Deck 6: Strategic Sourcing

Question 1

A dollar saved in the cost of materials purchased is a dollar added to the pre-tax profit.

Answer 1

True

Question 2

The focus of the purchasing function in the new millennium (year 2000 onwards)has been solely on reducing prices.

Answer 2

False

Question 3

What is the new profit margin with a 10-percent reduction in the cost of materials,assuming sales remain the same?

A)10%
B)13.5%
C)15.6%
D)20%

Answer 3

C

Question 4

Use the information below to answer the following question(s):
A retailer operating a network of home improvement stores has annual sales of $800 million,
annual cost of goods and materials purchased of $500 million,and net income of $125 million.
What should the new annual sales be to have the same effect on the bottom line as a 15-percent reduction in the cost of goods and materials purchased,other things remaining unchanged?

A)$500 million
B)$800.75 million
C)$1.280 billion
D)$1.5 billion

Question 5

Purchased goods and services typically make up what percentage of a firm's cost of goods sold?

A)0 to 10
B)10 to 50
C)50 to 90
D)Above 90

Question 6

Use the information below to answer the following question(s):
A retailer operating a network of home improvement stores has annual sales of $800 million,
annual cost of goods and materials purchased of $500 million,and net income of $125 million.
What is the new profit margin with a 15-percent reduction in the cost of goods and materials purchased,assuming sales and other costs remain unchanged?

A)10%
B)15%
C)20%
D)25%

Question 7

The process of planning,evaluating,implementing,and controlling sourcing decisions is known as ________.

Question 8

The focus of the purchasing function in the war years (1910-1946)was on obtaining scarce materials.

Question 9

What has been the focus of the purchasing function in the new millennium (year 2000 onwards)and what is its impact on the firm?

Question 10

Purchased goods and services typically make up under 50% of a firm's cost of goods sold.

Question 11

The terms procurement and purchasing are used interchangeably.

Question 12

If a new purchasing agent is able to reduce the cost of materials by 10 percent,what would be the addition to the bottom line?

A)$5 million
B)$2.8 million
C)$10 million
D)$15 million

Question 13

The impact of sourcing materials or services with improved quality for a firm is

A)lower profitability.
B)higher perceived value.
C)increased market share.
D)All of the above
E)Only B and C above

Question 14

The process of buying and working with suppliers is known as

A)procurement.
B)purchasing.
C)sourcing.
D)supply management.
E)All of the above

Question 15

The process of buying materials,components and services and working with suppliers is known as ________.

Question 16

Use the information below to answer the following question(s):
A retailer operating a network of home improvement stores has annual sales of $800 million,
annual cost of goods and materials purchased of $500 million,and net income of $125 million.
If a newly implemented strategic sourcing process is able to reduce the cost of goods and materials purchased by 15 percent,what would be the new net profit,given that annual sales and other costs remain unchanged?

A)$150 million
B)$175 million
C)$200 million
D)$250 million

Question 17

The impact of sourcing materials or services with improved quality for a firm is

A)possible higher product selling prices.
B)higher perceived value.
C)increased market share.
D)higher profitability.
E)All of the above

Question 18

What is the required increase in sales to have the same effect on the bottom line as a 10-percent reduction in the cost of materials?

A)25%
B)50%
C)56%
D)100%

Question 19

The focus of the purchasing function in the war years (1910-1946)was

A)developing basic purchasing procedures.
B)obtaining scarce materials.
C)solely on reducing prices.
D)developing collaborative relationships with suppliers.

Question 20

The focus of the purchasing function in the new millennium (year 2000 onwards)has been

A)developing basic purchasing procedures.
B)obtaining scarce materials.
C)solely on reducing prices.
D)developing collaborative relationships with suppliers.

Question 21

What is the strategic impact of the quality of purchased goods and services for a firm?

Question 22

A purchased item (though it may have many suppliers)that still has the potential to affect profit because it is associated with high levels of expenditure is a

A)routine item.
B)leverage item.
C)bottleneck item.
D)critical item.

Question 23

What is the role of supply management on the product development and design process?

Question 24

Purchased goods and services typically make up ________% of a firm's cost of goods sold.

Question 25

Approximately ________ percent of an item or service's cost is determined in the design stage.

Question 26

With reference to the strategic sourcing framework,profit impact is

A)the result of the sheer volume of spend for a particular item.
B)used to determine cost discounts targets for different suppliers.
C)a framework for making purchasing-related decisions.
D)used to make investment decisions in supplier assets.

Question 27

The sourcing strategy for items in the critical quadrant would be to

A)use reverse auctions.
B)decentralize purchasing.
C)narrow item specifications.
D)develop long-term partnerships with one or two key suppliers.

Question 28

In the strategic sourcing framework,the margin on a particular item for a supplier is known as the profit impact.

Question 29

The sourcing strategy for procuring leverage items would be to

A)use reverse auctions.
B)decentralize purchasing.
C)narrow item specifications.
D)develop long-term partnerships with one or two key suppliers.

Question 30

The main objective of the portfolio model is to determine cost discount targets for different suppliers.

Question 31

Which of the following factors determine supply risk for an item?

A)Lack of qualified sources
B)Raw material scarcity
C)Lack of substitutes
D)All of the above
E)Only A and C above

Question 32

Only 25 percent of an item or service's cost is determined in the design stage.

Question 33

In the portfolio model,depending on the sourcing strategy,an item is assigned to a particular quadrant.

Question 34

The sourcing strategy for procuring routine items would be to

A)use reverse auctions.
B)decentralize purchasing.
C)narrow item specifications.
D)develop long-term partnerships with one or two key suppliers.

Question 35

A purchased good that can have a big effect on profitability but only has a few qualified suppliers is a

A)routine item.
B)leverage item.
C)bottleneck item.
D)critical item.

Question 36

A purchased item with few alternate sources of supply,typically due to complex specifications,is a

A)routine item.
B)leverage item.
C)bottleneck item.
D)critical item.

Question 37

The impact of sourcing materials or services with improved quality is usually reduced profitability for the firm.

Question 38

A company using portfolio analysis decides to simplify the acquisition process by negotiating an ongoing contract.The quadrant that these items fall in is most probably the

A)routine quadrant.
B)leverage quadrant.
C)bottleneck quadrant.
D)critical quadrant.

Question 39

With reference to strategic sourcing,the portfolio model is

A)the result of the sheer volume of spend for a particular item.
B)used to determine cost discounts targets for different suppliers.
C)a framework for making purchasing-related decisions.
D)used to make investment decisions in supplier assets.

Question 40

A sourcing strategy for items in the bottleneck quadrant will be to

A)narrow the specifications to allow for more product options.
B)increase competition by encouraging other supplier to offer the item.
C)develop new suppliers.
D)All of the above
E)Only B and C above

Question 41

A basic item like office supplies is a(n)________ item.

Question 42

A sourcing strategy for items in the leverage quadrant will be to build long-term alliances with a few suppliers.

Question 43

The sheer volume of spend for a particular item is known as the ________.

Question 44

A sourcing strategy for items in the bottleneck quadrant will be to develop new suppliers.

Question 45

A sourcing strategy for items in the bottleneck quadrant will be to narrow the specifications to allow for more product options.

Question 46

A company using a portfolio model for strategic sourcing decisions decides to simplify the acquisition process by decentralizing the procurement activities;the products in question most likely fall in the ________ quadrant.

Question 47

A sourcing strategy for items in the critical quadrant will be to prepare contingency plans to protect against unforeseen risks.

Question 48

A sourcing strategy for items in the routine quadrant will be to simplify the acquisition process.

Question 49

The spend on an item like steel by an automobile manufacturer should be categorized in which spend category?

A)Indirect
B)Direct
C)Capital
D)Process

Question 50

A framework for making purchasing-related strategic management decisions is known as the ________.

Question 51

The extent to which an item is difficult to source due to a lack of qualified sources or lack of substitutes among others is known as ________.

Question 52

A purchased good that can have a big effect on profitability but only has a few qualified suppliers is a(n)________ item.

Question 53

The spend on an item like spare parts for the factory equipment should be categorized in which spend category?

A)Indirect
B)Direct
C)Capital
D)Process

Question 54

For a computer manufacturer,items like the processor,which has only a few qualified suppliers,will be classified in the bottleneck quadrant.

Question 55

An auto manufacturer using the portfolio model for strategic sourcing would classify items like office supplies into the leverage items quadrant.

Question 56

For a manufacturer of canned fruit,the procurement of items like oranges and peaches will fall in the leverage quadrant.

Question 57

A purchased item that has many sources of supply,but has the potential to affect profit because it is bought in high volumes is a(n)________ item.

Question 58

A purchased item with few alternate sources of supply due to complex manufacturing process is typically a(n)________ item.

Question 59

For a national pizza restaurant chain,the procurement of cheese will fall in the routine quadrant.

Question 60

A company using portfolio model for strategic sourcing decisions decides to form long-term alliances with their key suppliers;the products in question most likely fall in the ________ quadrant.

Question 61

The spend on any item that supports the operation of the firm is categorized within the direct spend category.

Question 62

The ABC Tool company is considering the best manufacturing location decision for manufacturing their range of PowerDrills.The 3 options are to manufacture in the USA (current scenario),outsource manufacturing to either China or India.The cost to manufacture the product in the USA location (including all overhead costs)is $50 per unit,whereas the same cost for the China and India locations are $33 per unit and $30 per unit respectively.A container can hold 1000 units and it costs $10,000 to ship a container from China to USA and $11,200 to ship a container from India to USA.Additional inventory carrying costs incurred on account of the China and India locations are $1 and $1.35 per unit respectively.Additional logistics costs (on account of customs duties and related delays)are $2 and $2.5 for the China and India locations respectively.Determine the best (lowest cost)location to manufacture the PowerDrill product line.

Question 63

The spend on any item that is part of the final product is categorized within the ________ category.

Question 64

The process of comparing supplier prices against one another or against external benchmarks is known as ________.

Question 65

The spend on building and large equipment is categorized within the ________ category.

Question 66

Two suppliers have quoted the following pricing and payment terms for the procurement of a certain part:
Supplier A $121.25/unit,payment due in 45 days
Supplier B $120.00/unit,payment due on delivery
Perform a price analysis with a 10% annual cost of capital.

Question 67

The purchasing team examined all of the past purchases from the previous financial year in order to identify possible areas of cost savings.What kind of analysis was the purchasing team conducting?

A)Process analysis
B)Purchasing analysis
C)Spend analysis
D)Pattern analysis

Question 68

The process of comparing supplier prices against one another or against external benchmarks is known as

A)price analysis.
B)cost analysis.
C)benchmark analysis.
D)external analysis.

Question 69

All costs related to the customer's use and disposition of a purchased item are known as ________.

Question 70

The spend on building and large equipment is categorized within the capital spend category.

Question 71

The fee levied on a consumer for the disposal of a computer after its end-of-life use is a

A)total acquisition cost.
B)total cost of ownership.
C)should cost modeling.
D)post-ownership cost.

Question 72

The sum of acquisition,ownership,and post ownership costs is known as

A)total acquisition costs.
B)total cost of ownership.
C)should cost modeling.
D)post ownership costs.

Question 73

The part of a Total Cost of Ownership Analysis that includes maintenance and operation of products is known as ________.

Question 74

The sum of acquisition,ownership,and post ownership costs is known as ________.

Question 75

A review of a firm's entire set of purchases to find what the firm is spending its money on is called ________.

Question 76

The process of determining what a product should cost based on its component raw material,manufacturing and overhead costs as well as reasonable profit margin is known as ________.

Question 77

The spend on an item like spare parts for the factory equipment should be categorized within the ________ category.

Question 78

The spend on any item that supports the operation of the firm is categorized within the ________ category.