Deck 15: Sourcing Decisions in a Supply Chain

Question 1

Effective sourcing processes within a firm can improve profits for the firm and total supply chain surplus in a variety of ways.

Answer 1

True

Question 2

Sales efforts tend to peak close to the end of an evaluation period.

Answer 2

True

Question 3

A good supplier scoring and assessment process will only track performance along the price dimension when evaluating a supplier.

Answer 3

False

Question 4

A steady pace of sales throughout any sales period is known as the hockey stick phenomenon.

Question 5

Post-ownership costs are not factored in when computing the total cost of ownership.

Question 6

As the replenishment lead time from a supplier grows,the amount of safety inventory that needs to be held by the buyer also grows in direct proportion to the replenishment lead time.

Question 7

Supplier services should be a distinguishing factor when deciding among suppliers for bulk purchase items.

Question 8

A production material that lies on the high end of both the value/cost scale and the criticality scale is categorized as a strategic item.

Question 9

A production material that lies on the high end of the value/cost scale and the low end of the criticality scale is categorized as a general item.

Question 10

The hockey stick phenomenon may be mitigated by offering threshold incentives over a rolling time horizon.

Question 11

For critical items,it is most important to ensure that they are available.

Question 12

Sourcing processes include the selection of suppliers,design of supplier contracts,product design collaboration,procurement of material,and evaluation of supplier performance.

Question 13

Supplier performance analysis should be used to build a portfolio of suppliers with similar strengths.

Question 14

As the replenishment lot size grows,the cycle inventory at the firm grows,thus increasing the cost of holding inventory.

Question 15

The procurement process for indirect materials should focus on decreasing the transaction cost for each order.

Question 16

It is difficult to quantify the management cost of a good.

Question 17

Supplier viability can be especially important if the supplier is providing mission-critical products and it would be easy to find a replacement for them.

Question 18

A reliable supplier has low variability of lead time,whereas an unreliable supplier has high variability.

Question 19

Design collaboration ensures that any design changes are communicated effectively to all parties involved with designing and manufacturing the product.

Question 20

The goal of procurement is to enable orders to be placed and delivered on schedule at the lowest possible price.

Question 21

Concentrating risk at one stage of the supply chain increases overall supply chain profits if the supply chain margin is divided between the two parties and each makes its decisions concerning only its own margin.

Question 22

Under quantity flexibility contracts,the manufacturer allows the retailer to change the quantity ordered after observing demand.

Question 23

An intermediary can increase the supply chain surplus by aggregating inventories across large numbers of customers.This is called

A)capacity aggregation.
B)inventory aggregation.
C)warehouse aggregation.
D)relationship aggregation.

Question 24

A third party can increase the supply chain surplus if it has a lower collection cost than the firm.This is called

A)receivables aggregation.
B)procurement aggregation.
C)information aggregation.
D)relationship aggregation.

Question 25

Which of the following is a traditional logistics driver of sourcing?

A)Pricing
B)Inventory
C)Sourcing
D)Information

Question 26

Effective sourcing processes within a firm can

A)improve profits for the firm and total supply chain surplus.
B)reduce profits for the firm and total supply chain surplus.
C)reduce total supply chain surplus.
D)reduce profits for the firm.

Question 27

When designing a sourcing strategy,it is important for a firm to

A)develop a process that will procure materials at the lowest possible cost.
B)maintain a record of all contracts,receipts,issues and other transactions in the event of lawsuits.
C)maximize the profitability of the distributors within the supply chain.
D)be clear on the factors that have the greatest influence on performance and target improvement on those areas.

Question 28

Using the output from supplier scoring and assessment to identify the appropriate supplier(s)is

A)procurement.
B)sourcing.
C)supplier scoring and assessment.
D)supplier selection.

Question 29

The process by which companies acquire raw materials,components,products,services,and other resources from suppliers to execute their operations is

A)procurement.
B)sourcing.
C)supplier scoring and assessment.
D)supplier selection.

Question 30

To improve overall profits,the supplier must design a contract that requires the buyer to share in some of the supplier's demand uncertainty.

Question 31

The decision to have a third party perform a supply chain function is called

A)insourcing.
B)outsourcing.
C)offshoring.
D)onshoring.

Question 32

The entire set of business processes required to purchase goods and services is

A)procurement.
B)sourcing.
C)supplier scoring and assessment.
D)supplier selection.

Question 33

Buyback contracts are most effective for a product with a low variable cost.

Question 34

A third party may increase the supply chain surplus by aggregating warehousing needs over several firms.This is called

A)capacity aggregation.
B)inventory aggregation.
C)warehouse aggregation.
D)relationship aggregation.

Question 35

Supplier performance must be rated on many different factors because

A)the factors impact the total supply chain cost.
B)the factors minimize the supply chain involvement.
C)the factors reduce the impact of price.
D)the factors maximize the supply chain price.

Question 36

Without an intermediary,connecting a thousand sellers to a million buyers requires

A)a thousand relationships.
B)a million relationships.
C)a billion relationships.
D)a trillion relationship.

Question 37

A third party can increase the supply chain surplus by aggregating demand across multiple firms and gaining production economies of scale that no single firm can on its own.This is called

A)capacity aggregation.
B)inventory aggregation.
C)warehouse aggregation.
D)relationship aggregation.

Question 38

The decision to move a production facility outside of domestic boundaries and still maintain ownership is called

A)insourcing.
B)outsourcing.
C)offshoring.
D)onshoring.

Question 39

With a quantity flexibility clause,the retailer increases their market intelligence.

Question 40

An intermediary can increase the supply chain surplus by decreasing the number of relationships required between multiple buyers and sellers.This is called

A)capacity aggregation.
B)inventory aggregation.
C)warehouse aggregation.
D)relationship aggregation.

Question 41

Price has traditionally been the only dimension that suppliers have been compared on during the process of

A)procurement.
B)sourcing.
C)supplier scoring and assessment.
D)supplier selection.

Question 42

The procurement process for direct materials should primarily focus on

A)improving coordination and visibility with the supplier.
B)decreasing the transaction cost for each order.
C)consolidation of orders to take advantage of economies of scale and quantity discounts.
D)minimizing communication with the supplier.

Question 43

Sourcing a product overseas may have

A)higher product cost and will generally incur a higher inbound transportation cost.
B)higher product cost but will generally incur a lower inbound transportation cost.
C)lower product cost and will generally incur a lower inbound transportation cost.
D)lower product cost but will generally incur a higher inbound transportation cost.

Question 44

W.W.Grainger and McMaster Carr stock products from more than a thousand manufacturers each to sell to hundreds of thousands of customers and are sterling examples of

A)transportation aggregation by transportation intermediaries.
B)inventory aggregation.
C)warehouse aggregation.
D)transportation aggregation by storage intermediaries.

Question 45

Quantity discounts lower the unit cost

A)but tend to increase the required batch size and as a result,reduce the cycle inventory.
B)but tend to increase the required batch size and as a result the cycle inventory.
C)and tend to reduce the required batch size and as a result the cycle inventory.
D)and tend to reduce the required batch size and as a result,increase the cycle inventory.

Question 46

The viability of suppliers is especially important for suppliers who

A)provide mission-critical products that would be easy to replace.
B)provide mission-critical products that would be difficult to replace.
C)provide non-critical products that would be difficult to replace.
D)provide non-critical products that would be easy to replace.

Question 47

Scoring the performance of suppliers in terms of replenishment lead time thus allows the firm to evaluate the impact each supplier has on

A)the cost of holding cycle inventory.
B)the cost of holding replacement inventory.
C)the purchase price of material.
D)the cost of holding safety inventory.

Question 48

Single sourcing for a product is used to

A)guarantee the supplier sufficient business when the supplier has to make a significant buyer-specific investment.
B)ensure a degree of competition.
C)ensure the possibility of a backup should a source fail to deliver.
D)control all possible sources of supply in the market.

Question 49

The goal of procurement is

A)to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost.
B)to analyze spending across various suppliers and component categories to identify opportunities for increasing the total cost.
C)to enable orders to be placed and delivered on schedule at the lowest possible overall cost.
D)to enable orders to be placed and delivered on schedule regardless of cost.

Question 50

Using a third party requires a firm to share demand information and in some cases intellectual property.This risk would be described as

A)leakage of sensitive data and information.
B)underestimation of the cost of coordination.
C)reduced customer/supplier contact.
D)loss of internal capability.

Question 51

The selection of suppliers,design of supplier contracts,product design collaboration,procurement of material,and evaluation of supplier performance are a part of

A)procurement.
B)sourcing.
C)supplier scoring and assessment.
D)supplier selection.

Question 52

Consider the factors influencing total cost and supplier performance.Which of the following is the LEAST quantifiable factor?

A)Supplier price
B)Supplier terms
C)Support
D)Warehousing cost

Question 53

A third party increases the supply chain surplus if it aggregates the sourcing for many small players and facilitates economies of scale in ordering,inbound transportation and production.This is called

A)capacity aggregation.
B)procurement aggregation.
C)information aggregation.
D)relationship aggregation.

Question 54

The procurement process for indirect materials should primarily focus on

A)improving coordination and visibility with the supplier.
B)decreasing the transaction cost for each order.
C)consolidation of orders to take advantage of economies of scale and quantity discounts.
D)minimizing communication with the supplier.

Question 55

Good design collaboration for manufacturability and supply chain can

A)reduce product cost.
B)increase required inventories.
C)increase transportation cost.
D)decrease manufacturability.

Question 56

The role of sourcing planning and analysis is

A)to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost.
B)to analyze spending across various suppliers and component categories to identify opportunities for increasing the total cost.
C)to enable orders to be placed and delivered on schedule at the lowest possible overall cost.
D)to enable orders to be placed and delivered on schedule regardless of cost.

Question 57

The procurement process for both direct and indirect materials should work on

A)improving coordination and visibility with the supplier.
B)decreasing the transaction cost for each order.
C)consolidation of orders to take advantage of economies of scale and quantity discounts.
D)minimizing communication with the supplier.

Question 58

Figure 15-1

Use Figure 15-1 to answer the question.Most indirect materials are included in

A)General items.
B)Critical items.
C)Strategic items.
D)Bulk purchase items.

Question 59

Supplier performance should be compared based on

A)purchase price alone.
B)its impact on total cost.
C)the supplier's quality of material.
D)the ability of the supplier to coordinate forecasting and planning.

Question 60

Craigslist and eBay are examples of

A)receivables aggregation.
B)inventory aggregation.
C)information aggregation.
D)relationship aggregation.

Question 61

Scenario 15.1 - The Jerk Store
George takes an eclectic mix of spices to make his authentic jerk seasoning as a rub for chicken,pork,and fish.The ingredients and packaging cost $1.50 and he sells the packets by the case to Jerk Stores in the Caribbean for $2.50 per packet.Tourists to the islands gladly pay $8.75 for these packets,eager to host their friends for an authentic Caribbean meal and bore them with vacation photos upon their return.The demand for the packets is normally distributed,with a mean of 2500 packets and a standard deviation of 600.
If each Jerk Store location is acting independently,what is their expected overstock quantity if they order the optimal quantity?

A)412
B)434
C)446
D)468

Question 62

A contract that charges the retailer a lower wholesale price but requires the retailer to deposit some portion of their sale price with the manufacturer is a

A)buyback or returns contract.
B)revenue-sharing contract.
C)quantity flexibility contract.
D)quantity discount contract.

Question 63

Scenario 15.1 - The Jerk Store
George takes an eclectic mix of spices to make his authentic jerk seasoning as a rub for chicken,pork,and fish.The ingredients and packaging cost $1.50 and he sells the packets by the case to Jerk Stores in the Caribbean for $2.50 per packet.Tourists to the islands gladly pay $8.75 for these packets,eager to host their friends for an authentic Caribbean meal and bore them with vacation photos upon their return.The demand for the packets is normally distributed,with a mean of 2500 packets and a standard deviation of 600.
If each Jerk Store location is acting independently,how many packets of seasoning should they order?

A)2840
B)3069
C)3233
D)3678

Question 64

Figure 15-1

Use Figure 15-1 to answer the question.The buyer-supplier relationship should be long term for

A)General items.
B)Critical items.
C)Strategic items.
D)Bulk purchase items.

Question 65

Figure 15-1

Use Figure 15-1 to answer the question.Ensuring availability is the deciding factor for

A)General items.
B)Critical items.
C)Strategic items.
D)Bulk purchase items.

Question 66

A contract that allows the buyer to modify the order (within limits agreed to by the supplier)as demand visibility increases closer to the point of sale is a

A)buyback or returns contract.
B)revenue-sharing contract.
C)quantity flexibility contract.
D)quantity discount contract.

Question 67

A contract that allows a retailer to return unsold inventory up to a specified amount,at an agreed upon price is a

A)buyback or returns contract.
B)revenue-sharing contract.
C)quantity flexibility contract.
D)quantity discount contract.

Question 68

Figure 15-1

Use Figure 15-1 to answer the question.Most suppliers have a similar price for

A)General items.
B)Critical items.
C)Strategic items.
D)Bulk purchase items.

Question 69

Sales efforts and orders peak near the end of any month,quarter,or other evaluation period.This is commonly referred to as

A)the hockey stick phenomenon.
B)the student syndrome.
C)Murphy's Law.
D)the Central Limit Theorem.

Question 70

Revenue-sharing contracts usually result in

A)the supply chain producing to consumer demand.
B)higher cost of returns.
C)lower retailer profit.
D)lower retailer effort.

Question 71

Scenario 15.1 - The Jerk Store
George takes an eclectic mix of spices to make his authentic jerk seasoning as a rub for chicken,pork,and fish.The ingredients and packaging cost $1.50 and he sells the packets by the case to Jerk Stores in the Caribbean for $2.50 per packet.Tourists to the islands gladly pay $8.75 for these packets,eager to host their friends for an authentic Caribbean meal and bore them with vacation photos upon their return.The demand for the packets is normally distributed,with a mean of 2500 packets and a standard deviation of 600.
If George and a single Jerk Store act as a vertically integrated supply chain,what is the total supply chain expected profit if an optimal order quantity is placed?

A)$16,462
B)$16,571
C)$16,680
D)$16,789

Question 72

Scenario 15.1 - The Jerk Store
George takes an eclectic mix of spices to make his authentic jerk seasoning as a rub for chicken,pork,and fish.The ingredients and packaging cost $1.50 and he sells the packets by the case to Jerk Stores in the Caribbean for $2.50 per packet.Tourists to the islands gladly pay $8.75 for these packets,eager to host their friends for an authentic Caribbean meal and bore them with vacation photos upon their return.The demand for the packets is normally distributed,with a mean of 2500 packets and a standard deviation of 600.
If each Jerk Store location is acting independently,what is their expected profit if they order the optimal quantity?

A)$13,521
B)$13,840
C)$16,680
D)$16,789

Question 73

A downside to which contract is that it leads to surplus inventory that must be salvaged or disposed?

A)Buyback or returns contract
B)Revenue-sharing contract
C)Quantity flexibility contract
D)Hybrid contract

Question 74

A contract where the buyer pays a minimal amount for each unit purchased from the supplier but shares a fraction of the revenue for each unit sold is a

A)buyback or returns contract.
B)revenue-sharing contract.
C)quantity flexibility contract.
D)quantity discount contract.

Question 75

Figure 15-1

Use Figure 15-1 to answer the question.The goal should be to find suppliers that can collaborate in the design phase for

A)General items.
B)Critical items.
C)Strategic items.
D)Bulk purchase items.

Question 76

A contract that is used to induce performance improvement from a supplier along dimensions,such as lead time,where the benefit of improvement accrues primarily to the buyer,whereas the effort for improvement comes primarily from the supplier is a

A)buyback or returns contract.
B)revenue-sharing contract.
C)quantity flexibility contract.
D)shared savings contract.

Question 77

Understanding the impact of incentives on the actions of a supply chain partner is especially important when

A)there are two or more members in the supply chain.
B)the third party's actions are not fully observable.
C)more than two firms competing for the same pool of customers.
D)the supply chain uses outsourcing.

Question 78

Scenario 15.1 - The Jerk Store
George takes an eclectic mix of spices to make his authentic jerk seasoning as a rub for chicken,pork,and fish.The ingredients and packaging cost $1.50 and he sells the packets by the case to Jerk Stores in the Caribbean for $2.50 per packet.Tourists to the islands gladly pay $8.75 for these packets,eager to host their friends for an authentic Caribbean meal and bore them with vacation photos upon their return.The demand for the packets is normally distributed,with a mean of 2500 packets and a standard deviation of 600.
If George and a single Jerk Store act as a vertically integrated supply chain,what is the optimal quantity for the Jerk Store to order?

A)2633
B)2840
C)3069
D)3267

Question 79

Scenario 15.1 - The Jerk Store
George takes an eclectic mix of spices to make his authentic jerk seasoning as a rub for chicken,pork,and fish.The ingredients and packaging cost $1.50 and he sells the packets by the case to Jerk Stores in the Caribbean for $2.50 per packet.Tourists to the islands gladly pay $8.75 for these packets,eager to host their friends for an authentic Caribbean meal and bore them with vacation photos upon their return.The demand for the packets is normally distributed,with a mean of 2500 packets and a standard deviation of 600.
If each Jerk Store location is acting independently,what is their expected understock quantity if they order the optimal quantity?

A)89
B)95
C)101
D)107

Question 80

Which contract increases the margin for the dealer as sales cross certain levels?

A)Buyback or returns contract
B)Revenue-sharing contract
C)Quantity flexibility contract
D)Threshold contract