Deck 2: Value Chains

Question 1

A company has two alternatives for meeting a customer requirement for 6,000 units of a specialty molding. If done in-house, fixed cost would be $350,000, with variable cost at $30 per unit. If outsourced, the cost is $80 per unit. Determine the break-even point and determine if they should make the item in-house or outsource it.

A) break-even point = 7,000 units; outsource it
B) break-even point = 7,000 units; make it in-house
C) break-even point = 11,667 units; outsource it
D) break-even point = 11,667 units; make it in-house

Answer 1

A

Question 2

_____ is defined as the perception of the benefits associated with a good, service, or bundle of goods and services in relation to what buyers are willing to pay for them.

A) Proportionality
B) Competitiveness
C) Value
D) Equity

Answer 2

C

Question 3

In the value chain model for a hospital, pharmaceutical companies and organ donors would be considered as _____.

A) suppliers
B) inputs
C) processes
D) outputs

Answer 3

A

Question 4

In the context of the perspectives of a value chain, product and service guarantees, contract negotiations and consulting services would be considered as _____.

A) preproduction services
B) production processes
C) postproduction services
D) after-sales services

Question 5

Which of the following statements in the perspective of a value chain is TRUE?

A) Pre- and postproduction services complete the ownership cycle for a good or service.
B) Offshoring is the process of having suppliers provide goods and services that were previously provided internally.
C) Value chain integration includes improving external processes for the client, and not the internal processes.
D) A value chain is a narrower concept than a supply chain that focuses more on the physical movement of goods, not services.

Question 6

For a restaurant, order taking, bill payment, and home delivery would be considered as _____.

A) services
B) inputs
C) processes
D) outputs

Question 7

In the context of the perspectives of a value chain, training and transportation delivery services for customers would be considered as _____.

A) preproduction services
B) production processes
C) postproduction services
D) packaging services

Question 8

A competitively dominant customer experience is often called a _____.

A) perceived benefit
B) preemptive strike
C) moment of truth
D) value proposition

Question 9

A U.S. motorcycle manufacturer has the option of either making the gas tank in their newly designed motorcycle, or subcontracting it to a manufacturer from Sinagpore. The manufacturer expects to produce 1,000 units per year. Costs for the two options are:
$\begin{array}{|l|c|c|}\hline \text { Source } & \text { Fixed Cost } & \text { Variable Cost } \\\hline \text { Make in-house } & \$ 15,000 & \$ 21.50 \\\hline \text { Buy from Singapore } & \$ 0 & \$ 29.00 \\\hline\end{array}$

-The volume they are indifferent regarding the decision to make or buy is _____ units.

A) less than or equal to 2,000
B) more than 2,000 but less than or equal to 4,000
C) more than 4,000 but less than or equal to 6,000
D) more than 6,000 but less than or equal to 8,000
E) more than 8,000.

Question 10

In order to increase value, an organization must do all of the following EXCEPT:

A) increase perceived benefits while holding price or cost constant.
B) increase perceived benefits while reducing price or cost.
C) keep the proportion of price or cost to perceived benefits constant.
D) decrease price or cost while holding perceived benefits constant.

Question 11

A manufacturing company needs to know whether to make in-house or buy a roller gear assembly for its production of a new fax machine. The company expects to produce 9,000 units per year. The following estimates have been made:
$\begin{array}{|l|c|c|}\hline & \text { Make } & \text { Buy } \\\hline \text { Fixed cost per year } & \$ 8,000 & \$ 0 \\\hline \text { Variable cost per part } & \$ 5.45 & \$ 6.93 \\\hline\end{array}$

-The annual cost to buy the roller gear assembly is _____.

A) more than $30,000 but less than or equal to $40,000
B) more than $40,000 but less than or equal to $50,000
C) more than $50,000 but less than or equal to $60,000
D) more than $60,000

Question 12

Which of the following is NOT a value chain process?

A) Core processes
B) Support processes
C) General management processes
D) Open-ended processes

Question 13

The control of Walmart's value chain is _____, while the control of General Electric's is _____.

A) postproduction focused; preproduction focused
B) horizontal; vertical
C) centralized; decentralized
D) backward integrated; forward integrated

Question 14

In the value chain model for a hospital, patients, drugs, and staff would be considered as _____.

A) suppliers
B) inputs
C) transformation processes
D) outputs

Question 15

A U.S. motorcycle manufacturer has the option of either making the gas tank in their newly designed motorcycle, or subcontracting it to a manufacturer from Sinagpore. The manufacturer expects to produce 1,000 units per year. Costs for the two options are:
$\begin{array}{|l|c|c|}\hline \text { Source } & \text { Fixed Cost } & \text { Variable Cost } \\\hline \text { Make in-house } & \$ 15,000 & \$ 21.50 \\\hline \text { Buy from Singapore } & \$ 0 & \$ 29.00 \\\hline\end{array}$

-The annual cost to make the gas tank in-house is _____.

A) less than or equal to $30,000
B) more than $30,000 but less than or equal to $40,000
C) more than $40,000 but less than or equal to $50,000
D) more than $50,000 but less than or equal to $60,000

Question 16

A company has two alternatives for meeting a customer requirement for 9,000 units of a specialty molding. If done in-house, fixed cost would be $350,000, with variable cost at $30 per unit. If outsourced, the cost is $80 per unit. Determine the break-even point and determine if they should make the item in-house or outsource it.

A) break-even point = 7,000 units; outsource it
B) break-even point = 7,000 units; make it in-house
C) break-even point = 11,667 units; outsource it
D) break-even point = 11,667 units; make it in-house

Question 17

A manufacturing company needs to know whether to make in-house or buy a roller gear assembly for its production of a new fax machine. The company expects to produce 9,000 units per year. The following estimates have been made:
$\begin{array}{|l|c|c|}\hline & \text { Make } & \text { Buy } \\\hline \text { Fixed cost per year } & \$ 8,000 & \$ 0 \\\hline \text { Variable cost per part } & \$ 5.45 & \$ 6.93 \\\hline\end{array}$

-The volume they are indifferent regarding the decision to make or buy is _____ units.

A) less than or equal to 2,000
B) more than 2,000 but less than or equal to 4,000
C) more than 4,000 but less than or equal to 6,000
D) more than 6,000 but less than or equal to 8,000

Question 18

The operational structure of a value chain deals with the _____.

A) management hierarchies
B) customer services and returns
C) configuration of resources
D) order tracking reports

Question 19

A manufacturing company needs to know whether to make in-house or buy a roller gear assembly for its production of a new fax machine. The company expects to produce 9,000 units per year. The following estimates have been made:
$\begin{array}{|l|c|c|}\hline & \text { Make } & \text { Buy } \\\hline \text { Fixed cost per year } & \$ 8,000 & \$ 0 \\\hline \text { Variable cost per part } & \$ 5.45 & \$ 6.93 \\\hline\end{array}$

-The annual cost to make the roller gear assembly in-house is _____.

A) less than or equal to $30,000
B) more than $30,000 but less than or equal to $40,000
C) more than $40,000 but less than or equal to $50,000
D) more than $50,000 but less than or equal to $60,000

Question 20

A U.S. motorcycle manufacturer has the option of either making the gas tank in their newly designed motorcycle, or subcontracting it to a manufacturer from Sinagpore. The manufacturer expects to produce 1,000 units per year. Costs for the two options are:
$\begin{array}{|l|c|c|}\hline \text { Source } & \text { Fixed Cost } & \text { Variable Cost } \\\hline \text { Make in-house } & \$ 15,000 & \$ 21.50 \\\hline \text { Buy from Singapore } & \$ 0 & \$ 29.00 \\\hline\end{array}$

-The annual cost to outsource the manufacturing to Singapore is _____.

A) less than or equal to $30,000
B) more than $30,000 but less than or equal to $40,000
C) more than $40,000 but less than or equal to $50,000
D) more than $50,000 but less than or equal to $60,000

Question 21

While cultural differences are important in managing operations in different countries, they have little impact in designing the overall value chain.

Question 22

_____ is the process of managing information, physical goods, and services to ensure their availability at the right place, at the right time, at the right cost, at the right quantity, and with the highest attention to quality.

A) Offshoring
B) Value proposition
C) Operational structure
D) Value chain integration

Question 23

According to the input-output perspective, a value chain begins with _____.

A) feedback
B) processes
C) inputs
D) suppliers

Question 24

When break-even analysis is applied to an outsourcing decision, the break-even quantity is _____.

A) the ratio of fixed costs to the difference between variable outsourcing cost and variable in-house production cost
B) the ratio of the difference between variable outsourcing cost and variable in-house production cost to fixed costs
C) the product of the variable costs and the fixed costs
D) the product of the variable costs and the production quantity

Question 25

Pre-planning, response, and recovery from natural or anthropogenic disasters is called _____.

A) reshoring
B) offshoring
C) emergency management
D) vertical integration

Question 26

_____ is the process of having suppliers provide goods and services that were previously provided internally.

A) Outsourcing
B) Horizontal integration
C) Reshoring
D) Vertical integration

Question 27

A value chain describes the flow of customer information through a production system.

Question 28

A hospital is evaluating whether to outsource or perform in-house a large set of blood and urine laboratory tests. The fixed cost of the laboratory located in the hospital is $800,000, and the weighted average variable cost per test if performed in-house is $28.75. A third-party lab located one city block from the hospital will perform the same tests and distribute the results electronically to the hospital at a price of $32.00. If the annual volume last year was 250,000 tests, the hospital should:

A) outsource these lab tests to this third-party lab.
B) offshore these lab tests to this third-party lab.
C) perform these lab tests in-house at the hospital.
D) reduce fixed costs $200,000 and then outsource.

Question 29

A large hotel and casino in Las Vegas is currently under construction. There will be an Italian restaurant in the hotel that will serve pizza. Management is trying to decide whether to make the pizza themselves or buy it frozen and simply heat it to customer order. One major source of commercial-grade frozen pizza is Chun-Yee Corporation. If they make the pizza themselves a substantial amount of preparation equipment will be required, along with skilled personnel. Financial data is as shown below (variable costs are estimated based on an average pizza purchase): $\begin{array}{|l|c|c|}\hline \text { Source } & \text { Fixed Cost/year } & \text { Variable Cost } \\\hline \text { Make in-house } & \$ 7,870 & \$ 3.20 \\\hline \text { Chun-Yee } & \$ 2,460 & \$ 4.50 \\\hline\end{array}$ At what volume is the company indifferent to either Chun-Yee or make in-house?

A) Less than or equal to 2,000
B) More than 2,000 but less than or equal to 4,000
C) More than 4,000 but less than or equal to 6,000
D) More than 6,000 but less than or equal to 8,000

Question 30

The first, second, and third waves of outsourcing experienced by the United States involve _____ respectively.

A) goods-producing jobs, simple service work, and skilled knowledge work
B) simple service work, goods-producing jobs, and skilled knowledge work
C) simple service work, skilled knowledge work, and goods-producing jobs
D) skilled knowledge work, simple service work, and goods-producing jobs

Question 31

_____ refers to acquiring capabilities toward suppliers.

A) Advancing integration
B) Horizontal integration
C) Forward integration
D) Backward integration

Question 32

Outsourcing is _____.

A) the same as offshoring
B) the opposite of vertical integration
C) the opposite of backward integration
D) the same as diversifying

Question 33

Which of the following costs is NOT considered a variable cost?

A) Labor cost
B) Transportation cost
C) Administrative cost
D) Material cost

Question 34

_____ refers to the process of acquiring and consolidating elements of a value chain to achieve more control.

A) Vertical integration
B) Horizontal integration
C) Outsourcing
D) Offshoring

Question 35

A value chain views an organization from an integrative perspective of goods and services, while a supply chain focuses mainly on the physical movement of goods and materials.

Question 36

Which of the following constitutes a postproduction service in a value chain?

A) Customized and team-oriented product design
B) Recycling and remanufacturing initiatives
C) Product and service guarantees
D) Purchasing and supplier services

Question 37

_____ refers to acquiring capabilities in the value (supply) chain toward distributions or even customers.

A) Backward integration
B) Outsourcing
C) Offshoring
D) Forward integration

Question 38

A supply chain is more inclusive than a value chain.

Question 39

Which of the following terms is NOT used to describe sustainability?

A) Green operations
B) Green manufacturing
C) Green practices
D) Green integration

Question 40

The United States has experienced three waves of outsourcing. Which of the following is NOT one of the waves?

A) Skilled knowledge work
B) Mass customization
C) Simple service work
D) Goods-producing jobs

Question 41

An organization that outsources still retains ownership of an outsourced process or function.

Question 42

A value chain can be considered a "cradle-to-grave" input-output model of the operations function.

Question 43

Forward integration might include acquiring a customer.

Question 44

Support processes are the ones that directly create and deliver goods and services.

Question 45

Vertical integration is a modern method of outsourcing.

Question 46

The decision to purchase a good or service or a customer benefit package is based on an assessment by a customer of the perceived benefits in relation to its price.

Question 47

Proportional increases or decreases in perceived benefits as well as price or cost result in no net change in value.

Question 48

Preproduction services might include warranty and claim services.

Question 49

The success of the entire value chain depends on how it is designed and managed.

Question 50

Global purchasing can be a difficult process to manage when sources of supply, regional economies, and even governments remain constant over time.

Question 51

Decentralizing value chain activities lessens the control that a firm has over cost, quality, and other important business metrics, and often leads to higher levels of risk.

Question 52

A vertical integration strategy generally reduces the complexity of managing a value chain.

Question 53

In break-even analysis, whenever the anticipated volume is greater than the break-even quantity, the firm should not outsource.

Question 54

The focus of preproduction services is on gaining a customer while that of postproduction services is on keeping the customer.

Question 55

Backward integration refers to acquiring capabilities toward distribution.

Question 56

Postproduction services might include customer financing, customer benefit package design, and promotion/advertising.

Question 57

Outsourcing is the opposite of vertical integration.

Question 58

The focus on value has forced many traditional goods-producing companies to reduce services to their customer benefits packages.

Question 59

One approach to increasing value is to maintain perceived benefits while increasing price or cost.

Question 60

A value chain begins with the goods and services that are provided to customers.

Question 61

Define value and discuss three ways for organizations to increase value.

Question 62

Contrast outsourcing with vertical integration. Also, contrast backward integration with forward integration.

Question 63

Offshoring is the process of moving operations back to a company's domestic location.

Question 64

Explain a value proposition. Relate this to a customer benefits package of goods and services.

Question 65

Sustainable practices can lead to increased revenues.

Question 66

Which of the following lessons from the Bookmaster case study is FALSE?

A) Total customer processing time increases in the traditional bricks-and-mortar book value chain compared to an e-book value chain.
B) An advantage of the internet-based e-book value chain is convenience.
C) The nature of service encounters changed from the traditional bricks-and-mortar book value chain to an e-book value chain.
D) The carbon footprint for the total traditional bricks and mortar book value chain is less than for an e-book value chain.

Question 67

A company has two alternatives for meeting a customer requirement for 5,000 units of a specialty molding. If done in-house, fixed cost would be $350,000 and variable cost is $20 per unit. Alternative two is to outsource for a total cost of $40 per unit. Determine the break-even quantity and determine if they should make the item in-house or outsource it.

Question 68

Explain the input-output perspective of a value chain.

Question 69

Which one of the following statements regarding the Bookmaster case study is TRUE?

A) Advantages of the bricks-and-mortar value chain include more customization, more product variety, and using more customer labor (self-service).
B) Operations play no role in the Internet-based value chain.
C) The nature of the service encounter did not change between the bricks-and-mortar versus Internet-based value chain.
D) The case is an example of where physical assets are replaced by information.

Question 70

Value chain integration for goods-producing firms requires consolidating information systems among suppliers, factories, distributors, and customers; managing the supply chain and scheduling factories; and studying new ways to use technology.

Question 71

The decision to offshore or outsource involves a variety of economic and noneconomic issues.

Question 72

Global value chains face higher levels of risk and uncertainty, requiring more inventory and day-to-day monitoring to prevent product shortages.

Question 73

What are the major decisions organizations must address in designing and configuring their value chains?

Question 74

General Electric would be considered a multinational enterprise because it sources, markets, and produces its goods in several countries.

Question 75

Third-party "system integrators" are often used for vertical integration strategies.

Question 76

Which one of the following statements is TRUE regarding the Bookmaster case study?

A) One advantage of the virtual (web-based) value chain is mass customization using
Self-service (i.e., customer labor).
B) One advantage of the bricks-and-mortar value chain is more customer convenience and scope of greater product selection.
C) One advantage of the virtual (web-based) value chain is more management control.
D) One advantage of the bricks-and-mortar value chain is less of a carbon footprint.

Question 77

Two alternatives are being considered for a customer's order whose anticipated volume is not yet known. If the firm produces in-house, the fixed cost is $340,000 and variable cost is $2.90 per unit. If the firm chooses to outsource, it will incur a fixed cost of $275,000 and variable cost of $3.50 per unit. Determine the break-even quantity and a decision rule of when to outsource.

Question 78

Differentiate a supply chain from a value chain.

Question 79

Offshoring is the same as outsourcing in terms of transferring ownership and control.

Question 80

Explain the notion of value chain integration.