Deck 15: Sourcing Decisions in a Supply Chain

Question 1

Having multiple sources ensures a degree of competition and also the possibility of a backup, should a source fail to deliver.

Answer 1

TRUE

Question 2

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.

Answer 2

FALSE

Question 3

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

Answer 3

TRUE

Question 4

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

Question 5

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 6

The value of better information coordination will be linked to the amount of variability introduced into the supply chain as a result of the bullwhip effect.

Question 7

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

Question 8

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

Question 9

Buyback contracts counter double marginalization by lowering the cost of overstocking for the retailer.

Question 10

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

Question 11

Quantity discounts lower the unit cost and tend to increase the required batch size.

Question 12

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

Question 13

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 14

Two-part tariffs and threshold contracts can be used to counter double marginalization and increase agent effort in a supply chain.

Question 15

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

Question 16

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

Question 17

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

Question 18

Quantity flexibility contracts counter double marginalization by giving the retailer the ability to modify the order based on improved forecasts closer to the point of sale.

Question 19

Revenue-sharing contracts counter double marginalization by decreasing the cost per unit charged to the retailer, thus effectively decreasing the cost of understocking.

Question 20

Unless adding a supplier with a unique and valuable capability clearly adds to total cost, the firm's supply base may be too small.

Question 21

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 22

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 23

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 24

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 25

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 26

An 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 27

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 28

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 29

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 30

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 31

Craigslist and eBay are examples of

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

Question 32

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

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

Question 33

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

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

Question 34

Cost of Goods Sold (COGS) represents

A) less than 20 percent of sales for most major manufacturers.
B) less than 50 percent of sales for most major manufacturers.
C) well over 50 percent of sales for most major manufacturers.
D) well over 80 percent of sales for most major manufacturers.

Question 35

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 36

An 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 37

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 38

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 39

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 40

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 41

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 42

The difference between the values of the buyer and seller is referred to as the

A) value discrepancy.
B) spread.
C) bargaining surplus.
D) negotiation gap.

Question 43

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 44

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 45

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 46

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 47

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 48

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 49

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 50

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 51

To create a win-win negotiation, the two parties must

A) guarantee each other an agreed upon level of business.
B) identify more than one issue to negotiate.
C) identify an impartial mediator to oversee the negotiations.
D) possess an equivalent level of power.

Question 52

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 53

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 54

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 55

A contract that decreases overall costs but leads to higher lot sizes and thus higher levels of inventory in the supply chain is a

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

Question 56

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 57

Which type of contract is used when agents act on behalf of a principal and the dealer's margin is set to be the same as the supply chain margin, and the dealer exerts the right amount of effort?

A) Buyback or returns contract
B) Revenue-sharing contract
C) Quantity flexibility contract
D) Two-part tariffs

Question 58

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 59

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 60

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 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.
The procurement process for direct materials should 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 62

Why should on-time performance be considered in supplier selection decisions?

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 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 64

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.
The procurement process for indirect materials should 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 65

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 stock?

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

Question 66

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.
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 67

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.
What is the difference in order quantity and profit achieved if George and The Jerk Store act independently versus if they behaved as a vertically integrated supply chain?

Question 68

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 stock an optimal quantity?

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

Question 69

What are some of the benefits of effective sourcing decisions?

Question 70

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.
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 71

What issues need to be considered when evaluating capability for design collaboration?

Question 72

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

Question 73

What factors should be considered when making sourcing decisions?

Question 74

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 75

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.
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 76

Why should replenishment lead time be considered in supplier selection decisions?

Question 77

Why should design collaboration capability be considered in supplier selection decisions?