CHAPTER 11: SUPPLY-CHAIN MANAGEMENT

TRUE/FALSE
1. 2. Volkswagen's Rio de Janeiro plant is an excellent example of traditional supply chain management. False (Global company profile: Volkswagen, easy) The key to effective supply chain management is to get many suppliers to compete with each other in order to drive down prices. False (The strategic importance of the supply chain, easy) "ven though a firm may have a low cost strategy supply chain strategy can select suppliers primarily on response or differentiation. False (The strategic importance of the supply chain, moderate) The supply chain for a $rewery would include raw ingredients such as hops and $arley $ut not the manufactured goods such as $ottles and cans. False (The strategic importance of the supply chain, moderate) &upply chain management faces additional challenges such as those related to 'uality production and distri$ution systems when companies enter growing glo$al markets. True (Supply chain economics, moderate) )c*onald's was a$le to utili+e existing plants and transportation systems in preparing the supply chain for opening its stores in )oscow. False (The strategic importance of the supply chain, moderate) -hen using the low.cost strategy for supply chain management the firm should invest aggressively to reduce production lead time. False (The strategic importance of the supply chain, moderate) &avings in the supply chain exert more leverage as the firm has a lower net profit margin. True (Supply chain economics, moderate) 1 reduction in inventory costs is one reason for making rather than $uying. False (Supply chain economics, moderate) 3utsourcing refers to transferring a firm4s activities that have traditionally $een internal to outside vendors in other countries. False ( utsourcing, moderate) 3utsourcing is a form of speciali+ation that allows the outsourcing firm to focus on its critical success factors. True ( utsourcing, moderate) &upply chain decisions are not generally strategic in nature $ecause purchasing is an ordinary expense to most firms. False (Supply chain economics, easy)
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The o$5ective of the make.or.$uy decision is to help identify the products and services that can $e o$tained externally. True (Supply chain economics, moderate) 6ecause service firms do not ac'uire goods and services externally their supply chain management issues are insignificant. False (Supply chain economics, easy) 6ecause the supply chain has $ecome so electronic and automated opportunities for unethical $ehavior have $een greatly reduced. False (!thics in the supply chain, easy) -ith the many.suppliers strategy the order usually goes to the supplier that offers the $est 'uality. False (Supply"chain strategies, moderate) *eveloping long.term 7partnering7 relationships with a few suppliers is a long.standing 1merican purchasing strategy. False (Supply"chain strategies, moderate) Vertical integration whether forward or $ackward re'uires the firm to $ecome more speciali+ed. False (Supply"chain strategies, moderate) 1 fast.food retailer that ac'uired a spice manufacturer would $e practicing $ackward integration. True (Supply"chain strategies, moderate) 8eiretsus offer a middle ground $etween few suppliers and vertical integration. True (Supply"chain strategies, moderate) 9f the purchasing firm and the supplying firm have compati$le corporate cultures su$stantial efficiencies related to the use of independent specialists each with their o$5ectives will $e lost. False (#anaging the supply chain, easy) The $ullwhip effect refers to the increasing fluctuations in orders that often occur as orders move through the supply chain. True (#anaging the supply chain, moderate) Vendor )anaged 9nventory is a form of outsourcing. True (#anaging the supply chain, easy) 9n the vendor evaluation phase most companies will use the same list of criteria and the same criteria weights. False (Vendor selection, moderate) 3ne classic type of negotiation strategy is the market.$ased price model. True (Vendor selection, moderate) *rop shipping results in time and shipping cost savings. True (#anaging the supply chain, easy)

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The supply chain management opportunity called postponement involves delaying deliveries to avoid accumulation of inventory at the customer's site. False (#anaging the supply chain, moderate) :hannel assem$ly which sends components and modules to $e assem$led $y a distri$utor treats these distri$utors as manufacturing partners. True (#anaging the supply chain, moderate) 6lanket orders are a long.term purchase commitment to a supplier for items that are to $e delivered against short.term releases to ship. True (#anaging the supply chain, moderate) 9nternet purchasing may $e part of an integrated enterprise resource planning ;"R<= system. True ($nternet purchasing, moderate) -aterways are an attractive distri$ution system when speed is more important than shipping cost. False (%ogistics management, moderate) >ogistics management can provide a competitive advantage through improved customer service. True (%ogistics management, moderate) -ith the growth of 5ust.in.time practices railroads have made large gains in the share of the nation's transport that they haul. False (%ogistics management, moderate) 9mprovements in security especially regarding the millions of shipping containers that enter the ?.&. each year are $eing held $ack $y the lack of technological advances. False (%ogistics management, easy) 6enchmark firms have driven down costs of supply chain performance. True (&enchmarking supply"chain management, moderate)

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MULTIPLE CHOICE
!(. Volkswagen's new plant in 6ra+il a. produces 1222 trucks a day with 122 workers $. has no Volkswagen employees performing vehicle assem$ly c. has no Volkswagen employees only those of suppliers d. uses a decentrali+ed supply chain e. represents only a minor improvement in supply chain integration b (Global company profile, moderate) Volkswagen's innovations in supply.chain management a. utili+e more non.Volkswagen employees than Volkswagen employees $. are expected to reduce the num$er of defective parts c. are expected to cut la$or costs d. tightly integrate suppliers into the supply chain even into assem$ly work e. 1ll of the a$ove are true. b (Global company profile, moderate)

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-hich of the following is not a concern of the supply chain@ a. warehousing and inventory levels $. credit and cash transfers c. suppliers d. distri$utors and $anks e. maintenance scheduling e (The strategic importance of the supply chain, moderate) -hat type of negotiating strategy re'uires the supplier to open its $ooks to the purchasers@ a. cost.$ased price model $. market.$ased price model c. competitive $idding d. price.$ased model e. none of the a$ove a (Vendor selection, moderate) -hich of the following statements is true regarding the leverage of supply chain savings@ a. &upply chain leverage is a$out the same for all industries. $. &upply chain savings exert more leverage as the firm's purchases are a smaller percent of sales. c. &upply chain savings exert more leverage as the firm has a lower net profit margin. d. &upply chain leverage depends only upon the percent of sales spent in the supply chain. e. Aone of the a$ove is true. c (Supply chain economics, moderate) 3ne dollar saved in purchasing is a. e'uivalent to a dollar earned in sales revenue $. worth even more than a dollar earned in sales revenue c. worth slightly more than a dollar earned $ecause of taxes d. worth from !%B in the technical instrument industry to ,2B in the food products industry e. only worthwhile if you are in the %2B tax $racket and still have a low profit margin b (Supply chain economics, moderate) -hich one of the following statements a$out purchasing is true@ a. The cost of purchases as a percent of sales is often small. $. <urchasing provides a ma5or opportunity for price increases. c. <urchasing is always more efficient than making an item. d. <urchasing has an impact on the 'uality of the goods and services sold. e. :ompetitive $idding is a ma5or factor in long.term cost reductions. d (Supply chain economics, moderate) 9n the make.or.$uy decision one of the reasons for making is a. to reduce inventory costs $. to o$tain technical or management a$ility c. inade'uate capacity d. reciprocity e. to assure ade'uate supply in terms of 'uantity e (Supply chain economics, moderate)

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9n the make.or.$uy decision which of the following is a reason for making an item@ a. management can focus on its primary $usiness $. lower production cost c. inade'uate capacity d. reduce inventory costs e. Aone of the a$ove is a reason for making an item. b (Supply chain economics, moderate) 9n the make.or.$uy decision one of the reasons for buying is a. to assure ade'uate supply $. to o$tain desired 'uality c. to remove supplier collusion d. inade'uate capacity e. to maintain organi+ational talents d (Supply chain economics, moderate) 9n the make.or.$uy decision which of the following is not a reason for $uying@ a. inade'uate capacity $. to o$tain desired 'uality c. patents or trade secrets d. lower inventory costs e. 1ll of the a$ove are reasons for $uying. b (Supply chain economics, moderate) 3utsourcing a. transfers traditional internal activities to outside vendors $. utili+es the efficiency which comes with speciali+ation c. lets the outsourcing firm focus on its critical success factors d. may include facilities people and e'uipment e. 1ll of the a$ove are true of outsourcing. e (Supply"chain economics, moderate) The transfer of some of what are traditional internal activities and resources of a firm to outside vendors is a. a standard use of the make or $uy decision $. not allowed $y the ethics code of the &upply )anagement 9nstitute c. offshoring d. outsourcing e. keiretsu d (Supply"chain economics, moderate) The 9nstitute for &upply )anagement a. esta$lishes laws and regulations for supply management $. is an agency of the ?nited Aations charged with promoting ethical conduct glo$ally c. pu$lishes the principles and standards for ethical supply management conduct d. prohi$its $ackward integration into developing economies e. 1ll of the a$ove are true. c (!thics in the supply chain, moderate)

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9n supply chain management ethical issues a. are particularly important $ecause of the enormous opportunities for a$use $. may $e guided $y company rules and codes of conduct c. $ecome more complex the more glo$al is the supply chain d. may $e guided $y the principles and standards of the 9nstitute for &upply )anagement e. 1ll of the a$ove are true. e (!thics in the supply chain, moderate) -hich of the following 9&) standards of supply management conduct most closely addresses the ethical issue 7salespeople $ecome friends with customers@7 a. "nhance the stature of the supply management profession. $. 8now and o$ey the letter and spirit of laws applica$le to supply management. c. 1void improper reciprocal agreements. d. <romote positive supplier relationships through courtesy and impartiality. e. 1c'uire and maintain professional competence. d (!thics in the supply chain, difficult) -hich one of the following is not a supply.chain strategy@ a. negotiation with many suppliers $. vertical integration c. keiretsu d. short.term relationships with few suppliers e. virtual companies d (Supply"chain strategies, moderate) 1 disadvantage of the 7few suppliers7 strategy is a. the risk of not $eing ready for technological change $. the lack of cost savings for customers and suppliers c. possi$le violations of the &herman 1ntitrust 1ct d. the high cost of changing partners e. 1ll of the a$ove are disadvantages of the 7few suppliers7 strategy. d (Supply"chain strategies, moderate) The purchasing approach that holds the suppliers responsi$le for maintaining the necessary technology expertise and forecasting a$ility plus cost 'uality and delivery competencies is a. few suppliers $. many suppliers c. 8eiretsu d. vertical integration e. virtual companies b (Supply"chain strategies, moderate) -hich of the following is not an advantage of the 7few suppliers7 concept@ a. suppliers' willingness to participate in J9T systems $. trust c. vulnera$ility of trade secrets d. creation of value $y allowing suppliers to have economies of scale e. suppliers' willingness to provide technological expertise c (Supply"chain strategies, moderate)

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-hich of the following supply.chain strategies creates value $y allowing suppliers to have economies of scale@ a. suppliers $ecoming part of a company coalition $. vertical integration c. long.term partnering with a few suppliers d. negotiating with many suppliers e. developing virtual companies c (Supply"chain strategies, moderate) -hich of the following is not a condition that favors the success of vertical integration@ a. availa$ility of capital $. availa$ility of managerial talent c. re'uired demand d. small market share e. 1ll of the a$ove favor the success of vertical integration. d (Supply"chain strategies, moderate) -hich of the following $est descri$es vertical integration@ a. to sell products to a supplier or a distri$utor $. to develop the a$ility to produce products which complement the original product c. to produce goods or services previously purchased d. to develop the a$ility to produce the specified good more efficiently than $efore e. to $uild long.term partnerships with a few suppliers c (Supply"chain strategies, moderate) 1 fried chicken fast.food chain that ac'uired feed mills and poultry farms has performed a. hori+ontal integration $. forward integration c. $ackward integration d. current transformation e. 5o$ expansion c (Supply"chain strategies, moderate) Vertical integration appears particularly advantageous when the organi+ation has a. a very speciali+ed product $. a large market share c. a very common undifferentiated product d. little experience operating an ac'uired vendor e. purchases that are a relatively small percent of sales b (Supply"chain strategies, moderate) 1 rice mill in south >ouisiana purchases the trucking firm that transports packaged rice to distri$utors. This is an example of a. hori+ontal integration $. forward integration c. $ackward integration d. current transformation e. keiretsu b (Supply"chain strategies, moderate)

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Japanese manufacturers often take a middle ground $etween purchasing from a few suppliers and vertical integration. This approach is a. kan$an $. keiretsu c. samurai d. poka.yoke e. kai+en b (Supply"chain strategies, moderate) The Japanese concept of a company coalition of suppliers is a. poka.yoke $. kai+en c. keiretsu d. dim sum e. illegal c (Supply"chain strategies, moderate) -hich of the following is not an advantage of a virtual company@ a. speed $. total control over every aspect of the organi+ation c. speciali+ed management expertise d. low capital investment e. flexi$ility b (Supply"chain strategies, moderate) >ocal optimi+ation is a supply.chain complication $est descri$ed as a. optimi+ing one's local area without full knowledge of organi+ational needs $. o$taining very high production efficiency in a decentrali+ed supply chain c. the prere'uisite of glo$al optimi+ation d. the result of supply chains $uilt on suppliers with compati$le corporate cultures e. the opposite of the $ullwhip effect a (#anaging the supply chain, moderate) The C$ullwhipD effect a. occurs as orders are relayed from retailers to wholesalers $. results in increasing fluctuations at each step of the se'uence c. increases the costs associated with inventory in the supply.chain d. occurs $ecause of distortions in information in the supply.chain e. all of the a$ove e (#anaging the supply"chain, moderate) -hich of the following is not an opportunity for effective management in the supply chain@ a. accurate 7pull7 data $. vendor managed inventory c. postponement d. local optimi+ation e. channel assem$ly d (#anaging the supply chain, moderate)

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-hich of the following is an opportunity for effective management in the supply chain@ a. random 7pull7 data $. multistage control of replenishment c. the $ullwhip effect d. customer managed inventory e. channel assem$ly e (#anaging the supply chain, moderate) *rop shipment a. is recommended when the manufacturer also has a competitive advantage in logistics $. is the opposite of a $lanket order c. means the supplier will ship directly to the end consumer rather than to the seller d. is the same thing as keiretsu e. is a good reason to find a new firm to ship your products c (#anaging the supply chain, moderate) 1 carpet manufacturer has delivered carpet directly to the end consumer rather than to the carpet dealer. The carpet manufacturer is practicing a. postponement $. direct shipping c. channel assem$ly d. drop shipping e. float reduction d (#anaging the supply chain, moderate) Eewlett.<ackard withholds customi+ation of its laser printers as long as possi$le. This is an example of a. vendor managed inventory $. channel assem$ly c. $ackward integration d. postponement e. timely customi+ation d (#anaging the supply chain, moderate) 1ll of the following are 7opportunities7 for supply chain management e'cept a. postponement $. drop shipment c. $lanket orders d. channel assem$ly e. line $alancing e (#anaging the supply chain, moderate) -hich of the following is an advantage of the postponement techni'ue@ a. reduction in automation $. early customi+ation of the product c. $etter 'uality of the product d. reduction in training costs e. reduction in inventory investment e (#anaging the supply chain, moderate)

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1 furniture maker has delivered a dining set directly to the end consumer rather than to the furniture store. The furniture maker is practicing a. postponement $. drop shipping c. channel assem$ly d. passing the $uck e. float reduction b (#anaging the supply chain, moderate) -hich of the following $est descri$es vendor managed inventory@ a. There is minimal purchasing.oriented paperwork. $. The supplier maintains the inventory for the $uyer. c. &mall lots are delivered fre'uently. d. There is only one supplier for all units of a particular product. e. The supplier delivers only what the customer needs. b (#anaging the supply chain, moderate) 9nternet purchasing can $e used a. to communicate order releases to suppliers $. to replace electronic data interchange ;"*9= c. to purchase commodities through online auctions d. as part of an integrated enterprise resource planning ;"R<= system e. all of the a$ove e ($nternet purchasing, moderate) ".procurement a. works $est in long.term contract situations and is not suited for auctions $. is the same thing as 9nternet purchasing c. represents only the auction and $idding components of 9nternet purchasing d. is illegal in all states except Aevada and Aew Jersey e. 1ll of the a$ove are true of e.procurement. b ($nternet purchasing, moderate) The three classic types of negotiation strategies are a. vendor evaluation vendor development and vendor selection $. Theory F Theory G and Theory H c. many suppliers few suppliers and keiretsu d. cost.$ased price model market.$ased price model and competitive $idding e. Aone of the a$ove is correct. d (Vendor selection, moderate) -hich of the following is not a component of negotiation strategies@ a. invoiceless $idding $. cost.$ased price model c. market.$ased price model d. competitive $idding e. com$ination of the a$ove negotiation techni'ues a (Vendor selection, moderate)

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The three stages of vendor selection in order are a. vendor evaluation vendor development and negotiations $. vendor development vendor evaluation and vendor ac'uisition c. introduction growth and maturity d. vendor evaluation negotiations and vendor development e. "*9 "R< and 1&A a (Vendor selection, easy) -hich one of the following distri$ution systems offers 'uickness and relia$ility when emergency supplies are needed overseas@ a. trucking $. railroads c. airfreight d. waterways e. pipelines c (%ogistics management, easy) -ith the growth of J9T which of the following distri$ution systems has $een the $iggest loser@ a. trucking $. railroads c. airfreight d. waterways e. pipelines b (%ogistics management, moderate) 6y which distri$ution system is 02 percent of the nation's coal shipped@ a. railroads $. trucks c. waterways d. pipelines e. none of the a$ove a (%ogistics management, easy) -hich distri$ution system is the fastest growing mode of shipping@ a. railroads $. trucks c. airfreight d. waterways e. pipelines c (%ogistics management, moderate) -hich of the following devices represents an opportunity for technology to improve security of container shipments@ a. devices that identify truck and container location $. devices that sense motion c. devices that measure radiation or temperature d. devices that can communicate the $reaking of a container lock or seal e. all of the a$ove e (%ogistics management, easy)

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-hich one of the following performance measures is not true of a world class firm@ a. low num$er of suppliers per purchasing agent $. low purchasing costs as percent of purchases c. large lead time d. high percentage of on.time deliveries e. low num$er of shortages per year c (&enchmarking supply"chain management, moderate) -hich of the following is true regarding supply chain performance@ 6enchmark firms a. have more suppliers per purchasing agent $. have longer lead time c. have far fewer shortages per year d. use competitive $idding more often e. have slightly fewer shortages per year c (&enchmarking supply"chain management, moderate)

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//. IIIIIIIIIIIIIII is the management of activities that procure raw materials transform those materials into intermediate goods and final products and deliver the products through a distri$ution system. Supply"chain management (The strategic importance of the supply chain, easy) The IIIIIIIIIIIIIIII decision involves choosing $etween producing a component or a service internally and purchasing it externally. make"or"buy (Supply chain economics, easy) Transferring to external vendors a firm4s activities that have traditionally $een internal is known as IIIIIIIII. outsourcing (Supply chain economics, easy) The IIIIIIIIIis an organi+ation that has pu$lished principles and standards for ethical supply management conduct. $nstitute for Supply #anagement (!thics in the supply chain, easy) The supply.chain strategy of IIIIIIIIIIII increases the willingness to participate in J9T. few suppliers (Supply"chain strategies, moderate) IIIIIIIIIIII is developing the a$ility to produce goods or services previously purchased or actually $uying a supplier or a distri$utor. Vertical integration (Supply"chain strategies, moderate) IIIIIIIIII is a Japanese term to descri$e suppliers who $ecome part of a company coalition. (eiretsu (Supply"chain strategies, moderate) IIIIIIIIIIII rely on a variety of supplier relationships to provide services on demand. Virtual companies (Supply"chain strategies, moderate)

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>ocal optimi+ation incentives and large lots all contri$ute to IIIIIIIIII a$out what is really occurring in the supply chain. distortion of information (#anaging the supply chain, moderate) IIIIIIIIII involves delaying any modifications or customi+ation to the product as long as possi$le in the production process. )ostponement (#anaging the supply chain, moderate) IIIIIIIIIII postpones final assem$ly of a product so the distri$ution channel can assem$le it. *hannel assembly (#anaging the supply chain, moderate) IIIIIIIIIIII involves reducing the num$er of variations in materials and components as an aid to cost management. Standardi+ation (#anaging the supply chain, moderate)

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122. IIIIIIIIIIIII is a standardi+ed data.transmittal format for computeri+ed communications $etween organi+ations. !lectronic data interchange (!,$) (#anaging the supply chain, moderate) 121. IIIIIIIIIIIIII includes order releases communicated over the 9nternet or approved vendor catalogues availa$le on the 9nternet for use $y employees of the purchasing firm. $nternet purchasing or e"procurement (#anaging the supply chain, moderate) 122. 3f the three stages of vendor selection the stage at which criteria weights and scores allow a numeric comparison is IIIIIIIIIIIIII. -endor e-aluation (Vendor selection, moderate) 12!. IIIIIIIIIIIII is an approach that seeks efficiency of operations through the integration of all material ac'uisition movement and storage activities. %ogistics management (%ogistics management, moderate) 12#. The fastest growing mode of shipping is IIIIIIIIIIIIII. airfreight (%ogistics management, easy)

SHORT ANSWER
12%. *escri$e the ma5or supply.chain innovations at Volkswagen's new truck plant in 6ra+il. Volkswagen has designed an e'perimental, highly integrated supply chain, with a strong commitment to outsourcing. Volkswagen has formed partnerships with se-eral suppliers, whose employees work inside the factory, performing assembly work. The suppliers/ component lines feed the main assembly line, and the suppliers account for their own direct costs and risks. (Global company profile, moderate) 12(. 1s the firm strategies vary from low.cost to response to differentiation how does this impact the criteria used for selection of a supply.chain strategy@ The supply chain must support the operations management strategy. For a firm using the low"cost strategy, supplier selection should be based primarily on cost. 0hen using the response strategy, the selection criteria are capacity, speed, and fle'ibility. For differentiation strategy, the supplier is selected based on product de-elopment skills. (The strategic importance of the supply chain, moderate)
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12,. -hat are the 7ingredients7 of the supply chain for a $rewer and $ottler of $eer@ <rovide reasona$le detail and think comprehensively. The supply chain includes materials, which include hops, grains, water, bottles and cans. $t e'tends to the farms on which the grains are grown. $t includes suppliers of e1uipment used in the brewing process. The supply chain also includes transportation from farm to consumer, scheduling information, and financial transfers, as well as ideas and designs. (The strategic importance of the supply chain, moderate) 12/. -hat are the special re'uirements of supply chain systems in glo$al environments@ Supply chains in a global en-ironment must be fle'ible, so that the firm can react to sudden changes that might occur in parts a-ailability or currency rates. They must be able to use latest information technology for scheduling and managing shipments of parts and products. 2nd they must be staffed with specialists to handle duties, customs, and political issues in other countries. (The strategic importance of the supply chain, moderate) 120. >ist the reasons for making in the make.or.$uy decision. The reasons for making in the make"or"buy decision include increase or maintain si+e of the company (management preference)3 lower production cost3 unsuitable suppliers3 ensure ade1uate supply3 utili+e surplus labor facilities and make a marginal contribution3 obtain the desired 1uality3 remo-e supplier collusion3 obtain a uni1ue item that would entail a prohibiti-e commitment for a supplier3 maintain organi+ational talents3 and protect proprietary design or 1uality. (Supply chain economics, moderate) 112. >ist the reasons for buying in the make.or.$uy decision. The reasons for buying in the make"or"buy decision include freeing management to focus on primary business3 lower ac1uisition cost3 preser-e supplier commitment3 obtain technical or managerial ability3 inade1uate capacity3 reduce in-entory costs3 ensure alternati-e sources of supply3 inade1uate managerial or technical resources3 reciprocity3 and item is protected by patent or trade secret. (Supply chain economics, moderate) 111. Eow are outsourcing and vertical integration related@ :an a single firm successfully do $oth@ utsourcing transfers what were traditional internal acti-ities to outside -endors. $t is a way of increasing speciali+ation which allows the firm to focus on its core strengths, and not try to do all possible tasks. Vertical integration is much the opposite, decreasing a firm/s speciali+ation so that it can perform additional functions along its supply chain. Vertical integration has become increasingly difficult in the face of increasing speciali+ation. $t seems unlikely that firms which make significant use of outsourcing would do much -ertical integration, but it is possible that a firm/s set of competiti-e ad-antages would support outsourcing in some functions and -ertical integration in others. (#anaging the supply chain, difficult) 112. 3f all areas of the organi+ation why is the supply chain especially vulnera$le to ethical lapses@ The supply chain offers more opportunities for ethical issues than some other functions in the organi+ation. Some of these opportunities arise from the large sums of money in-ol-ed. )erhaps these opportunities arise because of the close and long"term personal contact between buyer and seller. Globali+ation adds e-en more comple'ity to the decisions made in the supply chain. (!thics in the supply chain, moderate)

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11!. >ist and descri$e $riefly the five supply.chain strategies. 4. Many suppliers is the traditional 2merican approach of negotiating with many suppliers and playing one supplier off against another. 5. The strategy of few suppliers de-elops long, 6partnering6 relationships with a few suppliers who will work with the purchaser in satisfying the end customer. 7. Firms that practice vertical integration may decide to pursue backward integration by actually buying the supplier. 8. Suppliers become part of a company coalition in the keiretsu strategy. 9. 0ith the virtual companies strategy, firms use suppliers on an as"needed basis. (Supply"chain strategies, moderate) 11#. :an an organi+ation's plans for vertical integration $e supported $y the tools of make.or.$uy analysis@ "xplainJ provide an example. :es3 the decision to ac1uire the pro-ider of an upstream operation is the same as choosing to make whate-er has been pro-ided. ;ot to ac1uire is the e1ui-alent of 6buy.6 The analysis also holds for downstream operations: the ac1uisition of a deli-ery fleet is e1ui-alent to 6make6 in the downstream operation of distribution. (Supply"chain strategies, moderate) 11%. ?sing a T.account to display pros and cons explore the advantages and disadvantages of using the few suppliers approach. 2d-antages ,isad-antages < long"term suppliers better understand < concern about trade secrets and suppliers firm -enturing out < suppliers may gain economies of scale < high cost of changing partners < trust < risk of poor supplier performance < willingness to participate in =$T (Supply"chain strategies, moderate) 11(. 1 candy manufacturer wants to $e a very self.sufficient firm. To this end the firm prints its own package la$els manufactures the lollipop sticks that are components of some of their products repairs its machinery and e'uipment maintains a machine shop for making of replacement parts for the factory and performs its own advertising layoutKall this in addition to making its primary products. -hat advice can you give this firm regarding its vertical integration@ Vertical integration is increasingly difficult in a climate of increasing speciali+ation. #ost firms would be better off focusing on their competiti-e ad-antages, not trying to 6do e-erything.6 (#anaging the supply chain, moderate) 11,. -hat opportunities exist for reducing the C$ullwhipD effect and improving the supply.chain@ The opportunities include accurate >pull? data, lot si+e reduction, single control of replenishment, -endor managed in-entory (V#$), postponement, channel assembly, drop shipping, blanket orders, standardi+ation, and electronic ordering and funds transfer. (#anaging the supply chain, moderate) 11/. -hat is a keiretsu@ 2 keiretsu is a network of suppliers. @sually the suppliers are partially owned or debtors to the purchasing organi+ation. This structure is 1uite common in =apan. (Supply"chain strategies, easy)

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110. -hat are the key factors to success in the supply.chain@ The key factors include mutual agreement on goals, trust, and compatible organi+ational cultures. (#anaging the supply chain, moderate) 122. *escri$e vendor managed inventory ;V)9=. Eow is it related to outsourcing@ :ite an example from your experiences as a shopper. $n -endor managed in-entory, the supplier maintains material for the buyer, often deli-ering directly to the buyer/s using department. $t is a form of outsourcing, because the buying firm has transferred the shipping, stocking, and recei-ing tasks to an e'ternal -endor. There are many instances of V#$ in today/s retail model3 shel-es of snack foods and soft drinks are routinely managed by the distributor, not the retailer. (#anaging the supply chain, easy) 121. Aame three common things that contri$ute to distortion of information a$out the supply.chain@ The occurrences include local optimi+ation, incenti-es (sales incenti-es, 1uantity discounts, and promotions), and large lots. (#anaging the supply chain, moderate) 122. -hy is channel assem$ly popular in the personal computer industry@ *hannel assembly is popular in the personal computer industry because of better market response with less in-estment. This is possible because the late"stage assembly and customi+ation is a natural part of a rapidly changing industry. (#anaging the supply chain, moderate) 12!. *efine "*9. !lectronic data interchange is a standardi+ed data transmittal format for computeri+ed communications between organi+ations. (#anaging the supply chain, moderate) 12#. Lor purchasing nonstandard items what is the advantage of using the 9nternet over using traditional purchasing systems@ ;onstandard items are those with no blanket order. @sing the $nternet for these items can reduce the ordering lead time and purchasing costs. $t also lends itself to comparison shopping, rapid ordering, and reduction in in-entory. ($nternet purchasing, moderate) 12%. -hat are the three negotiation strategies@ 6riefly descri$e each of them. The three strategies for negotiating with -endors are the cost"based model, the market"based price model, and competiti-e bidding. $n the cost"based model, contract price is a function of -endor costs, such as those for time and materials. $n the market"based price model, price is set by some form of published, auction, or inde' price. *ompetiti-e bidding may be used when -endors are not open to the cost"based model, or where information is not perfect enough for market"based pricing. ($nternet purchasing, moderate) 12(. :onstruct a list of the ma5or variations of e.procurement. 4. $nternet purchasing may communicate order releases to suppliers, replacing !,$. 5. *atalog ordering may reduce lead times and purchasing costs for nonstandard items. 7. $nternet purchasing may mirror a traditional comprehensi-e purchasing system. 8. !"procurement may take the form of online auctions. ($nternet purchasing, moderate) 12,. -hat are the advantages of shipping $y truck@ The ad-antages of shipping by truck include fle'ibility, on"time beha-ior, no damage, paperwork in order, and low cost. (%ogistics management, moderate)

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12/. >ist some technological advances that can serve to improve logistics management and also improve shipping security. Se-eral technological ad-ances can ser-e both security and logistics purposes. They may pro-ide en-ironmental information that is useful for product 1uality as well as security, or geospatial information useful to =$T as well as security. They include de-ices that can detect a broken seal on a shipping container, de-ices that can detect whether a container is in motion, de-ices that sense and transmit temperature and humidity, and de-ices that can transmit truck or container location. (%ogistics management, moderate)

PROBLEMS
120. 1 regional grocery chain spends ,2 percent of its sales in the supply chain and has a net profit margin of 2 percent. They have 5ust initiated an 9nternet.$ased inventory management program that is expected to save the chain M%22 222 per year. -hat is the e'uivalent increase in sales to this saving@ ?se Ta$le 11.! reproduced $elow.

The rele-ant entry in Table 44.7, ABC of sales and 5C net profit, is DE.59. $f D9BB,BBB can be sa-ed, the e1ui-alent -alue of increased sales is D9BB,BBB ' E.59 F D7,459,BBB. (Supply"chain economics, moderate) 1!2. 1 container of $all.$earings valued at M2% 222 currently located in Eouston TF needs to $e delivered to the )orton 9> plant. The standard shipment method takes two days. Eowever for an additional charge of M%22 the container can $e sent overnight. The annual holding cost rate for this type of item has $een estimated at 2/B. -hat option is more economical@ ,aily cost of holding the item is .5G(59,BBB)H7E9 F D4I.4G. Since the e'tra shipping cost is D9BB, the D4I.4G sa-ings does not offset the e'tra shipping cost. Send the shipment using the standard method. (%ogistics management, moderate) 1!1. 1 shipment of parts valued at M,% 222 needs to $e shipped from Tampa L> to :hicago 9>. They could $e shipped $y rail taking 1% days at a cost of M1 %,% or $y truck taking # days at a cost of M2 (#2. The annual holding cost rate for this type of item has $een estimated at 22B. -hat option is more economical@ ,aily cost of holding the item is .55(A9,BBB)H7E9 F D89.54 ,ays sa-ed by using truck is 49"9F44 days 44 days ' D89.54 F D8IA.5A !'tra shipping cost F D5,E8B " D4,9A9 F D4,BE9 The D8IA.5A sa-ings does not offset the e'tra shipping cost of D4,BE9. Send the shipment by rail. (%ogistics management, moderate)

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1!2. 1 transportation firm spends (2 percent of its sales in the supply chain and has a net profit margin of ( percent. The company is a$out to invest M122 222 in one of two ventures. 3ne venture is advertising.$ased and is expected to increase revenues ;sales= $y M(22 222 ;after spending the M122 222=. The other venture applies the money in supply.chain efficiencies that are expected to save M222 222 ;again after spending the M122 222=. -hich of these two ventures offers the larger increase in profit to the firm@ ?se Ta$le 11.! reproduced $elow.

The rele-ant entry in Table 44.7, EBC of sales and EC net profit, is D8.79. $f D5BB,BBB can be sa-ed, the e1ui-alent -alue of increased sales is D5BB,BBB ' 8.79 F DGAB,BBB. $n other words, D5BB,BBB in supply"chain sa-ings and DGAB,BBB in increased sales yield the same increase in profit. Since the e'pected increase in sales is only DEBB,BBB, the better use of the D4BB,BBB is to pursue the supply"chain efficiencies. (Supply"chain economics, moderate) 1!!. 1 company is a$out to select a vendor for the outsourcing of all of its engineering environmental and :1* re'uirements. 9t has identified four criteria critical to the selection. These criteria and their importance weights appear $elow. Three firms 1 : and " have indicated that they are interested in this position. The company has scored each of the three candidates on these criteria using a 1.12 scale where 12 is $est. :andidate 1 scored , , , and % on the four criteria. :andidate : scored 0 # / and (. :andidate " scored % 12 12 and ,. -hich vendor has the highest composite score@ :riterion "ngineering expertise Linancial and managerial strength 9ntegrity &taff experience and 'ualifications *riterion 0eight !ngineering e'pertise .8B Financial and managerial strength .5B $ntegrity .49 Staff e'perience and 1ualifications .59 Total 4.BB -eight .#2 .22 .1% .2% *ompany 2 A 5.GB A 4.8B A 4.B9 9 4.59 E.9B *ompany * I 7.EB 8 .GB G 4.5B E 4.9B A.4B *ompany ! 9 5.BB 4B 5.BB 4B 4.9B A 4.A9 A.59

*ompany ! has the highest score, and should be selected. (Vendor selection, moderate)

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