Deck 6: Designing Global Supply Chain Networks

Question 1

For a global supply chain,exchange rates and inflation are unlikely to vary over time in different locations.

Answer 1

False

Question 2

Uncertainty in demand and economic factors should not be included in the financial evaluation of supply chain design decisions.

Answer 2

False

Question 3

A logical objection to both the multiplicative and additive binomial is the fact that the underlying factor takes on two values at the end of each period.

Answer 3

False

Question 4

The rate of return k is also referred to as the present value of capital.

Question 5

The degree of demand and price uncertainty has a significant influence on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.

Question 6

The present value of a stream of cash flows is what that stream is worth in today's dollars.

Question 7

Long-term contracts for both warehousing and transportation requirements will be more effective if the demand and price of warehousing do not change in the future or if the price of warehousing goes up.

Question 8

During network design,managers need a methodology that allows them to estimate the certainty in their forecast of demand and price and then incorporate this certainty into the decision-making process.

Question 9

If uncertainty is ignored,a manager will always sign long-term contracts because they are typically cheaper and avoid all flexible capacity because it is more expensive.

Question 10

In a complex decision tree,there are thousands of possible paths that may result from the first period to the last.

Question 11

Decisions made during the supply chain design phase regarding significant investments in the supply chain,such as the number and size of plants to build,the number of trucks to purchase or lease,and whether to build or lease warehouse space,cannot be altered in the short term.

Question 12

A negative NPV for an option indicates that the option will lose money for the supply chain.

Question 13

If price and demand vary over time in a global network,flexible production capacity can be reconfigured to maximize profits in the new environment.

Question 14

In reality,demand and prices are highly uncertain and are likely to fluctuate during the life of any supply chain decision.

Question 15

The present value of future cash flows is found by using a discount factor.

Question 16

The decision with the lowest NPV will provide a supply chain with the highest financial return.

Question 17

A firm may choose to build a flexible global supply chain even in the presence of little demand or supply uncertainty if certainty exists in exchange rates or prices.

Question 18

Decisions made during the supply chain design phase regarding significant investments in the supply chain,such as the number and size of plants to build,the number of trucks to purchase or lease,and whether to build or lease warehouse space,rarely remain in place for several years.

Question 19

The multiplicative binomial cannot take on negative values and can be used for factors like demand,price,and exchange rates that cannot become negative.

Question 20

Decision trees with DCFs can be used to evaluate supply chain design decisions given uncertainty in prices,demand,exchange rates,and inflation.

Question 21

The degree of demand and price uncertainty has

A) no effect on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.
B) a limited influence on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.
C) a minor influence on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.
D) a significant influence on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.
E) None of the above are true.

Question 22

Simulation methods are very good at evaluating a decision where the path itself is decision dependent.

Question 23

When faced with uncertain conditions it is always best to sign long-term contracts (because they are typically cheaper)and avoid all flexible capacity (because it is more expensive).

Question 24

The main advantage of simulation models is that they can provide low-cost evaluations of complex situations.

Question 25

Discounted cash flow (DCF)analysis evaluates the present value of any stream of future cash flows and allows management to compare two streams of cash flows in terms of their financial value.

Question 26

One of the best ways to speed up the process of financial analysis and arrive at a good decision is to use estimates,except when it appears that finding a very accurate input would take an inordinate amount of time.

Question 27

Long-term contracts for both warehousing and transportation requirements will be more effective if

A) the demand and price of warehousing do not change in the future.
B) the price of warehousing goes up in the future.
C) demand drops in the future.
D) the price of warehousing drops in the future.
E) A and B only

Question 28

Strategic planning and financial planning should be combined during supply chain network design.

Question 29

Decisions made during the supply chain design phase regarding significant investments in the supply chain,such as the number and size of plants to build,the number of trucks to purchase or lease,and whether to build or lease warehouse space,

A) define the boundaries within which the supply chain must compete.
B) have little impact on how the supply chain must compete.
C) are irrelevant regarding how the supply chain will compete.
D) are the only consideration regarding how the supply chain will compete.
E) none of the above

Question 30

The evaluation of supply chain networks should not use multiple metrics.

Question 31

Decisions made during the supply chain design phase regarding significant investments in the supply chain,such as the number and size of plants to build,the number of trucks to purchase or lease,and whether to build or lease warehouse space,

A) can be altered in the short term.
B) cannot be altered in the short term.
C) cannot be altered in the long term.
D) can only be altered in the short term.
E) all of the above

Question 32

The value of flexibility increases with an increase in uncertainty.

Question 33

The inclusion of uncertainty typically increases the value of rigidity and decreases the value of flexibility.

Question 34

Offshoring typically lowers labor,working capital and fixed costs but increases risk and freight costs.

Question 35

Short-term contracts for both warehousing and transportation requirements will be more effective

A) if the demand and price of warehousing do not change in the future.
B) if the price of warehousing goes up in the future.
C) if either demand or the price of warehousing drops in the future.
D) only if demand drops in the future.
E) only if the price of warehousing drops in the future.

Question 36

Decisions made during the supply chain design phase regarding significant investments in the supply chain,such as the number and size of plants to build,the number of trucks to purchase or lease,and whether to build or lease warehouse space,

A) are realigned every few weeks.
B) only remain in place for several years.
C) rarely remain in place for several years.
D) only remain in place for a few weeks.
E) often remain in place for several years.

Question 37

Simulation models require a higher setup cost to start and operate compared to decision tree tools.

Question 38

Financial analysis should be used as an input to decision making,not as the decision-making process.

Question 39

Globalization has offered tremendous opportunity as well as decreased risk in the development of supply chains due to improved information flow.

Question 40

Appropriate flexibility is an effective approach for a global supply chain to deal with a variety of risks and uncertainties.Extra flexibility is always worth the cost.

Question 41

The discount factor used to obtain the present value of money in the next period where k represents the rate of return is

A) k.
B) 1+k.
C) 1/(1+k).
D) k /(1+k).
E) none of the above

Question 42

In reality,demand and prices are

A) highly certain and not likely to fluctuate during the life of any supply chain decision.
B) highly certain and likely to fluctuate during the life of any supply chain decision.
C) highly uncertain and not likely to fluctuate during the life of any supply chain decision.
D) highly uncertain and likely to fluctuate during the life of any supply chain decision.
E) none of the above

Question 43

For a global supply chain,exchange rates and inflation are

A) likely to vary over time in different locations.
B) not likely to vary over time in different locations.
C) not likely to vary over time in any locations.
D) likely to be stable over time in all locations.
E) none of the above

Question 44

In the commonly used multiplicative binomial,it is assumed that the underlying factor

A) moves up by a factor u > 1 with probability p.
B) moves down by a factor u > 1 with probability p.
C) moves down by a factor d < 1 with probability 1 - p.
D) either A or B
E) either A or C

Question 45

The process of evaluating the present value of any stream of future cash flows so that management can compare two streams of cash flows in terms of their financial value is

A) annual cash flow (ACF) analysis.
B) discretionary cash flow (DCF) analysis.
C) discounted cash flow (DCF) analysis.
D) future cash flow (FCF) analysis.
E) none of the above

Question 46

The multiplicative binomial can be used for factors like demand,price,and exchange rates that cannot become negative because it

A) can take on negative values.
B) cannot take on negative values.
C) can take on positive values.
D) cannot take on positive values.
E) all of the above

Question 47

The rate of return k is also referred to as the

A) discount rate.
B) hurdle rate.
C) opportunity cost of capital.
D) all of the above
E) none of the above

Question 48

A logical objection to both the multiplicative and additive binomial is the fact that the underlying factor

A) takes on only one of two possible values at the end of each period.
B) takes on two values at the end of each period.
C) takes on one of many possible values at the end of each period.
D) takes on several of many possible values at the end of each period.
E) none of the above

Question 49

The present value of a future stream of cash flows is what that stream

A) was worth in yesterday's dollars.
B) is worth in today's dollars.
C) will be worth in future dollars.
D) might be worth in future dollars.
E) none of the above

Question 50

A firm may choose to build a flexible global supply chain even in the presence of little demand or supply uncertainty if

A) certainty exists in both exchange rates and prices.
B) certainty exists in exchange rates or prices.
C) uncertainty exists in both exchange rates and prices.
D) uncertainty exists in exchange rates or prices.
E) uncertainty exists only in exchange rates.

Question 51

A negative NPV (net present value)for an option indicates that the option will

A) gain money for the supply chain.
B) lose money for the supply chain.
C) maximize profit for the supply chain.
D) minimize profit for the supply chain.
E) none of the above

Question 52

The NPV (net present value)of a cash stream that is equal to $75 per period for 5 periods with a rate of return of 10% (.10)per period would be

A) 221.37.
B) 284.30.
C) 312.74.
D) 375.00.
E) none of the above

Question 53

What is the present value of a $27 revenue that will be received in one year where the rate of return is 8% (.08)?

A) $2.50
B) $15.00
C) $25.00
D) $30.00
E) none of the above

Question 54

The present value of future cash flow is found by

A) locating the correct factor on a z-table.
B) using a discount factor.
C) plotting the function on a graph.
D) adding the total of all future cash flows.
E) none of the above

Question 55

Uncertainty of demand and price

A) drives the value of building flexible production capacity at a plant.
B) eliminates the value of building flexible production capacity at a plant.
C) facilitates the value of building flexible production capacity at a plant.
D) has no effect on the value of building flexible production capacity at a plant.
E) None of the above are true.

Question 56

The decision with the highest NPV (net present value)will provide a supply chain with

A) the highest financial return.
B) the lowest financial return.
C) a reasonable financial return.
D) the least desirable financial return.
E) none of the above

Question 57

The binomial representation of uncertainty is based on the assumption that when moving from one period to the next,the value of the underlying factor (such as demand or price)

A) has only one possible outcome.
B) has only two possible outcomes - up or down.
C) has many possible outcomes.
D) cannot be accurately determined.
E) none of the above

Question 58

The NPV (net present value)of a cash stream that is equal to $100 per period for 5 periods with a rate of return of 10% (.10)per period would be

A) 379.08.
B) 416.98.
C) 500.00.
D) 610.51.
E) 671.56.

Question 59

If price and demand do vary over time in a global network,

A) flexible production capacity should not be used in the new environment.
B) flexible production capacity will be ineffective in the new environment.
C) flexible production capacity can be reconfigured to minimize profits in the new environment.
D) flexible production capacity can be reconfigured to maximize profits in the new environment.
E) flexible production capacity should never be used in an uncertain environment.

Question 60

The net present value (NPV)of a stream of cash flows is equal to

A) the sum of all cash flows for all periods being considered.
B) the sum of all cash flows for all periods being considered divided by the number of periods.
C) the average of all cash flows for all periods being considered.
D) the average of all cash flows for all periods being considered multiplied by the number of periods.
E) the sum of all cash flows for all periods being considered discounted by the rate of return for each period.

Question 61

Flexibility should be valued by taking into account uncertainty in demand and economic factors.In general,flexibility will tend to

A) decrease in value with a decrease in certainty.
B) increase in value with an increase in uncertainty.
C) decrease in value with an increase in uncertainty.
D) increase in value with an increase in certainty.
E) None of the above are accurate.

Question 62

The tailored strategy "Focus on low-cost,decentralized capacity for predictable demand" follows which risk mitigation strategy?

A) Get redundant suppliers
B) Increase capacity
C) Increase responsiveness
D) Increase inventory

Question 63

In a complex decision tree there are

A) only a few possible paths that may result from the first period to the last.
B) less than thirty possible paths that may result from the first period to the last.
C) thousands of possible paths that may result from the first period to the last.
D) an infinite number of possible paths that may result from the first period to the last.
E) none of the above

Question 64

One of the best ways to speed up the process of financial analysis and arrive at a good decision is to

A) use estimates of inputs when it appears that finding a very accurate input would take an inordinate amount of time.
B) use estimates backed up by sensitivity analysis when it appears that finding a very accurate input would take an inordinate amount of time.
C) use estimates of inputs except when it appears that finding a very accurate input would take an inordinate amount of time.
D) make sure that every detail is very accurate.
E) none of the above

Question 65

The last step in decision tree analysis methodology is to

A) identify factors such as demand, price, and exchange rate, whose fluctuation will be considered over the next T periods.
B) identify the periodic discount rate k for each period.
C) start at period T, work back to Period 0, identifying the optimal decision and the expected cash flows at each step. Expected cash flows at each step in a given period should be discounted back when included in the previous period.
D) identify the duration of each period (month, quarter, etc.) and the number of periods T over which the decision is to be evaluated.
E) identify representations of uncertainty for each factor; that is, determine what distribution to use to model the uncertainty.

Question 66

The evaluation of supply chain networks

A) should use only one metric.
B) should use multiple metrics.
C) should not use more than one metric.
D) should not use multiple metrics.
E) should be subjective.

Question 67

What is the type of this network design?

A) Dedicated network
B) Fully flexible network
C) Chained network with one long chain
D) Chained network with two long chains

Question 68

Simulation methods are very good at evaluating decisions when

A) the paths are decision dependent.
B) the decision rules are simple.
C) there are different forms of uncertainty.
D) implicit solutions are needed for analysis.

Question 69

Strategic planning and financial planning

A) should be performed independently during supply chain network design.
B) should be performed sequentially during supply chain network design.
C) should be performed hierarchically during supply chain network design.
D) should be performed concurrently during supply chain network design.
E) should be combined during supply chain network design.

Question 70

Decision tree analysis is based on Bellman's principle,which states that for any choice of strategy in a given state,

A) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the first period.
B) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the last period.
C) the optimal strategy in the next period is the one that is selected if the entire analysis is assumed to begin in the last period.
D) the optimal strategy in the next period is the one that is selected if the entire analysis is assumed to begin in the next period.
E) none of the above

Question 71

Firms should use simulation for evaluating decisions when

A) underlying decision trees are simple and explicit solutions for the underlying decision tree are difficult to obtain.
B) underlying decision trees are very complex and explicit solutions for the underlying decision tree are difficult to obtain.
C) underlying decision trees are simple and explicit solutions for the underlying decision tree are easy to obtain.
D) underlying decision trees are very complex and explicit solutions for the underlying decision tree are easy to obtain.
E) none of the above

Question 72

A major factor that makes the decision tree methodology quite powerful is

A) the choice of certainty.
B) the choice of discount rate.
C) the choice of uncertainty level.
D) the choice of additive factor.
E) all of the above

Question 73

Flexibility can be divided into three broad categories.Which of the following is not one of the categories?

A) New product flexibility
B) Mix flexibility
C) Risk flexibility
D) Volume flexibility

Question 74

Uncertainty in demand and economic factors should be included in the financial evaluation of supply chain design decisions,because

A) the exclusion of certainty may have a significant impact on this evaluation.
B) the exclusion of uncertainty may have a significant impact on this evaluation.
C) the inclusion of certainty may have a significant impact on this evaluation.
D) the inclusion of uncertainty may have a significant impact on this evaluation.
E) none of the above

Question 75

A labor dispute is a risk driver to be considered during network design.What category does a "labor dispute" belong?

A) Disruptions
B) Inventory risk
C) Systems risk
D) Capacity risk

Question 76

Financial analysis should be used as

A) the decision-making process.
B) an alternative decision-making process.
C) an input to decision making, not as the decision-making process.
D) all of the above
E) none of the above

Question 77

Simulation models

A) require a higher setup cost to start and operate compared to decision tree tools.
B) require a lower setup cost to start and operate compared to decision tree tools.
C) require a higher setup cost to start but less to operate compared to decision tree tools.
D) require a lower setup cost to start but more to operate compared to decision tree tools.
E) none of the above

Question 78

A decision tree is

A) a graphic device used to evaluate decisions under certainty.
B) a graphic device used to evaluate decisions under uncertainty.
C) a tabular device used to evaluate decisions under certainty.
D) a tabular device used to evaluate decisions under uncertainty.
E) none of the above

Question 79

The first step in decision tree analysis methodology is to

A) identify factors such as demand, price, and exchange rate, whose fluctuation will be considered over the next T periods.
B) identify the periodic discount rate k for each period.
C) start at period T, work back to Period 0 identifying the optimal decision and the expected cash flows at each step. Expected cash flows at each step in a given period should be discounted back when included in the previous period.
D) identify the duration of each period (month, quarter, etc.) and the number of periods T over which the decision is to be evaluated.
E) identify representations of uncertainty for each factor; that is, determine what distribution to use to model the uncertainty.

Question 80

The appropriate discount rate used in decision tree methodology

A) should be risk-adjusted and risk may vary by period and decision node.
B) should be risk-adjusted and risk may not vary by period and decision node.
C) should not be risk-adjusted and risk may vary by period and decision node.
D) should not be risk-adjusted and risk may not vary by period and decision node.
E) None of the above are accurate.