Purchasing - Chapter 9

The remaining suppliers in a rationalized and optimized supply base are seldom capable of performing additional tasks or providing other products and services that add value to the buyer-supplier relationship.

False

The supplier performance index (SPI) always provides a complete or accurate assessment of supplier performance.

False

There is only one common approach to supply base rationalization and optimization.

False

Weighted-point supplier evaluation systems are very inflexible because the user cannot change the weights assigned to each performance category or the actual performance categories themselves.

False

Which of the following is not a typical qualitative service factor in a supplier performance measurement system? a. Problem resolution ability. b. Technical ability. c. Process capability. d. Ongoing progress reporting. e. Wavelength.

c. Process capability.

The _____ is a normalization factor for the supplier performance index (SPI) that eliminates high-dollar lot bias. a. Cp b. MRO c. Q adjustment factor d. Cpk e. Rfx

c. Q adjustment factor

Pursuing supplier development activities directly with suppliers is both quick and easy.

False

Short-term purchase contracts that award small volumes of business to multiple suppliers decrease production costs and provide incentive for individual supplier investments in process improvement.

False

Supplier performance that is sufficient today should be competitive in the marketplace of tomorrow.

False

Supplier rationalization and optimization should be a one-time activity.

False

Sustainability reflects only the importance of strategic environmental practices of an organization's suppliers but not the management of social responsibility in the supply base.

False

The administrative cost of maintaining 5,000 suppliers will be dramatically lower than the cost of maintaining a core group of 500 highly qualified suppliers.

False

The elimination of both marginal and small-purchase-volume suppliers is usually the last phase of the rationalization process.

False

Scenario analysis is technically considered forecasting and attempts to explore and prepare for possible future scenarios that may have a significant negative impact on the costs and operations of an organization.

False

A buyer should delay reporting a supplier's poor performance until the next annual performance review.

False

A single source can never deliver cost and quality improvements over the life of a contract even if a buyer manages that supplier effectively.

False

All buyers are encouraged to engage in currency hedging activities, regardless of their level of experience.

False

All organizations need to pursue supplier development.

False

Buyers cannot move too aggressively when reducing the supply base.

False

Buyers rarely rely on suppliers for cost-reduction assistance.

False

Certain risks, such as those arising from war, piracy, and losses attributable to delays in transit, are generally covered by standard insurance policies.

False

Few international shipments of merchandise require insurance coverage.

False

If a supplier's product or service is deemed routine to the buyer, it should then be considered for supplier development.

False

Maintaining small quantities of inventory has been the traditional methods of dealing with supply base risk.

False

Scenario planning begins with the creation of viable working strategies and plans that would allow managers to respond quickly in the event that a specific risk scenario should actually come about.

False

A large supply base means the duplication of a wide range of supply management activities, adding to acquisition cost without a corresponding increase in value added to the customer.

True

A smaller supplier with limited capacity for growth may need to eliminate some existing customers to meet the increased requirements of a larger customer.

True

All supplier measurement systems have some element of subjectivity.

True

Buyers can minimize supply disruption risk from a single suppler by selecting a supplier with multiple production facilities.

True

Central to the design of all supplier measurement systems is the decision about what to measure and how to weight various performance categories.

True

Considering the cost-based supplier evaluation system, the actual cost per nonconformance event may be difficult to estimate or calculate, as many traditional cost accounting systems are not designed to identify and capture such data.

True

Direct involvement in a supplier's operations by buyer personnel is the most challenging part of any supplier development process.

True

During the early phases of supply base rationalization and optimization, the process usually results in an absolute reduction in the total number of suppliers.

True

In an absence of competition situation, a supplier may hold the buyer hostage by unduly raising prices without justification or becoming too complacent, particularly when there are higher switching costs.

True

In supplier development, the supplier must be convinced that it is in the supplier's own best interest to accept the buyer's direction and technical assistance.

True

Maintaining multiple suppliers for each item can actually increase the probability and level of supply base risk.

True

Many buyers have now concluded that, if they select suppliers carefully and develop close and collaborative working relationships with fewer suppliers, supply risk can actually decrease.

True

Multiple sourcing can add quality variability to the sourced product because of the use of different materials, manufacturing techniques, and processes.

True

Overall reduction in material usage and disposal can be accomplished through engineering design changes and reuse and recycle programs.

True

Regarding supply base risk, every sourcing decision will be different and must be carefully evaluated regarding its own particular situation.

True

Supplier performance measurement differs somewhat from the process used to initially evaluate and select a supplier as it is a continuous process as opposed to a unique, one-time event.

True

Suppliers are sometimes not willing to accept outside help in the form of supplier development, either because they are too proud to accept help or because they do not see the value in improving quality or delivery performance.

True

Supply base rationalization and optimization often involves eliminating those suppliers who are unwilling to achieve (or are incapable of achieving) supply management performance objectives, either currently or expected in the near future.

True

The buyer and the supplier must agree on how to divide or share the costs and benefits from the supplier development project.

True

The categorical approach to supplier evaluation is commonly used by smaller organizations because it is both easy and relatively inexpensive to implement.

True

The cost-based system is the most thorough and least subjective of the three supplier performance measurement systems.

True

The prime reason for hedging is to protect the buyer against major swings in the value of a future purchase.

True

All of the following are common contingency management tools that can be effectively used at the tactical level to assist the supply manager in identifying, analyzing, reducing, and monitoring supply base risk except _____. a. single sourcing b. inventory c. automated visibility and early warning systems d. use of third party intermediaries e. scenario analysis

a. single sourcing

The supplier performance index (SPI) equals (_____ plus _____) divided by _____. a. Total Purchases....Nonperformance Costs....Total Purchases b. Nonperformance Costs....Total Purchases....Nonperformance Costs c. Total Purchases....Appraisal Costs....External Failure Costs d. External Failure Costs....Internal Failure Costs....Total Purchases e. TransportationCosts....Appraisal Costs....Prevention Costs

a. Total Purchases....Nonperformance Costs....Total Purchases

The _____ provides all suppliers, regardless of their performance history, a chance to remain in the supply base. a. "improve or else" approach b. triage approach c. competency staircase approach d. twenty/eighty rule e. Six Sigma approach

a. "improve or else" approach

Which of the following is not one of the advantages of a rationalized and optimized supply base? a. Longer lead-times. b. Use of full-service suppliers. c. Lower total product cost. d. Ability to pursue complex supply management strategies. e. Buying from world-class suppliers.

a. Longer lead-times.

Which of the following is not a supplier-specific barrier to supplier development? a. No immediate benefit to supplier development is evident in the buying organization. b. Lack of commitment on the part of supplier's management. c. Supplier's management agrees to improvements but fails to implement the proposals. d. Supplier lacks engineering resources to implement solutions. e. Supplier lacks employee skill base to implement solutions.

a. No immediate benefit to supplier development is evident in the buying organization.

_____ involves a detailed analysis of the supply base to ensure that only the most capable and highest performing suppliers are kept in the supply base after it is rationalized. a. Supply base optimization b. Outsourcing c. Strategic sourcing d. Supply base reduction e. Supply base management

a. Supply base optimization

According to ISM, _____ is defined as the ability to meet current needs without hindering the ability to meet the needs of future generations in terms of economic, environmental, and social challenges. a. Sustainability b. Scenario analysis c. Social responsibility d. Supply chain risk management e. Standardization

a. Sustainability

Which of the following is a disadvantage of a weighted-point supplier evaluation system? a. Tends to focus on unit price. b. Most complex, so implementation costs are high. c. Most subjective. d. Least reliable. e. Cost accounting system required.

a. Tends to focus on unit price.

Which of the following is a disadvantage of a categorical supplier evaluation system? a. Least reliable. b. Cost accounting system required. c. Less frequent generation of evaluations. d. Most subjective. e. Usually manual.

b. Cost accounting system required.

Which of the following is a disadvantage of a cost-based supplier evaluation system? a. Least reliable. b. Most complex so implementation costs are high. c. Less frequent generation of evaluations. d. Most subjective. e. Tends to focus on unit price.

b. Most complex so implementation costs are high.

In overcoming the barriers to supplier development, which of the following is not one of the approaches typically used? a. Direct-involvement activities. b. Single sourcing. c. Incentives and rewards. d. Warnings and penalties. e. All of the above are typical approaches.

b. Single sourcing.

_____ is the process of identifying how many and which suppliers a buyer will maintain. a. Supply base optimization b. Supply base rationalization c. Six Sigma d. Zero defects e. Strategic sourcing

b. Supply base rationalization

If a/an _____ currency is utilized, the _____ bears the currency risk and is likely to build in additional contingency costs to cover its unknown risk. a. supplier's...supplier b. buyer's...supplier c. buyer's...buyer d. supplier's...buyer e. Regardless of the currency chosen, both parties share the currency risk equally.

b. buyer's...supplier

The _____ requires suppliers to successfully navigate a successive series of performance milestones or hurdles in order to remain in the supply base. a. triage approach b. competency staircase approach c. M*A*S*H approach d. "improve or else" approach e. twenty/eighty rule

b. competency staircase approach

In _____, a buyer selects or develops suppliers with multiple or redundant capabilities. a. single sourcing b. cross-sourcing c. global sourcing d. strategic sourcing e. sole sourcing

b. cross-sourcing

Which of the following is not one of the formal approaches to supply base rationalization? a. Twenty/eighty rule. b. "Improve or else" approach. c. Global sourcing. d. Triage approach. e. Competency staircase approach.

c. Global sourcing.

Which of the following is not a typical supplier development activity? a. Providing incentives to suppliers for improved performance. b. Promoting competition among suppliers. c. Raising prices paid for purchased goods and services. d. Directly involving buyer personnel with suppliers. e. Conducting training and process improvement initiatives.

c. Raising prices paid for purchased goods and services.

. The _____ supplier evaluation system seeks to identify and quantify the total cost of doing business with a given supplier, as the lowest purchase price may not always result in the lowest total cost for an item or service. a. Six Sigma b. zero defects c. cost-based d. categorical e. weighted-point

c. cost-based

All of the following are elements of market risk in a supply base except _____. a. the number of buyers competing for the same goods or source of supply b. increasingly shorter product life cycles c. regional political risk d. threat of emerging, often disruptive, technologies e. protecting and maintaining trade secrets and intellectual properties from misuse or misappropriation by suppliers, particularly those located overseas

c. regional political risk

Which of the following is not one of the typical uses of supplier measurement data? a. Supporting supply base rationalization and optimization. b. Identifying those highly capable suppliers that may qualify for consideration of longer-term partnerships or designation as preferred suppliers. c. Identifying those suppliers that are not performing at expected levels so that appropriate remedial or development actions can be taken. d. Deciding where to locate supplier facilities. e. Determining a supplier's future purchase volume based on its past performance.

d. Deciding where to locate supplier facilities.

_____ in a supply base consists of such factors as: country stability, regional stability, political and governmental stability, levels of official corruption, dissimilarities regarding contract law and intellectual property rights, elections, military actions, civil disturbances, terrorism, trade balance issues, and customs duties and tariffs. a. Financial risk b. Market risk c. Supplier company risk d. Political risk e. Sourcing risk

d. Political risk

_____ can be defined as how supply chain members communicate and collaborate regarding sources of risk, utilizing risk management tools to mitigate and minimize risk and uncertainty across the supply chain. a. PERT/CPM b. Scenario analysis c. Hedging d. SCRM e. None of the above.

d. SCRM

_____ allows a buying organization to react more quickly when supply chain risk events occur by already having previously prepared plans and proposed responses in place in advance of the actual risk event. a. Hedging b. Use of third party intermediaries c. Multiple sourcing d. Scenario analysis e. None of the above.

d. Scenario analysis

_____ is any activity undertaken by a buyer to improve a supplier's performance or capabilities to meet the buyer's short- and long-term supply needs. a. Supply base rationalization b. The twenty/eighty rule c. Supply base optimization d. Supplier development e. Six Sigma

d. Supplier development

Which of the following is not one of the management uses for the data derived from a comprehensive cost-base supplier evaluation system? a. Such a system provides the necessary information that allows a buyer to justify buying from a preferred supplier despite a higher unit price. b. The system allows a buyer to communicate the cost of specific nonperformance events to the originating supplier, which then helps identify improvement opportunities. c. Quantifying nonconformance costs can result in a chargeback to the offending supplier for unplanned costs. d. The system allows customized assignment of cost accounting codes depending on how much money is left in the annual budget. e. A buyer can use this data to identify longer-term sources of supply based on a supplier's total cost performance history.

d. The system allows customized assignment of cost accounting codes depending on how much money is left in the annual budget.

All of the following are possible risks of maintaining fewer suppliers except _____. a. supplier dependency b. supply disruption c. overaggressive supply reduction d. maintaining an all-foreign supply base e. absence of competition

d. maintaining an all-foreign supply base

According to ISM, _____ is a framework of measurable corporate policies and procedures and resulting behavior designed to benefit the workplace and, by extension, the individual, the organization, and the community. a. supply chain risk management b. sustainability c. ISO 9000:2008 d. social responsibility e. supplier development

d. social responsibility

All of the following are advantages of a weighted-point supplier evaluation system except _____. a. flexible system b. supplier ranking allowed c. moderate implementation costs d. total cost approach e. quantitative and qualitative factors combined into a single system

d. total cost approach

The _____ requires the systematic evaluation of the performance of individual suppliers and ultimate placement into one of three categories. a. twenty/eighty rule b. competency staircase approach c. "improve or else" approach d. triage approach e. zero defects approach

d. triage approach

Which of the following is not one of the advantages of a rationalized and optimized supply base? a. Buying from world-class suppliers. b. Use of full-service suppliers. c. Lower supply base administrative costs. d. Reduction of supply base risk. e. Absence of competition.

e. Absence of competition.

Which of the following is not one of the elements of financial risk in a supply base? a. Inventory carrying costs. b. Currency exchange rates. c. INCOTERMS d. Hard vs. soft currencies. e. Legal systems.

e. Legal systems.

Which of the following is not a buyer-specific barrier to supplier development? a. The buying company's purchase volume from the supplier does not justify development investment. b. No immediate benefit to supplier development is evident to the buying organization. c. Lack of executive support within the buying organization for supplier development. d. Importance of purchased item does not justify development efforts. e. Supplier's management agrees to improvement but fails to implement the proposals.

e. Supplier's management agrees to improvement but fails to implement the proposals.

In supplier measurement, the basic logic of the _____ is built around the calculation of a/an _____. a. categorical system...supplier performance index b. cost-based system...process capability index c. weighted-point system...Q adjustment factor d. weighted-point system...cost accounting system e. cost-based system...supplier performance index (SPI)

e. cost-based system...supplier performance index (SPI)

All of the following are general categories of supply base risk except _____. a. political risk b. market risk c. sourcing risk d. financial risk e. employee hiring risk

e. employee hiring risk

All of the following are advantages of a cost-based supplier evaluation system except _____. a. total cost approach b. specific areas of supplier nonperformance identified c. objective supplier ranking d. greatest potential for long-range improvement e. good for firms with limited resources

e. good for firms with limited resources

All of the following are advantages of a categorical supplier evaluation system except _____. a. easy to implement b. requires minimal data c. different personnel can contribute d. low-cost system e. greatest potential for long-range improvement

e. greatest potential for long-range improvement

The _____ identifies those 20 percent of suppliers receiving the bulk of purchase spend or that minority of suppliers that cause the most quality problems. a. "improve or else" approach b. triage approach c. strategic sourcing approach d. competency staircase approach e. twenty/eighty rule

e. twenty/eighty rule