Chapter 15

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

quantity flexibility contract

The difference between the values of the buyer and seller is referred to as the

bargaining surplus

When designing a sourcing strategy, it is important for a firm to

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

An third party can increase the supply chain surplus if it has a lower collection cost than the firm. This is called

receivable aggregation

Good design collaboration for manufacturability and supply chain can

reduce product cost

The viability of suppliers is especially important for suppliers who

provide mission critical products that would be difficult to replace

An intermediary can increase the supply chain surplus by decreasing the number of relationships required between multiple buyers and sellers. This is called

relationship aggregation

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

revenue-sharing contract

A contract that decreases overall costs but leads to higher lot sizes and thus higher levels of inventory in the supply chain is a

quantity discount contract

Suppliers performance must be rated on many different factors because

the factors impact the total supply chain cost

Sales efforts and orders peak near the end of any month, quarter, or other evaluation period. This is commonly referred to as

the hockey stick phenomenon

If each Jerk Store location is acting independently, what is their expected profit if they stock an optimal quantity?

$13,840

If George and a single Jerk Store act as a vertically integrated supply chain, what is the total supply chain expected profit if an optimal order quantity is placed?

$16,789

If each Jerk Store location is acting independently, how many packets of seasoning should they stock?

2840

If George and a single Jerk Store act as a vertically integrated supply chain, what is the optimal quantity for the Jerk Store to order?

3069

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

False

T/F 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

T/F Quantity discounts lower the unit cost and tend to increase the required batch size.

False

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

False

T/F Supplier performance analysis should be used to build a portfolio of suppliers with similar strengths.

False

T/F Supplier viability can be especially important if the supplier is providing mission-critical products and it would be easy to find a replacement for them.

False

T/F To improve overall profits, the supplier must design a contract that requires the buyer to share in some of the supplier's demand uncertainty.

False

Which of the following is a traditional logistics driver of sourcing?

Inventory

T/F A reliable supplier has low variability of lead time, whereas an unreliable supplier has high variability.

True

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

True

T/F Buyback contracts counter double marginalization by lowering the cost of overstocking for the retailer.

True

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

True

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

True

T/F Having multiple sources ensures a degree of competition and also the possibility of a backup, should a source fail to deliver.

True

T/F 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

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

True

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

True

T/F The procurement process for indirect materials should focus on decreasing the transaction cost for each order.

True

T/F 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

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

True

T/F 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

Quantity discounts lower the unit cost

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

A contract that allows a retailer to return unsold inventory up to a specified amount, at an agreed upon price is a

buyback or returns contract

A downside to which contract is that it leads to surplus inventory that must be salvaged or disposed?

buyback or returns contract

A third party can increase the supply chain surplus by aggregating demand across multiple firms and gaining production economies of scale that no single firm can on its own. This is called

capacity aggregation

The procurement process for both direct and indirect materials should work on

consolidation of orders to take advantage of economies of scale and quantity discounts

Single sourcing for a product is used to

guarantee the supplier sufficient business when the supplier has to make a significant buyer specific investment

To create a win-win negotiation, the two parties must

identity more than one issue to negotiate

Effective sourcing processes within a firm can

improve profits for the firm and total supply chain surplus

The procurement process for direct materials should focus on

improving coordination and visibility with the supplier

Craigslist and eBay are examples of

information aggregation

An intermediary can increase the supply chain surplus by aggregating inventories across large numbers of customers. This is called

inventory aggregation

Supplier performance should be compared based on

its impact on total cost

Using a third party requires a firm to share demand information and in some cases intellectual property. This risk would be described as

leakage of sensitive data and information

Sourcing a product overseas may have

lower product cost but will generally incur a higher inbound transportation cost

The decision to move a production facility outside of domestic boundaries and still maintain ownership is called

offshoring

The decision to have a third party perform a supply chain function is called

outsourcing

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

procurement

A third party increases the supply chain surplus if it aggregates the sourcing for many small players and facilitates economies of scale in ordering, inbound transportation and production. This is called

procurement aggregation

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

shared savings contract

The entire set of business processes required to purchase goods and services is

sourcing

The selection of suppliers, design of supplier contracts, product design collaboration, procurement of material, and evaluation of supplier performance are a part of

sourcing

Price has traditionally been the only dimension that suppliers have been compared on during the process of

supplier scoring and assessment

Using the output from supplier scoring and assessment to identify the appropriate suppliers is

supplier selection

Consider the factors influencing total cost and supplier performance. Which of the following is the LEAST quantifiable factor?

support

Scoring the performance of suppliers in terms of replenishment lead time thus allows the firm to evaluate the impact each supplier has on

the cost of holding safety inventory

Understanding the impact of incentives on the actions of a supply chain partner is especially important when

the third party's actions are not fully observable

Which contract increases the margin for the dealer as sales cross certain levels?

threshold contract

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.

The goal of procurement is

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

W.W. Grainger and McMaster Carr stock products from more than a thousand manufacturers each to sell to hundreds of thousands of customers and are sterling examples of

transportation aggregation by storage intermediaries

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?

two-part tariffs

An third party may increase the supply chain surplus by aggregating warehousing needs over several firms. This is called

warehouse aggregation

COGS represents

well over 50% of sales for most major manufacturers