very common, undifferentiated product.
D) little experience operating an acquired vendor.
E) purchases that are a relatively small percent of sales.

Answer: B) a large market share.

13) A rice mill in south Louisiana purchases the trucking firm that transports packaged rice to distributors. This is an example of which of the following?
A) horizontal integration
B) forward integration
C) backward integration
D) current transformation
E) keiretsu

Answer: B) forward integration

14) Japanese manufacturers often pursue a strategy that is part collaboration, part purchasing from a few suppliers, and part vertical integration. What is this approach called?
A) kanban
B) keiretsu
C) samurai
D) poka-yoke
E) kaizen

Answer: B) keiretsu

15) The Japanese concept of a company coalition of suppliers is:
A) poka-yoke.
B) kaizen.
C) keiretsu.
D) dim sum.
E) illegal.

Answer: C) keiretsu.

16) Which of the following is NOT an advantage of a virtual company?
A) speed
B) total control over every aspect of the organization
C) specialized management expertise
D) low capital investment
E) flexibility

Answer: B) total control over every aspect of the organization

17) When Daimler and BMW pooled resources to develop standardized auto components, the sourcing strategy could best be described by which of the following?
A) keiretsu
B) virtual companies
C) joint venture
D) vertical integration
E) few suppliers

Answer: C) joint venture

18) Which of the following best describes Vizio’s sourcing strategy?
A) few suppliers
B) keiretsu
C) joint venture
D) vertical integration
E) virtual company

Answer: E) virtual company

1) Use of a diversified supply base represents one of the most common supply chain risk reduction tactics for several different supply chain risk categories.

Answer: TRUE

2) The new model of a tight, fast, low-inventory supply chain, operating across political and cultural boundaries, has reduced the overall level of supply chain risk.

Answer: FALSE

3) Cross-sourcing describes the practice of having two suppliers provide every component.

Answer: FALSE

4) Improvements in security, especially regarding the millions of shipping containers that enter the U.S. each year, are being held back by the lack of technological advances.

Answer: FALSE

5) Which of the following describes using one supplier for a component and a second supplier for another component, where each supplier acts as a backup for the other?
A) outsourcing
B) dual-sourcing
C) cross-sourcing
D) backup-sourcing
E) parallel-sourcing

Answer: C) cross-sourcing

6) With cross-sourcing, how many suppliers provide each component on a regular basis (i.e., excluding backup suppliers)?
A) 1
B) 2
C) 3
D) equal to the total number of components
E) equal to the number of countries to which the final product is sold

Answer: A) 1

7) Which of the following is NOT one of the risk mitigation tactics for the supply chain risk category of suppliers failing to deliver?
A) use multiple suppliers
B) effective contracts with penalties
C) subcontractors on retainer
D) require overnight delivery
E) pre-planning

Answer: D) require overnight delivery

8) Which of the following devices represents an opportunity for technology to improve security of container shipments?
A) devices that identify truck and container location
B) devices that sense motion
C) devices that measure radiation or temperature
D) devices that can communicate the breaking of a container lock or seal
E) all of the above

Answer: E) all of the above

1) The bullwhip effect refers to the increasing fluctuations in orders that often occur as orders move through the supply chain.

Answer: TRUE

2) Drop shipping results in time and shipping cost savings.

Answer: TRUE

3) The supply chain management opportunity called postponement involves delaying deliveries to avoid accumulation of inventory at the customer’s site.

Answer: FALSE

4) A blanket order is a long-term purchase commitment to a supplier for items that are to be delivered against short-term releases to ship.

Answer: TRUE

5) What is the practice of keeping a product generic as long as possible before customizing?
A) postponement
B) keiretsu
C) vendor-managed inventory
D) forward integration
E) backward integration

Answer: A) postponement

6) Local optimization is a supply-chain complication best described as:
A) optimizing one’s local area without full knowledge of supply chain needs.
B) obtaining very high production efficiency in a decentralized supply chain.
C) the prerequisite of global optimization.
D) the result of supply chains built on suppliers with compatible corporate cultures.
E) the opposite of the bullwhip effect.

Answer: A) optimizing one’s local area without full knowledge of supply chain needs.

7) The bullwhip effect:
A) occurs as orders are relayed from retailers to distributors to wholesalers to manufacturers.
B) results in increasing fluctuations at each step of the sequence.
C) increases the costs associated with inventory in the supply chain.
D) occurs because of distortions in information in the supply chain.
E) All of the above are true.

Answer: E) All of the above are true.

8) A restaurant runs a special promotion on lobster and plans to sell twice as many lobsters as usual. When this large order is sent to the distributor, the distributor assumes the large size is a trend, not a one-time event. The distributor therefore places an even larger order with the lobsterman. This behavior is the result of which of the following?
A) double marginalization
B) the bullwhip effect
C) CPFR
D) postponement
E) vendor-managed inventory

Answer: B) the bullwhip effect

9) Which of the following is NOT an opportunity for effective management in the supply chain?
A) accurate "pull" data
B) vendor-managed inventory
C) postponement
D) local optimization
E) CPFR

Answer: D) local optimization

10) Drop shipping:
A) is equivalent to cross-docking.
B) is the opposite of a blanket order.
C) means the supplier will ship directly to the end consumer, rather than to the seller.
D) is the same thing as keiretsu.
E) is a good reason to find a new firm to ship your products.

Answer: C) means the supplier will ship directly to the end consumer, rather than to the seller.

11) A carpet manufacturer has delivered carpet directly to the end consumer rather than to the carpet dealer. The carpet manufacturer is practicing which of the following?
A) postponement
B) cross-docking
C) channel assembly
D) drop shipping
E) float reduction

Answer: D) drop shipping

12) Hewlett-Packard withholds customization of its laser printers as long as possible. This is an example of which of the following?
A) vendor-managed inventory
B) standardization
C) backward integration
D) postponement
E) timely customization

Answer: D) postponement

13) All EXCEPT which of the following are "opportunities" in managing the integrated supply chain?
A) postponement
B) drop shipping
C) blanket orders
D) standardization
E) line balancing

Answer: E) line balancing

14) Which of the following is an advantage of the postponement technique?
A) reduction in automation
B) early customization of the product
C) better quality of the product
D) reduction in training costs
E) reduction in inventory investment

Answer: E) reduction in inventory investment

15) A furniture maker has delivered a dining set directly to the end consumer rather than to the furniture store. The furniture maker is practicing which of the following?
A) postponement
B) drop shipping
C) channel assembly
D) passing the buck
E) float reduction

Answer: B) drop shipping

16) TAL Apparel’s management of its supply chain for Stafford shirts sold in JCPenney in an example of which of the following?
A) blanket orders
B) standardization
C) postponement
D) lot size reduction
E) single-stage control of replenishment

Answer: E) single-stage control of replenishment

1) Operations managers are finding online auctions a fertile area for disposing of discontinued inventory.

Answer: TRUE

2) One classic type of negotiation strategy is the market-based price model.

Answer: TRUE

3) While the prices that consumers pay are often inflexible, a significant number of final prices paid in business-to-business transactions are negotiated.

Answer: TRUE

4) What type of negotiating strategy requires the supplier to open its books to the purchasers?
A) cost-based price model
B) market-based price model
C) competitive bidding
D) price-based model
E) transparent negotiations

Answer: A) cost-based price model

5) E-procurement:
A) works best in long-term contract situations but is not suited for auctions.
B) is the same thing as Internet purchasing.
C) has many benefits but requires a lot of paperwork.
D) is illegal in all states except Nevada and New Jersey.
E) All of the above are true of e-procurement.

Answer: B) is the same thing as Internet purchasing.

6) What are the three classic types of negotiation strategies?
A) supplier evaluation, supplier development, and supplier selection
B) Theory X, Theory Y, and Theory Z
C) many suppliers, few suppliers, and keiretsu
D) cost-based price model, market-based price model, and competitive bidding
E) traditional auctions, reverse auctions, and online exchanges

Answer: D) cost-based price model, market-based price model, and competitive bidding

7) What are the four stages of supplier selection?
A) supplier evaluation, supplier development, negotiations, and contracting
B) supplier evaluation, negotiations, supplier acquisition, and supplier development
C) introduction, growth, maturity, and decline
D) supplier evaluation, supplier development, negotiations, and centralized purchasing
E) negotiations, contracting, centralized purchasing, and E-procurement

Answer: A) supplier evaluation, supplier development, negotiations, and contracting

8) Which of the following would NOT be subject to negotiation between a buyer and supplier?
A) price
B) credit and delivery terms
C) quality standards
D) cooperative advertising agreements
E) All of the above could be negotiated.

Answer: E) All of the above could be negotiated.

9) Which of the following is NOT a typical benefit of centralized purchasing?
A) leverage purchase volume for better pricing
B) develop specialized staff expertise
C) reduce the duplication of tasks
D) reduce lead times
E) promote standardization

Answer: D) reduce lead times

10) In what type of auction does a buyer initiate the process by submitting a description of the desired product or service?
A) traditional
B) buyer
C) Dutch
D) French
E) Mexican

Answer: C) Dutch

1) Channel assembly, which sends components and modules to be assembled by a distributor, treats these distributors as manufacturing partners.

Answer: TRUE

2) Waterways are an attractive distribution system when speed is more important than shipping cost.

Answer: FALSE

3) Logistics management can provide a competitive advantage through improved customer service.

Answer: TRUE

4) What term is used to describe the outsourcing of logistics?
A) e-logistics
B) shipper-managed inventory (SMI)
C) hollow logistics
D) sub-logistics
E) third-party logistics (3PL)

Answer: E) third-party logistics (3PL)

5) Which one of the following distribution systems offers speed and reliability when emergency supplies are needed overseas?
A) trucking
B) railroads
C) airfreight
D) waterways
E) pipelines

Answer: C) airfreight

6) By which distribution system is more than 90 percent of U.S. coal shipped?
A) railroads
B) trucks
C) waterways
D) pipelines
E) none of the above

Answer: A) railroads

7) While freight rates are often based on very complicated pricing systems, in general, the primary freight price factor is based on which of the following attributes?
A) damage record
B) on-time delivery
C) door-to-door service
D) speed of shipment
E) consolidation capabilities

Answer: D) speed of shipment

8) Warehouses sometimes perform certain other functions besides storing goods. Which of the following is NOT typically one of those functions?
A) purchasing
B) postponement
C) break-bulk activities
D) consolidation point
E) cross-docking

Answer: A) purchasing

1) As the number of facilities increases, total logistics costs tend to follow a curve that first rises, then declines.

Answer: FALSE

2) Designing distribution networks to meet customer expectations suggests three criteria: (1) rapid response, (2) cost, and (3) service.

Answer: FALSE

3) Once revenue and total logistics costs are considered together, the optimal number of facilities in a distribution network may decrease compared to the optimal number of facilities based on total logistics costs only.

Answer: FALSE

4) Distribution management focuses on which of the following?
A) the outbound flow of products
B) incoming materials
C) allocation of demand among suppliers
D) setting dividend rates
E) balancing an assembly line

Answer: A) the outbound flow of products

5) Designing distribution networks to meet customer expectations suggests what three criteria?
A) rapid response, service, and cost
B) rapid response, product choice, and service
C) product choice, cost, and service
D) cost, process choice, and service
E) rapid response, cost, and process choice

Answer: B

6) What three logistics-related costs are relevant when analyzing the choice of number of facilities in a distribution network?
A) inventory costs, production costs, and transportation costs
B) inventory costs, production costs, and facility costs
C) inventory costs, transportation costs, and facility costs
D) facility costs, production costs, and transportation costs
E) facility costs, inventory costs, and marketing costs

Answer: C) inventory costs, transportation costs, and facility costs

7) As the number of facilities increases, total logistics costs tend to follow a curve that first declines, then rises. Why?
A) Transportation and inventory costs first decline steeply, then rise, while facility costs always rise.
B) Transportation costs always decline, but eventually the rise in facility and inventory costs outweigh the declining transportation costs.
C) Facility costs first decline steeply, then rise, while transportation and inventory costs always rise.
D) Transportation costs first decline steeply, then rise, while facility and inventory costs always rise.
E) Inventory costs first decline steeply, then rise, while transportation and facility costs always rise.

Answer: D) Transportation costs first decline steeply, then rise, while facility and inventory costs always rise.

8) Which of the following statements does NOT accurately explain what occurs when the number of facilities in a distribution network increases?
A) response time decreases
B) profit first increases, then decreases
C) total logistics costs first decrease, then increase
D) inventory costs increase
E) response time first decreases, then increases

Answer: E) response time first decreases, then increases

1) Because the supply chain has become so electronic and automated, opportunities for unethical behavior have been greatly reduced.

Answer: FALSE

2) The Institute for Supply Management:
A) establishes laws and regulations for supply management.
B) is an agency of the United Nations charged with promoting ethical conduct globally.
C) publishes the principles and standards for ethical supply management conduct.
D) prohibits backward integration into developing economies.
E) grants Ph.D. degrees in purchasing.

Answer: C) publishes the principles and standards for ethical supply management conduct.

3) In supply chain management, ethical issues:
A) are particularly important because of the enormous opportunities for abuse.
B) may be guided by company rules and codes of conduct.
C) become more complex the more global is the supply chain.
D) may be guided by the principles and standards of the Institute for Supply Management.
E) All of the above are true.

Answer: E) All of the above are true.

4) What term describes a supply chain that is designed to optimize both forward and reverse flows?
A) closed-loop supply chain
B) full-journey supply chain
C) circular supply chain
D) network supply chain
E) recycled supply chain

Answer: A) closed-loop supply chain

5) Which of the following is NOT true about reverse logistics as compared to forward logistics?
A) Inventory management is not consistent.
B) Distribution costs are less directly visible.
C) Pricing is dependent upon many factors.
D) Speed is often very important.
E) Forecasting is more uncertain.

Answer: D) Speed is often very important.

1) Benchmark firms have driven down costs of supply-chain performance.

Answer: TRUE

2) Consider a firm with an annual net income of $20 million, revenue of $60 million and cost of goods sold of $25 million. If the balance sheet amounts show $2 million of inventory and $500,000 of property, plant & equipment, what is the inventory turnover?
A) 12.50
B) 10.00
C) 42.00
D) 4.16
E) 20.00

Answer: A) 12.50

3) Consider a firm with an annual net income of $20 million, revenue of $60 million and cost of goods sold of $25 million. If the balance sheet amounts show $2 million of inventory and $500,000 of property, plant & equipment, how many weeks of supply does the firm hold?
A) 12.50
B) 5.20
C) 2.60
D) 0.08
E) 4.16

Answer: E) 4.16

4) Which of the following is NOT one of the five parts of the Supply Chain Operations Reference (SCOR) model?
A) Make
B) Sell
C) Plan
D) Source
E) Return

Answer: B) Sell