mgt 405 mid term chapter 4
79. Choose three of the value creation functions. (Infrastructure (leadership), Production, Marketing, Materials management, R&D, Information systems, Human resources). Compare the role each function plays in achieving superior efficiency, superior quality, superior innovation and superior customer responsiveness.
ANSWER: Value Creation Function Efficiency Quality Innovation Customer Responsiveness Infrastructure (leadership) Provide company wide commitment to efficiency. Facilitate cooperation among functions. Provide leadership and commitment to quality. Find ways to measure quality. Set goals and create incentives. Solicit input from employees. Encourage cooperation among functions. Manage overall project (i.e., manage the development function). Facilitate cross-functional cooperation. Through leadership by example, build a company wide commitment to responsiveness to customers. Production Where appropriate, pursue economies of scale and learning economics. Implement flexible manufacturing systems. Shorten production runs. Trace defects back to the source. Cooperate with R&D on designing products that are easy to manufacture. Work with R&D to develop process innovations. Achieve customization through implementation of flexible manufacturing. Achieve rapid response through flexible manufacturing. Marketing Where appropriate, adopt aggressive marketing to ride down the experience curve. Limit customer defection rates by building brand loyalty. Focus on the customer. Provide customer feedback on quality. Provide market information to R&D. Work with R&D to develop new products. Know the customer. Communicate customer feedback to appropriate functions. Materials management Implement JIT systems. Implement supply chain coordination. Rationalize suppliers. Help suppliers implement quality improvement methodologies. Trace defects back to suppliers. No primary responsibility. Develop logistics systems capable of responding quickly to unanticipated customer demands (JIT). R&D Design products for ease of manufacture. Seek process innovations. Design products that are easy to manufacture. Develop new products and processes. Cooperate with other functions, particularly marketing and manufacturing, in the development process. Bring customers into the product development process. Information systems Use information systems to automate processes. Use information systems to reduce costs of coordination. Use information systems to monitor defect rates. Use information systems to coordinate cross-functional, cross-company product development. Use web-based information systems to increase responsiveness to customers. Human resources Institute training programs to build skills. Implement self-managing teams. Implement pay for performance. Institute quality improvement training programs. Identify and train black belts. Organize employees into quality teams Hire talented scientists and engineers. Develop training programs that get employees to think like customers.
78. You are a consultant offering advice to a large manufacturing firm about ways to increase its distinctive competency in customer responsiveness. What suggestions would you offer? Be specific and detailed in your answer.
ANSWER: Addressing superior customer responsiveness often requires that the company achieve superior efficiency, quality, and innovation. Furthermore, to achieve superior customer responsiveness, a company must also give customers what they want, when they want it. It must ensure a strong customer focus, which can be attained by emphasizing customer focus through leadership
10. There is a negative relationship between the length of time that a customer stays with a company and profit per customer. a. True b. False
ANSWER: False
13. The challenge for a company's human resource function is to find ways to lower wages and benefits costs to the company's employees. a. True b. False
ANSWER: False
14. While information systems have greatly improved productivity, they have had little impact on lowering costs. a. True b. False
ANSWER: False
17. Sherree works at Dustcloud Manufacturing where she is part of a seven-member team. Her team coordinates its own activities as well as makes its own hiring, training, work, and reward decisions. This type of team is referred to as a virtual team. a. True b. False
ANSWER: False
19. When implementing reliability improvement methodologies, the role played by the materials management team is to organize employees into quality teams and trace defects back to the source. a. True b. False
ANSWER: False
22. Six Sigma encompasses the activities necessary to get inputs and components to a production facility, through the production process, and out through a distribution system to the end-user. a. True b. False
ANSWER: False
24. Although important, unfortunately, innovation plays a minor role in achieving competitive advantage. a. True b. False
ANSWER: False
26. Customer focus is a function of only the lower levels of an organization. a. True b. False
ANSWER: False
27. Production and materials-management functions need not be changed in response to unanticipated customer demands as they do not affect response time. a. True b. False
ANSWER: False
28. To achieve superior responsiveness to customers, firms must first routinely seek better ways to satisfy customer needs and then develop a competency in listening to its customers, focusing on its customers, and investigating and identifying their needs. a. True b. False
ANSWER: False
4. The concept of economies of scale suggests that unit costs continue to fall indefinitely as output volume increases. a. True b. False
ANSWER: False
5. When cost parity is achieved between rival companies, the only way to achieve sustained competitive advantage is to continue to use the technology available to minimize production costs. a. True b. False
ANSWER: False
76. You are a consultant offering advice to a large manufacturing firm about ways to increase its distinctive competency in innovation. What suggestions would you offer? Be specific and detailed in your answer.
ANSWER: In many ways, innovation is the most important source of competitive advantage. This is because innovation can result in new products that better satisfy customer needs, can improve the quality (attributes) of existing products, or can reduce the costs of making products that customers want. The ability to innovate new products or processes gives a company a major competitive advantage that allows it to: (1) differentiate its products and charge a premium price, and/or (2) lower its cost structure below that of its rivals. However, the failure rate of new-product introductions is high because of factors such as uncertainty, poor commercialization, poor positioning strategy, slow cycle time, and technological shortsightedness. To achieve superior innovation, a company must build skills in basic and applied research
77. Explain the process by which increased production volume leads to lower costs. Give an example from a real or hypothetical firm. Can this process apply to a service organization as well as a manufacturing one? If so, give an example. If not, explain why not.
ANSWER: Students should describe economies of scale, the cost savings that result from spreading fixed costs over a large production volume and achieving a greater division of labor and specialization. For example, when a sawmill is operating at half capacity, the fixed costs of rent, utilities, administrative tasks, and so on, are spread over few products, leading to high expenses per unit produced. But when that same sawmill operates at full capacity, the costs are spread over more units, lowering per-unit costs. Another process that leads to lower costs is learning effects, in which a firm that is beginning to use a new, technologically complex process can learn to be more efficient by performing the task repeatedly. For example, biotechnology firms might spend 15 years developing their first commercially successful product. But as they learn from that experience, they can reduce development time for subsequent new products. These processes can apply to service firms just as readily as they do to manufacturing firms. For example, a hairstyling salon can spread the fixed costs of rent, utilities, and administration over its customers in exactly the same way that the sawmill can. Also, the salon can learn from experience how to style hair more efficiently, just as the biotechnology firm can learn from experience.
Essay 74. Discuss why superior efficiency is important and the many ways that different parts of the organization can help achieve it.
ANSWER: Superior efficiency can be an important source of competitive advantage. The more efficient a company, the fewer the inputs required to produce a given output, and therefore the lower its cost structure. A company can increase efficiency through a number of steps: exploiting economies of scale (reductions in unit costs attributed to larger output) and learning effects (cost savings that come from learning by doing)
75. Discuss why superior quality is important. Describe how companies can achieve superior quality.
ANSWER: Superior quality can help a company lower its costs, differentiate its product, and charge a premium price. Achieving superior quality demands an organization wide commitment to quality and a clear focus on the customer. It also requires metrics to measure quality goals and incentives that emphasize quality
1. Functional strategies lead to differentiation and lower costs which aids in the creation of value and allows a firm to achieve superior profitability. a. True b. False
ANSWER: True
11. A benefit of long-time customer loyalty is the free advertising that customers provide for a company through referrals. a. True b. False
ANSWER: True
12. A disruption in the supply chain that causes input shortages can cause inventory problems for firms that rely on a just-in-time (JIT) inventory system. a. True b. False
ANSWER: True
15. When Amber first started working at a car manufacturing plant assembling car doors, she was slower at the task than her coworkers. As time passed, her speed at assembling the doors increased and she even taught others how to perform the task more quickly. The result was increased employee productivity and the plant experienced cost savings. These cost savings can be attributed to learning effects. a. True b. False
ANSWER: True
16. Through efficient logistics at Grasshopper Grocers, the stock in the stores is automatically replenished when the company receives an alert from customers that their stock is low. Management at Grasshopper Grocers uses a just-in-time (JIT) inventory system. a. True b. False
ANSWER: True
18. Six Sigma is a quality and efficiency program derived from the concept of total quality management (TQM) which was widely used in Japan before acceptance in the United States. a. True b. False
ANSWER: True
2. Distinctive competencies shape the functional-level strategies that a company can pursue. a. True b. False
ANSWER: True
20. Product attributes that collectively define product excellence include the form, features, performance, durability, reliability, and style of the product. a. True b. False
ANSWER: True
21. The "sigma" in the Six Sigma name refers to the Greek letter that statisticians use to represent a standard deviation from the mean. a. True b. False
ANSWER: True
23. Poor commercialization occurs when there is definite customer demand for a new product, but the product is not well adapted to customer needs because of factors such as poor design and poor quality. a. True b. False
ANSWER: True
25. In order to achieve superior innovation, top management is responsible for facilitating cooperation while R&D is responsible for effectively collaborating with marketing and production to develop new products. a. True b. False
ANSWER: True
3. Diseconomies of scale are the unit cost increases associated with a large scale of output. a. True b. False
ANSWER: True
6. No matter how complex the task, learning effects typically diminish in importance after a certain time period. a. True b. False
ANSWER: True
7. All else being equal, if a company moves down the experience curve faster than its rivals, it should realize a lower cost structure. a. True b. False
ANSWER: True
8. Flexible production technologies allow a company to produce a wider variety of end products at a unit cost that at one time could be achieved only through the mass production of a standardized output. a. True b. False
ANSWER: True
9. Mass customization describes a company's ability to use flexible manufacturing technology to reconcile the two goals of low cost and differentiation through product customization. a. True b. False
ANSWER: True
31. Company A has a product that hasn't hit the market yet but has already constructed efficient manufacturing facilities and has lowered costs through learning effects. It has a marketing team in place that has initiated an aggressive advertising campaign with sales promotions that have stimulated demand for the product and accumulate sales volume. Which of the following is true of Company A? a. This strategy would help Company A move down the experience curve quickly. b. This strategy would hinder Company A's move down the experience curve and allow rival companies to have a cost advantage. c. This strategy would allow Company A to decrease product volume and market share. d. This strategy would not allow Company A to reach superior efficiency. e. This strategy would enable Company A to ride up the experience curve and gain a competitive advantage over its rivals.
ANSWER: a
50. A company's hiring strategy: a. directly affects employee productivity. b. has little effect on employee productivity. c. does not relate to profitability. d. is not part of the company's overall human resource strategy. e. upgrades an employee's skill level.
ANSWER: a
59. Which of the following steps in the five-step chain reaction, as articulated by Deming with regard to the philosophy underlying total quality management (TQM), enables a company to achieve a higher market share and raise prices? a. Improvement in productivity b. Increase in a company's profitability c. Higher market shares due to superior quality of products d. Reduction of costs due to improved quality e. Creation of more jobs
ANSWER: a
60. Research and development (R&D) can help a company improve quality by: a. designing products that are easy to manufacture. b. pursuing economies of scale. c. developing strategies on how to market products. d. upgrading employee skill levels. e. creating teams whose members coordinate their own activities.
ANSWER: a
61. Which of the following is NOT a result of reducing lot sizes for manufactured products? a. Defects are difficult to identify. b. The source of defects can be recognized quickly. c. The problems causing any defects can be addressed and rectified. d. It decreases waste. e. There will not be as many defective products produced in the lot size.
ANSWER: a
62. A television commercial for Champion Windows highlights how easy it is to custom order, the reliability and efficiency of delivery as well as the service provided by their maintenance and repair department. Which of the following attributes of Champion is this advertisement highlighting? a. Product attributes b. Service attributes c. Associated personnel attributes d. Management attributes e. Customer attributes
ANSWER: a
after-sales support
ANSWER: a
30. Learning effects are cost savings that result from: a. automation. b. knowledge acquired by doing. c. sound product planning tactics. d. diseconomies of scale. e. outsourcing.
ANSWER: b
32. Managers should not become complacent about efficiency-based cost advantages because: a. both learning effects and economics of scale go on forever. b. the experience curve will bottom out at some point. c. cost advantages gained from experience effects are not affected by the development of new technologies. d. unit costs keep reducing as output increases. e. the experience curve steadily rises after a certain threshold is reached, indicating an increase in unit costs.
ANSWER: b
35. Self-managing teams: a. are limited to only very large organizations. b. require members to coordinate their own activities and make decisions. c. typically increase the need for supervisors. d. create a tall organizational structure. e. show negligible increase in productivity and substantial decrease in product quality.
ANSWER: b
39. Distinctive competencies shape the which of the following strategies that a company can pursue? a. Business level b. Functional level c. Corporate level d. Global level e. Industry level
ANSWER: b
45. Unlike traditional manufacturing, flexible manufacturing: a. decreases efficiency. b. lowers unit costs. c. limits an organization's ability to customize products. d. allows the production of only standardized products. e. limits an organization's ability to offer greater product variety.
ANSWER: b
49. Employee productivity is: a. a function of management delegation. b. a key determinant of a company's efficiency, cost structure, and profitability. c. not subject to measurement. d. not sustainable in the long run. e. a function that does not affect a company's profitability.
ANSWER: b
51. The Mountain Ski Lodge spent $100,000 marketing and advertising its new ski trails and on-site spa. The money used for marketing and advertising can be referred to as: a. variable costs. b. fixed costs. c. ratio costs. d. diseconomies of scale. e. economies of scale.
ANSWER: b
55. Quality can best be thought of as: a. a competency in investigating and identifying needs of customers. b. the attributes that customers perceive as superior in a product. c. product development projects driven by customer needs. d. the quantity of inputs that it takes to produce a given output. e. unit cost reductions associated with a large scale of output.
ANSWER: b
56. Which of the following does the philosophy underlying total quality management (TQM) include? a. Greater quantity results in cost decreases. b. Better quality leads to higher market share. c. Greater quantity increases a company's profitability. d. Opinions of employees are irrelevant in manufacturing products. e. Work standards should only be defined as numbers or quotas.
ANSWER: b
70. Customer defection rates are: a. not directly related to unit cost. b. an indication of a company's ability to satisfy its customers. c. irrelevant as they are unlikely to impact advertising and marketing costs. d. unlikely to affect sales volumes. e. not affected by cost of products.
ANSWER: b
33. Research suggests that the adoption of which of the following may increase efficiency and lower unit costs relative to what can be achieved by the mass production of a standardized output? a. Just-in-time manufacturing b. Quick technology c. Flexible production technologies d. Stable production e. Unscheduled manufacturing
ANSWER: c
37. Pay for performance based on individual accomplishment of goals tends to: a. increase per-unit costs. b. decrease employee productivity. c. increase employee productivity. d. have little effect on employee productivity. e. facilitate teamwork.
ANSWER: c
41. Which of the following refers to unit cost increases associated with a large scale of output? a. Economies of scale b. Learning effects c. Diseconomies of scale d. Flexible manufacturing e. Mass customization
ANSWER: c
43. The experience-curve concept: a. helps a company realize both learning effects and diseconomies of scale. b. suggests that unit manufacturing costs increase by a certain amount each time output is increased. c. is very important in industries that mass-produce a standardized output. d. suggests that achieving low costs allows a firm to charge a premium price. e. is least likely to bottom out as long as the company does not stop production.
ANSWER: c
48. Just-in-time inventory (JIT) systems: a. are used only by manufacturing firms. b. provide a buffer stock of inventory for a company. c. are used to reduce inventory holding costs. d. save costs by outsourcing inventory management to other companies. e. always keep extra inventory on hand for emergencies.
ANSWER: c
58. Which of the following is the final step in the five-step chain reaction on which the philosophy of total quality management (TQM) is based? a. Better use of time and materials b. Increase in a company's profitability c. Creation of more jobs d. Higher market shares due to superior quality of products e. Improvement in productivity
ANSWER: c
63. Which of the following correctly pairs the function with its role in defining product excellence? a. Human Resources: Manufactures to continually upgrade the quality of the attributes that are designed into the company's product offerings. b. Marketing: Collects marketing information in order to determine which attributes are important to customers and helps create the perception of high quality. c. Research and Development: Creates and innovates to meet the continuous product improvements made by competitors. d. Production: Trains personnel so that the appropriate attributes are emphasized during design creation. e. Infrastructure (leadership): Tailors the message so that it creates a consistent image in the minds of customers.
ANSWER: c
64. Despite definite customer demand, new products often fail due to: a. faster cycle time. b. low customer defection rate. c. poor commercialization. d. increased response time. e. the scramble to gain first-mover advantage.
ANSWER: c
66. Which of the following is NOT a benefit of tight cross-functional integration among research and development (R&D), production, and marketing? a. New products are designed for ease of manufacture. b. Development costs are not allowed to spiral out of control. c. Product development projects are driven by company innovations. d. The time it takes to develop a product and bring it to market is minimized. e. Close integration between R&D and marketing is achieved to ensure that product development projects are driven by the needs of customers.
ANSWER: c
67. Which of the following is NOT a reason why innovation is the primary source of competitive advantage? a. Innovation brings new products better suited to meet customer needs. b. Innovation improves the quality of existing products. c. Innovation raises the cost of production. d. Innovation can allow companies to differentiate its products. e. Innovation can allow companies to lower their cost structure below its rivals.
ANSWER: c
73. Which of the following is NOT a benefit of rapid response time? a. It can help gain competitive advantage over rival companies. b. It strengthens brand loyalty. c. It decreases the amount the company can charge for products. d. It allows for differentiation of product offerings. e. It gives the opportunity for a company to charge a premium price.
ANSWER: c
Multiple Choice 29. One of the primary roles of research and development (R&D) in achieving superior efficiency is: a. facilitating cooperation among functions. b. limiting customer defection rates by building brand loyalty. c. designing products for ease of manufacture. d. instituting training programs to build skills. e. implementing pay for performance.
ANSWER: c
42. Learning effects: a. result in unit manufacturing costs increasing by a certain amount each time output is increased. b. suggest that production costs increase because of increasing labor productivity. c. tend to be more significant when simple steps in an assembly process are performed over and over again. d. tend to be more significant when a technologically complex task is repeated. e. lead to diseconomies of scale.
ANSWER: d
44. Which of the following is a tactical step for getting down the experience curve ahead of competitors? a. Using premium pricing to create an image of uniqueness in consumers' minds b. Pursuing a distinctive competence in focused marketing c. Constructing a manufacturing plant of less-than-minimum efficient scale d. Adopting an aggressive marketing strategy to build up demand and accumulated volume as quickly as possible e. Making the assembly of the product as complex as possible because this results in greater learning effects
ANSWER: d
52. Cream Cups bakes cakes in several varieties dedicated to special occasions. It also allows its customers to personalize the cakes according to their personal preferences. This is an example of: a. learning effects. b. a just-in-time (JIT) inventory system. c. customer defection. d. mass customization. e. diseconomies of scale.
ANSWER: d
53. Amazon has developed strategies for their distribution warehouses that minimizes the amount of inventory held at each location and maximizes the amount of inventory turnover. Through these strategies, they are utilizing: a. mass customization. b. a flexible manufacturing system. c. quality as reliability mantra. d. supply chain management. e. a just-in-time (JIT) inventory system.
ANSWER: d
69. Which of the following trends has led to the fragmentation of many consumer markets? a. Self-managing teams b. Project management c. Total quality management (TQM) d. Customization e. Increased response time
ANSWER: d
34. The marketing strategy that a company adopts: a. has little impact on the company's efficiency and cost structure. b. aims at attaining superior efficiency of the company's operations. c. should not consider the impact the strategy has on the company's cost structure. d. aims at automating much of the work in the production process. e. refers to the position that the company takes concerning a product's pricing and distribution.
ANSWER: e
36. Self-managing work teams: a. increase per-unit costs of manufactured items. b. perform all workplace tasks except the making of hiring decisions. c. increase the cycle time of manufacturing items. d. require team members to learn only one task and specialize in that alone. e. tend to increase productivity and product quality.
ANSWER: e
38. One of the primary roles of human resources in achieving superior efficiency is: a. scheduling meetings among various value creation functions. b. adopting aggressive marketing to ride down the experience curve. c. designing products for ease of manufacture. d. using information systems to automate processes. e. implementing self-managing teams.
ANSWER: e
40. Economies of scale are: a. unit cost increases associated with learning effects. b. unit cost reductions due to inferior quality of products. c. realized when output is reduced to a minimum. d. realized when the selling price is equal to the cost price of the products. e. unit cost reductions associated with a large-scale output.
ANSWER: e
46. Mass customization: a. limits a company's ability to customize products. b. reduces the use of individual machines and hinders quality control at all stages of the manufacturing process. c. increases the setup times for complex equipment. d. is the use of technology to produce large quantities of standardized outputs. e. is a company's ability to reconcile low cost and differentiation.
ANSWER: e
47. Which of the following statements regarding customer defection is NOT true? a. Defection rates are determined by customer loyalty. b. The longer a company retains a customer, the greater is the volume of customer-generated unit sales. c. Lowering customer defection rates creates a higher cost structure. d. The longer a company retains a customer, the higher the average unit cost of each sale. e. There is a positive relationship between the length of time that a customer stays with a company and profit per customer.
ANSWER: e
54. Which of the following is NOT one of the principles commonly found in companies that have successfully embraced the total quality management (TQM) philosophy? a. Building an organizational commitment to quality b. Enhancing the philosophy that mistakes, defects, and poor-quality materials are not acceptable c. Allowing more time for supervisors to work with employees d. Training employees in appropriate skills for the job e. Defining work standards only in terms of numbers or quotas
ANSWER: e
57. Which of the following is NOT a role played by infrastructure leadership in implementing reliability improvement methodologies? a. Providing leadership and commitment quality b. Finding ways to manage quality c. Setting goals and creating incentives d. Soliciting input from employees e. Lengthening production runs
ANSWER: e
68. What is a consequence of the lack of integration between Research & Development (R&D) and production when innovating new products? a. Lack of integration lowers manufacturing costs and leaves less room for error. b. Lack of integration helps lower development costs and speed products to market c. Lack of integration ensures that products are designed with manufacturing requirements in mind. d. Lack of integration lowers costs and increases product quality. e. Lack of integration can lead to increases in time to market and development costs due to redesigns.
ANSWER: e
71. Cool Looks, Inc. is a local fashion design company that actively solicits comments from its customers about the quality of its clothing and the kind of merchandise they want it to supply. Which of the following mechanisms for focusing on the customer is Cool Looks utilizing? a. Managing materials b. Improving response time c. Demonstrating leadership d. Shaping employee attitudes e. Knowing customer needs
ANSWER: e
72. How does a company achieve superior responsiveness to customers? a. By developing new product features based on customer wants b. By improving the production process to become increasingly efficient c. By providing customers value for their money d. By establishing a relationship with customers where needs are identified and investigated e. All of these are ways for a company to achieve superior responsiveness to customers.
ANSWER: e