Chapter 15

40) A downside to which contract is that it leads to surplus inventory that must be salvaged or disposed? A) buyback or returns contract B) revenue-sharing contract C) quantity flexibility contract D) all of the above

A) buyback or returns contract

35) A contract that allows a retailer to return unsold inventory up to a specified amount, at an agreed upon price is a A) buyback or returns contract. B) revenue-sharing contract. C) quantity flexibility contract. D) quantity discount contract.

A) buyback or returns contract.

29) Single sourcing for a product is used to A) guarantee the supplier sufficient business when the supplier has to make a significant buyer-specific investment. B) ensure a degree of competition. C) ensure the possibility of a backup should a source fail to deliver. D) all of the above

A) guarantee the supplier sufficient business when the supplier has to make a significant buyer-specific investment.

12) Effective sourcing processes within a firm can A) improve profits for the firm and total supply chain surplus. B) reduce profits for the firm and total supply chain surplus. C) reduce total supply chain surplus. D) reduce profits for the firm.

A) improve profits for the firm and total supply chain surplus.

47) The procurement process for direct materials should focus on A) improving coordination and visibility with the supplier. B) decreasing the transaction cost for each order. C) consolidation of orders to take advantage of economies of scale and quantity discounts. D) all of the above

A) improving coordination and visibility with the supplier.

57) Using a third party requires a firm to share demand information and in some cases intellectual property. This risk would be described as A) leakage of sensitive data and information. B) underestimation of the cost of coordination. C) reduced customer/supplier contact. D) loss of internal capability.

A) leakage of sensitive data and information.

1) The process by which companies acquire raw materials, components, products, services, and other resources from suppliers to execute their operations is A) procurement. B) sourcing. C) supplier scoring and assessment. D) supplier selection.

A) procurement.

26) Good design collaboration for manufacturability and supply chain can A) reduce product cost. B) increase required inventories. C) increase transportation cost. D) decrease manufacturability.

A) reduce product cost.

56) The main risks of moving functions to a third party would not include A) rising fuel costs. B) underestimation of the cost of coordination. C) reduced customer/supplier contact. D) loss of internal capability.

A) rising fuel costs.

19) Supplier performance must be rated on many different factors because A) they impact the total supply chain cost. B) they minimize the supply chain involvement. C) they reduce the impact of price. D) they maximize the supply chain price.

A) they impact the total supply chain cost.

10) The role of sourcing planning and analysis is A) to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost. B) to analyze spending across various suppliers and component categories to identify opportunities for increasing the total cost. C) to enable orders to be placed and delivered on schedule at the lowest possible overall cost. D) to enable orders to be placed and delivered on schedule regardless of cost.

A) to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost.

31) If each supplier of a firm does not have a somewhat different role, it is very likely that the firm's supply base is A) too large. B) too small. C) neither too large or too small. D) both too large and too small.

A) too large.

14) Which of the following is not a benefit of effective sourcing decisions? A) Appropriate supplier contracts can allow for the sharing of risk, resulting in higher profits for both the supplier and the buyer. B) Better economies of scale can be achieved if orders within a firm are disaggregated. C) Design collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs. D) Firms can achieve a lower purchase price by increasing competition through the use of auctions.

B) Better economies of scale can be achieved if orders within a firm are disaggregated.

51) Which of the following is a traditional logistics driver of sourcing? A) Pricing B) Inventory C) Sourcing D) Information

B) Inventory

18) Which of the following is not a factor that must be considered when scoring and assessing suppliers? A) Purchase pricing B) Sales performance C) Design collaboration capability D) Exchange rates, taxes, and duties

B) Sales performance

54) There are various mechanisms that third parties can use to grow the supply chain surplus. Which of the following is not one of these? A) Capacity aggregation B) Warehousing decentralization C) Inventory aggregation D) Warehouse aggregation

B) Warehousing decentralization

24) Quantity discounts lower the unit cost A) but tend to increase the required batch size and as a result, reduce the cycle inventory. B) but tend to increase the required batch size and as a result the cycle inventory. C) and tend to reduce the required batch size and as a result the cycle inventory. D) and tend to reduce the required batch size and as a result, increase the cycle inventory.

B) but tend to increase the required batch size and as a result the cycle

48) The procurement process for indirect materials should focus on A) improving coordination and visibility with the supplier. B) decreasing the transaction cost for each order. C) consolidation of orders to take advantage of economies of scale and quantity discounts. D) all of the above

B) decreasing the transaction cost for each order.

52) The decision to have a third party perform a supply chain function is called A) insourcing. B) outsourcing. C) offshoring. D) onshoring.

B) outsourcing.

27) The viability of suppliers is especially important for suppliers who A) provide mission-critical products that would be easy to replace. B) provide mission-critical products that would be difficult to replace. C) provide non-critical products that would be difficult to replace. D) provide non-critical products that would be easy to replace.

B) provide mission-critical products that would be difficult to replace.

36) A contract where the buyer pays a minimal amount for each unit purchased from the supplier but shares a fraction of the revenue for each unit sold is A) buyback or returns contract. B) revenue-sharing contract. C) quantity flexibility contract. D) quantity discount contract

B) revenue-sharing contract.

2) The entire set of business processes required to purchase goods and services is A) procurement. B) sourcing. C) supplier scoring and assessment. D) supplier selection.

B) sourcing.

5) The selection of suppliers, design of supplier contracts, product design collaboration, procurement of material, and evaluation of supplier performance are a part of A) procurement. B) sourcing. C) supplier scoring and assessment. D) supplier selection.

B) sourcing.

28) Supplier performance should be compared based on A) purchase price alone. B) their impact on total cost. C) the supplier's quality of material. D) the ability of the supplier to coordinate forecasting and planning.

B) their impact on total cost.

32) If adding a supplier with a unique and valuable capability does not clearly add to a firm's total cost, the supply base may be A) too large. B) too small. C) neither too large or too small. D) both too large and too small.

B) too small.

34) Which of the following is not a contract that will increase overall profits by making the supplier share some of the buyer's demand uncertainty? A) Buyback or returns contracts B) Quantity flexibility contracts C) Renewal contracts D) Revenue-sharing contracts

C) Renewal contracts

13) Which of the following is not a benefit of effective sourcing decisions? A) Better economies of scale can be achieved if orders within a firm are aggregated. B) More efficient procurement transactions can significantly reduce the overall cost of purchasing. C) Sequential design results in products that are easier to manufacture and distribute, resulting in lower overall costs. D) Good procurement processes can facilitate coordination with the supplier and improve forecasting and planning.

C) Sequential design results in products that are easier to manufacture and distribute, resulting in lower overall costs.

50) Which of the following is a cross-functional driver of sourcing? A) Transportation B) Inventory C) Sourcing D) Faciltities

C) Sourcing

58) Considering the factors influencing total cost and supplier performance, which of the following is the LEAST quantifiable factor? A) Supplier price B) Supplier terms C) Support D) Warehousing cost

C) Support

25) Good information coordination will not result in A) better replenishment planning. B) a decrease in the inventory carried as well as the sales lost because of lack of availability. C) a decrease in the bullwhip effect. D) a decrease in the sales lost because of lack of availability.

C) a decrease in the bullwhip effect.

22) The delivery frequency of a supplier can be converted into the cost of holding A) cycle inventory. B) safety inventory. C) both cycle and safety inventory. D) neither cycle nor safety inventory.

C) both cycle and safety inventory.

49) The procurement process for both direct and indirect materials should work on A) improving coordination and visibility with the supplier. B) decreasing the transaction cost for each order. C) consolidation of orders to take advantage of economies of scale and quantity discounts. D) all of the above

C) consolidation of orders to take advantage of economies of scale and quantity discounts.

53) The decision to move a production facility outside of domestic boundaries and still maintain ownership is called A) insourcing. B) outsourcing. C) offshoring. D) onshoring.

C) offshoring.

37) A contract that allows the buyer to modify the order (within limits agreed to by the supplier) as demand visibility increases closer to the point of sale is a A) buyback or returns contract. B) revenue-sharing contract. C) quantity flexibility contract. D) quantity discount contract.

C) quantity flexibility contract.

3) The process used to rate supplier performance is A) procurement. B) sourcing. C) supplier scoring and assessment. D) supplier selection.

C) supplier scoring and assessment.

6) Price has traditionally been the only dimension that suppliers have been compared on during the process of A) procurement. B) sourcing. C) supplier scoring and assessment. D) supplier selection.

C) supplier scoring and assessment.

7) Supplier characteristics such as lead time, reliability, quality, and design capability that impact the total cost of doing business with a supplier should be considered during the process of A) procurement. B) sourcing. C) supplier scoring and assessment. D) supplier selection.

C) supplier scoring and assessment.

9) The goal of procurement is A) to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost. B) to analyze spending across various suppliers and component categories to identify opportunities for increasing the total cost. C) to enable orders to be placed and delivered on schedule at the lowest possible overall cost. D) to enable orders to be placed and delivered on schedule regardless of cost.

C) to enable orders to be placed and delivered on schedule at the lowest possible overall cost.

11) Cost of Goods Sold (COGS) represents A) less than 20 percent of sales for most major manufacturers. B) less than 50 percent of sales for most major manufacturers. C) well over 50 percent of sales for most major manufacturers. D) well over 80 percent of sales for most major manufacturers.

C) well over 50 percent of sales for most major manufacturers.

41) Which contracts result in the supply chain producing retailer orders rather than actual consumer demand? A) Buyback or returns contract B) Revenue-sharing contract C) Quantity flexibility contract D) A and B

D) A and B

45) The key themes that must be communicated to suppliers as they take greater responsibility for design are A) design for logistics. B) design for manufacturability. C) design for the future. D) A and B

D) A and B

8) Design collaboration is important because A) about 80 percent of the cost of a product is determined during design. B) it ensures that any design changes are communicated effectively to all parties involved with designing and manufacturing the product. C) the supplier sends product in response to orders placed by the buyer. D) A and B

D) A and B

42) Which contracts create information distortion that result in excess inventory in the supply chain and a greater mismatch of supply and demand? A) Buyback or returns contract B) Revenue-sharing contract C) Quantity flexibility contract D) A and B only

D) A and B only

46) Which of the following is not a key principle used in design for manufacturability? A) Part commonality B) Symmetrical parts C) Using catalog parts rather than designing a new part D) All of the above are principles used in design for manufacturability.

D) All of the above are principles used in design for manufacturability.

21) On-time performance affects the variability of the lead time, because A) a reliable supplier has high variability of lead time. B) a reliable supplier has low variability of lead time. C) an unreliable supplier has high variability of lead time. D) B and C

D) B and C

17) Which of the following is not a factor that must be considered when scoring and assessing suppliers? A) Supply flexibility B) Supply quality C) Inbound transportation cost D) Information instigation capability

D) Information instigation capability

16) Which of the following is not a factor that must be considered when scoring and assessing suppliers? A) Quoted price B) Replenishment lead time C) On-time performance D) Supply affability

D) Supply affability

44) Which contract increases the margin for the dealer as sales cross certain levels? A) Buyback or returns contract B) Revenue-sharing contract C) Quantity flexibility contract D) Threshold contracts

D) Threshold contracts

43) Which type of contract is used when agents act on behalf of a principal and the dealer's margin is set to be the same as the supply chain margin, and the dealer exerts the right amount of effort? A) Buyback or returns contract B) Revenue-sharing contract C) Quantity flexibility contract D) Two-part tariffs

D) Two-part tariffs

33) To improve overall profits, the supplier must design a contract that A) encourages the buyer to purchase more. B) increases the level of product availability. C) requires the supplier to share in some of the buyer's demand uncertainty. D) all of the above

D) all of the above

15) When designing a sourcing strategy, it is important for a firm to A) develop a process that will procure materials at the lowest possible cost. B) maintain a record of all contracts, receipts, issues and other transactions in the event of lawsuits. C) maximize the profitability of the distributors within the supply chain. D) be clear on the factors that have the greatest influence on performance and target improvement on those areas.

D) be clear on the factors that have the greatest influence on performance and target improvement on those areas.

30) The purpose of having multiple suppliers for a product is to A) guarantee the supplier sufficient business when the supplier has to make a significant buyer-specific investment. B) ensure a degree of competition. C) ensure the possibility of a backup should a source fail to deliver. D) both B and C

D) both B and C

23) Sourcing a product overseas may have A) higher product cost and will generally incur a higher inbound transportation cost. B) higher product cost but will generally incur a lower inbound transportation cost. C) lower product cost and will generally incur a lower inbound transportation cost. D) lower product cost but will generally incur a higher inbound transportation cost.

D) lower product cost but will generally incur a higher inbound transportation cost.

38) A contract that decreases overall costs but leads to higher lot sizes and thus higher levels of inventory in the supply chain is a A) buyback or returns contract. B) revenue-sharing contract. C) quantity flexibility contract. D) quantity discount contract.

D) quantity discount contract.

55) An intermediary can increase the supply chain surplus by decreasing the number of relationships required between multiple buyers and sellers. This is called A) capacity aggregation. B) inventory aggregation. C) warehouse aggregation. D) relationship aggregation.

D) relationship aggregation.

39) A contract that is used to induce performance improvement from a supplier along dimensions, such as lead time, where the benefit of improvement accrues primarily to the buyer, whereas the effort for improvement comes primarily from the supplier is a A) buyback or returns contract. B) revenue-sharing contract. C) quantity flexibility contract. D) shared savings contract.

D) shared savings contract.

4) Using the output from supplier scoring and assessment to identify the appropriate supplier(s) is A) procurement. B) sourcing. C) supplier scoring and assessment. D) supplier selection.

D) supplier selection.

20) Scoring the performance of suppliers in terms of replenishment lead time thus allows the firm to evaluate the impact each supplier has on A) the cost of holding cycle inventory. B) the cost of holding replacement inventory. C) the purchase price of material. D) the cost of holding safety inventory.

D) the cost of holding safety inventory.

A good supplier scoring and assessment process will primarily track performance along the price dimension when evaluating a supplier

False

As the replenishment lead time from a supplier grows, the amount of safety inventory that needs to be held by the buyer also grows in direct proportion to the replenishment lead time

False

Cost of Goods Sold (COGS) represents less than 20 percent of sales for most major manufacturers

False

Good design collaboration for manufacturability and supply chain can also increase required inventories and transportation cost

False

Purchasing, also known as procurement, is the process used to rate supplier performance

False

Quality has little effect on the lead time taken by the supplier to complete the replenishment order or the variability of this lead time

False

Quantity discounts lower the unit cost and tend to increase the required batch size

False

Revenue-sharing contracts counter double marginalization by decreasing the cost per unit charged to the retailer, thus effectively decreasing the cost of understocking

False

Single sourcing is used to ensure a degree of competition and guarantee the possibility of a backup should a source fail to deliver

False

Supplier performance analysis should be used to build a portfolio of suppliers with similar strengths

False

Supplier viability can be especially important if the supplier is providing mission-critical products and they would be easy to find a replacement for

False

The less flexible a supplier is, the less lead time variability he will display as order quantities change

False

Unless each supplier has a somewhat different role, it is very likely that a firm's supply base is too small

False

When designing a sourcing strategy, it is important for a firm to be clear on the factors that have the least influence on performance and target improvement on those areas

False

To improve overall profits, the supplier must design a contract that requires the buyer to share in some of the supplier's demand uncertainty

Falsw

A reliable supplier has low variability of lead time, whereas an unreliable supplier has high variability

True

As the replenishment lot size grows, the cycle inventory at the firm grows, thus increasing the cost of holding inventory

True

Buyback contracts counter double marginalization by lowering the cost of overstocking for the retailer

True

Design collaboration ensures that any design changes are communicated effectively to all parties involved with designing and manufacturing the product

True

Effective sourcing processes within a firm can improve profits for the firm and total supply chain surplus in a variety of ways

True

Exchange rates, taxes, and duties can be significant for a firm with a global manufacturing and supply base

True

For many firms, price has traditionally been the only dimension that suppliers have been compared on

True

Having multiple sources ensures a degree of competition and also the possibility of a backup should a source fail to deliver

True

Outsourcing results in a supply chain function being performed by a third party

True

Procurement is the process by which companies acquire raw materials, components, products, services, or other resources from suppliers to execute their operations

True

Quantity discounts can coordinate supply chain costs if the supplier has large fixed costs per lot

True

Quantity flexibility contracts counter double marginalization by giving the retailer the ability to modify the order based on improved forecasts closer to the point of sale

True

Sourcing a product overseas may have lower product cost but will generally incur a higher inbound transportation cost

True

Sourcing processes include the selection of suppliers, design of supplier contracts, product design collaboration, procurement of material, and evaluation of supplier performance

True

Supplier performance must be rated on several factors other than purchase price because they all impact the total supply chain cost

True

Supplier performance should be compared based on their impact on total cost

True

The goal of procurement is to enable orders to be placed and delivered on schedule at the lowest possible price

True

The procurement process for indirect materials should focus on decreasing the transaction cost for each order

True

The role of sourcing planning and analysis is to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost.

True

The value of better information coordination will be linked to the amount of variability introduced into the supply chain as a result of the bullwhip effect

True

There are many supplier characteristics other than price, such as lead time, reliability, quality, and design capability that impact the total cost of doing business with a supplier

True

Two-part tariffs and threshold contracts can be used to counter double marginalization and increase agent effort in a supply chain

True

Unless adding a supplier with a unique and valuable capability clearly adds to total cost, the firm's supply base may be too small

True