Chapter 11: Supply Chain Management
What are the four stages of supplier selection?
!) Supplier Evaluation 2) Supplier Development 3) Negotiations 4) Contracting
What are the three classic types of negotiation strategies?
!) The Cost-Based Price Model 2) The Market-Based Price Model 3) Competitive Bidding
Prior to embarking on supply chain design, operations managers must first consider: A) How to select suppliers. B) "Make-or-buy" and outsourcing decisions. C) How to manage supply chain inventory. D) What kind of distribution network to have.
"Make-or-buy" and outsourcing decisions.
Baker Mfg Inc. wishes to compare its inventory turnover to those of industry leaders, who have turnover of about 13 times per year and 8% of their assets invested in inventory. Baker Mfg. Inc. Net Revenue $27,500 Cost of sales $21,890 Inventory $1,280 Total assets $17,540 A) What is Baker's inventory turnover? ___ times per year (round your response to two decimal places). B) What is Baker's percentage of assets committed to inventory? ____ (enter your response as a percentage rounded to two decimal places). C) How does Baker's performance compare to the industry leaders? ___
17.10; 7.30%; Better
How many days of raw-material inventory does Regal Marine maintain? A) 10 days B) 75 days C) 1 day D) 22 days
22 days
Arnold Palmer Hospital utilizes a 3 tiered supply chain for some medical needs. How many tiers are involved for their surgical packs? Part 2 A) 1 B) 7 C) 15 D) 3
3
How many unique supply chains does Darden use? A) 9 B) 1 C) 4 D) 19
4
Keiretsu
A Japanese term that describes suppliers who become part of a company coalition.
Make-or-Buy Decision
A choice between producing a component or service within the firm or purchasing it from an outside source.
Blanket Order
A long-term purchase commitment to a supplier for items that are to be delivered against short-term releases to ship.
A supply chain ends with: A) Distributors. B) Manufacturers. C) Suppliers. D) A satisfied customer.
A satisfied customer.
Supply Chain Operations Reference (SCOR) Model
A set of processes, metrics, and best practices developed by the Supply Chain Council.
Closed-Loop Supply Chain
A supply chain designed to optimize all forward and reverse flows.
Vendor-Managed Inventory (VMI)
A system in which a supplier maintains material for the buyer, often delivering directly to the buyer's using department.
Collaborative Planning, Forecasting, and Replenishment (CPFR)
A system in which members of a supply chain share information in a joint effort to reduce supply chain costs.
Channel Assembly
A system that postpones final assembly of a product so the distribution channel can assemble it.
Pull Data
Accurate sales data that initiate transactions to "pull" product through the supply chain.
Disney left Bangladesh: A) After a phase-out period. B) Immediately after the collapse. C) A few months after the fire. D) None of the above—it never left.
After a phase-out period.
Which of the following mitigation tactics is NOT designed to reduce the risk of information loss or distortion? A) Alternate sourcing B) Redundant databases C) Secure IT systems D) Training of supply chain partners on the proper interpretations and use of information
Alternate sourcing
Logistics Management
An approach that seeks efficiency of operations through the integration of all material acquisition, movement, and storage activities.
What is the equation to calculate weeks of supply?
Average Inventory Investment/(Annual Cost of Goods Sold/52 Weeks)
Which of the following statements is NOT true? A) "Closed-loop supply chain" is sometimes used as a synonym for "reverse logistics." B) A closed-loop supply chain is a designed to optimize only reverse flows. C) A closed-loop supply chain prepares for returns prior to product introduction. D Reverse logistics involves the processes of sending returned products back up the supply chain for resale, repair, reuse, remanufacture, recycling, or disposal.
A closed-loop supply chain is a designed to optimize only reverse flows.
What does supply chain integration success begin with?
Begins with mutual agreement on goals, followed by mutual trust, and continues with compatible organizational cultures.
What is a long-term purchase commitment to a supplier for items that are to be delivered against short-term releases to ship? A) Postponement B) Advanced shipping notice C) Blanket order D) Drop shipping
Blanket order
Regal Marine's supply chain strategy might best be described as: A) A series of joint ventures with major suppliers. B) A version of vertical integration. C) An effort at long-term partnering relationships with suppliers. D) Effective direct negotiating with many suppliers to obtain the best price.
C) An effort at long-term partnering relationships with suppliers.
Major companies can protect their reputations when global supply chains are so complex by: A) Phasing out all foreign production. B) Carefully examining each and every supplier. C) Rebuilding all the factories with higher safety codes. D) Refusing to do business with companies that use South Asian workers.
Carefully examining each and every supplier.
Which of the following could reduce distribution risk? A) Use multiple suppliers B) Secure IT systems C) Cross-country diversification D) Careful selection, monitoring and effective contracts with penalties
Careful selection, monitoring and effective contracts with penalties
What is a supply chain designed to optimize both forward and reverse flows? A) Bullwhip-loop supply chain B) Closed-loop supply chain C) Reverse-loop supply chain D) Open-loop supply chain
Closed-loop supply chain
Virtual Companies
Companies that rely on a variety of supplier relationships to provide services on demand. Also known as hollow corporations or network companies.
What is the equation for inventory turnover?
Cost of Goods Sold/Average Inventory Investment
Inventory Turnover
Cost of goods sold divided by average inventory.
The cost to produce the goods or services sold for a given period is referred to as: A) Weeks of supply. B) Inventory investment. C) Cost of goods sold. D) Inventory turnover.
Cost of goods sold.
Inventory turnover is equal to: A) Inventory investment / (annual cost of goods sold / 52 weeks). B) Cost of goods sold / inventory investment. C) (total inventory investment / total assets)×100. D) (total assets / total inventory investment)×100.
Cost of goods sold / inventory investment.
Which of the following statements about Darden restaurants is true? A) Darden serves more than 500 million meals annually in over 2,450 locations across the U.S. and Canada. B) Darden's two flagship brands each generate sales in the $3.4 billion range each year. C) The two flagship brands for Darden are Olive Garden and Outback Steakhouse. D) Darden is the world's largest publicly traded casual dining restaurant company based on market share and company-owned restaurant revenues. E) All of the above statements are true.
Darden is the world's largest publicly traded casual dining restaurant company based on market share and company-owned restaurant revenues.
Which of the following statements is NOT generally an implication stemming from an increase in the number of facilities? A) Decreased total logistics cost B) Quicker response C) Increased facility costs D) Increased customer satisfaction
Decreased total logistics cost
Bullwhip Effect
Increasing fluctuation in orders or cancellations that often occurs as orders move through the supply chain.
What does typical supply chain benchmark metrics include?
Lead time, time spent placing an order, percent of late deliveries, percent of rejected material, and number of shortages per year.
What are the three issues that complicate the development of an efficient, integrated supply chain?
Local optimization, incentives, and large lots.
Supply Chain Management
Management of activities related to producing materials and services, transforming them into intermediate goods and final products, and delivering them through a distribution system.
How many babies are delivered annually at Arnold Palmer Hospital? A) Under 9,000 B) Over 10,000 C) Over 100,000 D) Under 7,000
Over 10,000
What types of ethics do we consider?
Personal ethics, ethics within the supply chain, and ethical behavior regarding the environment.
What are the five parts of the SCOR model?
Plan, Source, Make, Deliver, and Return.
Disney's decision to leave these 5 countries vs. staying and trying to improve conditions: A) Is based strictly on profits and losses. B) Reflects an anti-third world bias. C) Relied on a third party evaluation. D) All of the above.
Relied on a third party evaluation.
Arnold Palmer Hospital's approach to supply chains is: A) Developing a series of joint ventures with major suppliers. B) Pursuing a long term partnering relationships with suppliers. C) Serving as a member of a long term regional purchasing organization. D) Effectively direct negotiating with many suppliers to obtain the best price.
Serving as a member of a long term regional purchasing organization.
Drop Shipping
Shipping directly from the supplier to the end consumer rather than from the seller, saving both time and reshipping costs.
Which of the following is NOT true about reverse logistics as compared to forward logistics? A) Distribution costs are less directly visible. B) Forecasting is more uncertain. C) Pricing is dependent on many factors. D) Speed is often very important.
Speed is often very important.
Which of the following is the first stage of supplier selection? A) Negotiations B) Supplier evaluation C) Supplier development D) Contracting
Supplier evaluation
Why will some production never return to Thailand? A) Because China and the Philippines can produce more efficiently and cheaply. B) To protect from earthquakes. C) Thailand lacks the skill to produce relay switches. D) To protect from flooding.
To protect from flooding.
Disk drive makers are heading to Malaysia: A) To avoid inflation in Thailand. B) To counter competition from China. C) Because U.S. customers are demanding the move. D) To spread the risk of placing all their manufacturing in one country.
To spread the risk of placing all their manufacturing in one country.
Regal Marine's purchases are what percent of its sales? A) 5% B) 15% C) 60% D) 10%
60%
What is the equation for the percentage invested in inventory?
(Average Inventory Investment/Total Assets) x 100
What are six supply chain strategies for goods and services to be obtained from outside sources?
1) Negotiating with many suppliers and playing one supplier against another. 2) Developing long-term partnering relationships with a few suppliers. 3) Vertical integration. 4) Joint ventures. 5) Developing keiretsu networks. 6) Developing virtual companies that use suppliers on an as-needed basis.
What are the six major means of distribution?
1) Trucking 2) Railroads 3) Airfreight 4) Waterways 5) Pipelines 6) Multimodal.
The grocery industry has an annual inventory turnover of about 16 times. Organic Grocers, Inc., had a cost of goods sold last year of $11,280,000; its average inventory was $989,610. What was Organic Grocers' inventory turnover, and how does that performance compare with that of the industry? A) What was Organic Grocers' inventory turnover? ___ times per year (round your response to two decimal places). B) How does Organic Grocers' performance compare with that of the industry? It ___ than the industry.
11.40; worse than
Arrow Distributing Corp. likes to track inventory by using weeks of supply as well as by inventory turnover. Arrow Distributing Corp. Net Revenue $17,910 Cost of sales $12,030 Inventory $990 Total assets $9,400 S) What is its weeks of supply? ____ weeks (round your response to two decimal places). B) What percentage of Arrow's assets are committed to inventory? ____% (enter your response as a percentage rounded to two decimal places). C) What is Arrow's inventory turnover? ____ times per year (round your response to two decimal places). D) Suppose a manufacturer has an inventory turnover of 13.5 times per year. Arrow's supply chain performance relative to the manufacturer's, as measured by inventory turnover, is ___.
4.28; 10.53%; 12.15; worse
Which of the following statements is NOT true? A) The objective of supply chain management is to coordinate activities within the supply chain to maximize the supply chain's competitive advantage and benefits to the ultimate consumer. B) Supply chain management describes the coordination of all supply chain activities, starting with raw materials, and ending with a satisfied customer. C) An increased sales effort may help a firm reach its profit goals more easily than would effective cost cutting. D) A supply chain includes suppliers; manufacturers and/or service providers; and distributors, wholesalers, and/or retailers who deliver the product and/or service to the final customer.
An increased sales effort may help a firm reach its profit goals more easily than would effective cost cutting.
Which of the following statements about Darden restaurants is true? A) Darden's two flagship brands each generate sales in the $3.4 billion range each year. B) Darden is the world's largest publicly traded casual dining restaurant company based on market share and company-owned restaurant revenues. C) Darden serves more than 500 million meals annually in over 2,450 locations across the U.S. and Canada. D) The two flagship brands for Darden are Olive Garden and Outback Steakhouse. E) All of the above statements are true.
Darden is the world's largest publicly traded casual dining restaurant company based on market share and company-owned restaurant revenues.
Postponement
Delaying any modifications or customization to a product as long as possible in the production process. It strives to minimize internal variety while maximizing external variety.
Vertical Integration
Developing the ability to produce goods or services previously purchased or actually buying a supplier or a distributor.
Supply chain managers outsource logistics to meet three goals: A) Drive down inventory investment, lower delivery costs, and improve delivery reliability and speed. B) Lower delivery costs, improve delivery reliability and speed, and provide better market response. C) Drive down inventory investment, improve delivery reliability and speed, and provide better market response. D) Drive down inventory investment, lower delivery costs, and provide better market response.
Drive down inventory investment, lower delivery costs, and improve delivery reliability and speed.
Which of the following statements is NOT true? A) Finding the optimal number of facilities represents a critical and static decision. B) An effective supplier management program and an effective distribution management program may make the difference between supply chain success and failure. C) Top-notch supply chain performance requires good downstream management, just as it does good upstream management. D) Packaging and logistics are important distribution decisions, because the manufacturer is usually held responsible for breakages and serviceability.
Finding the optimal number of facilities represents a critical and static decision.
Single-Stage Control of Replenishment
Fixing responsibility for monitoring and managing inventory for the retailer.
The advantage of having few suppliers is to: A) Pursue low cost. B) Look for short-term attributes. C) Take advantage of diseconomies of scale. D) Form a long-term relationship.
Form a long-term relationship.
Which of the following statements is NOT one of the response strategy decisions? A) Use buffer stocks to ensure speedy supply B) )Fast transportation C) Low setup time D) Gather and communicate market research data
Gather and communicate market research data
What is the name of the alliance formed by Arnold Palmer Hospital and seven other hospitals to improve supply chain performance? A) Health Care Supply Association B) Liberty Medical C) Health Care Purchasing Alliance D) Quality Medical
Health Care Purchasing Alliance
Which of the following is NOT one of the benefits accrued from a centralized purchasing function? A) Devote more resources to the supplier selection and negotiation process. B) Leverage purchase volume for better pricing. C) Maintain professional control over the purchasing process. D) Increase the duplication of tasks.
Increase the duplication of tasks.
How is cash-to-cash cycle time computed? A) Inventory days of supply + days of payables outstanding − days of receivables outstanding B) Days of receivables outstanding + days of payables outstanding − inventory days of supply C) Inventory days of supply + days of receivables outstanding − days of payables outstanding D) Inventory days of supply + days of receivables outstanding + days of payables outstanding
Inventory days of supply + days of receivables outstanding − days of payables outstanding
Negotiations
Involve approaches taken by supply chain personnel to set prices.
Supplier Evaluation
Involves finding potential vendors and determining the likelihood of their becoming good suppliers.
Third-Party Logistics
Involves the outsourcing of the logistics function.
Airfreight: A) Is the best way to transport natural gas. B) Is the oldest means of freight transportation. C) Represents about 10% of the tonnage shipped in the United States. D) Is a fast-growing mode of shipping.
Is a fast-growing mode of shipping.
Trucking: A) Is increasingly using computers to manage its operations. B) Does not play a role in multimodal shipping. C) Is the least used transportation mode for manufacturing goods. D) Is one of the least flexible transportation modes.
Is increasingly using computers to manage its operations.
Which negotiation strategy bases price on a published, auction, or index price? A) Cost-based price model B) Competitive bidding C) Supply-based price model D) Market-based price model
Market-based price model
Supplier Development
May include everything from training, to engineering and production help, to procedures for information transfer.
The building collapse in Bangladesh was: A) Not the first safety violation Disney observed. B) Disney's fault. C) Not of concern to Disney and other buyers. D) A rare breakdown that caused many deaths.
Not the first safety violation Disney observed.
The advantage of having many potential suppliers is their willingness to: A) Provide innovations. B) Offer lower prices in the short term. C) Participate in JIT. D) Provide technical expertise.
Offer lower prices in the short term.
What is transferring a firm's activities that have traditionally been internal to external suppliers? A) Outsourcing B) Keiretsu network C) Make-or-buy D) Vertical integration
Outsourcing
Three common measures of supply chain performance are: A) Percentage invested in inventory, inventory turnover, and debt/equity ratio. B) Percentage invested in inventory, debt/equity ratio, and weeks of supply. C) Debt/equity ratio, inventory turnover, and weeks of supply. D) Percentage invested in inventory, inventory turnover, and weeks of supply.
Percentage invested in inventory, inventory turnover, and weeks of supply.
Which of the following industries has the highest supply chain cost as a percentage of sales? A) Petroleum B) Metals C) Restaurants D) Automobile
Petroleum
The do-it-yourselfer plucked a gallon can of base paint from the shelf of the local hardware store and handed it to Keith, the cheerful clerk at the paint counter. Their eyes met briefly and the do-it-yourselfer silently handed over sample 150C-1, Musical Mist, to the clerk. It was impractical to keep several gallons of every possible color on the shelves at the hardware store, so the paint manufacturer had created clever workaround. The workaround was a computer-based system that added predetermined quantities of pigments to a gallon can of base paint depending on the desired shade, in this case, Musical Mist. The hardware store now needed to stock only the base paint, this machine, and a small supply of paint pigments in order to create the thousands of colors in its catalog. This scenario is a prime example of: A) The bullwhip effect. B) Postponement. C) Drop shipping. D) Vendor-managed inventory.
Postponement.
With regard to the cost-based price model negotiation strategy, which of the following is true? A) Prices are based in some way upon market standards agreed to by both supplier and purchaser. B) Potential suppliers each submit quotations as to price, delivery, and so on. C) Prices float based on what the customer is willing to pay. D) Prices are based upon supplier costs.
Prices are based upon supplier costs.
What do firms spend a huge portion of their sales dollars on?
Purchases.
When determining the optimal number of facilities, logistics-related costs do NOT usually include which of the following costs? A) Transportation B) Purchasing C) Facility D) Inventory
Purchasing
Which of the following mitigation tactics could reduce economic risk? A) Purchasing contracts that address price fluctuations B) Franchising and licensing C) Subcontractors on retainer D) Multiple transportation modes and warehouses
Purchasing contracts that address price fluctuations
E-Procurement
Purchasing facilitated through the Internet.
Three criteria for designing distribution networks to meet customer expectations are: A) Rapid response, low cost, and service. B) Rapid response, product choice, and service. C) Low cost, rapid response and product choice. D) Low cost, product choice and service.
Rapid response, product choice, and service.
Which of the following statements is NOT true regarding the bullwhip effect? A) Inaccurate information results in distortions and fluctuations, causing what is known as the bullwhip effect. B) Bullwhip fluctuations in the supply chain decrease customer service and profitability. C) The bullwhip effect occurs as order are relayed from retails, to distributors, to wholesalers, to manufacturers, with fluctuations decreasing at each step in the sequence. D) Bullwhip fluctuations in the supply chain increase the costs associated with inventory, transportation, shipping and receiving.
The bullwhip effect occurs as order are relayed from retails, to distributors, to wholesalers, to manufacturers, with fluctuations decreasing at each step in the sequence.
What is the objective of supply chain management?
The objective is to build a chain of suppliers that focuses on maximizing value to the ultimate customer.
What does distribution management focus on?
The outbound flow of final products.
Reverse Logistics
The process of sending returned products back up the supply chain for value recovery or disposal.
What are total logistic costs?
The sum of facility costs, inventory costs, and transportation costs.
What major events, discussed in the above article, have disrupted global supply chains? A) The Indonesian earthquake and flooding in Asia. B) The tsunami in Japan and floods in Thailand. C) The rebels war in the Congo. D) The Chinese wage increases. E) All of the above.
The tsunami in Japan and floods in Thailand.
What is the purpose/design of contracts?
These share risks, share benefits, and create incentives as to optimize the whole supply chain.
How can firms avoid supply chain disruptions? A) They can invest more heavily in technology. B) They can have alternative sites or countries to provide backup. C) They can move all of their manufacturing to the U.S. or Mexico D) They can pressure their suppliers to quadruple inventory.
They can have alternative sites or countries to provide backup.
Outsourcing
Transferring to external suppliers a firm's activities that have traditionally been internal.
Which of the following statements is NOT one of the differentiation strategy decisions? A) Use buffer stocks to ensure speedy supply. B) Minimize inventory to avoid product obsolescence. C) Gather and communicate market research data. D) Modular design to aid product differentiation.
Use buffer stocks to ensure speedy supply.
Cross-Sourcing
Using one supplier for a component and a second supplier for another component, where each supplier acts as a backup for the other.
A lawnmower assembly plant uses a variety of nuts, bolts, screws, and other fasteners in its operation. Its supplier delivers these items directly to the point of use on the assembly line and ensures that there are always sufficient quantities of fasteners to maintain the production schedule. This is an example of: A) Vendor-managed inventory. B) Postponement. C) E-procurement. D) Single stage control of replenishment.
Vendor-managed inventory.
What is developing the ability to produce goods or services previously purchased or actually buying a supplier or a distributor? A) Virtual companies B) Horizontal integration C) Outsourcing D) Vertical integration
Vertical integration
A response strategy requires suppliers be selected based primarily on: A) Cost. B) Being willing to share information. C) Product development skills. D) Capacity, speed, and flexibility.
Capacity, speed, and flexibility.
Which of the following statements is true regarding cross-sourcing? A) Cross-sourcing describes suppliers who become part of a company coalition. B) Cross-sourcing enhances technological skills. C) Cross-sourcing uses one supplier for a component and a second supplier for another component, where each supplier acts as a backup for the other. D) Cross-sourcing develops the ability to produce goods or services previously purchased or actually buying a supplier or distributor.
Cross-sourcing uses one supplier for a component and a second supplier for another component, where each supplier acts as a backup for the other.