Deck 7: Supply Management

Question 1

Dusty is evaluating three bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit, Lady's bid is $50 per unit, and Spike's bid is $30 per unit. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras (giant rodents from South America - their leather makes fine gloves). Dusty believes it will take 500 units to fence in this pasture configuration. What defect rates for the three suppliers would make Dusty indifferent among them from a total cost standpoint?

A)Breezy 5%, Spike 6%, Lady 2%
B)Breezy 3%, Spike 5%, Lady 1%
C)Breezy 1%, Spike 3%, Lady 2%
D)Breezy 2%, Spike 3%, Lady 4%

Answer 1

Breezy 3%, Spike 5%, Lady 1%

Question 2

Dusty is evaluating two bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit with a defect rate of 3%; Lady's bid is $50 per unit and their product manager estimates the defect rate to be around 0.5%. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras (giant rodents from South America - their leather makes fine gloves). Dusty believes it will take 500 units to fence in this pasture configuration. The product manager's uncertainty has Dusty concerned; what defect rate for Lady would make Dusty indifferent between the two suppliers as far as total cost is concerned?

A)1%
B)0.5%
C)0.33%
D)0%

Answer 2

1%

Question 3

Flingers Inc. reveals the following information in their annual report for FY 2018 $$\begin{array}{l}\hline\text { Earnings and Expenses }\\\begin{array} { | l | c | } \hline \text { Sales } & \$ 10,000,000 \\\hline \text { Cost of goods sold } & \$ 5,000,000 \\\hline \text { Pretaxearnings } & \$ 500,000 \\\hline & \\\hline \text { Selected Balance Sheet Items } & \\\hline \text { Merchandise inventory } & \$ 80,000 \\\hline \text { Total assets } & \$ 2,000,000 \\\hline\end{array}\end{array}$$ What is Flingers' return on assets?

A)16%
B)20%
C)25%
D)40%

Answer 3

25%

Question 4

Dusty is evaluating three bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit with a defect rate of 2%; Lady's bid is $50 per unit with a defect rate of 0.5%; and Spike's bid is $30 per unit with a defect rate of 5%. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras. Dusty believes it will take 1000 units to fence in this pasture configuration; what is the lowest total cost?

A)$47,500
B)$50,000
C)$52,500
D)$55,000

Question 5

The phenomenon that a dollar in cost savings increases pretax profits by a dollar, while a dollar increase in sales increases pretax profits only by the dollar multiplied by the pretax profit margin is known as the:

A)profit margin.
B)return on assets.
C)saving to spending ratio.
D)profit leverage effect.

Question 6

Firms do not compete only against global competitors, but against:

A)their suppliers.
B)themselves.
C)the customers of their competitors.
D)their competitors' supply chains.

Question 7

Flingers Inc. reveals the following information in their annual report for FY 2017 $$\begin{array}{l}\text { Earnings and Expenses }\\\begin{array} { | l | c | } \hline \text { Sales } & \$ 10,000,000 \\\hline \text { Cost of goods sold } & \$ 5,000,000 \\\hline \text { Pretaxearnings } & \$ 500,000 \\\hline & \\\hline \text { Selected Balance Sheet Items } & \\\hline \text { Merchandise inventory } & \$ 80,000 \\\hline \text { Total assets } & \$ 2,000,000 \\\hline\end{array}\end{array}$$ Upper management plans to cut cost of goods sold by 5% for the coming year but retain the same sales. What will Flingers' return on assets figure be for 2018

A)26%
B)29%
C)33%
D)38%

Question 8

The ratio of earnings to sales for a given time period is a firm's profit margin.

Question 9

Flingers Inc. reveals the following information in their annual report for FY 2017 $$\begin{array}{l}\text { Earnings and Expenses }\\\begin{array} { | l | c | } \hline \text { Sales } & \$ 10,000,000 \\\hline \text { Cost of goods sold } & \$ 5,000,000 \\\hline \text { Pretaxearnings } & \$ 500,000 \\\hline & \\\hline \text { Selected Balance Sheet Items } & \\\hline \text { Merchandise inventory } & \$ 80,000 \\\hline \text { Total assets } & \$ 2,000,000 \\\hline\end{array}\end{array}$$ Every dollar Flingers saves in purchasing has the same impact as what amount of increased sales?

A)$10
B)$14
C)$17
D)$20

Question 10

For the average manufacturer, over 50 percent of the value of shipments comes from materials.

Question 11

Flingers Inc. reveals the following information in their annual report for FY 2018 $$\begin{array}{l}\text { Earnings and Expenses }\\\begin{array} { | l | c | } \hline \text { Sales } & \$ 10,000,000 \\\hline \text { Cost of goods sold } & \$ 5,000,000 \\\hline \text { Pretaxearnings } & \$ 500,000 \\\hline & \\\hline \text { Selected Balance Sheet Items } & \\\hline \text { Merchandise inventory } & \$ 80,000 \\\hline \text { Total assets } & \$ 2,000,000 \\\hline\end{array}\end{array}$$ What is Flingers' profit margin?

A)5%
B)16%
C)2%
D)4%

Question 12

The percentage of value of shipments that come from materials for the average manufacturer is:

A)greater than or equal to 40 and less than or equal to 49 percent.
B)greater than or equal to 50 and less than or equal to 59 percent.
C)greater than or equal to 60 and less than or equal to 69 percent.
D)greater than or equal to 70 percent.

Question 13

The analyst turned on his banker's lamp, adjusted his eye shade, and slowly pulled a legal pad from his desk. His weathered hands punched the buttons on his desk calculator deliberately as he divided earnings by total assets in order to calculate:

A)return on assets.
B)cost of goods sold.
C)merchandise inventory.
D)profit margin.

Question 14

Flingers Inc. reveals the following information in their annual report for FY 2017 $$\begin{array}{l}\text { Earnings and Expenses }\\\begin{array} { | l | c | } \hline \text { Sales } & \$ 10,000,000 \\\hline \text { Cost of goods sold } & \$ 5,000,000 \\\hline \text { Pretaxearnings } & \$ 500,000 \\\hline & \\\hline \text { Selected Balance Sheet Items } & \\\hline \text { Merchandise inventory } & \$ 80,000 \\\hline \text { Total assets } & \$ 2,000,000 \\\hline\end{array}\end{array}$$ Upper management plans to cut cost of goods sold by 5% for the coming year but retain the same sales. What will Flingers' profit margin be for 2018

A)5%
B)7.5%
C)9%
D)11%

Question 15

Profit margin is the ratio of ________ to ________.

Question 16

Flingers Inc. reveals the following information in their annual report for FY 2017
Calculate Flingers' profit margin, return on assets, and leverage effect

Question 17

Flingers Inc. reveals the following information in their annual report for FY 2017 $$\begin{array}{l}\text { Earnings and Expenses }\\\begin{array} { | l | c | } \hline \text { Sales } & \$ 10,000,000 \\\hline \text { Cost of goods sold } & \$ 5,000,000 \\\hline \text { Pretaxearnings } & \$ 500,000 \\\hline & \\\hline \text { Selected Balance Sheet Items } & \\\hline \text { Merchandise inventory } & \$ 80,000 \\\hline \text { Total assets } & \$ 2,000,000 \\\hline\end{array}\end{array}$$ Upper management plans to cut cost of goods sold by 5% for the coming year but retain the same sales. What will Flingers' profit leverage effect be for 2018

A)$13.33
B)$14.71
C)$17.50
D)$18.50

Question 18

The ratio of earnings to sales for a given time period is the:

A)cost of goods sold.
B)merchandise inventory.
C)profit margin.
D)return on assets.

Question 19

Dusty is evaluating three bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit with a defect rate of 3%; Lady's bid is $50 per unit with a defect rate of 0.5%; and Spike's bid is $30 per unit with a defect rate of 5%. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras (giant rodents from South America - their leather makes fine gloves). Dusty believes it will take 500 units to fence in this pasture configuration; which supplier should win the business?

A)Spike
B)Breezy
C)Lady
D)no difference between Breezy and Spike

Question 20

Company A spends $250 million purchasing materials and subassemblies that it processes and sells for a total of $350 million. The cost of goods sold by Company A is $350 million.

Question 21

Building relationships for key suppliers and preparing contingency plans in case of supply interruptions is vital for products or services found in the:

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

Question 22

The use of supply chain partners to provide products or services is called:

A)outsourcing.
B)insourcing.
C)offloading.
D)partnering.

Question 23

A sourcing strategy in which two suppliers are used for the same purchased product or service is:

A)cross sourcing.
B)dual sourcing.
C)contingency sourcing.
D)multisourcing.

Question 24

A supplier that has previously demonstrated its performance capabilities through purchase contracts may well receive:

A)maverick status.
B)a request for description.
C)preferred supplier status.
D)a request for proposal.

Question 25

In a typical portfolio analysis, office supplies are placed in the:

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

Question 26

Single sourcing is a better choice than multiple sourcing because of the following:

A)increased competition.
B)ensuring that a supplier will not become complacent.
C)spreading risk.
D)gaining access to the supplier's design and engineering capabilities.

Question 27

When compared with single sourcing, multiple sourcing has the advantage of:

A)spreading risk.
B)volume leveraging.
C)lower transportation costs.
D)reduced quality variability.

Question 28

The deans' suite hoped to cut costs and decided to perform a total cost analysis on its vodka supplier. Consumption was currently 6,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $9.50 per bottle and packed 288 bottles in a crate. The cost to ship the crate was $15. Another potential source of vodkas was Pancho's, who charged $9.00 per bottle but could ship only 100 bottles in a crate and at a higher price, $20. Assume that a partial crate may be purchased. What is the total annual cost to supply vodka from their current supplier?

A)$54,000
B)$55,200
C)$57,000
D)$57,312

Question 29

Competitive bidding, active sourcing, and using industry standards are all actions that are appropriate if the sourcing strategy is to:

A)form partnerships with suppliers.
B)maximize commercial advantage.
C)simplify the acquisition process.
D)ensure supply continuity.

Question 30

The deans' suite hoped to cut costs and decided to perform a total cost analysis on its vodka supplier. Consumption was currently 6,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $9.25 per bottle and packed 500 bottles in a crate. The cost to ship the crate was $5. Another potential source of vodkas was Pancho's, who charged $9.20 per bottle but could ship only 100 bottles in a crate. Assume that a partial crate may be purchased. At what annual shipping price per crate from Pancho's would the college face equal total costs?

A)$7.00
B)$6.50
C)$6.00
D)$5.50

Question 31

A company using portfolio analysis decides to streamline the purchasing process for a few items by use of EDI and automated requisitions to the greatest extent possible. The quadrant that these items fall in is most likely the:

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

Question 32

Which of these is a direct cost associated with outsourcing?

A)direct material
B)direct labor
C)variable overhead
D)price from invoice

Question 33

The primary goal of this quadrant is to ensure a continuous supply of products or services found in the:

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

Question 34

Dusty is evaluating three bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit with a defect rate of 2%; Lady's bid is $50 per unit with a defect rate of 0.5%; and Spike's bid is $30 per unit with a defect rate of 5%. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras, giant rodents native to Brazil. Dusty believes it will take 1000 units to fence in this pasture configuration; what is the BEST choice for supplier?

Question 35

Which of the following is required in order to execute a successful spend analysis?

A)graphics capabilities found in charting packages and Visio
B)a sophisticated statistical software package such as SPSS or SAS
C)ability to analyze large quantities of data
D)a minimum of six months uninterrupted work time

Question 36

One advantage of outsourcing is that it:

A)gives the company a high degree of control over its operations.
B)increases the company's access to state-of-the-art products and processes.
C)protects the company's proprietary designs and processes.
D)discourages the development of the company's core competencies.

Question 37

The deans' suite hoped to cut costs and decided to perform a total cost analysis on its vodka supplier. Consumption was currently 6,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $9.50 per bottle and packed 288 bottles in a crate. The cost to ship the crate was $15. Another potential source of vodkas was Pancho's, who charged $9.00 per bottle but could ship only 100 bottles in a crate and at a higher price, $20. Assume that a partial crate may be purchased. What is the total annual cost to supply vodka from Pancho's?

A)$54,000
B)$55,200
C)$57,000
D)$57,312

Question 38

Flingers Inc. reveals the following information in their annual report for FY 2017
They plan to aggressively pursue cost savings in the purchasing area for FY 2018 and expect to lower their cost of goods sold by 8% while maintaining the same level of sales. Calculate Flingers' leverage effect for 2017and their expected leverage effect for 2018. Compare the two results for your leverage effect calculations and provide insight as their relative magnitude.

Question 39

Which of these is an indirect cost associated with insourcing?

A)maintenance
B)purchasing
C)receiving
D)quality control

Question 40

The purchasing team examined all of its purchasing patterns in order to identify any irregularities or possible areas of cost savings. This refers to:

A)internal auditing.
B)purchase consolidation.
C)spend analysis.
D)cooking the books.

Question 41

Cross sourcing is a strategy in which two suppliers are used for the same purchased product or service.

Question 42

A company that uses portfolio analysis would probably classify things like office supplies in the Bottleneck quadrant.

Question 43

Maverick spending is often promoted by top management as a way to improve the bottom line and break out of a purchasing cycle.

Question 44

Portfolio analysis begins with assignment to a quadrant before a sourcing strategy is formulated.

Question 45

A manufacturer seeking to reduce the variability of the quality of purchased products should use multiple sourcing.

Question 46

The request for quotation is a formal request for suppliers to deliver a product or service that includes key terms and conditions, such as price, delivery, and quality requirements.

Question 47

Use of EDI in the supply chain has led to shorter lead times and lower inventory.

Question 48

In the description of the purchasing process, the product should be described only by brand or specification.

Question 49

When a supplier does not exist, competitive bidding and negotiation are two methods commonly used for final supplier selection.

Question 50

Total cost analysis divides costs into direct (costs that are tied to the level of operations or supply chain activities)and indirect (costs that are not tied to the level of operations or supply chain activity).

Question 51

Outsourcing can be risky because it decreases the firm's strategic flexibility.

Question 52

This table contains the performance criteria and scores (larger numbers are better)for four potential suppliers to Kramerica Industries. Evaluate the data and identify the BEST source for Kramerica. $$\begin{array} { | l | c | c | c | c | } \hline \text { Performance Dimension } & \text { Company A } & \text { Company B } & \text { Company C } & \text { Company D } \\\hline \text { Quality } ( \mathrm { W } = 0.4 ) & 3 & 4 & 2 & 5 \\\hline \text { Cost } ( \mathrm { W } = 0.3 ) & 4 & 3 & 5 & 3 \\\hline \text { Flexibility } ( \mathrm { W } = 0.2 ) & 5 & 3 & 4 & 2 \\\hline \text { Speed } ( \mathrm { W } = 0.1 ) & 2 & 5 & 5 & 4 \\\hline\end{array}$$

A)Company A
B)Company B
C)Company C
D)Company D

Question 53

The two basic types of purchasing contracts are:

A)fixed-price and cost-based.
B)bid-rigged and cost-plus.
C)cost-zero and fixed-variable.
D)fixed-quantity and variable-cost.

Question 54

This table contains the performance criteria and scores (larger numbers are better)for four potential suppliers to Los Pollos Hermanos. Evaluate the data and identify the BEST source for Los Pollos Hermanos. $$\begin{array} { | l | c | c | c | c | } \hline \text { Performance Dimension } & \text { Company W } & \text { Company P } & \text { Company D } & \text { Company G } \\\hline \text { Purity } ( \mathrm { W } = 0.5 ) & 5 & 4 & 2 & 5 \\\hline \text { Cost } ( \mathrm { W } = 0.2 ) & 4 & 3 & 5 & 2 \\\hline \text { Stability } ( \mathrm { W } = 0.2 ) & 2 & 1 & 4 & 5 \\\hline \text { Speed } ( \mathrm { W } = 0.1 ) & 3 & 5 & 5 & 2 \\\hline\end{array}$$

A)Company W
B)Company P
C)Company G
D)Company D

Question 55

The first step of the purchasing process is to select the supplier.

Question 56

The weighted-point evaluation system allows for a completely objective decision to be made.

Question 57

A manufacturer that wants to make sure that suppliers do not become complacent should use multiple sourcing.

Question 58

This table contains a list of three companies that have been rated on four weighted performance dimensions (larger numbers are better). Which of the following statements regarding this information is BEST? $$\begin{array} { | l | c | c | c | c | } \hline { \text { Performance Dimension } } & \text { Strickland } & \text { Thatherton } & \text { Mega-Low } & \text { Amerigas } \\\hline \text { Quality } ( \mathrm { W } = 0.5 ) & 4 & 4 & 2 & 4 \\\hline \text { Cost } ( \mathrm { W } = 0.4 ) & 4 & 3 & 5 & 3 \\\hline \text { Speed } ( \mathrm { W } = 0.1 ) & 2 & 2 & 4 & 5 \\\hline\end{array}$$

A)Thatherton is superior to Amerigas.
B)Amerigas is superior to Strickland.
C)Mega-Low is superior to Thatherton.
D)Strickland is superior to Mega-Low.

Question 59

A description method used when a product or service is proprietary or when there is a perceived advantage to using a particular supplier's product or services is:

A)description by market grade.
B)description by brand.
C)description by specification.
D)description by performance characteristics.

Question 60

In a cost-based contract, the stated price does not change, regardless of fluctuations in the general overall economic conditions.

Question 61

Use of a single supplier for a part or service in part of the business and another supplier with the same capability for a different part or service in another area of the business is known as ________.

Question 62

Perhaps the best way to describe standard items is to use ________ which is a description method that is applicable when the requirements are well understood.

Question 63

Define outsourcing and discuss its advantages and disadvantages.

Question 64

The deans' suite hoped to cut costs and decided to perform a total cost analysis on its tequila supplier. Consumption was currently 10,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $15.50 per bottle and packed 300 bottles in a crate. The cost to ship the crate was $15. Another potential source of tequilas was Pancho's, who charged $14.75 per bottle but could ship only 100 bottles in a crate and at a higher price, $75. Assume that a partial crate may be purchased. Conduct a total cost analysis and make a recommendation.

Question 65

Horace Smithfield, Esq., was insistent that he pay a flat rate of $10,000,000 and not a penny more to transfer his inheritance through your checking account so he could move vast sums of cash out of his country. Sure, he had fallen out of favor with the government and the economy in his country was in a dire situation, but a deal was a deal and $10,000,000 was all he could afford to pay. This type of purchase contract was to be a(n)________ if you would kindly provide your account information.

Question 66

What are the four sourcing strategies, how do they work, and what are the advantages of each?

Question 67

Briefly describe the objective of spend analysis and the general requirements for accomplishing it.

Question 68

What is portfolio analysis and how is it accomplished? Provide an example of a purchased product or service that would fall in each area for a university applying portfolio analysis.

Question 69

The bulk of insourcing costs are usually ________ costs.

Question 70

What is sourcing portfolio analysis? Discuss the model and the strategies and tactics associated with each quadrant.

Question 71

What are the advantages and disadvantages of insourcing and outsourcing?

Question 72

The deans' suite hoped to cut costs and decided to perform a total cost analysis on its tequila supplier. Consumption was currently 10,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $15.50 per bottle and packed 300 bottles in a crate. The cost to ship the crate was $15. Another potential source of tequilas was Pancho's, who charged $14.75 per bottle but could ship only 100 bottles in a crate and at a higher price, $75. Assume that a partial crate may be purchased. By how much does Byron need to lower its per bottle price to reduce their total cost to that of Pancho?

Question 73

________ is the name for a process requiring a company to identify and determine all of the major costs associated with different sourcing possibilities.

Question 74

A company using portfolio analysis decides to form partnerships with suppliers; the products in question probably fall in the ________ quadrant.

Question 75

________ are high-level, often strategic decisions regarding which products or services will be provided internally and which will be provided by external supply chain members.

Question 76

________ is a purchasing description method that focuses attention on the outcomes the customer wants.

Question 77

This table contains the performance criteria and scores (larger numbers are better)for four potential suppliers to Los Pollos Hermanos. Evaluate the data and identify the BEST source for Los Pollos Hermanos.

Question 78

Among the disadvantages of ________ are that different product attributes with varying qualities may be produced which can actually result in reduced supplier loyalty over time.

Question 79

A company that regularly outsources goods and services may have established close relationships with their suppliers and therefore will allow these suppliers the first opportunity to bid for new business needs. These suppliers are known as ________.

Question 80

The purchasing team occasionally examined its spending patterns to identify irregularities as part of a(n)________.