Deck 17: Sourcing

Question 1

A company has sales of $150 million,cost of goods sold of $100 million,and a before-tax profit of 8%.If purchasing was able to reduce the cost of goods sold by $5 million,how much additional sales would be required to achieve the same impact on profit?

A) $5 million.
B) $10 million.
C) $55 million.
D) $62.5 million.

Answer 1

$62.5 million.

Question 2

Common goals for sourcing include all of the following EXCEPT

A) finding suppliers with the advanced technological abilities needed.
B) finding suppliers with the lowest price per unit.
C) finding suppliers with a certified process for quality control.
D) finding suppliers with strong ethical practices.

Answer 2

finding suppliers with the lowest price per unit.

Question 3

Concerning outsourcing,which of the following is considered a qualitative cost (that is,a cost that is difficult to quantify)?

A) Costs of work stoppages and supply chain disruptions.
B) Costs of drafting and negotiating contracts with suppliers.
C) Inventory carrying costs.
D) All of the above.

Answer 3

Costs of work stoppages and supply chain disruptions.

Question 4

A company has the following financial information (in millions of $): What is the profit leverage effect for this firm?

A) 26.31%
B) 12.63%
C) 7.92
D) 8.54

Question 5

Which of the following is NOT a reason to reshore a purchased item?

A) Political instability in the foreign country.
B) Cost of oil increasing globally.
C) Congestion at shipping ports.
D) Foreign suppliers achieving economies of scale.

Question 6

Which of the following statements concerning sourcing is true?

A) The trend in most industries is to increase vertical integration for improved flexibility.
B) The primary goal of sourcing is to find suppliers offering the lowest price per unit.
C) Evidence of a commitment to social responsibility is often required of suppliers.
D) All of the above.

Question 7

Purchasing activities include

A) choosing suppliers.
B) negotiating contracts.
C) managing buyer-supplier relationships.
D) all of the above.

Question 8

A manufacturer has decided to outsource and offshore a small electric motor that it currently manufactures itself.It has found an offshore supplier that charges $925,000 for a minimum order quantity of 5,000 motors.Shipping costs for this quantity are $15,000.The buyer expects to place four orders per year to meet its annual need for 20,000 motors.Annual carrying cost is 25% of unit price,and import tariffs are 12% of unit price.The company expects to spend $12,500 per year on contracting and relationship maintenance.What is the total cost of outsourcing and offshoring this motor?

A) $208.65 per unit.
B) $212.28 per unit.
C) $213.71 per unit.
D) None of the above.

Question 9

A company has the following financial information (in millions of $):
What is the percentage increase in earnings from a 5% savings in materials purchasing?

A) 5.0%
B) 14.3%
C) 12.63%
D) 19.0%

Question 10

A purchasing executive concerned about a perceived lack of control over purchasing activities should

A) determine the profit leverage level.
B) create a supplier scorecard.
C) conduct a spend analysis.
D) conduct a preferred supplier analysis.

Question 11

Which of the following indicates an item to be a good candidate for outsourcing?

A) The item is important to the company's competitive advantage.
B) The item is a standard product also sold to many other companies.
C) The item technologically advanced and will require close control.
D) All of the above.

Question 12

The profit leverage effect (ratio)is calculated by

A) dividing 1.0 by the profit margin.
B) dividing pretax earnings by the cost of goods sold.
C) dividing sales by the cost of goods sold.
D) none of the above.

Question 13

When purchasing finds savings in the cost of goods sold,

A) this is called the purchasing effect.
B) such savings fall directly to the bottom line.
C) both of the above are true.
D) neither of the above is true.

Question 14

Offshoring refers to

A) a product or service provided by a supplier.
B) a product or service from a supplier located on a different continent.
C) a product or service made or delivered in a foreign country.
D) a product or service exported to a different country.

Question 15

The main reason for offshoring is

A) lower item price.
B) lower wages.
C) lower total cost.
D) higher productivity.

Question 16

Which of the following is NOT a disadvantage of outsourcing?

A) The risk of a supplier underbidding and later charging more.
B) The possibility of forgetting how to do the work.
C) The possibility of a supplier able to deliver faster than needed.
D) The risk of a breakdown in the supplier's supply chain.

Question 17

The first step in a supply base optimization effort is

A) determine the appropriate number of suppliers for the item(s).
B) analyze the company's buying patterns.
C) examine offshore decisions for reshoring opportunities.
D) establish a goal for total spend reduction.

Question 18

Which of the following is a purchasing decision?

A) Which products and services does the firm want to outsource?
B) What products or services should be supplied from offshore?
C) How will the firm maintain positive relationships with suppliers?
D) All of the above.

Question 19

Spend analysis includes

A) looking at what the company is buying, from whom, in what quantities, and at what price.
B) looking at spend data by division or facility to isolate spending patterns.
C) looking for opportunities to disperse purchasing activities to more areas within the organization.
D) all of the above.

Question 20

Which of the following is a sourcing strategic decision?

A) Which products or services should be supplied from offshore?
B) How should suppliers be managed on an ongoing basis?
C) Which suppliers should be selected to provide the desired products or services?
D) All of the above.

Question 21

The three tactics companies have been using to reduce the number of suppliers are

A) consolidating similar suppliers, purchasing families of parts, modular production.
B) modular production, purchasing families of parts, reshoring.
C) modular production, lean production, reshoring.
D) consolidating similar suppliers, modular production, lean production.

Question 22

Which of the following statements is NOT correct?

A) A strong purchasing function requires a bidding process for all purchases made.
B) A request for quotation (RFQ) asks for product, procurement terms, and price information.
C) A reverse auction is a type of RFQ process.
D) A request for proposal asks suppliers how they would solve a problem.

Question 23

Which of the following is NOT one of the five challenges facing purchasing?

A) Developing suppliers of new technologies.
B) Continuing the professional development of the purchasing role.
C) Broadening the evaluation of supplier performance.
D) Finding offshore suppliers that can meet quality requirements.

Question 24

The term business process outsourcing (BPO)refers to outsourcing basic manufacturing processes,such as processes for building components or subassemblies that go into the final product.

Question 25

When a firm uses supplier A to supply a family of parts to one division,and uses supplier B to supply a similar family of parts to a different division,this is called

A) a multiple preferred suppliers approach.
B) a dual sourcing approach.
C) a cross-sourcing approach.
D) none of the above.

Question 26

The first step in the purchasing cycle is to

A) conduct spend analysis.
B) create specifications or descriptions of item or service needed.
C) create a list of potential suppliers of the product or service.
D) send out or post requests for quotations or requests for proposals.

Question 27

The purchasing cycle is described as

A) make-buy decision, find suppliers, select suppliers, make purchase, relationship management.
B) make-buy decision, set specifications, select suppliers, make purchase, relationship management.
C) internal user-buyer interface, set specifications, find suppliers, select suppliers, relationship management.
D) internal user-buyer interface, make-buy decision, find suppliers, select suppliers, relationship management.

Question 28

Consider the following statements regarding supplier relationship management: (1)Performance is evaluated with an eye toward improving or terminating the
Relationship.
(2)Trust is established once the supplier fulfills the terms of the contract.

A) Only statement (1) is correct.
B) Only statement (2) is correct.
C) Both statements are correct.
D) Neither statement is correct.

Question 29

A firm has begun using a supplier scorecard with its top 25 suppliers.This suggests the firm has increased its efforts in which of the following areas?

A) Spend analysis.
B) Outsourcing.
C) Supplier selection.
D) Supplier relationship management.

Question 30

Which of the following is NOT typically required to be a preferred supplier?

A) Demonstrated strong past performance and competitive prices.
B) Evidence of social and community support.
C) Agreeable payment terms.
D) Adequate capacity to be a sole supplier.

Question 31

Consider the following statements: (1)The purpose of spend analysis is to find opportunities to reduce cost by
Consolidating spending.
(2)The purpose of spend analysis is to find opportunities to reduce cost by
Moving all spending to a single supplier.

A) Only (1) is correct.
B) Only (2) is correct.
C) Both (1) and (2) are correct.
D) Neither (1) nor (2) is correct.

Question 32

One advantage of lean systems is that they are more resistant to supply chain disruptions.

Question 33

If it isn't a core competence,anything else a company does is a candidate for outsourcing.

Question 34

To reduce the risk of supply disruption,a company should

A) make sure single suppliers have multiple geographically separated locations.
B) require single suppliers to hold enough inventory at their production facility to carry through any potential disruption.
C) agree to pay higher prices to single suppliers to ensure priority service during a supply disruption.
D) do all of the above.

Question 35

Which of the following would typically carry the most weight in supplier selection decisions?

A) Quality and delivery.
B) Technical capability.
C) Price.
D) Financial stability.

Question 36

When the majority of the company's business is given to one supplier and other suppliers are treated as backup suppliers,this is called

A) a preferred supplier strategy.
B) a dual sourcing strategy.
C) a cross-sourcing strategy.
D) a spend consolidation strategy.

Question 37

Transaction costs tend to be higher for commodities,especially when multiple suppliers are in competition with each other.

Question 38

A company uses a weighted supplier selection matrix and finds the overall scores for two suppliers to be almost exactly the same.The buyer should

A) award the business to the supplier with the best score.
B) consider dual source or cross-source strategies if more than one supplier is desired.
C) consider other relevant information even though it is not included in the matrix.
D) do all of the above.

Question 39

Even when a company can easily do something itself,it may choose to outsource in order to free up resources for other higher-value activities.

Question 40

A U.S.hospital system is considering outsourcing a portion of its diagnostic workload to a medical consulting firm based in India.In the United States these diagnostic services,done internally by the hospital system,cost $700,000 per year.The consulting firm would charge $400,000 per year for the same workload.In addition,the hospital system expects to spend $50,000 per year in managerial oversight,$8,000 per year administering the contract,and $125,000 to initially train the consulting firm's staff (amortized over five years).What is the total annual outsourcing cost during the first five years?

A) $400,000.
B) $483,000.
C) $578,000.
D) None of the above.

Question 41

One significant reason for reshoring is a company needing its supply chain to be more responsive to changes in demand.

Question 42

Cross-sourcing occurs when the majority of business is given to one supplier and the other supplier is treated as a backup supplier.

Question 43

Once issued,the purchase order becomes the basis for managing the purchasing relationship on an ongoing basis.

Question 44

Knowledgeable buyers from purchasing can add value by suggesting to a design engineer the use of a common part instead of the engineer's custom part in the design.

Question 45

At present,70% of the manufactured products purchased in the U.S.market are made outside the United States.