MGMT 4810 Final Exam

Normally, if an offer to buy or sell is made, the contract is completed once the legal documents are in the hands of both parties.

False

When an employee who is not a legal agent of the company agrees to buy something from a salesperson and the item is received and the company pays the invoice, the employee is exercising implied authority.

False

In many organizations, standards of conduct for purchasing personnel stress the need to avoid all appearances of impropriety.

True

In planning for negotiation, a factor or item of information over which disagreement is expected is known as an issue.

True

In the U. S., product liability is generally considered a strict liability offense which means that the defendant is liable when it is shown that the product was defective

True

Forward buying: 1. offsets transactions to protect against price and exchange risks 2. involves no risk for the buying organization. 3. involves purchasing for known or estimated near-term requirements. 4. is the same as speculation. 5. seeks to take advantage of price movements.

3. involves purchasing for known or estimated near-term requirements.

The question of how much of a premium should be paid to conform with political directives such as Buy Local or Buy American is the subject of much ongoing debate.

True

Value engineering (VE) and value analysis (VA) refer to the same process, but VE is applied to the design stage, and VA is applied to redesign.

True

Value methodology is a systematic approach to analyzing the functions of a product, part, service, or process to satisfy all needed quality and user requirements at optimum total cost of ownership.

True

Competitive bidding, in general, is the least efficient means of obtaining a fair price for items bought.

False

For goods bought on a non-recurring basis, the contract may provide for a reduction in price should the buyer ever again purchase the item.

False

If the goal of negotiation is performance, then the process and tactics used during the negotiation are important because they have great impact on the intention to perform.

True

Payment made to a supplier does not automatically constitute an acceptance of the goods.

True

Supplier development initiatives may be focused on (1) persuading an existing supplier to expand into new areas that meet the needs of the buying organization, and (2) locating a new, untried/unknown company and identifying potential areas of business.

True

A unique cost model is one that applies to a variety of common supply situations.

False

Activity based costing primarily is an accounting process that has little practical value for buyers.

False

Although online searching is commonplace in many areas of business, it has not become a common tool for gathering information on potential suppliers

False

Besides price determination, there are very few areas in supply management where negotiation is a useful and cost-effective tool.

False

Buyers should always expect to receive samples free of charge from suppliers.

False

Canceling a contract for a technicality when market prices are falling is considered a perfectly acceptable and ethical practice.

False

Educating suppliers about the buying organization's operations is an example of a transaction cost in the total cost of ownership model.

False

In negotiation, a fact is any piece of information on which the buyer believes he or she can negotiate an agreement with the supplier.

False

In the context of supplier selection decisions, the term local is typically defined as suppliers within a 100 mile radius of the buying organization.

False

Online reverse auctions are useful means of price determination for special items.

False

Reciprocity, the practice of requiring a supplier to purchase a set amount from the buying firm, is legal domestically, but not internationally.

False

Site visits to suppliers are of little use to supply managers because of their subjective nature.

False

Social problems should not be addressed through supply policy and practice.

False

Under the Uniform Commercial Code, when the buyer has examined the goods as fully as he or she has desired, there is a warranty with regard to defects which an examination ought to have revealed to him or her.

False

When cost analysis is applied to a supplier's price, the buyer focuses on identifying an overall cost reduction target with little insight into specific cost elements.

False

Governments play a role in establishing prices by establishing production and import quotas and by regulating the ways that buyers and sellers are allowed to behave in agreeing on prices.

True

If a supplier fails to deliver goods which meet the contract agreement, one of the buyer's options is to reject the whole shipment

True

Loss exposure can be reduced by matching decisions about packaging, transportation, and security levels with the risk of loss.

True

Mediation and arbitration are examples of alternative legal means of settling disputes.

True

One justification for a quantity discount is that the buyer should not pay more than the actual cost of packing, crating, and transportation.

True

The Robinson-Patman and Sherman Antitrust Acts are primarily designed to prevent the stronger party from imposing too onerous conditions on the weaker one and preventing collusion so that competition will be maintained.

True

The Uniform Commercial Code (UCC) covers the purchase of goods and services, if the goods portion of the contract is more than 50 percent of the contract value.

True

The buyer's assessment of the risk associated with a supplier is influenced by whether it is a non-critical, leverage, bottleneck, or strategic purchase.

True

In portfolio analysis, the goal when purchasing leverage items is: a. minimize total cost of ownership. b. minimize acquisition time and cost and price per unit.. c. reduce or eliminate customization. d. assure continuous supply at lowest total cost of ownership. e. assure quality at expected levels.

a. minimize total cost of ownership.

An externally focused process of analyzing costs in terms of the overall value chain is called: a. strategic cost management. b. supply chain management. c. total cost management. d. profit leverage effect. e. activity based costing.

a. strategic cost management.

The prime function of an organized commodity exchange is to furnish an established marketplace where: a. the forces of supply and demand operate freely. b. commodity prices can be controlled. c. sellers of the same commodity can come together to set prices. d. products that are difficult to grade can be traded. e. there are only a limited number of buyers and sellers.

a. the forces of supply and demand operate freely.

In portfolio analysis, the goal when purchasing strategic goods or services is to: a. assure quality at expected levels. b. assure continuous supply at lowest cost of ownership. c. minimize acquisition time and cost. d. minimize acquisition time and cost and price per unit. e. reduce or eliminate customization.

b. assure continuous supply at lowest cost of ownership.

If the buyer wants to motivate the seller to manage total costs, the best type of contract is: a. firm-fixed-price (FFP). b. cost-plus-incentive-fee (CPIF) c. firm-fixed-price plus incentive fee (FFPIF). d. cost-plus-fixed-fee (CPFF). e. cost-no-fee (CNF).

b. cost-plus-incentive-fee (CPIF)

Sources of sustainable competitive advantage include: a. product differentiation (where customers have low price sensitivity), b. low cost (where customers have high price sensitivity), c. a combination of product differentiation and cost-leadership. d. a, b and c e. none of the above

d. a, b and c

Most direct costs are: 1. variable costs. 2. overhead costs. 3. general and administrative costs. 4. semivariable costs. 5. fixed costs.

1. variable costs.

The market approach to pricing: 1. means prices are set to cover direct costs, contribute to indirect, and attain a profit. 2. is the only defensible pricing mechanism for ethical companies to use. 3. implies that prices are set based on what the market will bear. 4. means that prices are adjusted regularly to ensure that the selling organization recoups all its market costs. 5. implies that market analysis is the only technique that should be employed to negotiate prices.

3. implies that prices are set based on what the market will bear.

The legal authority of a salesperson normally is: a. the same as that of a buyer. b. to make legally-binding contracts for $500 or less. c. to make legally binding contracts for sales over $5,000. d. to solicit orders and get ratification and acceptance from his or her employer. e. based on the length of time the salesperson has been employed.

d. to solicit orders and get ratification and acceptance from his or her employer.

Identical prices received from various sources should: 1. be expected when the specification is highly customized. 2. always make the buyer suspicious of collusion. 3. only draw attention if the buyer is dissatisfied with the price quoted. 4. draw attention if the specification is complex or detailed. 5. result in the buyer taking legal action against all bidders.

4. draw attention if the specification is complex or detailed.

Items for which prices are comparatively low, and the cost of price reduction efforts may exceed any price savings realized, are called: 1. sensitive commodities. 2. raw materials. 3. special items. 4. standard production items. 5. MRO items.

5. MRO items.

Although associated with a number of factors, the learning curve normally is most closely identified with the analysis of: A. tooling costs. B. profit rates. C. overhead costs. D. direct labor costs. E. direct material costs.

D. direct labor costs.

Target pricing may result in company wide cost reductions in: A. design to cost. B. manufacture to cost. C. purchase to cost. D. a and b. E. a, b, and c.

E. a, b, and c.

A cash discount of 2/10, N/30 (2 percent cash discount if payment is made in 10 days, with the gross amount due in 30 days) is the equivalent of approximately a 36 percent interest rate.

True

An escalator clause provides for an increase, as well as a decrease, in price if costs change.

True

The preferred hierarchy of supply chain strategies is (1) source reduction—design or use less, (2) reuse—multiple use of same item such as a package or container, (3) recycle—reprocess into raw material, (4) incinerate—at least extract energy, but create CO2 pollution at a minimum, (5) landfill—require space and transportation to store with potential impact on land and water.

True

To be fair, the basis and terms of cancellation should be agreed on in advance and made part of the terms and conditions of the purchase order.

True

In the portfolio matrix, characteristics of goods and services in the leverage quadrant are: a. competitive supply market, substitution is possible, price per unit is important. b. competitive supply market, substitution is possible, and total cost is a primary focus. c. few suppliers with adequate capability so substitution and switching are difficult. d. item substitution is possible, switching is difficult, and many suppliers are available. e. item substitution and supplier switching are possible, but few suppliers are capable.

a. competitive supply market, substitution is possible, price per unit is important.

Reverse marketing is: a. encouraged by the rapid rate of technological change, growth in international trade, and the need to extract competitive advantage from supply chains. b. when the buying organization has decided to stop making something inhouse and identifies a supplier from its existing supply base. c. is an aggressive, marketing-initiated, approach to finding and developing world class suppliers. d. requires that the marketing department in the buyer's organization fully understand the needs of supply. a. is most appropriate when the product is fairly standard and available from multiple local suppliers.

a. encouraged by the rapid rate of technological change, growth in international trade, and the need to extract competitive advantage from supply chains.

When the goods fit the ordinary purpose for which goods of that description are used in the trade, there is a(n): a. implied warranty of merchantability. b. express warranty. c. warranty of title. d. implied warranty of fitness for a particular purpose. e. implicit warranty.

a. implied warranty of merchantability.

When it comes to product liability, supply management: a. lowers risk by ensuring that suppliers deliver defect-free goods. b. has little or no role since this is essentially a legal action. c. has responsibility only to the internal customer, not the final customer. d. is liable depending on the type of warranty agreed to in the contract. e. is responsible for establishing the cost of the actual damage

a. lowers risk by ensuring that suppliers deliver defect-free goods.

When estimating the costs of a manufacturing supplier: a. prices of raw materials are not commonly accessible. b. equipment depreciation is typically the largest single cost element in overhead. c. material costs are difficult to estimate. d. direct labor costs are the easiest costs to estimate. e. labor rates are typically uniform across different plant locations.

b. equipment depreciation is typically the largest single cost element in overhead.

The authority that is necessary, usual, and proper to carry through to completion the express authority conferred, is called: a. apparent authority. b. implied authority. c. express authority. d. direct authority. e. performance authority.

b. implied authority

A fair price: a. is based on market conditions, and cost structure has no bearing on the determination of a fair price. b. is the lowest price that ensures a continuous supply of the proper quality where and when needed and at which the supplier makes a reasonable profit. c. is based on the cost to produce an item or service without consideration for the supplier's profit margin. d. is an amount arrived at through negotiations where the seller's price is a starting point.. e. is when all sellers of equal goods or services receive the same per unit price.

b. is the lowest price that ensures a continuous supply of the proper quality where and when needed and at which the supplier makes a reasonable profit.

Distributors, wholesalers, and retailers: a. never add enough value to a buyer to make it worth doing business with them. b. may be able to deliver at a lower cost than the manufacturer. c. may provide valuable services such as prompt delivery and filling emergency orders, but they cannot offer a better price than the manufacturer. d. have an indefensible value proposition in the typical modern supply chain. e. typically carry a very limited supply in an effort to keep inventory costs low.

b. may be able to deliver at a lower cost than the manufacturer.

Commercial bribery: a. usually involves only one company offering bribes. b. may become an industry practice. c. is outlawed in very few countries. d. is outlawed throughout the West, but not in Asia. e. legal rulings rest on the doctrine of promissory estoppel.

b. may become an industry practice.

Assessment of a potential supplier's financial situation: a. is usually unnecessary because it is highly unlikely that a supplier will go out of business, and, even if they do, it is relatively easy to replace a supplier. b. may yield substantial opportunities for negotiating favorable terms for both buying and selling organizations. c. is best left to the finance department which will alert supply to any issues that might adversely affect a pending deal. d. is always necessary and follows a strict protocol no matter what type of purchase or dollar value. e. seldom relies on financial information provided by the supplier.

b. may yield substantial opportunities for negotiating favorable terms for both buying and selling organizations.

Which of the following is a factor in determining the validity of a contract? a. incompetent parties. b. offer and acceptance. c. employment in the purchasing department. d. amount over $500. e. due process.

b. offer and acceptance.

Target pricing: a. starts with the supplier's price, and works to determine the selling price of the buying organization's end product or service. b. starts with the selling price of an organization's end product minus the operating profit to establish the target cost. c. starts with the selling price of an organization's end product minus actual manufacturing, overhead, and materials costs to determine operating profit. d. starts with the supplier's price, and works to determine the supplier's true cost structure. e. starts with the buyer's lowest reasonable price target, and works to a negotiated price agreed on by the buyer and the supplier.

b. starts with the selling price of an organization's end product minus the operating profit to establish the target cost.

Portfolio or quadrant analysis: a. may be used to develop longer-term strategies for moving categories of spend into a more desirable location on the spend map. b. may be used to justify, clarify or revise existing commodity strategies. c. is based on the Pareto curve. d. a and b. e. a, b and c.

d. a and b.

Supply management's role in environmental considerations is: a. expanding because purchasing has primary responsibility for specification writing. b. limited because environmental issues have little impact on the acquisition cycle. c. expanding because the goal of zero environmental impact affects the buying cycle. d. limited by the product design developed by design engineers. e. limited to compliance with government laws and regulations.

c. expanding because the goal of zero environmental impact affects the buying cycle.

If a termination for convenience clause is included in a services contract: a. its validity depends on whether the contract is in the private or public sector. b. it is easy to determine if it is exercised in bad faith or an abuse of discretion. c. if exercised in bad faith, it may mean the termination is a breach of contract. d. specifically identifies events that will trigger termination. e. it defines what constitutes sufficient cause to terminate.

c. if exercised in bad faith, it may mean the termination is a breach of contract.

In a contractual dispute between buyer and seller, the process of elevating the discussion from buyer and sales representative up through the organization and out to an unbiased referee is called: a. arbitration. b. mediation. c. internal escalation. d. negotiation. e. adjudication.

c. internal escalation.

Decision trees: a. may be useful in making effective supplier selection decisions the first-time a buying decision is made, but not on repetitive purchases. b. may be useful in making effective supplier selection decisions when making repetitive purchases, but not special, one-time purchases. c. may be useful in making effective supplier selection decisions if probabilities of success and failure are assessed for each option. d. are of limited value because options can only be evaluated qualitatively, not quantitatively. e. cannot reflect past decisions so they are useless as a decision tool when making repetitive purchases.

c. may be useful in making effective supplier selection decisions if probabilities of success and failure are assessed for each option.

The Sarbanes-Oxley Act: a. has no impact on the supply management process. b. requires the Chief Purchasing Officer to sign off on every contract. c. requires listing off-balance sheet items such as long-term purchase agreements. d. requires supply management to report directly to the Chief Financial Officer. e. affects internal accounting procedures of privately-held companies.

c. requires listing off-balance sheet items such as long-term purchase agreements.

A cash discount allows: a. the seller to secure prompt payment, but has no benefits for the buyer. b. the buyer to pay a lower price per unit, but has no benefits for the seller. c. the seller to secure prompt payment, and the buyer to pay a lower price per unit. d. the seller to demand payment in cash on demand (C.O.D.) upon receipt of goods. e. the buyer to always calculate the discount based on the delivery date.

c. the seller to secure prompt payment, and the buyer to pay a lower price per unit.

Which of the following statements supports single sourcing: a. there is a need to reduce supplier dependence on the buying organization. b. there is a high probability of a devastating natural disaster. c. there is a patent involved. d. there is volatility in the supply market. e. concerns exist about supplier capacity for future volume.

c. there is a patent involved.

Activity based costing attempts to: a. correct the distortions built into product costing by the way that direct costs are allocated. b. correct the distortions built into product costing by the way that the learning curve is applied to direct labor costs. c. turn indirect costs into direct costs by tracking the cost drivers behind indirect costs. d. turn direct costs into indirect costs by tracking the cost drivers behind direct costs. e. introduce a new way to allocate direct costs that more accurately captures labor and material usage.

c. turn indirect costs into direct costs by tracking the cost drivers behind indirect costs.

Small suppliers: a. are most suited for large dollar value "A" requirements. b. usually represent very low risk to the purchaser. c. tend to have a strong financial base. d. often provide the greatest responsiveness and flexibility. e. tend to have an extensive management structure.

d. often provide the greatest responsiveness and flexibility.

In the event the bidder does not make proper payment to its suppliers, the bond that protects the buyer against liens that might be granted to these suppliers, is called a: a. performance bond. b. surety bond. c. bid bond d. payment bond. e. lien bond.

d. payment bond.

To avoid risk, a buyer can: a. hedge in a commodities market. b. require bid or performance bonds. c. decide not to do business in certain countries. d. a and b. e. a, b, and c.

e. a, b, and c.

When developing a negotiation strategy, the negotiator should assess the positions of strength of both (all) parties to: a. decide if negotiation makes sense. b. establish negotiation points. c. avoid setting unrealistic expectations. d. b and c. e. a, b, and c.

e. a, b, and c.

Corporate social responsibility: a. is another name for ethics. b. is another name for supplier diversity programs. c. requires sacrificing financial gain for the greater good of the community. d. refers to individual, not corporate, decisions and actions. e. extends beyond ethics to include community, environment, and human rights.

e. extends beyond ethics to include community, environment, and human rights.