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Chapter 10 Supply Chain Strategy

Chapter

Part 3: Managing Value Chains

10

Supply Chain Strategy

TRUE/FALSE

1. Supply chain management is the strategy of organizing, motivating and controlling a firms processes
and those of its suppliers to match the flow of materials, services, and information with customer
demand.
Answer: True
Reference: Introduction
Difficulty: Moderate
Keywords: supply, chain, management, supplier, customer
2. Work-in-process inventory is considered an input to the transformation processes of the firm.
Answer: False
Reference: Supply Chains for Services and Manufacturing
Difficulty: Moderate
Keywords: WIP, work, process, input
3. The finished goods of one firm may actually be the raw materials for another firm.
Answer: True
Reference: Supply Chains for Services and Manufacturing
Difficulty: Moderate
Keywords: finished, good, raw, material
4. Inventory turnover is obtained by dividing the average aggregate inventory value by sales per week at
cost.
Answer: False
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: inventory, turnover
5. Increasing the percentage of on-time deliveries to customers actually reduces the total revenue of a
firm.
Answer: False
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: on-time, delivery, revenue
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Chapter 10 Supply Chain Strategy

6. The bullwhip effect says that in any supply chain, the ordering patterns experience increasing
variance as you move closer to the end customer.
Answer: False
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: bullwhip, variance
7. A common disruption of the external supply chain is product and service mix changes.
Answer: True
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: disruption, external, supply, chain, mix
8. A common disruption of the external supply chain is engineering changes.
Answer: False
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: external, supply, chain, engineering, change
9. Distribution is the management of the transformation process devoted to producing the product or
service.
Answer: False
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: distribution, transformation, management
10. One of the concerns of material management deals with staffing patterns.
Answer: True
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: material, management, staffing
11. One of the concerns of material management deals with production levels.
Answer: True
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: material, management, production, level
12. The order-fulfillment process involves the activities to deliver a product or service to the customer.
Answer: True
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: order, fulfillment, deliver, customer

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Chapter 10 Supply Chain Strategy

13. Forward placement is a reduction in inventory and safety stock because of the merging of variable
demands from customers.
Answer: False
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: forward, placement, inventory
14. Vendor-managed inventories are an example of the forward-placement tactic.
Answer: True
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: vendor, managed, inventories, forward, placement
15. Drop shipping occurs when a retailer passes customer orders directly to a wholesaler or manufacturer,
which then ships the order directly to the customer with the retailers label on it.
Answer: True
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: drop, shipping
16. Channel assembly is the process of using members of the distribution channel as if they were
assembly stations in the factory.
Answer: True
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: channel, assembly, distribution
17. Virtual supply chains tend to have lower costs due to economies of scale.
Answer: True
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: virtual, supply, chain
18. It is better to keep the order fulfillment process in-house than to use a virtual supply chain when sales
volumes are high.
Answer: True
Reference: : Supply Chain Strategies
Difficulty: Moderate
Keywords: virtual, supply, chain, traditional
19. When high service or product variety is important, the traditional order fulfillment method is
preferable to a virtual supply-chain approach.
Answer: False
Reference: : Supply Chain Strategies
Difficulty: Moderate
Keywords: virtual, supply, chain, traditional

27

Chapter 10 Supply Chain Strategy

20. A collaborative planning, forecasting, and replenishment program is an iterative process between the
supplier and customer to develop replenishment quantities jointly.
Answer: True
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: collaborative, planning, forecasting, replenishment, CPFR
21. A cross-docking warehouse holds inventory from manufacturers until retailers are prepared to sell the
items.
Answer: False
Reference: The Order Fulfillment Process
Difficulty: Easy
Keywords: cross-docking, warehouse
22. The negotiation process executes the actual procurement of the service or material from the supplier.
Answer: False
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: negotiation, procurement, supplier
23. Green purchasing involves identifying, assessing, and managing the flow of environmental waste and
finding ways to reduce it and minimize its impact on the environment.
Answer: True
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: green, purchasing, environment
24. The competitive orientation to supplier relations is that the buyer and supplier are partners.
Answer: False
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: competitive, orientation, supplier, buyer
25. The most used form of e-purchasing today is electronic data interchange.
Answer: True
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: electronic, data, interchange, EDI
26. A catalog hub is a central distribution point where buyers may purchase items directly from
manufacturers before the items are shipped to retailers.
Answer: False
Reference: Supplier Relationship Process
Difficulty: Easy
Keywords: catalog. hub

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Chapter 10 Supply Chain Strategy

27. An electronic market that brings together textbook sellers, office supply companies, apparel vendors,
and students is an example of an exchange.
Answer: True
Reference: Supplier Relationship Process
Difficulty: Easy
Keywords: exchange, electronic, buyer, seller
28. Reducing the number of suppliers for an item carries an increased risk of interruption in supply.
Answer: True
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: sourcing, risk, supply
29. Value analysis is a systematic effort to reduce the cost or improve the performance of products or
services.
Answer: True
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: value, analysis, improve
30. Early supplier involvement is a program that allows suppliers to fill orders prior to the customer
placing them.
Answer: False
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: early, supplier, involvement
31. In presourcing, suppliers are selected early in the concept-development stage.
Answer: True
Reference: Supplier Relationship Process
Difficulty: moderate
Keywords: presourcing, development
32. Responsive supply chains work best when frequent product introduction exists.
Answer: True
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: responsive, product, introduction

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Chapter 10 Supply Chain Strategy

33. Efficient supply chains work best when contribution margins are high.
Answer: False
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: efficient, supply, chain, contribution
34. Efficient supply chains use low capacity cushions.
Answer: True
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: efficient, chain, cushion, supply
35. Responsive supply chains work best when firms offer a low variety of services or products and
demand predictability is high.
Answer: False
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: responsive, supply, chains, variety, predictability
36. Dell, a wildly successful computer company, can configure exactly the computer you want thanks to
their mass production system.
Answer: False
Reference: Supply Chain Strategies
Difficulty: Easy
Keywords: mass, customization
37. Postponement is an organizational concept whereby members of the distribution channel are used as
if they were assembly stations in the factory.
Answer: False
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: postponement, delay
38. Backward integration is a firms erroneous movement towards having suppliers and distributors
perform processes and provide material and services.
Answer: False
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: backward, vertical, integration
39. Offshoring is a supply chain strategy that involves moving processes to another country.
Answer: True
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: offshoring

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Chapter 10 Supply Chain Strategy

40. A virtual supply chain allows for greater product variety and lower costs due to economies of scale.
Answer: True
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: virtual, supply, chain

MULTIPLE CHOICE
41. The basic purpose of supply chain management is to:
a. create an exclusive set of suppliers who will not supply your competitors.
b. link your customers together so that the flow of materials remains under control.
c. synchronize the operations of all suppliers with those of purchasing, production, distribution, and
customers.
d. reduce the inventory by proper selection of customers and transportation modes.
Answer: c
Reference: Introduction
Difficulty: Easy
Keywords: supply, chain
42. Which of the following is NOT a component of the supply chain?
a. Order fulfillment
b. Materials
c. Customer relationship
d. Competitors
Answer: d
Reference: Introduction
Difficulty: Easy
Keywords: supply, chain, component
43. Which one of the following is TRUE for supply chain management?
a. Supply chain applies to both manufacturing and service organizations.
b. Supply chain applies only to manufacturing because it deals with flow of materials.
c. Supply chain is about suppliers and does not include distributors or customers.
d. Supply chain includes any operation that deals with materials.
Answer: a
Reference: Introduction
Difficulty: Easy
Keywords: supply, chain, service, manufacturing

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Chapter 10 Supply Chain Strategy

44. The supply chain for a service provider must account for retail stores, delivery centers, points-of-sale
equipment, and employees. These elements of the service package are part of the:
a. supporting facilities.
b. facilitating goods.
c. explicit services.
d. implicit services.
Answer: a
Reference: Supply Chains for Services and Manufacturing
Difficulty: Moderate
Keywords: supply, chain, service, supporting, facilities, package
45. The bullwhip effect is characterized by:
a. ordering patterns that experience increasing variance as you proceed downstream in the chain.
b. ordering patterns that experience increasing variance as you proceed upstream in the chain.
c. purchasing patterns that experience increasing variance downstream in the chain.
d. purchasing patterns that experience decreasing variance as you proceed upstream in the chain.
Answer: b
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: bullwhip, effect, variation
46. Which of the following changes would decrease the likelihood of the bullwhip effect?
a. Changing the mix of items in an order
b. Sending partial shipments of an order
c. Instituting a policy of no discounts or promotions
d. Sending late deliveries of an order
Answer: c
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: bullwhip, effect, variation
47. Which of the following changes would increase the likelihood of a supply chain experiencing the
bullwhip effect?
a. Engineering changes to the design of a product
b. Instituting a more accurate materials management information system
c. Closely coordinating promotions with the internal marketing department and suppliers
d. Using a more reliable delivery company
Answer: a
Reference: Supply Chain Dynamics
Difficulty: Easy
Keywords: bullwhip, effect, variation

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Chapter 10 Supply Chain Strategy

48. Which one of the following statements is TRUE about purchasing?


a. Purchasings primary role is to satisfy the firms long-term supply needs.
b. Purchasings primary role should be placing and tracking orders.
c. Purchasings primary role is to negotiate lower prices.
d. Purchasings primary role is to negotiate prices and delivery dates.
Answer: a
Reference: Supplier Relationship Process text p. 390
Difficulty: Moderate
Keywords: purchasing, supply
49. One source of disruption caused by the internal supply chain is:
a. forecast error.
b. underfilled shipments.
c. volume changes.
d. late deliveries.
Answer: a
Reference: Supply Chain Dynamics
Difficulty: moderate
Keywords: internal, supply, chain, disruption
50. One source of disruption caused by the external supply chain is:
a. product or sales promotions.
b. new product or service introduction.
c. late deliveries.
d. engineering changes.
Answer: c
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: external, supply, chain, disruption
51. Possible causes of disruption due to internal supply chain problems are:
a. late deliveries.
b. machine breakdowns or inexperienced workers.
c. product and service mix changes.
d. underfilled shipments.
Answer: b
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: disruption, internal, supply, chain
52. A firm may choose to use members of the distribution channel as if they were assembly stations in the
factory. Such an approach is known as:
a. backward integration.
b. postponement.
c. channel assembly.
d. deferred delay.
Answer: c
Reference: Supply Chain Strategies
( Difficulty: Easy
Keywords: channel, assembly
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Chapter 10 Supply Chain Strategy

53. The technique of drop shipping requires:


a. a retailer dropping the shipping fee from the total order cost.
b. a customer picking up the goods directly from the point of production.
c. a retailer contacting the customer regarding shipping preference.
d. a wholesaler/manufacturer to ship a product directly to a customer.
Answer: d
Reference: Supply Chain Strategies
Difficulty: Easy
Keywords: drop, shipping
54. Which of the following is typically LOWER in a traditional supply chain than in a virtual supply
chain?
a. Investment in inventories
b. Transportation cost
c. Service or product variety
d. Investment in order fulfillment infrastructure
Answer: c
Reference: Supply Chain Strategies
Difficulty: Easy
Keywords: traditional, virtual, supply, chain
55. Which of the following is typically HIGHER in a virtual supply chain than in a traditional supply
chain?
a. Investment in order fulfillment infrastructure
b. Product or service variety
c. Investment in inventories
d. Transportation costs
Answer: b
Reference: Supply Chain Strategies
Difficulty: Easy
Keywords: virtual, supply, chain, traditional
56. The practice whereby a manufacturer has inventories of materials on consignment from its suppliers
falls under the scope of:
a. inventory pooling control.
b. virtual distribution.
c. electronic inventory control.
d. vendor-managed inventories.
Answer: d
Reference: The Order Fulfillment Process
Difficulty: Easy
Keywords: virtual, supply, chain, traditional

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Chapter 10 Supply Chain Strategy

57. Which one of the following statements on inventory placement of finished goods is best?
a. Forward placement might help reduce transportation cost.
b. Forward placement is consistent with a competitive priority that calls for customization.
c. Inventory pooling should be avoided when demand in various regions fluctuates month to month.
d. Backward placement is consistent with a competitive priority that calls for fast delivery times.
Answer: a
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: inventory, placement, forward
58. Which location shift would qualify as forward placement?
a. From the manufacturer to a distribution center
b. From the retailer to the wholesaler
c. From the wholesaler to the manufacturer
d. From the retailer to the manufacturer
Answer: a
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: forward, placement
59. Which one of the following statements is TRUE about a cooperative orientation in supplier
relationships?
a. It cannot be implemented in Western countries because competitive bidding is more effective in
that culture.
b. It cannot be implemented in the Western countries because it always benefits the supplier.
c. It requires all parts and subassemblies to be purchased from the same supplier.
d. It requires few suppliers for each item or service.
Answer: d
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: cooperative, orientation, supplier
60. One of the benefits of a cooperative orientation in supplier relationships is:
a. the buyer sometimes suggests ways to improve the suppliers operations.
b. the supplier implements its own quality standards.
c. the buyer does not have to share much information with the supplier.
d. the supplier has complete freedom in choosing the delivery time.
Answer: a
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: cooperative, orientation, supplier, relationship

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Chapter 10 Supply Chain Strategy

61. Which one of the following statements correctly represents a benefit of centralized buying?
a. Local managers have more control over their business.
b. Purchases and production schedules are meshed more easily.
c. Purchasing lead times may be shorter.
d. Increased buying power can result in significant savings in purchasing costs.
Answer: d
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: centralized, buying, purchasing
62. Padco averages $15 million worth of inventory in all of its worldwide locations. They operate 51
weeks a year and each week average $3 million in sales (at cost). Their inventory turnover is:
a. 1.13 turns.
b. 5 turns.
c. 10.2 turns.
d. 17 turns.
Answer: c
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: inventory, turnover
63. Some manufacturers and service providers want to measure the performance of the supply chain by
the percentage of on-time deliveries. The main reason for this measure is:
a. it will discourage the competitors from entering the market.
b. it measures the satisfaction levels of suppliers.
c. increased on-time delivery increases revenue by inducing customers to buy more products from the
firm.
d. It helps accounting to debit customers accounts promptly.
Answer: c
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: measure, performance, on-time, delivery
64. Which one of the following statements about the relation between financial and supply-chain
performance measures is TRUE?
a. Longer delivery times require higher levels of working capital.
b. Shorter new product development time decreases revenue.
c. Higher inventory turns call for higher working capital requirements.
d. Lower aggregate inventory value means higher current assets.
Answer: a
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: financial, measure, supply, chain, working, capital

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Chapter 10 Supply Chain Strategy

65. Henderson Corporation is a supplier of alloy ball bearings to auto manufacturers in Detroit. Because
of the specialized manufacturing process employed, considerable work-in-process and raw material
inventories are created. The average inventory levels are $1,152,000 and $2,725,000, respectively. In
addition, finished goods inventory is $3,225,000, and sales (at cost) for the current year are expected
to be about $24 million. The inventory turnover that Henderson Corporation is currently expecting is:
a. less than 2.0.
b. greater than 2.0 but less than 2.5.
c. greater than 2.5 but less than 3.0.
d. greater than 3.0.
Answer: d
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: inventory, turnover
66. Maple Leaf, Inc., a television manufacturer, would like to reduce its inventory. To this end, you are
asked by the operations manager to assess its inventory level. You have the following information on
average inventories from last years financial statement:
Raw materials
$2,500,000
Work-in-process
$1,000,000
Finished goods
$ 800,000
In addition, the cost of goods sold last year (50 weeks) was $15 million. What was the inventory
turnover?
a. Less than or equal to two
b. Greater than two but less than three
c. Greater than three but less than four
d. Greater than four
Answer: c
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: inventory, turnover
67. The average inventory at Hamilton Industries, comprising raw materials, work-in-process, and
finished goods, was found to be $17.2 million last year. If the cost of goods sold per week averaged
$1.32 million, what was the inventory turnover experienced by Hamilton Industries? Assume the
company had 50 working weeks per year.
a. Less than or equal to 3.50
b. Greater than 3.50 but less than 3.75
c. Greater than 3.75 but less than 4.00
d. Greater than 4.00
Answer: c
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: inventory, turnover

37

Chapter 10 Supply Chain Strategy

68. An efficient supply chain should be preferred when:


a. product variety is high.
b. competitive priority is customization.
c. demand is highly predictable.
d. demand is unpredictable.
Answer: c
Reference: Supply Chain Strategies
( Difficulty: Moderate
Keywords: efficient, supply, chain
69. An efficient supply chain typically has:
a. a high capacity cushion.
b. high inventory turns.
c. supply chain partners that emphasize fast delivery time.
d. supply chain partners that emphasize volume flexibility.
Answer: b
Reference: Supply Chain Strategies
( Difficulty: Moderate
Keywords: efficient, supply, chain
70. A responsive supply chain typically has:
a. a low capacity cushion.
b. high inventory turns.
c. supply chain partners that emphasize low prices.
d. supply chain partners that emphasize volume flexibility.
Answer: d
Reference: Supply Chain Strategies
( Difficulty: Moderate
Keywords: responsive, supply, chain
71. Responsive supply chains should be preferred when:
a. product variety is low.
b. demand is predictable.
c. contribution margins are low.
d. product variety is high.
Answer: d
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: responsive, supply, chain
72. The type of goods for which a responsive supply chain is appropriate are:
a. fashion goods.
b. products with a long shelf life.
c. expensive products.
d. those with infrequent design changes.
Answer: a
Reference: Supply Chain Strategies
Difficulty: Hard
Keywords: responsive, supply, chain
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Chapter 10 Supply Chain Strategy

73. It is desirable for a firm in a responsive supply chain to have:


a. low-capacity cushions.
b. delivery by railroad.
c. high-capacity utilization consistent with high-volume delivery.
d. inventory investments as needed to enable fast delivery times.
Answer: d
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: responsive, supply, chain
74. The objective of a firm in a responsive supply chain is likely to be realized if it has a:
a. standardized product.
b. short lead time.
c. low-capacity cushion.
d. line-flow process.
Answer: b
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: responsive, supply, chain
75. __________ uses a firms flexible processes to generate a wide variety of personalized services or
products at reasonably low costs.
a. Mass customization.
b. Channel assembly
c. Postponement
d. Forward integration
Answer: a
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: mass, customization
76. A somewhat successful computer manufacturer makes a generic computer in five exciting colors.
Once orders are received, the computer guts are encased in the customers choice of colored case.
This approach to production is known as:
a. channel assembly.
b. postponement.
c. strategic sourcing.
d. strategic production.
Answer: b
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: postponement, delayed differentiation

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Chapter 10 Supply Chain Strategy

77. A producer of medical devices makes a single model that can be customized to talk in and display any
of 47 different languages (but not Esperanto). This customization is performed in one of their five
regional distribution centers as firm orders are received, providing an elegant example of:
a. backward integration.
b. forward integration
c. channel assembly.
d. offshoring.
Answer: c
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: channel assembly
78. The supply chain management department of a major manufacturer pondered a particularly weighty
make or buy decision for weeks, ultimately deciding to make, rather than buy. This decision resulted
in increased:
a. outsourcing.
b. offshoring.
c. postponement.
d. backward integration.
Answer: d
Reference: Supply Chain Strategies
Difficulty: Easy
Keywords: make, buy, integration
79. A U.S. company faced with spiraling costs in their customer care center recreated that service in
Luxembourg at a fraction of the cost. This is an example of:
a. offshoring.
b. forward integration.
c. backward integration.
d. postponement.
Answer: a
Reference: Supply Chain Strategies
Difficulty: Easy
Keywords: offshoring, outsourcing
80. A virtual supply chain is favored over a traditional supply chain when:
a. sales volumes are high.
b. demand is highly volatile.
c. order consolidation is important.
d. small-order fulfillment capability of suppliers is important.
Answer: b
Reference: Supply Chain Strategies
Difficulty: Easy
Keywords: virtual, supply, chain

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Chapter 10 Supply Chain Strategy

81. A potential problem with a virtual supply chain is that:


a. swings in demand that are sudden and substantial cannot be accommodated as easily as with a
traditional supply chain.
b. it cannot address high service or product variety as well as a traditional supply chain.
c. direct control of the order fulfillment process is relinquished to other firms.
d. sales volumes must be high to offset the high infrastructure costs.
Answer: c
Reference: Supply Chain Strategies
Difficulty: Easy
Keywords: virtual, supply, chain

FILL IN THE BLANK


82. ____________ seeks to synchronize a firms processes and those of its suppliers to match the flow of
materials, services, and information with customer demand.
Answer: Supply chain management
Reference: Introduction
Difficulty: Easy
Keywords: supply, chain, management
83. ____________ are inventories needed for the production of goods and services; they are considered
the inputs to the transformation process.
Answer: Raw materials
Reference: Supply Chains for Services and Manufacturing
Difficulty: Moderate
Keywords: raw, materials
84. ____________ consists of items such as components or assemblies needed for a final product in
manufacturing.
Answer: Work-in-process (WIP)
Reference: Supply Chains for Services and Manufacturing
Difficulty: Moderate
Keywords: WIP, work, process, inventory
85. One way to gain control over suppliers in a chain is to buy a controlling interest in them, known as
____________.
Answer: backward integration
Reference: Supply Chains for Services and Manufacturing
Difficulty: Moderate
Keywords: backward, integration
86. ____________ is the management of the acquisition process, which includes deciding which
suppliers to use, negotiating contracts, and deciding whether to buy locally.
Answer: Purchasing
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: purchasing, acquisition
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Chapter 10 Supply Chain Strategy

87. ____________ is an inventory measure obtained by dividing the average aggregate inventory value
by sales per week at cost.
Answer: Weeks of supply
Reference: Measures of Supply Chain Performance
( Difficulty: Moderate
Keywords: weeks, supply, measure
88. ____________, the annual sales at cost divided by the average aggregate inventory value, is the
number of times a year that a firm completely replenishes its inventory.
Answer: Inventory turnover (turns)
Reference: Measures of Supply Chain Performance
( Difficulty: Moderate
Keywords: turnover, turns, sales, inventory
89. ____________ is the money used to finance ongoing operations.
Answer: Working capital
Reference: Measures of Supply Chain Performance
( Difficulty: Moderate
Keywords: working, capital
90. The clever wine shop owner held a tasting, accepted customer orders and payments, and then placed
an order with the vineyard. Since he paid the vineyard after he received the shipment (and well after
he charged his customers), his ____________ time was negative.
Answer: cash-to-cash
Reference: Measures of Supply Chain Performance
( Difficulty: Moderate
Keywords: cash-to-cash, cash, flow
91. ____________ is the management of the flow of materials from manufacturers to customers and from
warehouses to retailers, involving the storage and transportation of products.
Answer: Distribution
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: distribution, storage, transportation
92. The ____________ is the phenomenon in supply chains whereby ordering patterns experience
increasing variance as you proceed upstream in the chain.
Answer: bullwhip effect
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: bullwhip, effect, variance
93. ____________ is the practice of buying in excess of immediate needs to take advantage of price
discounts.
Answer: Forward buying
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: forward, buying

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Chapter 10 Supply Chain Strategy

94. ____________ is concerned with decisions about purchasing materials and services, inventories,
production levels, staffing patterns, schedules, and distribution.
Answer: Materials management
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: material, management
95. The ____________ process involves the activities required to register the need for a product or
service and to confirm the acceptance of the order.
Answer: order placement
Reference: The Customer Relationship Process
Difficulty: Moderate
Keywords: order, placement
96. The ____________ process involves the activities required to deliver a product or service to a
customer.
Answer: order fulfillment
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: order, fulfillment
97. When sales volumes are high and order consolidation is important, supply chain designers favor a(n)
____________ supply-chain design.
Answer: traditional
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: supply, chain. design, traditional
98. ____________ is the process of using members of the distribution channel as if they were assembly
stations in the factory.
Answer: Channel assembly
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: channel, assembly
99. Cornelius Controlfreak insisted that his manufacturing plant also be the sole location for all finished
goods inventory. If any customer placed an order, they knew it would come from the only place on
Earth that had a ready supply, Cornelius plant warehouse. ____________ was alive and well thanks
to this approach.
Answer: centralized placement
Reference: The Order Fulfillment Process
Difficulty: Easy
Keywords: centralized, placement
100.
____________ is a reduction in inventory and safety stock because of the merging of variable
demands from customers.
Answer: Inventory pooling
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: inventory, pooling, merging
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Chapter 10 Supply Chain Strategy

101.
____________ involves locating the stock closer to customers at a warehouse, distribution
center, or retailer.
Answer: Forward placement
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: forward, placement
102.
The technique whereby a retailer passes customer orders directly to a wholesaler or
manufacturer, which then ships the order directly to the customer with the retailers label on it, is
known as ____________.
Answer: drop shipping
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: drop, shipping
103.

____________ is an extreme application of the forward placement tactic.


Answer: Vendor managed inventories (VMI)
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: forward, buying

104.
Steve-O engaged in ____________ by using only suppliers that recycled and managed their
flow of environmental waste.
Answer: green purchasing
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: green, purchasing, environmental, waste
105.
____________ is a supplier relation in which the buyer and seller are partners, each helping the
other as much as possible.
Answer: Cooperative orientation
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: cooperative, supplier, orientation
106.
____________ programs verify that potential suppliers have the capability to provide materials
or services which the buying firms require.
Answer: Supplier certification
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: supplier, certification
107.

____________ is the awarding of a contract for an item or service to only one supplier.
Answer: Sole sourcing
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: sole, sourcing, source

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Chapter 10 Supply Chain Strategy

108.
____________ is a systematic effort to reduce the cost or improve the performance of products
and services, either purchased or produced.
Answer: Value analysis
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: value, analysis
109.
Knoxville Industries had their supplier design the improved body armor for their new apparel.
This level of supplier involvement, known as ____________ was sure to result in a pain free season.
Answer: presourcing
Reference: Supplier Relationship Process
Difficulty: Moderate
Keywords: presourcing
110.
____________ is a concept whereby some of the final activities in the provision of a service or
product are delayed until the orders are received.
Answer: Postponement
Reference: Supply Chain Strategies
Difficulty: Moderate
Keywords: postponement

SHORT ANSWERS
111.
Explain whether process measures or inventory measures are better indicators of supply chain
performance. Provide examples or analysis of these metrics to support your contentions.
Answer: Answers will vary.
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: inventory, process, measure
112.
Discuss the major differences between supply chains for services and manufacturing. Which
supply chain is easier to coordinate effectively?
Answer: Supply chain design for a service provider is driven by the need to provide support for
the essential elements of the various service packages it delivers. Manufacturers try to control
inventory by managing the flow of materials. Since a good is very rarely a pure service or a
pure manufactured product, most companies will experience both issues. Ease of coordination
answers will vary but may depend on the dynamic nature of the item, of the market, and other
factors outside the control of the operations manager.
Reference: Supply Chains for Services and Manufacturing
Difficulty: Moderate
Keywords: manufacturing, service, inventory, package, supply, chain

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Chapter 10 Supply Chain Strategy

113.
Draw a graph illustrating the bullwhip effect and discuss its impact on the measures of supply
chain performance.
Answer: Sketches will vary slightly, but should illustrate increased variability upstream in the
supply chain. The inventory measures of supply chain performance, average aggregate
inventory value, weeks of supply, and inventory turnover, will fluctuate as the whip is
cracked. At times, the measures may be deceptively strong, but at other times in the bullwhip
cycle the measures will be abysmal. Process measures relating to customer relationship, order
fulfillment, and supplier relationship will also fluctuate although measures like customer
satisfaction may deteriorate as customers tire of the rollercoaster performance of the supply
chain. Financial measures like ROA, CGS, total revenue, cash flow, and working capital will
also behave cyclically but will be weaker than a supply chain operating sans bullwhip effect.
At times, members of the supply chain will be caught holding the bag on inventory and
forced to dump it at bargain prices and at other times supply chain members will be unable to
acquire the inventory they need or will have to pay exorbitant costs to acquire it.
Reference: Supply Chain Dynamics/Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: bullwhip, inventory, measure
114.

List and describe typical disruptions to the external supply chains.


Answer: Typical disruptions include volume changes, product and service mix changes, late
deliveries, and underfilled shipments. Volume changes occur when customers change the
quantity of the product or service they have ordered for a specific date or unexpectedly
demand more of a standard product or service. Product or service mix changes occur when
customers change the mix of items in an order and cause a ripple effect throughout the supply
chain. Late deliveries of materials or delays in essential services can force a firm to switch its
schedule from production of one product model to another. Finally, suppliers that send partial
shipments do so because of disruptions at their own plants.
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: external, supply, chains, disruption

115.

List and describe typical disruptions to the internal supply chain.


Answer: Typical disruptions include internally generated shortages, engineering changes, new
product or service introductions, product or service promotions, and information errors.
Internally generated shortages are the shortage of parts that result from machine breakdowns
or inexperienced workers. Engineering changes are changes to designs. The introduction of
new products or services can cause disruptions. Product or service promotions are a common
practice of firms producing standard products or services and can cause a spike in demand.
Finally, information errors, such as demand-forecast errors or physical count errors, can cause
disruptions.
Reference: Supply Chain Dynamics
Difficulty: Moderate
Keywords: internal, supply, chain, disruption

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Chapter 10 Supply Chain Strategy

116.
Discuss the trade-offs with locating the inventory at the factory versus locating it closer to the
customer at a warehouse, distribution center, wholesaler, or retailers.
Answer: Locating inventory at a companys factory or warehouse constitutes centralized
placement, thereby allowing a firm to take advantage of inventory pooling. Inventory pooling
permits the producer to reduce the total inventory in the system, yet retain high service levels
since one customers high demand may be offset by another customers low demand. The
disadvantage of holding inventory in one location is the additional expense and time required
to get product in the hands of the customer. Another approach to inventory location is forward
placement. Forward placement reduces delivery times and puts the inventory closer to the
customer so that in some cases (when it is located at a retailer), it can be seen and might
trigger a purchase. The disadvantages of forward placement run counter to the advantages of
pooling.
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: customer, relationship, process, marketing, order, placement
117.
What impact does a Continuous Planning, Forecasting, and Replenishment (CPFR) program
have on the bullwhip effect and how does this program reinforce the notion of a supply chain?
Answer: A CPFR program allows a producer to determine replenishment quantities in concert
with a retailer and thereby remove redundant inventory and improve customer service. The
bullwhip effect is a phenomenon that is observed in less coordinated supply chains and
results in larger amounts of inventory being carried farther up the chain to guard against
fluctuations farther downstream. With an iterative and joint effort to predict demand and
share information, a CPFR program mitigates the bullwhip effect to the benefit of everyone in
the supply chain. This benefit reinforces the notion that supply-chain members are working
toward the same goals and that actions taken will be for the common long-term good.
Reference: The Order Fulfillment Process
Difficulty: Moderate
Keywords: CPFR, bullwhip, supply, chain, continuous, forecasting, replenishment, planning
118.
Compare and contrast competitive orientation versus cooperative orientation for suppler
relations.
Answer: Competitive orientation views supplier relations as a negotiation between buyer and
seller. It is generally considered a zero-sum gameone side wins, the other loses. In
cooperative orientation, the buyer and seller are partners, each one helping the other as much
as possible. Generally, a cooperative orientation means long-term commitment, joint work on
quality, and support by the buyer of the suppliers managerial, technological, and capacity
development. Sharing of information takes place in both directions.
Reference: Supplier Relationship Process
Difficulty: Moderate
( Keywords: competitive, cooperative, supplier, relation

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Chapter 10 Supply Chain Strategy

119.

Compare and contrast efficient versus responsive supply chains.


Answer: The purpose of efficient supply chains is to coordinate the flow of materials and
services to minimize inventories and maximize the efficiency of the manufacturers and
service providers in the chain. Responsive supply chains are designed to react quickly to
market demands by positioning inventory and capacities to hedge against uncertainties in
demand. Efficient supply chains work best where demand is predictable with low forecast
errors; competitive priorities are low cost, consistent quality, and delivered on time; newproduct introduction is low; and profit margins are low. Responsive supply chains work best
when demand is unpredictable with high forecast errors. Competitive priorities are
development speed, fast delivery times, customization, high-performance design quality; new
product-introduction is frequent; contribution margins are high; and product variety is high.
Efficient supply chains should use a make-to-stock or standardized services operations
strategy, low-capacity cushion, and low inventory investment. They should shorten lead time
without increasing costs and emphasize fast delivery time, customization, volume flexibility,
and high-performance design quality. Responsive supply chains should use assemble-toorder, make-to-order, or customized services emphasizing product or service variety; highcapacity cushions; and inventory levels set to enable fast delivery time. They should
aggressively shorten lead time and emphasize fast delivery time, customization, volume
flexibility, and high-performance design quality.
Reference: Supply Chain Strategies
Difficulty: Hard
Keywords: efficient, responsive, supply, chain

PROBLEMS
120.
Last year, RJT Enterprises had average inventories (raw materials, work-in-process, and
finished goods) of $7.5 million. During this same year the cost of goods sold was $30 million. The
company operates 50 weeks per year.
a. What is their total inventory (measured as weeks of supply)?
b. What is their inventory turnover?
Answer:
Weeks of supply = average aggregate inventory value/weekly sales at cost =
7.5 million/(30 million/50) = 12.5 weeks
Inventory turnover = annual sales (at cost)/average aggregate inventory value =
30 million/7.5 million = 4
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
( Keywords: turnover, supply, weeks, inventory, value

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Chapter 10 Supply Chain Strategy

121.
Rome Corporation is a supplier of ball bearings. Because of the specialized manufacturing
process employed, considerable work-in-process and raw material inventories are created. The current
inventory levels are $1,500,000 and $3,775,000, respectively. In addition, finished goods inventory is
$3,500,000, and sales (at cost) for the current year are expected to be about $28 million. Assume they
operate 50 weeks per year.
a. What is their total inventory (measured as weeks of supply)?
b. What is their inventory turnover?
Answer:
Weeks of supply = average aggregate inventory value/weekly sales at cost =
(1,500,000 + 3,775,000 + 3,500,000)/(28,000,000/50) = 15.7 weeks
Inventory turnover = annual sales (at cost)/average aggregate inventory value =
28 million/8.775 million = 3.19
Reference: Measures of Supply-Chain Performance
Difficulty: Moderate
Keywords: turnover, supply, weeks, inventory, value
122.
A television manufacturer would like to reduce its inventory. To this end, you are asked by the
operations manager to assess its inventory level. You have the following information on average
inventories from last years financial statement:
Raw materials
$1,500,000
Work-in-process
$1,200,000
Finished goods
$ 800,000
In addition, the cost of goods sold last year (50 weeks) was $20 million.
a. What is its total inventory (measured as weeks of supply)?
b. What is its inventory turnover?
Answer:
Weeks of supply = average aggregate inventory value/weekly sales at cost =
(1,500,000 + 1,200,000 + 800,000)/(20,000,000/50) = 8.75 weeks
Inventory turnover = annual sales (at cost)/average aggregate inventory value =
20 million/3.5 million = 5.71
Reference: Measures of Supply Chain Performance
Difficulty: Moderate
Keywords: turnover, supply, weeks, aggregate, inventory, value

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Chapter 10 Supply Chain Strategy

123.
Champion Cooling Company remanufactures window air conditioners during the off-season
months for sales during the scorching months of June, July, and August in the Oklahoma City area.
Their average inventory of air conditioners is shown in the following table. The company operates 50
weeks a year and has average weekly sales of $3,750 and expects to sell $135,000 worth of product in
a year.
Unit Type
Avg. Inventory
Value of Each
(at cost)
110 Volts
65
$250
18,000 BTU or smaller 220 Volts
90
$350
Larger than 18,000 BTU
50
$500
a. What is their average aggregate inventory value?
b. What is their total inventory (measured as weeks of supply)?
c. What is their inventory turnover?
Answer:
(#Units on Hand )(Value of Each Item)
a. Avg Aggregate Inventory Value

Avg Aggregate Inventory Value 65 $250 90 $350 50 $500 $72, 750


Avg Aggregate Inventory Value
b. Weeks of Supply
Weekly Sales
Weekly Sales (at cost)

$72, 750
Weeks of Supply
20 weeks 19.4 weeks
$3, 750 / week
Annual Sales (at cost)

Annual Sales
Avg Aggregate Inventory Value
$135, 000
Inventory Turnover
1.86
$72, 750

c. Inventory Turnover

Reference: Measures of Supply Chain Performance


Difficulty: Moderate
Keywords: turnover, supply, weeks, aggregate, inventory, value

50