Exam 1

The greatest opportunity to affect value in the purchasing process is when: a. needs are recognized and described. b. potential suppliers are identified and analyzed. c. the supplier(s) is selected. d. price and terms are determined. a. the buyer follows-up and expedites the order.

a. needs are recognized and described.

A procurement outsourcing contract that covers approval workflow, material acquisition, purchase order, expediting, material and invoice receipt, invoice payment, financial performance, compliance management, policies and procedures, and performance and results reporting is called: a. procure-to-pay (P2P). b. procure-to-contract (P2C). c. source-to-contract (S2C). d. source-to-pay (S2P). e. third party logistics (3PL).

a. procure-to-pay (P2P).

If the buyer has a clear and unambiguous description or specification and wants to find out which supplier can deliver the best value when and where needed, he or she will typically issue a: a. request for quotation (RFQ). b. request for proposal (RFP). c. request for information (RFI). d. request for bid (RFB). e. request for price (RFP).

b. request for proposal (RFP).

The decision to make or buy a good or service is: a. a decision of strategic importance that deserves careful evaluation. b. a one-time decision never to be reconsidered. c. primarily an operational decision. d. the same as deciding to insource or outsource. e. typically made by the chief supply officer and his or her executive team.

a. a decision of strategic importance that deserves careful evaluation.

Subcontracts can only occur: a. in government procurement. b. when a lead contractor is behind schedule. c. if there is a prime contractor bidding out part of a job. d. if substitution is required after the specification has been set. e. when purchasing a good, not a service.

c. if there is a prime contractor bidding out part of a job.

Outsourcing: a. occurs primarily in large manufacturing firms in the private sector, but is rarely practiced in public purchasing. b. decisions are based on financial factors that most organizations can easily access through their accounting system. c. usually results in increased hiring to attain expertise that the organization does not already possess. d. may reduce or control operating costs, improve focus on core competencies, and gain access to world-class capabilities. e. is a low risk venture because the firm can always revert back to performing the function in-house at low cost.

c. usually results in increased hiring to attain expertise that the organization does not already possess.

Close to 70 percent of the value of any given requirement is established during: a. supplier evaluation and selection. b. price negotiations. c. identification of potential suppliers. d. need recognition and description. e. delivery and inventory management.

d. need recognition and description

T/F Some of the reasons an organization may decide to make rather than buy are: greater supply assurance, stringent quality requirements, and very small quantity requirements.

T

T/F Some operational risks in a supply chain are beyond the control of the purchaser or supplier, and some are within their control.

T

T/F Subcontracts are useful when the work is difficult to define, has a long time horizon, and is relatively expensive.

T

T/F Supply makes a significant contribution to organizational risk management since many supply decisions have downside risks that might impact the organization's strategy.

T

T/F Supply managers may be able to provide information to identify risks to the organization, but they can seldom develop strategies to mitigate those risks.

T

Poor internal compliance with the supply process: a. may indicate that internal customers do not trust the process or suppliers. b. indicates that staff in other functional areas are not qualified for their jobs. c. has nothing to do with the process itself. d. is caused by top management's failure to mandate compliance. e. has nothing to do with organizational structure.

a. may indicate that internal customers do not trust the process or suppliers.

Performance of the supply management function can be viewed in two contexts: a. operational and strategic. b. operational and transactional. c. operational and trouble-avoidance. d. strategic and opportunistic. e. strategic and future-oriented.

a. operational and strategic

When a team has decided that a task or function currently performed by company employees is a core competency, the team will probably recommend: a. outsourcing. b. insourcing. c. offshoring. d. continuing to make. e. continuing to buy.

a. outsourcing.

Strategies designed to make available the knowledge and capabilities of supply chain members to others in the buying organization are called: a. supply-chain-support strategies. b. environmental-change strategies. c. assurance-of-supply strategies. d. risk-management strategies. e. cost-reduction strategies.

a. supply-chain-support strategies.

The objectives of supply are to obtain: a. the right material at the right quality, quantity, price and cost at the right place from the right source with the right service. b. the right quality materials in the right quantity at the right time and place from the right source at the right service level and at the right price. c. the right material, at the right place, time, price, cost, and terms and conditions. d. the right material or service at the right quality, quantity, place, and time from the right source at the right service. e. the right quality and quantity at the right price and cost delivered to the right place at the right time from the right source.

b. the right quality materials in the right quantity at the right time and place from the right source at the right service level and at the right price.

The role of supply management is best captured by the following question: a. how can supply help suppliers decrease costs? b. how can supply and suppliers help decrease costs? c. how can supply and suppliers help decrease costs and increase revenues? d. how can supply help decrease costs and increase revenues? e. how can supply help decrease costs?

c. how can supply and suppliers help decrease costs and increase revenues?

The key question in strategic supply management is: a. How can the supply manager develop a network of suppliers that contribute to the supply department's goals? b. How can first tier suppliers contribute to the buying organization's objectives and strategy? c. How can first, second, and subsequent tiers of suppliers contribute to the buying organization's objectives and strategy? d. How can supply and supply chains contribute effectively to organizational objectives and strategy? e. How can supply strategy be kept separate from, but equal to, organizational strategy?

d. How can supply and supply chains contribute effectively to organizational objectives and strategy?

A systems approach to managing the flow of information, materials, and services from tiers of suppliers through the buying organization to tiers of customers is: a. MRO management. b. purchasing. c. inventory management. d. supply chain management. e. strategic sourcing.

d. supply chain management

The answer to the question, "How much to buy?" depends on: a. the relative power of each supply chain member. b. decisions made inside the buying organization. c. decisions made inside the first tier supplier. d. the level of uncertainty throughout the supply chain. e. trends in inventory management.

d. the level of uncertainty throughout the supply chain

Supply management may indirectly contribute to the organization's competitive advantage by: a. reducing assets tied up in inventory. b. reducing annual spend. c. reducing prices paid to suppliers. d. increasing sales to customers. e. improving process efficiency.

e. improving process efficiency

T/F Outsourcing is prevalent in both the private and public sectors, but for goods only.

F

T/F A maverick buyer is a talented member of the supply department whose creativity and innovations have saved the organization large sums of money.

F

T/F A process is a set of activities that has a beginning and an end, occurs in a nonspecific sequence, and has inputs and outputs.

F

T/F According to Pareto analysis of annual spend, 70-80 percent of transactions account for 70-80 percent of spend.

F

T/F An extranet is an intranet that can be accessed by authorized internal users only, enabling employees to collaborate securely across functional boundaries.

F

T/F Even if products, services and processes are standardized it will probably not lower total cost of ownership.

F

T/F In a decentralized purchasing structure, those tasks which are more effectively handled at the corporate level include establishing policies, procedures, controls, and systems.

F

T/F It is relatively easy to develop a global database to consolidate volumes and sourcing strategy because common technical standards and government regulations exist across countries.

F

T/F One of the most important steps in achieving the potential of the supply function is hiring someone from outside of the company's industry into the top supply position.

F

T/F Reducing prices paid for goods and services is the best way to accomplish supply objectives at the lowest total operating costs.

F

T/F Reductions in inventory investment primarily come from getting users to reduce their demand for inventoried items.

F

T/F Supply management has evolved from a process-oriented, strategic function to a transaction-based, tactical function.

F

T/F Supply should obtain needed goods and services at the lowest total cost of ownership which means other cost factors—such as quality levels, after-sales service, warranties, inventory and spare parts requirements, and downtime—must be considered because in the long term these factors often have a cost impact greater than the original purchase price.

F

T/F Sustainability initiatives include the effective and efficient capture and disposal of upstream products from suppliers and an increase in the impact of the organization's supply chains on the natural environment.

F

T/F Terms such as purchasing, procurement, supply, supply chain and logistics have standard definitions that are widely used across sectors and industries.

F

T/F The actions of supply managers may impact the organization's reputation negatively or positively.

F

T/F The application of pressure on a supplier to meet the original delivery promise, to deliver ahead of schedule, or to speed up delivery of a delayed order is called follow-up.

F

T/F The executive to whom the Chief Supply Officer reports has a strong relationship to the status of purchasing and the degree to which it is emphasized within the organization.

F

T/F The increase in outsourcing has resulted in an increase in the percentage of revenue paid out to suppliers.

F

T/F The supply process and structure for managing indirect spend is typically the same as the process and structure for managing direct spend.

F

T/F The terms and conditions included in a purchase order from a company do not vary from purchase to purchase no matter what goods or services are being acquired.

F

T/F The three levels of strategic planning are: individual, function, and corporate.

F

T/F There is one best way for all organizations to organize and manage the supply function, conduct activities, and effectively integrate suppliers.

F

T/F A recent North American trend is to perform in-house a number of services that were traditionally outsourced.

T

T/F An online catalog is a digitized version of a supplier's catalog that can be customized to include the specific items, prices, and other terms and conditions negotiated by the buyer and seller.

T

T/F An online reverse auction may result in significant upfront preparation and cost.

T

T/F Assurance-of-supply strategies emphasize quality and quantity over all other considerations.

T

T/F Centralization refers to a supply organization that is physically located at corporate headquarters from which all organizational spending decisions are made.

T

T/F Currently, managements tend toward making rather than buying.

T

T/F Environmental-change strategies are designed to anticipate and recognize shifts in the economy, the organization, people, laws, governmental regulations, and systems availability.

T

T/F Growth in outsourcing in the logistics area can be attributed to growing regulation of transportation companies.

T

T/F Hybrid supply structures typically capture the benefits of both centralized and decentralized organizational structures.

T

T/F Insourcing and outsourcing occur when a company reverses previous make or buy decisions.

T

T/F It is possible for some activities in a function to be core competencies that are made or in-sourced, and for some activities in the same function to be noncore and bought or outsourced.

T

T/F Public institutions are service providers with many regulatory requirements regarding acquisition policies and procedures.

T

T/F Small dollar value purchase orders can be efficiently and effectively managed by implementing an e-procurement application.

T

T/F Some of the disadvantages of centralization are narrow specialization and job boredom, lack of job flexibility, and a tendency to minimize legitimate differences in requirements.

T

T/F Supply's objective to provide an uninterrupted flow of materials, supplies and services to operate the organization is perfectly aligned with the objective to keep inventory investment and loss at a minimum.

T

T/F The most fundamental question facing an organization is whether to buy domestically or globally.

T

T/F The true test of supply's contribution is when the chief executive officer and the management team recognize that supply and suppliers are critical to organizational success and competitive advantage.

T

T/F There is increased emphasis on purchase transactions and less on strategic supply management processes.

T

T/F Supply is of great consequence in most manufacturing organizations since the costs of purchased materials and services greatly exceed labor and other costs.

T

The profit-leverage effect of supply savings means that: a. a reduction in purchase spend increases profit more than an equal sales increase. b. effective price negotiations with a supplier will lower the supplier's profits. c. the buyer gains leverage over suppliers when purchases are standardized. d. efficient supply management processes will increase profits. e. a reduction in money tied up in inventory improves profits.

a. a reduction in purchase spend increases profit more than an equal sales increase

To effectively manage supply risks, the supply manager must: a. identify and classify risks, assess the potential impact, and develop a risk mitigation strategy. b. inform the corporate risk officer of a potential risk, await instructions, and implement the directive. c. seek input from senior executives in other functional areas, propose a risk mitigation plan, and await instructions from senior management. d. review the commodity strategy, revise it as needed, and implement the strategy revision. e. confer with the organization's management consultant, provide all requested data, and implement the consultant's plan.

a. identify and classify risks, assess the potential impact, and develop a risk mitigation strategy

The organizational structure (centralized, decentralized, or hybrid) of the supply function: a. influences supply processes, internal cross-functional relationships, and the procedures and systems employed. b. influences the procedures and systems employed, but not supply processes or internal cross-functional relationships. c. influences internal cross-functional relationships and the procedures and systems employed, but not supply processes. d. influences supply processes, but not internal cross-functional relationships or the procedures and systems employed. e. has little influence on supply processes, internal cross-functional relationships, or the procedures and systems employed.

a. influences supply processes, internal cross-functional relationships, and the procedures and systems employed

In an outsourcing decision, developing and negotiating the outsourcing contract: a. is not an area where supply managers believe they can add value. b. is the biggest area where supply managers can affect organizational strategy. c. is less important than ensuring prompt payment to suppliers. d. is best left to the function most directly affected by the outsourcing decision. e. is of less strategic importance than identifying opportunities for outsourcing.

a. is not an area where supply managers believe they can add value.

Some of the concerns about outsourcing are: a. layoffs, exposure to supplier's risks, and loss of control. b. supply's ability to provide the required inputs at the right quality and price. c. transitioning from supplier's operations to internal operations. d. losing long-term buyer-supplier relationships and cost advantages. e. loss of a lean enterprise as the supply base grows.

a. layoffs, exposure to supplier's risks, and loss of control.

To add the greatest value to the design of new products and services, the following functions should work together during the design stage: a. the primary user, design engineering, supply and all other relevant functional areas such as accounting/finance, marketing and operations. b. the primary user, design engineering, supply and accounting. c. the primary user, design engineering and supply. d. the primary user and supply. e. the primary user and specifier.

a. the primary user, design engineering, supply and all other relevant functional areas such as accounting/finance, marketing and operations

Strategic planning can be defined as: a. how each functional area will achieve its specific goals and objectives. b. an action plan to achieve specific long-term goals and objectives. c. an action plan to achieve specific operational and tactical goals. d. a procedure for allocating resources to appropriate functions in the organization. e. taking big risks to maximize current period benefits.

b. an action plan to achieve specific long-term goals and objectives.

On average, the dollars spent with suppliers as a percent of revenues is: a. about equal in service organizations and manufacturing. b. greater in manufacturing than in service organizations. c. greater in service organizations than in manufacturing. d. depends on the type of manufacturing process. e. depends on the type of service.

b. greater in manufacturing than in service organizations

As supply chains have become more global, the risk of supply disruptions has: a. increased because other countries lack the business ethics of the U.S. b. increased because of financial and exchange rate fluctuations. c. stayed the same because the issues are similar wherever suppliers are located. d. decreased because risk is spread among suppliers all over the world. e. decreased because there are global standards for labor and safety.

b. increased because of financial and exchange rate fluctuations

Deciding what represents a core competency in an organization is: a. always the same for companies in the same industry. b. often a fairly complex decision and a function of many factors. c. a fairly easy decision once organizational goals and objectives are known. d. a decision best left to the organization's Board of Directors. e. a decision best left to the Chief Executive Officer.

b. often a fairly complex decision and a function of many factors.

Supply managers believe they can add the most value to the outsourcing decision by: a. advising the outsourcing team on relevant contractual terms and conditions. b. providing a comprehensive, competitive process. c. reviewing the analysis conducted by the outsourcing team. d. being available if the internal users want their assistance. e. managing the contract once the decision has been implemented.

b. providing a comprehensive, competitive process.

In manufacturing companies: a. supply and operations coordination is not essential to operational excellence. b. supply and operations coordination is essential to operational excellence. c. most purchases are for resale. d. purchases typically represent a small percentage of total expenditures. e. production purchasing is outsourced and non-production purchasing is done in-house.

b. supply and operations coordination is essential to operational excellence.

One purpose of a requisition is: a. to request or requisition supplies from external suppliers. b. to clarify the description of need before communicating with potential suppliers. c. to give users a way to authorize buyers to acquire goods and services. d. to solicit price quotes for goods or services from suppliers. e. to give finance a way to have the final say in any decision to spend money.

b. to clarify the description of need before communicating with potential suppliers.

Linking supply strategy to corporate strategy is: a.non-essential in most types of organizations. b.essential in all organizations, and most have the mechanisms to link them. c.essential in all organizations, and many lack the mechanisms to link them. d.essential only in manufacturing, and most have the mechanisms to link them.. e.essential only in the service sector, and most lack the mechanisms to link them.

b.essential in all organizations, and most have the mechanisms to link them

A purchasing consortium: a. speeds up the purchasing process, but does not usually result in price concessions from suppliers. b. results in price concessions from suppliers, but usually does not speed up the purchasing process. c. consists of two or more independent organizations that combine requirements for materials, services and capital goods to gain better pricing, service and technology. d. consists of two or more divisions of the same organization that combine requirements for materials, services and capital goods to gain better pricing, service and technology. e. is a form of collaborative purchasing used only by the public sector to deliver a wider range of services at a lower total cost.

c. consists of two or more independent organizations that combine requirements for materials, services and capital goods to gain better pricing, service and technology

If organizational objectives and supply objectives are incongruent: a. it will be easy to translate organizational objectives into supply objectives. b. it is likely that many organizational resources will be made available to supply. c. it will be difficult to translate organizational objectives into supply objectives. d. it will be easy to define quality, quantity, price, delivery and service goals. e. it will be easy to convey objectives to suppliers.

c. it will be difficult to translate organizational objectives into supply objectives.

Expediting: a. is caused by buyer behavior only. b. is caused by supplier behavior only. c. may be caused by the buyer or the supplier. d. may be the result of legal non—compliance. e. is a routine order tracking process.

c. may be caused by the buyer or the supplier.

Supply decisions effect: a. the income statement. b. the balance sheet. c. the income statement and the balance sheet. d. neither the income statement nor the balance sheet. e. none of the financial metrics.

c. the income statement and the balance sheet

Specialization within the supply function: a. is necessary because most tasks are transactional. b. has no impact on materials or services total cost of ownership. c. increases operating costs beyond the benefits of specialization. d. allows staff to develop expertise in particular areas. e. is seldom required now that so many tasks are automated.

d. allows staff to develop expertise in particular areas

The payment process: a. should always be owned and managed by accounts payable. b. should always be owned and managed by supply. c. must include paper invoices to avoid legal liability. d. and the supply process should be aligned in policy and practice. e. has little impact on supply management.

d. and the supply process should be aligned in policy and practice.

To achieve time, quality or cost reduction targets, organizations may: a. give internal users ownership of tasks and problems. b. promote diversity in the workplace. c. expand the size of the supply base. d. commit resources to cross-functional team development. e. cross-train employees in case of downsizing.

d. commit resources to cross-functional team development

Supply strategies that are designed to exploit market opportunities and organizational strengths to give the buying organization an advantage in the marketplace are known as: a. risk-management strategies. b. assurance-of-supply strategies. c. cost-reduction strategies. d. competitive-edge strategies. e. supply chain support strategies.

d. competitive-edge strategies

Effectively and efficiently applying technology to the supply management process will: a. lead to increased clerical effort from additional data entry. b. lead to damaged buyer-supplier relationships from impersonal communication. c. inhibit negotiation planning because of time spent accessing and analyzing data. d. enable electronic funds transfer which lowers the total cost of doing business. e. decrease operating performance because of the volume of available information.

d. enable electronic funds transfer which lowers the total cost of doing business.

To contribute to organizational strategy, the supply department should: a. meet expectations of internal customers. b. execute current tasks as designed. c. routinize and automate transactions. d. seek opportunities to provide competitive advantage. e. streamline the process.

d. seek opportunities to provide competitive advantage

Supply's contribution to the organization's competitive position depends on its ability to: a. reduce costs. b. enhance revenues. c. manage assets. d. a and c. e. a, b and c.

e. a, b and c

Efficient and effective supply processes are needed because of: a. the large volume of items and dollar value. b. severe consequences of poor performance. c. the potential contribution to organizational objectives. d. the need for an audit trail. e. all of the above.

e. all of the above.

Linking current and future needs with current and future markets is the primary focus of: a. internal users of purchased goods and services. b. each individual buyer. c. an effective marketing strategy. d. an effective organizational strategy. e. an effective supply strategy.

e. an effective supply strategy

Which factors have a major influence on supply's level in the organization: a. the geographical location of the supply base. b. the nature of the products or services acquired. c. the extent to which supply and suppliers can provide competitive advantage. d. the ratio of purchased material and services costs to total costs or total income. e. the credentials of the existing supply personnel. a. a and b. b. b and c. c. c and d. d. a, c and d. e. b, c and d.

e. b, c and d

Three major challenges exist when setting supply objectives and strategies: a. identifying internal stakeholders, building consensus among these stakeholders, and selling top management on the results. b. adopting efficient electronic transaction systems, designing effective strategic supply processes, and increasing internal compliance with both. c. hiring professionals educated specifically in supply management, providing them with technical expertise, and developing leadership skills for the long-term. d. emphasizing strategic cost management, involving key suppliers early in the process, and measuring the reduction in total cost of ownership. e. effectively interpreting corporate and supply objectives, selecting appropriate actions to achieve objectives, and integrating supply information into organizational strategies.

e. effectively interpreting corporate and supply objectives, selecting appropriate actions to achieve objectives, and integrating supply information into organizational strategies

The impact of supply management actions on the inventory asset base and the balance sheet is measured by the: a. return on investment (ROI). b. return on inventory (ROI). c. inventory turnover (IT). d. profit leverage effect (PLE). e. return on assets (ROA) effect.

e. return on assets (ROA) effect