11: CHAPTER SUPPLY CHAIN MANAGEMENT
TRUE/FALSE
1.
Operations managers are finding online auctions a fertile area for disposing of
discontinued inventory.
True (E-procurement, moderate) {AACSB: Use of IT}
2.
The key to effective supply chain management is to get many suppliers to compete with
each other, in order to drive down prices.
False (The supply chains strategic importance, easy)
3.
Even though a firm may have a low cost strategy, supply chain strategy can select
suppliers primarily on response or differentiation.
False (The supply chains strategic importance, moderate)
4.
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.
False (The supply chains strategic importance, moderate)
5.
Supply chain management faces additional challenges, such as those related to quality
production and distribution systems, when companies enter growing global markets.
True (Supply chain economics, moderate) {AACSB: Multiculture and Diversity}
6.
McDonald's was able to utilize existing plants and transportation systems in preparing
the supply chain for opening its stores in Moscow.
False (The supply chains strategic importance, moderate)
7.
When using the low-cost strategy for supply chain management, the firm
should invest aggressively to reduce production lead time.
False (The supply chains strategic importance, moderate)
8.
Savings in the supply chain exert more leverage as the firm has a lower net profit margin.
True (Supply chain economics, moderate)
9.
A reduction in inventory costs is one reason for making rather than buying.
False (Supply chain economics, moderate)
10.
Outsourcing refers to transferring a firms activities that have traditionally been internal to
external suppliers.
True (Supply chain economics, moderate)
11.
Outsourcing is a form of specialization that allows the outsourcing firm to focus on its
critical success factors.
True (Supply chain economics, moderate)
282
1 2.
Supply chain decisions are not generally strategic in nature, because purchasing is an
ordinary expense to most firms.
False (Supply chain economics, easy)
13.
The objective of the make-or-buy decision is to help identify the products and services
that can be obtained externally.
True (Supply chain economics, moderate)
14.
Because service firms do not acquire goods and services externally, their supply chain
management issues are insignificant.
False (Supply chain economics, easy)
15.
Because the supply chain has become so electronic and automated, opportunities for
unethical behavior have been greatly reduced.
False (Ethics in the supply chain, easy) {AACSB: Ethical Reasoning}
16. With the many-suppliers strategy, the order usually goes to the supplier that offers the best
quality.
False (Supply chain strategies, moderate)
17.
Developing long-term, "partnering" relationships with a few suppliers is a long-standing
American purchasing strategy.
False (Supply chain strategies, moderate)
18. Vertical integration, whether forward or backward, requires the firm to become more
specialized.
False (Supply chain strategies, moderate)
19. A fast-food retailer that acquired a spice manufacturer would be practicing backward
integration.
True (Supply chain strategies, moderate)
20.
Keiretsus offer a middle ground between few suppliers and vertical integration.
True (Supply chain strategies, moderate)
21.
In several industries, online exchanges have been created by buyers.
True (E-procurement, moderate) {AACSB: Use of IT}
22.
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)
23.
Vendor Managed Inventory is a form of outsourcing.
True (Managing the supply chain, easy)
24.
In the vendor evaluation phase, most companies will use the same list of criteria and
the same criteria weights.
False (Vendor selection, moderate)
25.
One classic type of negotiation strategy is the market-based price model.
True (Vendor selection, moderate)
283
2 6.
Drop shipping results in time and shipping cost savings.
True (Managing the supply chain, easy)
27.
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)
28.
Channel assembly, which sends components and modules to be assembled by a
distributor, treats these distributors as manufacturing partners.
True (Managing the supply chain, moderate)
29.
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)
30.
Bar code and radio frequency technology, like that used to track UPS or FedEx packages
on their global journeys, can also be used to track objects within the boundaries of a
warehouse or shop. True (Inventory tracking, easy) {AACSB: Use of IT}
31. Waterways are an attractive distribution system when speed is more important than shipping
cost.
False (Logistics management, moderate)
32. Logistics management can provide a competitive advantage through improved customer
service.
True (Logistics management, moderate)
33.
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)
34.
the
Improvements in security, especially regarding the millions of shipping containers that enter
U.S. each year, are being held back by the lack of technological advances.
False (Logistics management, easy)
35.
Benchmark firms have driven down costs of supply chain performance.
True (Measuring supply chain performance, moderate)
MULTIPLE CHOICE
36.
The three major variations of online catalogs are
a. catalogs by vendors, catalogs by intermediaries, and exchanges provided by
buyers b.
EDI, ERP, and ASN
c. cost-based, market-based, and competitive bidding
d. drop shipping, channel assembly, and
postponement e.
all auction-based
a (E-procurement, moderate) {AACSB: Use of IT}
284
3 7.
Visibility throughout the supply chain is a requirement among supply chain
members for a. mutual agreement on goals
b. mutual trust
c. compatible organizational
cultures d. local optimization
e. the bullwhip effect
b (Managing the supply chain, moderate)
38.
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 supply chains strategic importance, moderate)
39.
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)
40.
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 has a lower net profit
margin.
d. Supply chain leverage depends only upon the percent of sales spent in the
supply chain. e.
None of the above is true.
c (Supply chain economics, moderate)
41.
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)
42.
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)
285
4 3.
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)
44.
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 is a reason for making an item.
b (Supply chain economics, moderate)
45.
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)
46.
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)
47.
Outsourcing
a. transfers traditional internal activities to outside
vendors b. utilizes the efficiency which comes with
specialization
c. lets the outsourcing firm focus on its critical success factors
d. None of the above are true of
outsourcing. e. All of the above are true of
outsourcing.
e (Supply chain economics, moderate)
48.
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
d (Supply chain economics, moderate)
286
4 9.
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. All of the above are true.
c (Ethics in the supply chain, moderate) {AACSB: Ethical
Reasoning}
50.
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.
e (Ethics in the supply chain, moderate) {AACSB: Ethical
Reasoning}
51.
Keeping a product generic as long as possible before customizing is
known as a. postponement
b.
keiretsu
c. channel
assembly
d.
forward
integration
e. backward
integration
a (Managing the supply chain,
moderate)
52.
Which one of the following is not a supply chain 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)
53.
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)
54.
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
moderate)
chain
strategies,
287
5 5.
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)
56.
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)
57.
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.required demand
d. small market share
e. All of the above favor the success of vertical integration.
d (Supply chain strategies, moderate)
58.
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. to build long-term partnerships with a few suppliers
c (Supply chain strategies, moderate)
59.
A fried chicken fast-food chain that acquired feed mills and poultry farms has
performed a. horizontal integration
b. forward integration
c. backward
integration d. current
transformation e.
job expansion
c (Supply chain strategies, moderate)
60.
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
b (Supply chain strategies, moderate)
288
6 1.
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 integration
c. backward
integration d. current
transformation e.
keiretsu
b (Supply chain strategies, moderate)
62.
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) {AACSB: Multiculture and Diversity}
63.
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) {AACSB: Multiculture and Diversity}
64.
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)
65.
Local optimization is a supply chain complication best described as
a. optimizing one's local area without full knowledge of organizational
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
a (Managing the supply chain, moderate)
66.
The bullwhip effect
a. occurs as orders are relayed from retailers to wholesalers
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)
289
67. 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. channel assembly
d (Managing the supply chain, moderate)
68.
Which of the following is an opportunity for effective management in the supply chain?
a. random "pull" data
b. multistage control of
replenishment c.
the bullwhip
effect
d. customer managed
inventory e. channel
assembly
e (Managing the supply chain, moderate)
69.
Drop shipment
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
c (Managing the supply chain, moderate)
70.
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.
cross-docking
c. channel assembly
d. drop
shipping e.
float
reduction
d (Managing the supply chain, moderate)
71.
Hewlett-Packard withholds customization of its laser printers as long as possible.
This is an example of
a. vendor managed
inventory b.
standardization
c. backward integration
d. postponement
e. timely customization
d (Managing the supply chain, moderate)
290
7 2.
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
moderate)
supply
chain,
73.
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)
74.
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
moderate)
75.
supply
chain,
What is the average capacity utilization in the motor carrier (trucking) industry?
a. 25%
b. 50%
c. 75%
d. 95%
e.
99%
b
(Logistics
management,
moderate)
7 6.
What term is used to describe the outsourcing of logistics?
a. ELogistics
b.
Shipper Managed Inventory
(SMI)
c. Hollow
Logistics d. SubLogistics
e. Third-Party
Logistics
e (Logistics management,
easy)
77.
E-procurement
a. works best in long-term contract situations, and is not suited for
auctions b. is the same thing as Internet purchasing
c. represents only the auction and bidding components of Internet
purchasing
d. is illegal in all states except Nevada and New
Jersey e.
All of the above are true of eprocurement.
b (E-Procurement, moderate) {AACSB: Use of
IT }
291
78.
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 is correct.
d
(Vendor
selection,
moderate)
79.
Consider a firm with a 2007 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
a (Measuring supply chain performance, moderate) {AACSB: Analytic
Skills}
80.
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. EDI, ERP, and ASN
a (Vendor selection,
easy)
81.
Which one of the following distribution systems offers quickness and reliability when
emergency supplies are needed overseas?
a. trucking
b.
railroads c.
airfreight
d.
waterways e.
pipelines
c (Logistics management,
easy)
82. With the growth of JIT, which the of following distribution systems has been the biggest
loser?
a. trucking
b.
railroads c.
airfreight
d.
waterways e.
pipelines
b
(Logistics
moderate)
management,
292
8 3.
By which distribution system is 90 percent of the nation's coal shipped?
a.
railroads b.
trucks
c.
waterways d.
pipelines
e. none of the
above
a (Logistics management,
easy)
84.
Which distribution system is the fastest growing mode of shipping?
a.
railroads b.
trucks
c.
airfreight
d.
waterways e.
pipelines
c
(Logistics
moderate)
management,
85.
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
e (Logistics management,
easy)
86.
Which one of the following performance measures is not true of a world class firm?
a. short time placing an
order
b. high percentage of accepted
material c.
large lead time
d.
high percentage of on-time
deliveries
e. low number of shortages per
year
c (Measuring supply chain performance,
easy)
8 7.
Consider a firm with a 2007 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
e (Measuring supply chain performance, moderate) {AACSB: Analytic
Skills}
FILL-IN-THE BLANK
88.
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.
Supply chain management
importance, easy)
(The
supply
293
chains
strategic
8 9.
The
decision involves choosing between producing a component or a
service internally and purchasing it externally.
make-or-buy (Supply chain economics, easy)
90. Transferring to external vendors a firms activities that have traditionally been internal is
known as
.
outsourcing (Supply chain economics, easy)
91.
The
is an organization that has published principles and standards for ethical
supply management conduct.
Institute for Supply Management (Ethics in the supply chain, easy) {AACSB: Ethical
Reasoning}
92.
The supply chain strategy of
increases the willingness to participate in JIT.
few suppliers (Supply chain strategies, moderate)
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.
Local optimization, incentives, and large lots all contribute to
about what is
really occurring in the supply chain.
distortion of information (Managing the supply chain, moderate)
97.
involves delaying any modifications or customization to the product as
long as possible in the production process.
Postponement (Managing the supply chain, moderate)
98.
postpones final assembly of a product so the distribution channel can
assemble it.
Channel assembly (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) (E-Procurement, moderate) {AACSB: Use of IT}
101.
is the term describing purchasing facilitated through the internet.
E-Procurement (E-Procurement, easy) {AACSB: Use of IT}
294
102. Of the three stages of vendor selection, the stage at which criteria, weights, and
scores allow a numeric comparison is
.
vendor evaluation (Vendor selection, moderate)
103.
is an approach that seeks efficiency of operations through the
integration of all material acquisition, movement, and storage activities.
Logistics management (Logistics management, moderate)
104. The fastest growing mode of shipping is
airfreight (Logistics management, easy)
.
SHORT ANSWER
105. What is e-procurement?
Purchasing facilitated through the Internet. (E-procurement, easy) {AACSB: Use of
IT }
106. As the firm strategies vary from low-cost to response to differentiation, how does this
impact the criteria used for selection of a supply chain strategy?
The supply chain must support the operations management strategy. For a firm
using the low-cost strategy, supplier selection should be based primarily on 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 supply chains strategic importance, moderate)
107. What are the three versions of online catalogs?
The three versions of online catalogues are: (1) catalogs provided by vendors, (2)
catalogs provided by intermediaries, and (3) exchanges provided by buyers. (Eprocurement, moderate) {AACSB: Use of IT}
108. What are the special requirements of supply chain systems in global environments?
Supply chains in a global environment must be flexible, so that the firm can react to
sudden changes that might occur in parts availability or currency rates. They must
be able to use latest information technology for scheduling and managing shipments
of parts and products. And they must be staffed with specialists to handle duties,
customs, and political issues in other countries. (The supply chains strategic
importance, moderate) {AACSB: Multiculture and Diversity}
109. Identify the reasons for making in the make-or-buy decision.
The reasons for making in the make-or-buy decision include: (1) maintain core
competence, (2) lower production cost, (3) unsuitable suppliers, (4) assure adequate
supply, (5) utilize surplus labor or facilities and make a marginal contribution, (6)
obtain desired quality, (7) remove supplier collusion, (8) obtain unique item that
would entail a prohibitive commitment for a supplier, (9) protect personnel from a
layoff, (10) protect proprietary design or quality, and (11) increase or maintain size of
the company (management preference) (Supply chain economics, moderate)
295
110. Identify 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)
111. How are outsourcing and vertical integration related? Can a single firm successfully do
both?
Outsourcing transfers what were traditional internal activities to outside vendors. It
is a way of increasing specialization which allows the firm to focus on its core
strengths, and not try to do all possible tasks. Vertical integration is much the
opposite, decreasing a firm's specialization so that it can perform additional functions
along its supply chain. Vertical integration has become increasingly difficult in the
face of increasing specialization. It seems unlikely that firms which make significant
use of outsourcing would do much vertical integration, but it is possible that a firm's
set of competitive advantages would support outsourcing in some functions and
vertical integration in others. (Managing the supply chain, difficult) {AACSB:
Reflective Thinking}
112. Of all areas of the organization, why is the supply chain especially vulnerable to ethical
lapses?
The supply chain offers more opportunities for ethical issues than some other
functions in the organization. Some of these opportunities arise from the large sums
of money involved. Perhaps these opportunities arise because of the close and longterm personal contact
between buyer and seller. Globalization adds even more complexity to the decisions
made in the supply chain. (Ethics in the supply chain, moderate) {AACSB: Ethical
Reasoning}
113. Identify and describe briefly the five supply chain strategies.
1. Many suppliers is the traditional American approach of negotiating with many
suppliers and playing one supplier off against another.
2. The strategy of few suppliers develops long, "partnering" relationships with a few
suppliers who will work with the purchaser in satisfying the end customer.
3. Firms that practice vertical integration may decide to pursue backward
integration by actually buying the supplier.
4. Suppliers become part of a company coalition in the keiretsu strategy.
5. With the virtual companies strategy, firms use suppliers on an asneeded basis. (Supply chain strategies, moderate)
114. 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 the provider of an upstream operation is the same as
choosing to
make whatever has been provided. 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)
{AACSB: Reflective Thinking}
115. Identify the advantages and disadvantages of using the few suppliers approach.
Advantages: long-term suppliers better understand firm, suppliers may gain
economies of scale, trust, and willingness to participate in JIT. Disadvantages:
concern about trade
secrets and suppliers venturing out, high cost of changing partners, and risk of poor
supplier
performance. (Supply chain strategies, moderate)
296
116. Describe some ways that effective supply chain partners build and utilize mutual trust.
Members of the chain must enter into a relationship that shares information.
Visibility throughout the supply chain is a requirement. Risk and cost savings should
be shared. Activities such as end-customer research, sales analysis, forecasting, and
production planning should be joint activities. (Managing the supply chain,
moderate) {AACSB: Communication}
117. 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), blanket orders,
standardization, postponement, drop shipping and special packaging, passthrough facility, and channel assembly. (Managing the supply chain, moderate)
118. 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)
119. Describe the state of capacity utilization in the motor carrier (trucking) industry. What, if
anything, has been implemented by the industry to address the issue?
The motor carrier industry averages a capacity utilization of only 50%. That
underutilized
space costs the U.S. economy over $31 billion per year. To improve logistics
efficiency, the industry is establishing Web sites that let shippers and truckers find
each other to use some of this idle capacity. Shippers may pick from thousands of
approved North American carriers that have registered. (Logistics management,
moderate)
120. Describe vendor managed inventory (VMI). How is it related to outsourcing? Cite an
example from your experiences as a shopper.
In vendor managed inventory, the supplier maintains material for the buyer, often
delivering directly to the buyer's using department. It is a form of outsourcing,
because the buying firm
has transferred the shipping, stocking, and receiving tasks to an external vendor.
There are many instances of VMI in today's retail model; shelves of snack foods
and soft drinks are
routinely managed by the distributor, not the retailer. (Managing the supply chain,
easy)
{AACSB: Reflective Thinking}
121. Name three common things that contribute to distortion 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. 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)
123. Define EDI.
Electronic data interchange is a standardized data transmittal format for
computerized communications between organizations. (E-Procurement,
moderate) {AACSB: Use of IT}
297
124. What advantages may result from effectively outsourcing the logistics function to a third
party?
Driving down inventory investment and costs while improving delivery reliability
and speed. (Logistics management, moderate)
125. What are the three negotiation strategies? Briefly describe each of them.
The three strategies for negotiating with vendors are the cost-based model, the
market-based price model, and competitive bidding. In the cost-based model,
contract price is a function of vendor costs, such as those for time and materials. In
the market-based price model, price is set by some form of published, auction, or
index price. Competitive bidding may be used when vendors are not open to the costbased model, or where information is not perfect enough for market-based pricing.
(Vendor selection, moderate)
126. Identify three specific measures that indicate how well assets are utilized. What are the
formulas for each measure?
Percent invested in inventory = (Total inventory investment/Total assets) 100
Inventory turnover = Cost of goods sold/Inventory investment
Weeks of supply = Inventory investment/(Annual cost of goods sold/52
weeks) (Measuring supply chain performance, moderate)
127. 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)
128. Identify some technological advances that can serve to improve logistics management
and also improve shipping security.
Several technological advances can serve both security and logistics purposes. They
may provide environmental information that is useful for product quality as well
as security, or
geospatial information useful to JIT as well as security. They include devices that
can detect a broken seal on a shipping container, devices that can detect whether a
container is in
motion, devices that sense and transmit temperature and humidity, and devices that
can transmit truck or container location. (Logistics management, moderate)
{AACSB: Use of IT}
298
PROBLEMS
129. A regional grocery chain spends 70 percent of its sales in the supply chain, and has a net
profit margin of 2 percent. They have just initiated an Internet-based inventory
management program that is expected to save the chain $500,000 per year. What is the
equivalent increase in sales to this saving? Use Table 11.3, reproduced below.
The relevant entry in Table 11.3, 70% of sales and 2% net profit, is $6.25. If $500,000
can be saved, the equivalent value of increased sales is $500,000 x 6.25 = $3,125,000.
(Supply chain economics, moderate) {AACSB: Analytic Skills}
130. A container of ball-bearings valued at $25,000, currently located in Houston, TX, 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
more economical?
Daily cost of holding the item is .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. (Logistics
management, moderate)
{AACSB: Analytic Skills}
131. 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 more economical?
Daily cost of holding the item is .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. (Logistics management, moderate) {AACSB: Analytic Skills}
299
132. A transportation firm spends 60 percent of its sales in the supply chain, and has a net
profit margin of 6 percent. The company is about to invest $100,000 in one of two
ventures. One venture is advertising-based, and is expected to increase revenues (sales) by
$600,000 (after spending the
$100,000). The other venture applies the money in supply chain efficiencies that are
expected to save $200,000 (again, after spending the $100,000). Which of these two
ventures offers the larger increase in profit to the firm? Use Table 11.3, reproduced
below.
The relevant entry in Table 11.3, 60% of sales and 6% net profit, is $4.35. If $200,000
can be saved, the equivalent value of increased sales is $200,000 x 4.35 = $870,000. In
other words,
$200,000 in supply chain savings and $870,000 in increased sales yield the same
increase in profit. Since the expected increase in sales is only $600,000, the better use
of the $100,000 is to
pursue the supply chain efficiencies. (Supply chain economics, moderate) {AACSB:
Analytic
Skills}
133. A company is about to select a vendor for the outsourcing of all of its engineering,
environmental, and CAD requirements. It has identified four criteria critical to the
selection. These criteria, and their importance weights, appear below. Three firms, A, C,
and E, have indicated that they are interested in this position. The company has scored
each of the three candidates on these criteria, using a 1-10 scale, where 10 is best.
Candidate A scored 7, 7, 7, and 5 on the four criteria. Candidate C scored 9, 4, 8, and 6.
Candidate E scored 5, 10, 10, and 7. Which vendor has the highest composite score?
Criterion
Engineering expertise
Financial and managerial strength
Integrity
Staff experience and qualifications
Weight
.40
.20
.15
.25
Criterion
Weight
E Engineering expertise
.40
Financial and managerial strength
.20
Integrity
.15
Staff experience and qualifications
.25
Total
1.00
Company A Company C Company
7
2.80
9
3.60
5
2.00
7
1.40
4
.80
10
2.00
7
1.05
8
1.20
10
1.50
5
1.25
6
1.50
7
1.75
6.50
7.10
7.25
Company E has the highest score, and should be selected. (Vendor selection,
moderate)
{AACSB: Analytic Skills}
300
134. The following data are pulled from Walsh Manufacturings 2007 annual report.
Assets
Raw material inventory
Work-in-process inventory
Finished goods inventory
Property, plant &
equipmssets
Other aent
Total assets
$120,00
0$50,00
$0 00,00
3
0500,00
$
0 200,00
$
0
$1,170,00
0
Condensed Income
Revenue
Cost of goods sold
Other expenses
Net income
$2,000,00
0 $600,00
0
$1,000,00
0 $400,00
0
Calculate: (a) Percent invested in inventory, (b) Inventory turnover, and (c) Weeks of
supply.
(a) Percent invested in inventory = (120,000+50,000+300,000)/1,170,000 =
40.17% (b) Inventory turnover = 600,000/(120,000+50,000+300,000) = 1.28
(c) Weeks of supply = (120,000+50,000+300,000)/(600,000/52) = 40.73
(Measuring supply chain performance, moderate), {AACSB: Analytic
Skills}
301