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Chapter 5 Test Bank
True-False
1. Procurement serves as a critical link between members of the supply chain.
ANSWER: True
2. Distinctives are low-risk, high value items that are fundamental to the company’s finished
product.
ANSWER: False
3. Strategic sourcing is almost the same as procurement.
ANSWER: False
4. There are seven steps in the Strategic Sourcing Methodology.
ANSWER: True
5. When a firm makes a “make” decision when analyzing whether to “make or buy”, they
may still have to purchase some types of inputs from outside suppliers.
ANSWER: True
6. The first step in managing sourcing and procurement is to determine the type pf purchase.
ANSWER: True
7. The most important factor in vendor selection is usually financial health.
ANSWER: False
8. Some firms are moving towards increasing their number of suppliers in order to encourage
competition and lower procurement costs.
ANSWER: False
9. Vendors may offer varying levels of discounts from their published prices.
ANSWER: True
10. Commodities are items or services that are low in risk but high in value.
ANSWER: True
11. Landed costs are independent of sales/FOB terms.
ANSWER: False
12. e-Sourcing and e-Procurement are the same.
ANSWER: True
13. An advantage of e-Sourcing and e-Procurement is that there is little risk involved.
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Chapter 5 Test Bank
ANSWER: False
Multiple-Choice
15. Which approach represents a strategy in which the entire organization is focused on the
examination of process variability and continuous improvement?
a. Total Quality Management
b. Six Sigma
c. Lean Enterprise Management
d. Theory of Constraints
e. None of the above
ANSWER: a
16. In the Item Procurement Importance Matrix, what item is described as low risk, low value?
a. generics
b. commodities
c. criticals
d. distinctives
ANSWER: a
17. In the Item Procurement Importance Matrix, what is described as high risk, high value?
a. generics
b. commodities
c. criticals
d. distinctives
ANSWER: c
18. In the Item Procurement Importance Matrix, what describes high risk, low value?
a. generics
b. commodities
c. criticals
d. distinctives
ANSWER: d
19. Strategic sourcing as a process is far more broad and comprehensive than procurement.
Overall, the process starts with the formation of a
a. steering committee.
b. list of vendors.
c. decision as whether to make or buy.
d. list of criticals.
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Chapter 5 Test Bank
ANSWER: a
20. In the Assess Supply Market step, the firm
a. determines which are the least cost vendors.
b. decides which vendors are located closest to the firm’s plant to insure timely delivery.
c. identifies all possible suppliers that might be able to satisfy the user’s needs.
d. defines the parameters of the sourcing strategy process.
ANSWER: c
21. In the Execute Sourcing Strategy step, the most important thing is to
a. appoint the sourcing committee members from the affected groups.
b. choose a supplier or suppliers, depending on the objectives of the sourcing decision.
c. verify which vendors are either TQM or ISO 9000.
d. determine which vendors have the lowest prices.
ANSWER: b
22. What vendor selection criteria are described by vendor attitude, cultural compatibility, training
aids, packaging, and repair service?
a. quality
b. financial considerations
c. reliability
d. desirable capabilities
ANSWER: d
23. There are four steps in the Managing Sourcing and Procurement Processes. Which does not
belong?
a. determine the type of purchase
b. determine the necessary levels of investment
c. evaluate the effectiveness of the strategic sourcing process
d. examine off shore and e-procurement suppliers
ANSWER: d
24. What vendor selection criteria are described by price and financial stability?
a. capability
b. financial
c. quality
d. reliability
ANSWER: b
25. What vendor selection criteria are described by production capability, labor relations, and
operating controls?
a. capability
b. quality
c. reliability
d. financial
ANSWER: a
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Chain Management: A Logistics Perspective, 9th Edition
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Chapter 5 Test Bank
26. Which e-commerce business model used in procurement and sourcing has a seller-operated service
that consists of a number of electronic catalogs from suppliers within a market.
a. Sell-side system
b. Electronic marketplace
c. Buy-side systems
d. Online trading community
e. None of the above
ANSWER: d
27. To help guide the strategic sourcing process, five core principles are recognized as key drivers to
achieve the desired levels of value, which one is not one of those core principles
a. Access the total value
b. Develop individual sourcing strategies
c. Evaluate internal requirements
d. Drive continuous savings
ANSWER: d
28. The concept that represents the sum of all costs associated with making and delivering products
to the point where they are needed is called
a. purchase/acquisition cost
b. strategic sourcing costs
c. life cycle costs
d. total landed cost
ANSWER: d
29. What is an amalgam of catalogs from vendors within a market that is available via the Internet
called?
a. electronic marketplace
b. buy-side system
c. sell-side system
d. on-line trading community
ANSWER: a
Essay
30. There are three definitions to aid understanding of some of the similarities, differences,
and linkages between purchasing, procurement, and strategic sourcing. Define them,
and discuss the differences between the three.
ANSWER: Purchasing, procurement, and strategic sourcing are receiving considerable attention
as organizations try to improve the overall efficiency and effectiveness of their supply chains.
• Procurement: Refers to the process of managing a broad range of processes that are
associated with a company’s need to procure goods and services that are required to
manufacture a product (direct) or to operate the organization (indirect).
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• Strategic sourcing: Essentially, the strategic sourcing process is broader and more
comprehensive than the procurement process. Strategic sourcing takes the process further,
focuses more on supply chain impacts of procurement and purchasing decisions, and works
cross-functionally within the business to help achieve the organization’s overall business
goals.
31. There are four types of products and services that are purchased with varying degrees
of importance. Name all four, and choose two to discuss in terms of risk and value.
ANSWER: Generics are low-risk, low-value items and services that typically do not enter the
final product. Items such as office supplies and maintenance, repair, and operating items (MRO)
are examples of generics. The administrative and acquisition processing costs are more significant
than the purchase price of generics, and, for some generics, the administration and processing costs
may exceed the price paid for the item or service.
Commodities are items or services that are low in risk but high in value. Basic production materials
(bolts), basic packaging (exterior box), and transportation services are examples of commodities
that enhance the profitability of the company but pose a low risk.
Distinctives are high-risk, low-value items and services such as engineered items, parts that are
available from only a limited number of suppliers, or items that have a long lead time. The
company’s customers are unaware of or do not care about the uniqueness of distinctives, but these
products pose a threat to continued operation and/or high procurement cost.
Criticals are high-risk, high-value items that give the final product a competitive advantage in the
marketplace. The procurement strategy for criticals is to strengthen their value through use of new
technologies, simplification, close supplier relations, and/or value-added alterations.
32. There are seven steps in the Strategic Sourcing Methodology. Name at least five, and
choose two to discuss in more detail.
ANSWER:
Step 1: Develop strategic plan
The most effective way to initiate a MSSP process is to take the time to map out a formal plan for
the design and implementation of the process itself. Included here is the creation of a cross-
functional planning group to guide and oversee the overall strategic sourcing process, and the
identification of key members of the strategic sourcing team. Also, there should be consensus on
the scope and design of the MSSP process, which must include a preliminary understanding of
what types of products and services may be within the responsibility of this initiative.
Prior to embarking on the step of supplier selection, it is important to fully develop a sourcing
strategy that defines the parameters of the process and the steps to be followed. Of particular
interest in this process are the steps related to initial supplier research and screening, development
of a responsive request for information (RFI) and request for proposal (RFP), site visits with follow-
up discussions, and supplier selection.
Step 5: Implement Sourcing Strategy
This step begins with an evaluation of the suppliers that remain following the RFI and RFP
processes and culminates in the award of a contract.
Step 6: Onboarding and Transitioning
Important elements of this step are the finalization of the contractual agreement, planning the
transition process, and receipt or delivery of the product or service. This activity occurs with the
first attempt by the supplier or suppliers to satisfy the user’s needs. The completion of this activity
also begins the generation of performance data to be used for the next step in the strategic sourcing
process.
Step 7: Collaborative Process Improvement
A very important step in the strategic sourcing process is the measurement and improvement of
supplier performance. This involves making a post-purchase performance evaluation.
33. Name several criteria that are important in vendor selection. Which one is the most
important?
ANSWER: The most important factor in vendor selection is usually quality. Quality often refers
to the specifications that a user desires in an item. The procurement professional compares the
actual quality of a supplier’s product with the specifications the user desires. In actuality, quality
includes additional factors such as life of the product, ease of repair, maintenance requirements,
ease of use, and dependability. In today’s Six Sigma and lean environments, not only are quality
standards higher, but suppliers are typically counted upon to take major responsibility for quality.
Reliability comprises on-time delivery and performance history, the second- and third-ranked
factors for most procurement professionals. Reliability is often considered a part of a total quality
management program.
Risk is a factor of great contemporary relevance. One way this may occur is if there is likely
variability in the cost of purchased products or services that may result in higher prices. Other ways
in which risk may occur include supply uncertainties and unusual variation in delivery lead times.
Capability considers the potential supplier’s production facilities and capacity, technical
capability, management and organizational capabilities, and operating controls.
Financial considerations In addition to price, the buying firm considers the supplier’s financial
position. Financially unstable suppliers pose possible disruptions in a long-run continued supply
of material.
Desirable capabilities include several that may be helpful depending on the type of purchase being
made and the type of relationship desired between the customer and the supplier. The impression
or image that the supplier projects has a similar effect on supplier selection, as well as cultural
compatibility. Other factors that may be important include training aids, packaging, and repair
service availability.
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Chapter 5 Test Bank
34. What are at least three types of certifications and registrations, what do they signify, and
why are they important?
ANSWER:
A topic of interest to many buyers of products and services is the extent to which potential suppliers
have achieved excellence in terms of process management and continuous improvement. As a
result, over time several techniques and approaches have been developed that address issues
relating to soundness of processes, results achieved, and continuous improvement.
A few of the more prevalent approaches are:
• Six Sigma—Is similar to TQM in its focus on techniques for solving problems and using
statistical methods to improve processes. But whereas TQM emphasizes employee
involvement for the total organization, the Six Sigma approach involves training experts
(known as green belts and black belts) who work on solving important problems while they
teach others in the company.
Aside from the fact that these approaches typically require very significant commitments in terms
of time, effort, and expense, buying organizations need to look closely to make sure that
participation in these programs actually produces results that are of tangible value. While it is
encouraging to know that certain potential suppliers have committed their organizations to
approaches such as these, one needs to be sure to document the benefits and improvements that are
likely to be created as a result.
35. For the buyer, the total procurement price is more than just the basic purchase price.
There are other elements to consider. Name these elements, and discuss the primary
considerations of each.
ANSWER:
• Traditional Basic Input Costs This is the primary price of the product or materials as paid
by the firm. It is the traditional price buyers seek through bidding, through negotiating, or
in requests for quotes.
• Direct Transaction Costs These are the costs of detecting, transmitting the need for, and
processing the material flow in order to acquire the goods. The use of blanket or systems
contracting can also reduce transaction costs. These include direct ordering by users to
suppliers, single consolidated billing, and user inspection and checking.
• Supplier Relational Costs These are the costs of creating and maintaining a relationship
with a supplier. They include travel, supplier education, and the establishment of planning
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Chapter 5 Test Bank
and operational links between purchasing and the supplier’s order-entry operation, as well
as other links, including those related to traffic, engineering, research, and product
development in both firms.
• Landed Costs The inbound transportation flow includes two key cost elements: the actual
transportation cost and the sales/FOB terms. There are four different transportation options
with inbound movements – supplier-selected for-hire carrier or private carrier and buyer-
selected for-hire carrier or private carrier.
36. Define and discuss the four basic types of e-commerce business models used in
procurement and sourcing.
ANSWER: The four basic types of e-commerce business models used in procurement and sourcing
are sell-side system, electronic marketplace, buy-side system, and online trading community.
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“In forty-six American cities, having a combined population of
only a little more than one-fifth the total for the country, the
mortality resulting from the influenza epidemic during the nine
weeks period ended November 9th was nearly double that in the A.
E. F. from the time the first contingent landed in France until the
cessation of hostilities.”
The mortality, even as the morbidity, has varied in different
localities and at different periods. The low morbidity and mortality in
the spring of 1918 has been frequently mentioned. Among the
Esquimaux in Alaska the death toll was terrific. Whole villages of
Esquimaux lost their entire adult population. It has been estimated
that in British India the death roll totalled 5,000,000. “The central,
northern and western portions of India were the worst sufferers. The
hospitals in the Punjab were choked so that it was impossible to
move the dead quickly enough to make room for the dying. The
streets and lanes of the cities were littered with dead and dying
people. The postal and telegraph services were completely
disorganized; the train service continued, but at all principal stations
dead and dying people were being removed from the trains. The
burning ghats and burial grounds were literally swamped with
corpses, while an even greater number awaited removal. The
depleted medical service, itself sorely stricken by the epidemic, was
incapable of dealing with more than a minute fraction of the sickness
requiring attention. Nearly every household was lamenting death,
and everywhere terror and confusion reigned. No part of the Punjab
escaped.”
The Bureau of the Census estimates that 445,000 deaths from the
epidemic of influenza occurred in the United States in the period
between September 1st and December 31st, 1918. There is no doubt
but that the total death toll for that epidemic exceeded 500,000
individuals.
According to Winslow and Rogers, the two highest annual death
rates on record in Connecticut are both rates of 19.4 per 1,000 and
these two rates are for the influenza epidemic years of 1892 and 1918.
In the earlier of these two the normal general death rate was several
points higher than it is today, so that the effect of the recent epidemic
was much more serious than was that of its predecessor. For a single
month the death toll of October, 1918, was absolutely unprecedented
in Connecticut. They estimate that the epidemic between September,
1918, and January, 1919, cost the State 5.5 lives per 1,000
population, or, in all, 7,700 lives.
In the United States Army there was a total of 688,869 admissions
for influenza. The total deaths ascribed to the disease are 39,731,
which gives a rate of 15.64 per 1,000 for the acute respiratory
diseases out of the total disease death rate of 18.81 for the year. In
1915 the per cent. of deaths from this group of infections was under
18 per cent. of the total from all diseases. During the last four months
of 1918, 11,670 deaths from influenza and pneumonia occurred in the
American Expeditionary Forces in France. There were approximately
1,600,000 officers and men in the United States and an equal
number in France.
Carnwath gives the following comparison of the number of deaths
in London and in certain American cities from influenza and all
forms of pneumonia during the eight weeks of the 1918–19 epidemic.
Per cent.
The year 1917 11.2
6 winter months, 1917–18 23.1
5 summer months, 1918 18.8
4 autumn months, 1918 (Influenza period) 34.4
Percentages.
Ages. 1847–8 1890
1–5 10.5 5.2
5–20 13.1 4.3
20–40 3.8 4.7
40–60 18.5 36.2
60–80 16.9 22.4
Above 80 8.6 2.5