Operations Management

EDULINK and TUTORIAL QUESTIONS - CHAPTER 11

TRUE OR FALSE
1.

The key to effective supply-chain management is to get many suppliers to compete with each
other, in order to drive down prices.

2. The supply chain for a brewery would include raw ingredients such as hops and barley but
not the manufactured goods such as bottles and cans.
3. Supply-chain management faces additional challenges, such as those related to quality
production and distribution systems, when companies enter growing global markets.
4. A reduction in inventory costs is one reason for making rather than buying.
5. Outsourcing refers to transferring a firm's activities that have traditionally been internal
to external suppliers.
6. Outsourcing is a form of specialization that allows the outsourcing firm to focus on its key
success factors.
7. Supply-chain decisions are not generally strategic in nature, because purchasing is an
ordinary expense to most firms.
8. The objective of the make-or-buy decision is to help identify the products and services that
can be obtained externally.
9. Because service firms do not acquire goods and services externally, their supply-chain
management issues are insignificant.
10. Because the supply chain has become so electronic and automated, opportunities for
unethical behavior have been greatly reduced.
11. With the many-suppliers strategy, the order usually goes to the supplier that offers the
best quality.
12. Developing long-term, "partnering" relationships with a few suppliers is a long-standing
American purchasing strategy.
13. Vertical integration, whether forward or backward, requires the firm to become more
specialized.
14. A fast-food retailer that acquired a spice manufacturer would be practicing backward
integration.
15. Keiretsus offer a middle ground between few suppliers and vertical integration.
16. The bullwhip effect refers to the increasing fluctuations in orders that often occur as
orders move through the supply chain.
17. In the vendor evaluation phase, most companies will use the same list of criteria and the
same criteria weights.

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18. One classic type of negotiation strategy is the market-based price model.
19. Waterways are an attractive distribution system when speed is more important than
shipping cost.
20. Logistics management can provide a competitive advantage through improved customer
service.
MULTIPLE CHOICES QUESTIONS
1.

The three major variations of online catalogs are

A) catalogs by vendors, catalogs by intermediaries, and exchanges provided by buyers
B) EDI, ERP, and ASN
C) cost-based, market-based, and competitive bidding
D) drop shipping, channel assembly, and postponement
E) all auction-based

2. Which of the following is not a concern of the supply chain?

A) warehousing and inventory levels
B) credit and cash transfers
C) suppliers
D) distributors and banks
E) maintenance scheduling
3. What type of negotiating strategy requires the supplier to open its books to the purchasers?
A) cost-based price model
B) market-based price model
C) competitive bidding
D) price-based model
E) none of the above
4. Which one of the following statements about purchasing is true?
A) The cost of purchases as a percent of sales is often small.
B) Purchasing provides a major opportunity for price increases.
C) Purchasing is always more efficient than making an item.
D) Purchasing has an impact on the quality of the goods and services sold.
E) Competitive bidding is a major factor in long-term cost reductions.
5. Outsourcing
A) transfers traditional internal activities to outside vendors
B) utilizes the efficiency which comes with specialization
C) lets the outsourcing firm focus on its key success factors
D) None of the above are true of outsourcing.
E) All of the above are true of outsourcing.
6. 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 buy decision
B) not allowed by the ethics code of the Supply Management Institute
C) offshoring
D) outsourcing
E) keiretsu

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7. Which one of the following is not a supply-chain strategy?

A) negotiation with many suppliers
B) vertical integration
C) keiretsu
D) short-term relationships with few suppliers
E) virtual companies
8. A disadvantage of the "few suppliers" strategy is
A) the risk of not being ready for technological change
B) the lack of cost savings for customers and suppliers
C) possible violations of the Sherman Antitrust Act
D) the high cost of changing partners
E) All of the above are disadvantages of the "few suppliers" strategy.
9. The purchasing approach that holds the suppliers responsible for maintaining the necessary
technology, expertise, and forecasting ability plus cost, quality, and delivery competencies is
A) few suppliers
B) many suppliers
C) Keiretsu
D) vertical integration
E) virtual companies
10. Which of the following is not an advantage of the "few suppliers" concept?
A) suppliers' willingness to participate in JIT systems
B) trust
C) vulnerability of trade secrets
D) creation of value by allowing suppliers to have economies of scale
E) suppliers' willingness to provide technological expertise
11. Which of the following supply-chain strategies creates value by allowing suppliers to have
economies of scale?
A) suppliers becoming part of a company coalition
B) vertical integration
C) long-term partnering with a few suppliers
D) negotiating with many suppliers
E) developing virtual companies
12. Which of the following is not a condition that favors the success of vertical integration?
A) availability of capital
B) availability of managerial talent
C) required demand
D) small market share
E) All of the above favor the success of vertical integration.
13. Which of the following best describes vertical integration?
A) to sell products to a supplier or a distributor
B) to develop the ability to produce products which complement the original product
C) to produce goods or services previously purchased
D) to develop the ability to produce the specified good more efficiently than before
E) to build long-term partnerships with a few suppliers

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14. A fried chicken fast-food chain that acquired feed mills and poultry farms has performed
A) horizontal integration
B) forward integration
C) backward integration
D) current transformation
E) job expansion
15. Vertical integration appears particularly advantageous when the organization has
A) a very specialized product
B) a large market share
C) a very common, undifferentiated product
D) little experience operating an acquired vendor
E) purchases that are a relatively small percent of sales
16. A rice mill in south Louisiana purchases the trucking firm that transports packaged rice to
distributors. This is an example of
A) horizontal integration
B) forward integration
C) backward integration
D) current transformation
E) keiretsu
17. Japanese manufacturers often take a middle ground between purchasing from a few
suppliers and vertical integration. This approach is
A) kanban
B) keiretsu
C) samurai
D) poka-yoke
E) kaizen
18. The Japanese concept of a company coalition of suppliers is
A) poka-yoke
B) kaizen
C) keiretsu
D) dim sum
E) illegal
19. Which of the following is not an advantage of a virtual company?
A) speed
B) total control over every aspect of the organization
C) specialized management expertise
D) low capital investment
E) flexibility
20.

An advantage of a joint venture over vertical integration is

A) reduced risk
B) reduced costs
C) compromised competitive advantages
D) globalization
E) flexibility

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21. Local optimization is a supply-chain complication best described as

A) optimizing one's local area without full knowledge of organizational needs
B) obtaining very high production efficiency in a decentralized supply chain
C) the prerequisite of global optimization
D) the result of supply chains built on suppliers with compatible corporate cultures
E) the opposite of the bullwhip effect
22. The "bullwhip" effect
A) occurs as orders are relayed from retailers to wholesalers
B) results in increasing fluctuations at each step of the sequence
C) increases the costs associated with inventory in the supply chain
D) occurs because of distortions in information in the supply chain
E) all of the above
23. A restaurant runs a special promotion on lobster and plans to sell twice as many lobster as
usual. When this large order is sent to the distributer the distributer assumes the large
size is a trend, not a one-time event. The distributer therefore places an even larger order
with the fisherman. This is the result of
A) local optimization
B) the bullwhip effect
C) large Lots
D) incentives
E) A and B
24. Giving quantity discounts based on annual volume instead of single order size helps to control
which supply-chain issue?
A) local optimization
B) incentives
C) large lot purchasing
D) A and C
E) B and C
25. What term is used to describe the outsourcing of logistics?
A) E-Logistics
B) Shipper Managed Inventory (SMI)
C) Hollow Logistics
D) Sub-Logistics
E) Third-Party Logistics
26. E-procurement
A) works best in long-term contract situations, and is not suited for auctions
B) is the same thing as Internet purchasing
C) represents only the auction and bidding components of Internet purchasing
D) is illegal in all states except Nevada and New Jersey
E) All of the above are true of e-procurement.
27. The three classic types of negotiation strategies are
A) vendor evaluation, vendor development, and vendor selection
B) Theory X, Theory Y, and Theory Z
C) many suppliers, few suppliers, and keiretsu
D) cost-based price model, market-based price model, and competitive bidding
E) None of the above is correct.

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28. The three stages of vendor selection, in order, are

A) vendor evaluation, vendor development, and negotiations
B) vendor development, vendor evaluation, and vendor acquisition
C) introduction, growth, and maturity
D) vendor evaluation, negotiations, and vendor development
E) EDI, ERP, and ASN
29. Which one of the following distribution systems offers quickness and reliability when
emergency supplies are needed overseas?
A) trucking
B) railroads
C) airfreight
D) waterways
E) pipelines
30. With the growth of JIT, which of the following distribution systems has been the biggest
loser?
A) trucking
B) railroads
C) airfreight
D) waterways
E) pipelines
31. Which distribution system is the fastest growing mode of shipping?
A) railroads
B) trucks
C) airfreight
D) waterways
E) pipelines
FILL-IN-THE BLANKS
1.

__________ is the management of activities that procure raw materials, transform those
materials into intermediate goods and final products, and deliver the products through a
distribution system.

2. The __________ decision involves choosing between producing a component or a service

internally and purchasing it externally.
3. Transferring to external vendors a firm's activities that have traditionally been internal is
known as __________.
4. The supply-chain strategy of __________ increases the willingness to participate in JIT.
5. __________ is developing the ability to produce goods or services previously purchased or
actually buying a supplier or a distributor.
6. __________ is a Japanese term to describe suppliers who become part of a company
coalition.
7.

__________ rely on a variety of supplier relationships to provide services on demand.

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8. Local optimization, incentives, and large lots all contribute to __________ about what is
really occurring in the supply chain.
9. __________ is the term describing purchasing facilitated through the internet.
10. Of the three stages of vendor selection, the stage at which criteria, weights, and scores
allow a numeric comparison is __________.
11. __________ is an approach that seeks efficiency of operations through the integration of
all material acquisition, movement, and storage activities.
12. The fastest growing mode of shipping is __________.
DISCUSSION QUESTIONS
1.

As 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?

2. What are the three versions of online catalogs?

3. What are the special requirements of supply-chain systems in global environments?
4. Identify the reasons for making in the make-or-buy decision.
5. Identify the reasons for buying in the make-or-buy decision.
6. Identify and describe briefly the five supply-chain strategies.
7. How are outsourcing and vertical integration related? Can a single firm successfully do
both?
8. Can an organization's plans for vertical integration be supported by the tools of make-orbuy analysis? Explain; provide an example.
9. Identify the advantages and disadvantages of using the few suppliers approach.
10. What is a keiretsu?
11. Name three common things that contribute to distortion of information about the supply
chain?
12. What advantages may result from effectively outsourcing the logistics function to a third
party?
13. What are the three negotiation strategies? Briefly describe each of them.
14. What are the advantages of shipping by truck?

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