Suply-Chain Management Short Answers

SUPPLY-CHAIN MANAGEMENT TRUE/FALSE 1. Volkswagen's Rio de Janeiro plant represents traditional supply chain management. False (Global company profile: Volkswagen, easy) 2. Volkswagen's Rio de Janeiro plant achieves a new, high level of supply chain integration. True (Global company profile: Volkswagen, easy) 3. Most firms spend over 50% of their sales dollars on purchases. True (Introduction, easy) 4. One key to effective supply chain management is to make the suppliers "partners" in the firm's strategy. True (The strategic importance of the supply chain, moderate) 5. Activities of supply chain managers are generally limited to the operations function. False (The strategic importance of the supply chain, moderate) 6. Supply chain management is the management of the activities that procure material and services, transforming them into intermediate goods and final products, and delivering the products through a distribution system. True (The strategic importance of the supply chain, easy) 7. The objective of supply chain management is to build a chain of suppliers that focuses on maximizing value to the ultimate customer. True (The strategic importance of the supply chain, easy) 8. Even though a firm may have a low cost strategy, supply chain strategy can select suppliers primarily on response or differentiation. False (The strategic importance of the supply chain, moderate) 9. McDonald's was able to utilize existing plants and transportation systems in preparing the supply chain for opening its stores in Moscow. False (The strategic importance of the supply chain, moderate) 10. When using the low-cost strategy for supply chain management, the firm should invest aggressively to reduce production lead time. False (The strategic importance of the supply chain, moderate) 11. Make-or-buy decisions should be reviewed periodically. True (Supply chain economics, moderate) 12. Outsourcing refers to transferring a firm’s activities that have traditionally been internal to external suppliers. True (Supply chain economics, moderate) 13. A reduction in inventory costs is one reason for making rather than buying. False (Supply chain economics, moderate) 14. One reason to make an item, rather than buy, is to utilize surplus labor. True (Supply chain economics, moderate) 15. The need for special technical expertise is one reason for buying rather than making. True (Supply chain economics, moderate) 16. Since the supply chain economics function in a business often spends more money than any other function, it provides a major opportunity to reduce cost and increase profit margins. True (Supply chain economics, moderate) 17. Purchasing is the most costly activity in most firms. True (Supply chain economics, easy) 18. Supply chain decisions are not generally strategic in nature, because purchasing is an ordinary expense to most firms. False (Supply chain economics, moderate) 19. The objective of the purchasing activity is, in part, to help identify the products and services that can be obtained externally. True (Supply chain economics, moderate) 20. Purchasing is the acquisition of goods and services. True (Supply chain economics, easy) 21. Purchasing takes place only in manufacturing environments, not service environments. False (Supply chain economics, easy) 22. With the many-suppliers strategy, the order usually goes to the supplier that offers the best quality. False (Supply-chain strategies, moderate) 23. One reasons to use few suppliers is to allow the suppliers to gain economies of scale. True (Supply-chain strategies, moderate) 24. The traditional American purchasing strategy is to develop long-term, "partnering" relationships with a few suppliers. False (Supply-chain strategies, moderate) 25. One reason to use few suppliers is the willingness of suppliers to participate in JIT systems. True (Supply-chain strategies, moderate) 26. With few suppliers, the cost of changing partners is low. False (Supply-chain strategies, moderate) 27. The biggest advantage of the "few suppliers" supply chain strategy may be the trust that comes with compatible corporate cultures. True (Supply-chain strategies, moderate) 28. An organization that retails fast food and owns poultry plants and poultry feed mills is backward vertically integrated. True (Supply-chain strategies, moderate) 29. A fast-food retailer that acquired a spice manufacturer would be practicing backward vertical integration. True (Supply-chain strategies, moderate) 30. Keiretsus offer a middle ground between few suppliers and vertical integration. True (Supply-chain strategies, moderate) 31. Kaizen is the Japanese term for a company coalition of suppliers. False (Supply-chain strategies, moderate) 32. A virtual company is an organization that exhibits high standards of ethical behavior in all countries in which it does business. False (Supply-chain strategies, moderate) 33. Virtual companies are also known as hollow corporations. True (Supply-chain strategies, moderate) 34. The use of large lots can contribute to distortions of information in the supply chain. True (Managing the supply chain, moderate) 35. The bullwhip effect refers to the increasing fluctuations in orders that often occur as orders move through the supply chain. True (Managing the supply chain, moderate) 36. In the vendor evaluation phase, most companies will use the same list of criteria and the same criteria weights. False (Vendor selection, moderate) 37. One classic type of negotiation strategy is the market-based price model. True (Vendor selection, moderate) 38. The market-based price negotiation strategy requires that the supplier open its books to the purchaser. False (Vendor selection, moderate) 39. Drop shipping results in time and shipping cost savings. True (Managing the supply chain, moderate) 40. The supply chain management opportunity called postponement involves delaying deliveries to avoid accumulation of inventory at the customer's site. False (Managing the supply chain, moderate) 41. Channel assembly is a variation of postponement. True (Managing the supply chain, moderate) 42. Blanket orders are contracts to purchase certain items from the vendor including authorizations to ship them. False (Managing the supply chain, moderate) 43. Blanket orders are a long-term purchase commitment to a supplier for items that are to be delivered against short-term releases to ship. True (Managing the supply chain, moderate) 44. Stockless purchasing requires the supplier to maintain the inventory. True (Managing the supply chain, moderate) 45. The Internet can replace more traditional electronic data interchange (EDI) for releasing orders to suppliers. True (Managing the supply chain, moderate) 46. Internet purchasing may be part of an integrated enterprise resource planning (ERP) system. True (Internet purchasing, moderate) 47. Logistics management is not likely to have much potential for competitive advantage. False (Logistics management, moderate) 48. Waterways are an attractive distribution system when shipping cost is more important than speed. True (Logistics management, moderate) 49. Logistics management can provide a competitive advantage through improved customer service. True (Logistics management, moderate) 50. Pipelines are an important form of transporting natural gas. True (Logistics management, moderate) 51. With the growth of just-in-time practices, railroads have made large gains in the share of the nation's transport that they haul. False (Logistics management, moderate) 52. Benchmark firms have driven down costs of supply chain performance. True (Benchmarking suppl- chain management, moderate) MULTIPLE CHOICE 53. Which of the following is not a concern of the supply chain? a. warehousing and inventory levels b. credit and cash transfers c. suppliers d. distributors and banks e. maintenance scheduling e (The strategic importance of the supply chain, moderate) 54. 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. none of the above a (Vendor selection, moderate) 55. One dollar saved in purchasing is a. equivalent to a dollar earned in sales revenue b. worth even more than a dollar earned in sales revenue c. worth slightly more than a dollar earned because of taxes d. worth from 35% in the technical instrument industry to 70% in the food products industry e. only worthwhile if you are in the 50% tax bracket and still have a low profit margin b (Supply chain economics, moderate) 56. Which one of the following statements about purchasing is true? a. The cost of purchases as a percent of sales is often small. b. Purchasing provides a major opportunity for price increases. c. Purchasing is always more efficient than making an item. d. Purchasing has an impact on the quality of the goods and services sold. e. Competitive bidding is a major factor in long-term cost reductions. d (Supply chain economics, moderate) 57. In the make-or-buy decision, one of the reasons for making is a. to reduce inventory costs b. to obtain technical or management ability c. inadequate capacity d. reciprocity e. to assure adequate supply in terms of quantity e (Supply chain economics, moderate) 58. In the make-or-buy decision, which of the following is a reason for making an item? a. management can focus on its primary business b. lower production cost c. inadequate capacity d. reduce inventory costs e. None of the above are reasons for making an item. b (Supply chain economics, moderate) 59. In the make-or-buy decision, one of the reasons for buying is a. to assure adequate supply b. to obtain desired quality c. to remove supplier collusion d. inadequate capacity e. to maintain organizational talents d (Supply chain economics, moderate) 60. In the make-or-buy decision, which of the following is not a reason for buying? a. inadequate capacity b. to obtain desired quality c. patents or trade secrets d. lower inventory costs e. All of the above are reasons for buying. b (Supply chain economics, moderate) 61. Which one of the following is not a purchasing strategy? a. negotiation with many suppliers b. vertical integration c. keiretsu d. short-term relationships with few suppliers e. virtual companies d (Supply-chain strategies, moderate) 62. A disadvantage of the "few suppliers" 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. All of the above are disadvantages of the "few suppliers" strategy. d (Supply-chain strategies, moderate) 63. The purchasing approach that holds the suppliers responsible for maintaining the necessary technology, expertise, and forecasting ability plus cost, quality, and delivery competencies is a. few suppliers b. many suppliers c. Keiretsu d. vertical integration e. virtual companies b (Supply-chain strategies, moderate) 64. Which of the following is not an advantage of the few suppliers concept? a. suppliers' willingness to participate in JIT systems b. trust c. vulnerability of trade secrets d. creation of value by allowing suppliers to have economies of scale e. suppliers' willingness to provide technological expertise c (Supply-chain strategies, moderate) 65. Which of the following supply-chain strategies creates value by allowing suppliers to have economies of scale? a. suppliers becoming part of a company coalition b. vertical integration c. long-term partnering with a few suppliers d. negotiating with many suppliers e. developing virtual companies c (Supply-chain strategies, moderate) 66. Vertical integration will be less successful if this condition is present. a. availability of necessary capital b. availability of managerial talent c. required demand d. small market share e. current suppliers are unreliable d (Supply-chain strategies, moderate) 67. Which of the following best describes vertical integration? a. to sell products to a supplier or a distributor b. to develop the ability to produce products which complement the original product c. to produce goods or services previously purchased d. to develop the ability to produce the specified good more efficiently than before e. all of the above c (Supply-chain strategies, moderate) 68. A fried chicken fast-food chain that acquired feed mills and poultry farms has performed a. horizontal integration b. forward vertical integration c. backward vertical integration d. current transformation e. job expansion c (Supply-chain strategies, moderate) 69. Vertical integration appears particularly advantageous when the organization has a a. very specialized product b. large market share c. very common, undifferentiated product d. small market share e. all of the above b (Supply-chain strategies, moderate) 70. A rice mill in south Louisiana purchases the trucking firm that transports packaged rice to distributors. This is an example of a. horizontal integration b. forward vertical integration c. backward vertical integration d. current transformation e. keiretsu b (Supply-chain strategies, moderate) 71. Japanese manufacturers often take a middle ground between purchasing from a few suppliers and vertical integration. This approach is a. kanban b. keiretsu c. samurai d. poka-yoke e. kaizen b (Supply-chain strategies, moderate) 72. The Japanese concept of a company coalition of suppliers is a. poka-yoke b. kaizen c. keiretsu d. dim sum e. illegal c (Supply-chain strategies, moderate) 73. 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 b (Supply-chain strategies, moderate) 74. The “bullwhip” effect a. occurs as orders are relayed from retailers to wholesales 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 e (Managing the supply-chain, moderate) 75. The three classic types of negotiation strategies are a. vendor evaluation, vendor development, and vendor 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. None of the above are correct. d (Vendor selection, moderate) 76. Which of the following is not a component of negotiation strategies? a. invoiceless bidding b. cost-based price model c. market-based price model d. competitive bidding e. combination of the above negotiation techniques a (Vendor selection, moderate) 77. The three stages of vendor selection, in order, are a. vendor evaluation, vendor development, and negotiations b. vendor development, vendor evaluation, and vendor acquisition c. introduction, growth, and maturity d. vendor evaluation, negotiations, and vendor development e. vendor, vendi, venci a (Vendor selection, easy) 78. A carpet manufacturer has delivered carpet directly to the end consumer rather than to the carpet dealer. The carpet manufacturer is practicing a. postponement b. direct shipping c. channel assembly d. drop shipping e. float reduction d (Managing the supply chain, moderate) 79. Hewlett-Packard withholds customization of its laser printers as long as possible. This is an example of a. stockless purchasing b. channel assembly c. backward integration d. postponement e. timely customization d (Managing the supply chain, moderate) 80. All of the following are "opportunities" for supply chain management except a. postponement b. drop shipment c. blanket orders d. channel assembly e. line balancing e (Managing the supply chain, moderate) 81. 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 e (Managing the supply chain, moderate) 82. A furniture maker has delivered a dining set directly to the end consumer rather than to the furniture store. The furniture maker is practicing a. postponement b. drop shipping c. channel assembly d. passing the buck e. float reduction b (Managing the supply chain, moderate) 83. Which of the following best describes stockless purchasing? a. there is minimal purchasing-oriented paperwork b. the supplier maintains the inventory for the customer c. small lots are delivered frequently d. there is only one supplier for all units of a particular product e. the supplier delivers only what the customer needs b (Managing the supply chain, moderate) 84. Internet purchasing can be used a. to communicate order releases to suppliers b. to replace electronic data interchange (EDI) c. for comparison shopping d. as part of an integrated enterprise resource planning (EPR) system e. all of the above e (Managing the supply chain and Internet purchasing, moderate) 85. Which one of the following distribution systems offers quickness and reliability when emergency supplies are needed overseas? a. trucking b. railroads c. air freight d. waterways e. pipelines c (Logistics management, easy) 86. With the growth of JIT, which of the following distribution systems has been the biggest loser? a. trucking b. railroads c. air freight d. waterways e. pipelines b (Logistics management, moderate) 87. Which one of the following performance measures is not true of a world class firm? a. low number of suppliers per purchasing agent b. low purchasing costs as percent of purchases c. large lead time d. high percentage of on-time deliveries e. low number of shortages per year c (Benchmarking supply-chain management, moderate) 88. Which of the following is true regarding supply chain performance? Benchmark firms a. have more suppliers per purchasing agent b. have longer lead time c. have far fewer shortages per year d. use competitive bidding more often e. have slightly fewer shortages per year c (Benchmarking supply-chain management, moderate) FILL-IN-THE BLANK 89. _______________ is the management of activities that procure raw materials, transform those materials into intermediate goods and final products, and deliver the products through a distribution system. Purchasing (The strategic importance of the supply chain, easy) 90. ____________ is the acquisition of goods and services. Purchasing (Supply chain economics, easy) 91. The ________________ decision involves choosing between producing a component or a service or purchasing if from an outside source. make-or-buy (Supply chain economics, easy) 92. _________refers to transferring a firm’s activities that have traditionally been internal to external suppliers. Outsourcing (Supply chain economics, easy) 93. ____________ is developing the ability to produce goods or services previously purchased or actually buying a supplier or a distributor. Vertical integration (Supply-chain strategies, moderate) 94. __________ is a Japanese term to describe suppliers who become part of a company coalition. Keiretsu (Supply-chain strategies, moderate) 95. ____________ rely on a variety of supplier relationships to provide services on demand. Virtual companies (Supply-chain strategies, moderate) 96. __________ involves delaying any modifications or customization to the product as long as possible in the production process. Postponement (Managing the supply chain, moderate) 97. ___________ postpones final assembly of a product so the distribution channel can assemble it. Channel assembly (Managing the supply chain, moderate) 98. ____________ involves shipping directly from the supplier to the end consumer, rather than from the seller, saving both time and reshipping cost. Drop shipping (Managing the supply chain, moderate) 99. ____________ involves reducing the number of variations in materials and components as an aid to cost management. Standardization (Managing the supply chain, moderate) 100. _____________ is a standardized data-transmittal format for computerized communications between organizations. Electronic data interchange (EDI) (Managing the supply chain, moderate) 101. ______________ includes order releases communicated over the Internet or approved vendor catalogues available on the Internet for use by employees of the purchasing firm. Internet purchasing or e-procurement (Managing the supply chain, moderate) 102. _____________ is an approach that seeks efficiency of operations through the integration of all material acquisition, movement, and storage activities. Logistics management (Managing the supply chain, moderate) SHORT ANSWER 103. As the firm's strategy changes from low-cost to response to differentiation, how does this impact the primary criteria used for selection of a supply? With the low-cost strategy the primary selection criterion is cost. When using the response strategy, the selection criteria are capacity, speed, and flexibility. For differentiation strategy, the supplier is selected based on product development skills. (The strategic importance of the supply chain, moderate) 104. What are the special requirements of supply chain systems in global environments? Special requirements of the supply chain system in global environments include flexible enough to react to sudden changes in parts availability and currency rates, etc.; able to use latest information technology to manage shipments; and staffed with specialists to handle duties, customs, political issues in other countries. (The strategic importance of the supply chain, moderate) 105. What information does purchasing receive from other functional areas of the firm? Purchasing receives information from other functional areas with respect to: what is needed when, and how much or how many; what is available, when, and how much or how many; resources that are available for procurement functions; the success or failure of its performance; and long-range goals and strategies of the organization. (The strategic importance of the supply chain, moderate) 106. What is purchasing? Purchasing is the acquisition of goods and services. (Supply chain economics, easy) 107. Why is the purchasing role in many service environments less important than in manufacturing? The primary product in service is an intellectual one. (Supply chain economics, moderate) 108. List the reasons for making in the make-or-buy decision. The reasons for making in the make-or-buy decision include increase or maintain size of the company (management preference); lower production cost; unsuitable suppliers; ensure adequate supply; utilize surplus labor facilities and make a marginal contribution; obtain the desired quality; remove supplier collusion; obtain a unique item that would entail a prohibitive commitment for a supplier; maintain organizational talents; and protect proprietary design or quality. (Supply chain economics, moderate) 109. List the reasons for buying in the make-or-buy decision. The reasons for buying in the make-or-buy decision include freeing management to focus on primary business; lower acquisition cost; preserve supplier commitment; obtain technical or managerial ability; inadequate capacity; reduce inventory costs; ensure alternative sources of supply; inadequate managerial or technical resources; reciprocity; and item is protected by patent or trade secret. (Supply chain economics, moderate) 110. List the five purchasing strategies. The five purchasing strategies are: 1. the traditional American approach of negotiating with many suppliers and playing one supplier off against another; 2. develop long, "partnering" relationships with a few suppliers who will work with the purchaser in satisfying the end customer; 3. vertical integration where firms may decide to pursue backward integration by actually buying the supplier; 4. keiretsu where suppliers become part of a company coalition; 5. develop virtual companies that use suppliers on an as-needed basis. (Supply-chain strategies, moderate) 111. What are the advantages of vertical integration? The advantages of vertical integration include cost reduction; quality adherence; and timely delivery. (Supply-chain strategies, easy) 112. Can an organization's plans for vertical integration be supported by the tools of make-or-buy analysis? Explain; provide an example. Yes; the decision to acquire a firm providing an upstream operation is the same as choosing to make whatever that upstream operation does. Not to acquire is the equivalent of "buy." The analysis also holds for downstream operations: the acquisition of a delivery fleet is equivalent to "make" in the downstream operation of distribution. (Supply-chain strategies, moderate) 113. Using a T-account to display pros and cons, explore the advantages and disadvantages of using the few suppliers approach. Advantages • long-term suppliers better understand firm • suppliers may gain economies of scale • trust • willingness to participate in JIT (Supply-chain strategies, moderate) Disadvantages • concern about trade secrets and suppliers venturing out • high cost of changing partners • risk of poor supplier performance 114. What is a keiretsu? A keiretsu is a network of suppliers. Usually the suppliers are partially owned or debtors to the purchasing organization. This structure is quite common in Japan. (Supply-chain strategies, easy) 115. What are the key factors to success in the supply-chain? The key factors include mutual agreement on goals, trust, and compatible organizational cultures. (Managing the supply chain, moderate) 116. What opportunities exist for reducing the “bullwhip” effect, and improving the supply-chain? The opportunities include accurate “pull” data, lot size reduction, single control of replenishment, vendor managed inventory (VMI), postponement, channel assembly, drop shipping, blanket orders, standardization, and electronic ordering and funds transfer. (Managing the supply chain, moderate) 117. State the three stages in the process to develop a vendor relationship. The three stages in developing a vendor relationship are vendor evaluation, vendor development, and negotiations. (Vendor selections, easy) 118. What is stockless purchasing? Stockless purchasing is when the supplier delivers material directly to the purchaser's using department rather than to a central stockroom. (Managing the supply chain, easy) 119. What is the advantage of standardization for purchasing? The advantage of standardization over purchasing is that by reducing the number of varieties of components, purchasing is simplified with a corresponding reduction in costs. (Managing the supply chain, moderate) 120. What factors are needed for a successful supply-chain? The factors needed for a successful supply-chain include mutual agreement on goals, trust, and compatible organizational cultures. (Managing the supply chain, moderate) 121. What are the three common occurrences that contribute to distortional of information about the supply-chain? The occurrences include local optimization, incentives (sales incentives, quantity discounts, and promotions), and large lots. (Managing the supply chain, moderate) 122. What is the bullwhip effect in the supply-chain? The bullwhip effect is the increasing fluctuations in orders that often occur as orders move through the supply-chain. (Managing the supply chain, easy) 123. Why is channel assembly popular in the personal computer industry? Channel assembly is popular in the personal computer industry because of better market response with less investment. This is possible because the late-stage assembly and customization is a natural part of a rapidly changing industry. (Managing the supply chain, moderate) 124. Define postponement. Postponement is a technique that involves withholding any modifications or customization to the product as long as possible. (Managing the supply chain, moderate) 125. Define drop shipment. Drop shipping means the supplier will ship directly to the end consumer, rather than to the seller, saving both time and reshipping costs. (Managing the supply chain, moderate) 126. Define EDI. Electronic data interchange is a standardized data transmittal format for computerized communications between organizations. (Managing the supply chain, moderate) 127. What is the advantage of using the Internet for purchasing nonstandard items? Using the Internet for nonstandard items can reduce the ordering lead time and purchasing costs. It also lends itself to comparison shopping, rapid ordering, and reduction in inventory. (Internet purchasing, moderate) 128. What type of products are waterways typically used for? Waterways are typically used for bulky, low-value cargo such as iron ore, grains, cement, coal, chemicals, limestone, and petroleum products. (Logistics management, moderate) 129. What are the advantages of shipping by truck? The advantages of shipping by truck include flexibility, on-time behavior, no damage, paperwork in order, and low cost. (Logistics management, moderate) 130. List the five major means of distribution. The five major means of distribution are trucking, railways, air freight, waterways, and pipelines. (Logistics management, moderate) PROBLEMS 131. A container of ball-bearings, currently located in Houston, TX, valued at $25,000 needs to be delivered to the Morton, IL, plant. The standard shipment method takes two days. However, for an additional charge of $500, the container can be sent overnight. The annual holding cost rate for this type of item has been estimated at 28%. What option is most economical? Daily cost of holding the item is (annual holding cost x product value)/365 =.28(25,000)/365 = $19.18. Since the extra shipping cost is $500, the $19.18 savings does not offset the extra shipping cost. Send the shipment using the standard method. (Benchmarking supply-chain management, moderate) 132. A shipment of parts valued at $75,000 needs to be shipped from Tampa, FL, to Chicago, IL. They could be shipped by rail, taking 15 days at a cost of $1,575, or by truck, taking 4 days at a cost of $2,640. The annual holding cost rate for this type of item has been estimated at 22%. What option is most economical? Daily cost of holding the item is (annual holding cost x product value)/365 =.22(75,000)/365 = $45.21 Days saved by using truck is 15-5=11 days 11 days x $45.21 = $497.27 Extra shipping cost = $2,640 - $1,575 = $1,065 The $497.27 savings does not offset the extra shipping cost of $1,065. Send the shipment by rail. (Benchmarking supply-chain management, moderate)