SCM 421 Exam 1

If costs are 80% of sales (and profit is 20%), what is the amount of extra sales needed to equal $1,500 in profit from purchasing cost savings efforts?

$7,500

After bringing in a consultant to optimize processes, your company expects to be on a 65% learning curve. The first unit will take 150 seconds. How long will it take you to produce the 550th unit (round to the next full second)?

3 seconds

What is ROA if profit margin is 5% and asset turnover is 1.7?

8.5

A new production tool is purchased that will fix quality issues as well as increase output. As the company is new to the technology, they expect to benefit from a learning curve. It takes them 200 seconds to produce the first gizmo after the new machine has been installed and they expect to be on a 90% learning curve. How long is it going to take them to produce the 415th gizmo (rounded up to the next full second)?

80 seconds

Several conditions have to be met in order to have a valid contract. Which is not one of these conditions?

Absence of mutual assent

Which of the following statements about ethics is false? a. Accepting a small gift from a supplier can be labeled as unethical b. Unethical behavior can include behavior that is completely legal c. Almost all ethical standards apply to all companies d. Purchasing is probably the function that is most prone to unethical temptation e. As a buyer, you need to be aware of potential unethical behavior by the supplier

Almost all ethical standards apply to all companies

Which of the following is not a process that must be managed in the SCOR model?

Assess

What PO is used for recurring purchases and covering a longer period of time?

Blanket PO

What is purchasing's primary impact on the income statement (upper) portion of the strategic profit model?

COGS

When a contract is cancelled because the supplier violated contract terms, the buyer may cancel the contract. What is this type of cancellation called?

Cancellation for default

Example(s) of purchased materials that directly affect the customer experience is/are:

Car-seat material and cloth for a sweatshirt

If the buyer is a major shareholder of the supplier, this could be indicative of which unethical situation(s)?

Conflict of interest

What do purchasing cost reduction efforts tend to reduce?

Costs of goods sold

Which of the following is not one of the four steps top-notch sales people use to close a deal and keep customers happy?

Cultivate authoritative presence

What is the main pressure that purchasing professionals feel from internal customers—especially senior management—when making purchasing decisions?

Cutting costs

What type of sourcing organizational structure is known for distributing control to individual plants or business units?

Decentralized

What might flashlight and calculator manufacturers view smartphone manufacturers as?

Disruptors

Which certified supplier goods can bypass inspection and go straight to storage or an assembly line?

Dock-to-Stock

The Strategic Profit Model was developed by which company?

DuPont Chemical

President Obama issued an Executive Order in 2009 that all new contracts federal agencies sign are "green." To which bottom line does this refer?

Environmental bottom line

As a purchasing professional, you should spend a lot of time managing routine buys

False

Capital goods are small, frequently purchased, low-dollar buys.

False

On the strategic profit model, purchasing can only impact operating costs and taxes.

False

Purchased goods and services are typically a very small cost category

False

Purchasing and operations are so closely aligned they rarely have conflicts

False

Purchasing has always been considered a strategic, value-added function.

False

Sales personnel have no ability to impact the Strategic Profit Model.

False

Your goal as a purchasing professional should always be to get the lowest possible price

False

In managing internal relations, what is your main role as a purchasing professional?

Figure out how to work with and influence the members of the buying center

When solving disputes in buyer-supplier relationships, ________________ should be used as a last resort?

Going to court

Which is not one of the ways to promote ethical behavior? a. Top management commitment to ethics b. Having an ombudsman c. Ethical standards and guidelines d. Inconsistent behavior e. Rotating assignments

Inconsistent behaviors

Which of the following is not one of the advantages of a centralized sourcing structure?

Increased bureaucracy

That are the materials that do not go directly into the product, but rather facilitate its creation?

Indirect materials

A supplier telling the buyer that many customers have benefited a great deal from its vendor managed inventory (VMI) services is what type of influence tactic?

Information exchange

What's a possible disadvantage of forward-buying inventory in bulk?

Inventory costs will rise

The ___________________ is based on the simple idea that the time it takes to perform a task decreases as you gain experience with the task.

Learning curve

During WWII, there was increased emphasis on purchasing's importance due to which of the following:

Material Shortages

What is unauthorized buying by non-purchasing personnel called?

Maverick spending

What are retail chains large enough to buy directly from manufacturers called?

National Accounts

Where does every dollar saved in purchasing go straight to?

Operating Profit

What will be affected if purchasing pushes a just-in-time approach with suppliers?

Operations and inventory management

What is one trend that has helped to make purchasing strategic?

Outsourcing

Which documents must agree for the triple-match?

PO, invoice, and receiving report

When making decisions, if someone decides something because it will make others like or respect them more, they are most motivated by what type of benefits?

Personal benefits

The economic bottom line is concerned with ______________________ .

Profitability

In decentralized sourcing structures, decisions are made where the work is done. As a result, you can respond more quickly and effectively to local needs, unique requirements in a region, and unforeseen events. What powers this type of structure?

Proximity

How do internal customers formally communicate their needs to purchasing?

Purchase requisition

Which of the following is true for a typical manufacturer?

Purchased inputs are about 60-80% of COGS

Which of the following is/are true about the "Clerical Era?"

Purchasing personnel "placed and chased" orders

What's the connection between purchasing personnel and the gathering of competitive intelligence?

Purchasing personnel need to scan supply markets and work with suppliers to provide their company with vital competitive intelligence

What can suppliers be a source of?

Purchasing personnel should provide competitive intelligence to suppliers b. Vital innovation c. Defective inputs that can put your company's products at risk of being defective d. All of the above-- correct

For more specific feedback and understanding of how internal customers perceive purchasing performance, purchasing professionals should ask about what two dimensions?

Purchasing's services and purchasing's people

What is a potential conflict between purchasing and R&D?

R&D specifications may limit the supplier pool to one supplier, limiting purchasing's ability to negotiate the best deal

What is the form of competitive bidding where suppliers bid on the contract on-line in real-time?

Reverse auction

Based on Toyota's experience, ____________________ should be an important consideration in a thorough spend analysis.

Risk assessment

Aggregating spend with a smaller number of suppliers drives supplier efficiencies, reducing suppliers costs and passing savings on to the customer. Where do these cost savings come from?

Scale economies and Learning effects

How might a purchasing manager influence his company's corporate social responsibility reputation?

Selecting an international supplier who pays high wages and treats employees well

The tragedy that happened at one of Apple's suppliers, Foxconn, in 2010, when several workers committed suicide, calls importance to which bottom line?

Social bottom line

To identify the right organizational structure for your firm, which of the following needs to be done?

Spend analysis

Which of the following is not one of the three facts you were asked to consider while learning how to organize purchasing to create value?

Suppliers are complex

What does it mean to say "organizational boundaries are blurred" from a purchasing perspective?

Suppliers provide innovation, not just goods and services

Which of the seven "rights" of purchasing is the most important?

The "right" supplier

Which of the following would suggest a highly complex buying market?

The technology of the purchased input is constantly changing

What is the total cost of buying, using, and disposing of an item called?

Total Cost of Ownership

A dollar saved in purchasing nearly always has a greater impact on profit than an additional dollar of sales revenue.

True

Buying a larger quantity than you need to get a price break might cause additional problems, so do this with caution

True

Not all buys are created equal; you should spend more time and effort on some purchases than others.

True

Purchased goods and services are typically a firm's largest cost category.

True

The SCOR model was created to provide a common vision of SCM for any company.

True

The purchasing process consists of four key steps: need communication, supplier selection, transaction management, relationship management

True

_______ powers the centralized sourcing structure. Because everything happens in one central location, you know what your spend looks like.

Visibility

Which conflict first brought a significant change in how purchasing was perceived?

WWII

Why should purchasing personnel pay better attention to MRO purchases?

When combined, MRO purchases often represent a large dollar spend

What is one challenge in buying capital goods?

You often need to speak "engineering" and understand complex specifications

You buy plastic parts that go into your company's finished product. Your CEO just asked you a question about oil market prices. What would your thoughts be about his question?

You should be making an effort to understand oil prices, since oil is a crucial input to your supply market

Which of the following is characteristic of a high importance buying category?

You spend a lot of money on this purchased input and the input has a large impact on the customer experience

As a buying agent, whose "best interest" should you have in mind?

Your employer's best interest

You've been buying a small amount of standard material from a local supplier for 20 years. The supplier factory suddenly burns down, forcing you to buy the item from a supplier halfway around the world, with whom you have never done business. What just happened?

Your routine item has probably become a bottleneck

Which of the following is a direct material?: a. Cardboard for cereal boxes b. Stamping machine in an auto-parts factory c. Copier paper d. Landscaping services for corporate headquarters e. All of the above

a. Cardboard for cereal boxes

What can bargaining too aggressively on price result in?

a. Long-term cost increases b. Angry and resentful suppliers c. A supplier going out of business d. Lower quality and innovation e. All of the above-- Correct

Which is not one of the conditions for a valid contract? a. Purchase price reductions b. Consideration c. Meeting of the minds d. Offer e. Legal subject matter f. Neither Consideration nor Legal subject matter

a. Purchase price reductions

Services can be challenging to buy because

a. They are intangible b. It's hard to know what you are actually getting or to evaluate quality c. They are hard to classify - can be direct or indirect d. All of the above.-- Correct

Which one of the following is not an advantage of contract management software (CMS)? a. CMS brings visibility to contracts b. CMS offers templates with which contracts can be easily generated c. CMS alerts you once contract conditions have been met—or if they haven't d. CMS can be costly to implement e. CMS enhances the monitoring of your contracts

b. CMS offers templates with which contracts can be easily generated

Which of the following statements are true? a. Suppliers can be reliable, but rarely provide innovation b. Suppliers can be a crucial source of innovation c. Innovation from suppliers is always higher-risk than innovation from within the company d. Innovation has nothing to do with suppliers one way or another e. Innovation is best left to R&D and marketing; as a purchasing professional, you have no interest in it

b. Suppliers can be a crucial source of innovation

The strength of a CMS lies in it having a __________________.

central repository for all contracts

Why is a leverage item called a leverage item? a. This item is typically purchased through debt financing b. The supply market is incredibly complex c. Suppliers can basically force you to accept their terms d. Your purchasing power and multiple supplier options means you can demand (and get) the best deals from suppliers e. You spend very little money on it

d. Your purchasing power and multiple supplier options means you can demand (and get) the best deals from suppliers

What happens in sales & operations planning?

diverse functions come together to forecast how much the company will sell, and how much it needs to make

The environmental bottom line is concerned with ______________________ .

harming the environment as little as possible

Which category is high-importance, but low market complexity?

leverage

How does purchasing add value to operations?

lowers costs by choosing suppliers with reasonable prices and high quality

Although most spend documentation looks backward to see what has been purchased, you should be proactive and match future spend to _______, _______, and _______ plans.

product, market, and technology

What do return on assets (ROA) equal?

profit margin x asset turnover

The social bottom line is concerned with ______________________ .

safe working conditions

_______________ are the cost advantages that come with larger-scale production.

scale economies

The process for making spend visible is called?

spend documentation

What does the profit-leverage effect measure?

the amount of sales needed to have the equivalent profit impact as a dollar of cost savings

What is purchase price variance?

the price difference between the amount that you pay a supplier to buy a product and the budgeted price for the product

Which two tactics can be considered as coercive?

threats and promises

The __________________ cannot be ascertained from any single source—even at the category level.

total spend

It makes a lot of sense to build strategic partnerships with suppliers of critical items.

true