Operations Management, 1 el (Higher/Render) Chapter 11 Supply Chain Management Section 1 The Supply Chain’s Strategic Importance 1) Even though a firm may have a low cost strategy, supply-chain strategy can select suppliers primarily on response or differentiation. Answer: FALSE 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. Answer: FALSE 3) When using the low-cost strategy for supply chain management, a firm should use buffer stocks to ensure speedy supply.
Answer: FALSE ) Savings in the supply chain exert more leverage as the firm’s net profit margin decreases. Answer: TRUE 5) A firm that employs a response strategy should minimize inventory throughout the supply chain. Answer: FALSE 6) Supply chain decisions are not generally strategic in nature, because purchasing is not a large expense for most firms. Answer: FALSE 7) Because service firms do not acquire goods and services externally, their supply chain management issues are insignificant.
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Answer: FALSE 8) Which of the following characteristics is NOT common to all four of Darken Restaurants’ supply channels? A) supplier qualification B) product tracking C) independent audits D) refrigeration E) Just-in-time delivery Answer: D 9) Which of the following would NOT typically be considered as part of a manufacturing firm’s supply chain? A) suppliers B) distributors C) wholesalers D) retailers E) landscaping contractors Answer: E 10) In most manufacturing industries, which of the following would likely represent the largest cost to the firm?
A) transportation B) purchasing C) insurance D) financing E) advertising Answer: B 1 1) Among which of the following industries are purchasing costs the LOWEST percentage of sales? A) automobiles B) petroleum C) restaurants D) lumber E) chemicals Answer: C 2) Which of the following is a primary supplier selection criterion for a firm pursuing a differentiation strategy? A) product development skills B) cost C) capacity D) speed E) flexibility Answer: A 1 3) For which corporate strategy(sees) should supply chain inventory be minimized?
A) low cost B) response C) differentiation D) low cost and response E) low cost and differentiation 14) Which of the following statements is true regarding the leverage of supply chain savings? A) Supply chain leverage is about the same for all industries. B) Supply chain savings exert more leverage as the firm’s purchases are a smaller percent of sales. C) Supply chain savings exert more leverage as the firm’s net profit margin decreases. D) Supply chain leverage depends only upon the percent of sales spent in the supply chain. E) None of the above is true. Ascribes the coordination of all supply chain activities, starting with raw materials and ending with a satisfied customer. Answer: Supply chain management 16) As the corporate and operations management strategies vary from low cost to response to differentiation, how does this impact the criteria used for selecting suppliers? Answer: 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. When using the response strategy, the selection criteria are capacity, speed, and flexibility.
For the differentiation strategy, the supplier is selected based on product development skills, the degree to which it is willing to share information, and the degree to which it can Jointly and rapidly develop new products. 17) How does the pursuit of a response strategy impact the supply chain decisions of: (1) primary supplier selection criteria, (2) supply chain inventory, (3) distribution network, and (4) product design characteristics? Answer: (1) Suppliers should be selected primarily based on capacity, speed, and flexibility. (2) The firm should use buffer stocks to ensure speedy supply. 3) The firm should use fast transportation, and it should provide premium customer service. (4) Products should have low setup times, and they should be poised for rapid production ramp- up. 18) A grocery chain is interested in exploring the impact effective supply chain management would have. Suppose that for every $1 of sales, 4% is profit, 50% is spent in the supply chain, and the remaining 46% is evenly divided between fixed and production costs. If the chain can save $1 in the supply chain it would take how many dollars of increased sales to have the same increase in profit?
Assume that fixed costs are fixed so that the portion of increased sales allocated to fixed costs is instead profit (27% profit margin combined now). Answer: Suppose initially the firm sells $100 of merchandise. $50 is spent in the supply chain, $23 in fixed costs, $23 in variable costs, and $4 is profit. An increase in sales of $X would increase revenue by X but increase costs by X * (. 5 + . 23). Therefore profit would be increased by revenue – costs = X – (. XX). Therefore . XX(profit % * sales) = I(profit ARQ) and solving gives X $3. 70 of increased sales yields an additional $1 of profit. 9) A company is deciding where to assign its summer intern. The manager estimates that the intern can save $10,000 in the supply chain or increase sales (revenue) by $25,000. If sales (revenue) is divided into the three categories shown in the table, where should the manager assign the intern to maximize profits? Supply Chain Costs Production Costs Profits % of current sales (revenue) 35 25 Answer: The intern would save $10,000 in the supply chain, or show a profit of $ask. Profit from the increase in sales would be equal to revenue – costs.
If revenue is X, then costs would be (. 35+. 25)X. Thus profit would be X- . XX or simply . XX. = $10,000 so the manager is neutral on where to assign the intern. 20) A company is deciding where to assign its summer intern. The manager estimates that the intern can save the company $10,000 in supply chain costs. Given the table below, what increase in sales (revenue) by the intern is required to show an equal profit? Supply Chain costs Variable Costs (materials) Answer: Additional sales would increase costs by (. 35+. 25) x Sales. Profit would Hereford be X- . XX = . X, where X is the increase in sales (revenue). Solve for when . XX= 10,000 or X = $25,000 required in increased sales to account for the same profit level. Section 2 Sourcing Issues: Make-or-Buy vs.. Outsourcing 1) Outsourcing refers to transferring a firm’s activities that have traditionally been internal to external suppliers. Answer: TRUE 2) Outsourcing is a form of specialization that allows the outsourcing firm to focus on its key success factors. Answer: TRUE 3) The objective of the make-or-buy decision is to help identify the products and services that can be obtained externally.
Answer: TRUE 4) Outsourcing: A) transfers traditional internal activities to outside vendors. B) utilizes the efficiency that comes with specialization. C) allows the outsourcing firm to focus on its key success factors. D) All of the above are true of outsourcing. E) None of the above is true of outsourcing. 5) 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) offspring.
D) outsourcing. E) keiretsu. 6) The session involves choosing between producing a component or a service internally and purchasing it externally. Answer: make-or-buy 7) Transferring to external vendors a firm’s activities that have traditionally been internal is known as . Answer: outsourcing Section 3 Six Sourcing Strategies 1) With the “many suppliers” sourcing strategy, the order usually goes to the supplier that offers the highest quality. Answer: FALSE 2) Vertical integration, whether forward or backward, requires the firm to become more specialized.
Answer: FALSE 3) A fast-food retailer that acquired a spice manufacturer would be practicing awkward integration. Answer: TRUE 4) Keiretsu refers to a company coalition that is part collaboration, part purchasing from many suppliers, and part vertical integration. Answer: FALSE 5) Which one of the following is NOT one of the six sourcing strategies? A) negotiation with many suppliers B) vertical integration C) keiretsu D) short-term relationships with few suppliers E) virtual companies 6) A disadvantage of the “few suppliers” sourcing 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) the suppliers are less likely to understand the broad objectives of the procuring firm and the end customer. Answer: D 7) Which sourcing strategy is particularly common when the products being sourced are commodities? A) few suppliers B) many suppliers D) vertical integration 8) Which of the following is NOT an advantage of the “few suppliers” sourcing strategy?
A) suppliers have a learning curve that yields lower transaction and production costs B) suppliers are more likely to understand the broad objectives of the end customer C) less vulnerable trade secrets D) creation of value by allowing suppliers to have economies of scale E) suppliers’ willingness to provide technological expertise Answer: C 9) 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) sufficiently high demand D) small market share E) All of the above favor the success of vertical integration.
Answer: D 10) Which of the following best describes vertical integration? A) sell products to a supplier or a distributor B) develop the ability to produce products that complement the original product C) reduce goods or services previously purchased D) develop the ability to produce the specified good more efficiently than before E) build long-term partnerships with a few suppliers 1 1) A fried chicken fast-food chain that acquired feed mills and poultry farms has performed which of the following?
A) horizontal integration B) forward integration C) backward integration D) current transformation E) Job expansion 12) 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. 13) A rice mill in south Louisiana purchases the trucking firm that transports packaged rice to distributors.
This is an example of which of the following? A) horizontal integration E) keiretsu 14) Japanese manufacturers often pursue a strategy that is part collaboration, part purchasing from a few suppliers, and part vertical integration. What is this approach called? A) Kanata B) keiretsu C) samurai D) Pokka-yoke E) kamikaze 1 5) The Japanese concept of a company coalition of suppliers is: A) Pokka-yoke. B) kamikaze. C) keiretsu. D) dim sum. E) illegal. 16) 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 17) When Daimler and BMW pooled resources to develop standardized auto components, the sourcing strategy could best be described by which of the following? A) keiretsu B) virtual companies C) Joint venture E) few suppliers 18) Which of the following best describes Vision’s sourcing strategy? A) few suppliers E) virtual company is developing the ability to produce goods or services previously researched or actually buying a supplier or a distributor.
Answer: Vertical integration 20) is a Japanese term that describes suppliers who become part of a company coalition. Answer: Keiretsu 21) rely on a variety of supplier relationships to provide services on demand. Answer: Virtual companies 22) Virtual companies are also known as Answer: hollow corporations or network companies 23) Identify and describe briefly the six sourcing strategies. Answer: 1 . With the many suppliers strategy, a supplier responds to the demands and specifications of a “request for quotation,” with the order usually going to the low bidder. The strategy of few suppliers develops long-term “partnering” relationships with a few dedicated suppliers who will work with the purchaser in satisfying the end customer. 3. Vertical integration is developing the ability to produce goods or services previously purchased or actually buying a supplier or a distributor. 4. Joint ventures represent a formal collaboration between firms, without implying any change of ownership. 5. Suppliers become part of a company coalition in the keiretsu strategy. 6. With the virtual companies strategy, firms rely on a variety of supplier relationships to provide services on demand. ) Identify the advantages and disadvantages of using the “few suppliers” sourcing strategy. Answer: Advantages: long-term suppliers are more likely to understand the broad objectives of the procuring firm and the end customer; using few suppliers can create value by allowing suppliers to have economies of scale and a learning curve that yields both lower transaction costs and lower production costs; and the strategy also encourages those suppliers to provide design innovations and technological expertise.
Disadvantages: concern about trade secrets and suppliers venturing out n their own; the high cost of changing partners; and risk of poor supplier performance. Dif 3 Objective: ALL Learning Outcome: Compare and contrast different sourcing strategies including outsourcing and insuring 25) What is a keiretsu? Answer: A keiretsu is a network of suppliers who become part of a company coalition. It is part collaboration, part purchasing from a few suppliers, and part vertical integration.
Usually the suppliers are partially owned or debtors to the purchasing organization. This structure is quite common in Japan. 26) How are outsourcing and vertical integration related? Can a single firm successfully do both? Answer: Outsourcing transfers what were traditional internal activities to outside vendors. It is a way of increasing specialization 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 specialization so that it can perform additional functions along its supply chain. Vertical integration has become increasingly difficult in the face of increasing specialization. It seems unlikely that firms that make significant use of outsourcing would do much vertical integration, but t is possible that a firm’s set of competitive advantages would support outsourcing in some functions and vertical integration in others.
Dif 3 CABS: Reflective thinking skills Section 4 Supply Chain Risk 1) Use of a diversified supply base represents one of the most common supply chain risk reduction tactics for several different supply chain risk categories. Answer: TRUE Dif. 2 Learning Outcome: Compare common approaches to supply chain design 2) The new model of a tight, fast, low-inventory supply chain, operating across political and cultural boundaries, has reduced the overall level of supply chain risk.
Answer: FALSE Dif 1 Learning Outcome: Compare common approaches to supply chain design 3) Cross-sourcing describes the practice of having two suppliers provide every component. Answer: FALSE Dif. 3 Key Term: Cross-sourcing 4) Improvements in security, especially regarding the millions of shipping containers that enter the U. S. Each year, are being held back by the lack of technological advances. Answer: FALSE 5) Which of the following describes using one supplier for a component and a second supplier for another component, where each supplier acts as a backup for the other? A) outsourcing
B) dual-sourcing C) cross-sourcing D) backup-sourcing E) parallel-sourcing 6) With cross-sourcing, how many suppliers provide each component on a regular basis (I. E. , excluding backup suppliers)? A) 1 D) equal to the total number of components E) equal to the number of countries to which the final product is sold Answer: A Learning Outcome: Compare common approaches to supply chain design 7) Which of the following is NOT one of the risk mitigation tactics for the supply chain risk category of suppliers failing to deliver? A) use multiple suppliers B) effective contracts with penalties
C) subcontractors on retainer D) require overnight delivery E) pre-planning 8) Which of the following devices represents an opportunity for technology to improve security of container shipments? A) devices that identify truck and container location B) devices that sense motion C) devices that measure radiation or temperature D) devices that can communicate the breaking of a container lock or seal E) all of the above 9) describes using one supplier for a component and a second supplier for another component, where each supplier acts as a backup for the other. Answer: Cross-sourcing