Exam 1

Capital assets:

Are not bought and sold in the regular course of business

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

True

Insourcing should be considered when:

Assurance of supply is a problem and there is an opportunity to reduce costs significantly.

Packaging is an easy category to buy because it has few disposal, environmental, and transportation implications.

False

Performance is a method of description by brand.

False

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

False

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

False

To assist in determining what represents acceptable value, a buyer is likely to:

Identify the function of a good or service.

The organizational structure (centralized, decentralized, or hybrid) of the supply function:

Influences supply processes, internal cross-functional relationships, and procedures and systems.

On average, the dollars spent with suppliers as a percent of revenues:

Is greater in manufacturing organizations than in service organizations.

Supply chain risk can be classified as:

Operational, financial and reputational.

Supply management can play an important role in mergers, acquisitions, and divestitures by:

Providing competitive intelligence about competitors and suppliers, and identifying opportunities of operational synergies.

A request for quotation that asks for a "brand or equal":

Shifts responsibility for establishing equality or superiority to the bidder.

The disadvantages of buying with specifications include:

Specifications can add costs and the potential for disqualifying or discouraging potential suppliers.

Early supply involvement means:

Supply considerations are included during need identification and specification.

Sustainability performance includes the impact of the organization's supply chain on the natural environment, and the social practices of the firm and its suppliers.

True

The procurement of indirect or noncore spend is more likely to be outsourced than procurement of direct or core spend.

True

The true test of supply's contribution is when the chief executive officer and the senior management team recognize that supply and suppliers are critical to organizational success and competitive advantage.

True

There is not one best way for all organizations to organize and manage the supply function, conduct activities, and effectively integrate suppliers.

True

When a team has decided that a task or function currently performed by company employees is a core competency, the team will probably recommend:

Continuing to make.

The role of supply management is best captured by the following question:

How can supply and suppliers help decrease costs and increase revenues?

The decision to make or buy a good or service is:

A decision of strategic importance that deserves careful evaluation.

Most organizations have maintenance, repair and operations requirements.

True

Equipment, real estate, construction, and information technology are examples of capital acquisitions.

True

Public institutions are service providers with economic and social aims that differ from private sector firms, which can affect the policies and processes of the supply function.

True

Some of the advantages of centralization are the coordination of supply policies and procedures, and the opportunity to leverage spend with common suppliers.

True

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

True

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.

False

For an organization with annual sales of $500 million, purchases of $300 million and profit of $50 million, a 10 percent reduction in the cost of purchases would result in a profit-leverage effect of:

60 percent (sales increase of 60 percent would be required to achieve the same percentage increase in profit).

The profit-leverage effect of supply savings means that:

A reduction in purchase spend increases profit more than an equivalent increase in sales.

Cathy Henderson is the manager of a line of electric motors at Hazelton industries Management has asked Cathy to develop a formal analysis of the product line. The company is interested in expanding the line of motors that Cathy manages and wonders what role procurement could play in the new product expansion. Finally, management wonders if hiring a new sales manager with the goal of increasing sales by 30% would be preferred to reducing material costs for motors by 7%. Cathy understands that she needs to discuss how strategic sourcing can help improve the organization's competitive position. She also understands the need to conduct a formal price analysis for the motors. An assistant has gathered the following economic information related to the costs, labor, and overhead for the electric motors as well as last year's sales. Labor: 2,500,000; Materials: $6,500,000; Overhead: $960,000; Sales $12,000,000 Provide a detailed analysis of the effect of a 30% increase in sales versus an 7% reduction in material costs.

Additional profit due to reduction in material costs = .07 * 6.5 million = 455,000 Current profit = 2,040,000 Profit as a percentage of sales = 17% 30% increase in sales = 0.3 * 12,000,000 = 3,600,000 Profit on increased sales = 3,600,000 *17% = 612,000

A specification is a loose description of a requirement that leaves room for supplier enhancements and contributions.

False

For nonrepetitive requirements, a system or process of acquisition can be designed.

False

Since labor and other costs greatly exceed outlays for purchased materials and services in most service organizations, supply is of little consequence in most service organizations.

False