Chapter15

A company's supply chain involves the flow of materials and information from suppliers, through
production, to the end users.
TRUE
Flow of materials and information are the central focus of supply chain management.
In supply chain organizations, functions must operate independently of each other.
FALSE
Functions should be integrated.
In purchasing, one's only ethical obligation is to one's suppliers.
FALSE
Purchasing personnel have ethical obligations with regard to a variety of stakeholders, primarily the
organizations that employ them.
Using third-party logistics involves using your organization's logistics function to ship to customers
that aren't officially part of the supply chain.
FALSE
Using third-party logistics involves outsourcing the logistics function.
Every business organization is part of at least one supply chain.
TRUE
Either the business organization is a complete supply chain or it is a player in a supply chain.
Frequent deliveries of small shipments can reduce inventory but also result in an increase in the
transportation cost per unit.
TRUE
This is one of the tradeoffs inherent in supply chain management.
The materials in the supply chain flow toward the end of the chain, while the information and the
dollars move toward the beginning of the chain.
FALSE
Material flows toward the final consumer and information and dollars flow upstream.
Managing supply chain visibility involves making sure that potential supply chain partners are aware
of your organization's needs.
FALSE
Supply chain visibility has to do with making sure that current trading partners have access to needed
data in real time.
The goal of supply chain management is to synchronize supply and demand of all of the
organizations that are part of the chain.
TRUE
Synchronizing multiple organizations is one of the difficulties of supply chain management.
The need for supply chain management increases as globalization increases.
TRUE
As globalization increases supply chain management is becoming more important.
The design of the supply chain and establishing partnerships with vendors and distributors are
examples of operating issues in a supply chain.
FALSE
These are tactical responsibilities.
Traffic management refers to truck movement within our parking areas.
FALSE
Traffic management is the management of the shipment of incoming and outgoing goods.
One of the major reasons for a company to adopt third-party logistics is to concentrate on one's core
business.
TRUE
Outsourcing logistics to third parties enables a company to focus on its core business.
E-commerce refers to the use of electronic technology to facilitate business transactions.
TRUE
E-commerce is a growing trend in supply chain management.
E-commerce involves business-to-business (B2B) interaction only.
FALSE
E-commerce can also involve business-to-consumer (B2C) interactions.
Disintermediation refers to the phenomenon that the traditional retailer or service provider is reduced
or eliminated in a supply chain.
TRUE
Disintermediation involves reducing one or more steps in a supply chain by cutting out intermediaries.
Most people working for a business organization are somehow involved with the supply chain of that
business.
TRUE
Most people working for a business organization are involved in the flow of materials, money or
information.
Strategic partnering is encouraged when two or more business organizations have complementary
products or services that would benefit the others.
TRUE
Complementarity is key to successful strategic partnering.
Forming strategic partnerships is beneficial for two or more business organizations that have the
same products or services.
FALSE
Complementarity is key to successful strategic partnering.
Inventory velocity refers to the average speed (in miles/hour) of material handling equipment in a
warehouse.
FALSE
Velocity refers to the rate at which goods pass through a supply chain.
Global supply chains make purchasing easier because of more options.
FALSE
Global purchasing is more complex because of the variety of issues and risks that must be
considered.
Centralized or decentralized purchasing is directly related to the size of an organization.
FALSE
The use of centralized or decentralized purchasing is independent of organization size.
The optimization of the supply chain uses a mathematical model to determine the optimal number of
business organizations to be included in the chain.
FALSE
Optimizing a supply chain through mathematical models is typically not feasible.
Information technology is the key to success of global supply chains.
TRUE
Global supply chains are made possible by the use of information technology.
Bullwhip effect refers to a phenomenon that demand variations that exist at the customer end of the
supply chain are magnified as orders are generated back through the supply chain.
TRUE
The effect of demand variations grows as it works its way back through the supply chain.
Starting with the final customer and moving backward through the supply chain, batch sizes and the
level of safety stock tend to decrease.
FALSE
Safety stock might increase, but batch sizes won't.
Scheduling and maintaining equipment are operational decisions.
TRUE
Maintenance would be a form of corrective or preventative action to ensure the continued availability
of capacity.
To prevent temporary storage in a warehouse, cross docking can be used.
TRUE
In cross-docking, inbound goods are moved directly onto outbound trucks.
Delayed differentiation is a means of increasing product variety without building the customized
product from scratch or keeping large inventories of custom products.
TRUE
Delayed differentiation is used to create customized output without large inventories.
Returned goods are part of reverse logistics.
TRUE
Reverse logistics involves managing the flow of goods back up the supply chain.
A 30% reduction in product and service variety won't really affect the efficiency of a supply chain.
FALSE
Reducing variety is a prominent means of increasing efficiency.
The service function of purchasing interfaces with many area including legal, accounting, and
engineering functions.
TRUE
Purchasing interfaces with a wide variety of areas.
Gate keeping manages the cost of shipping returned goods.
FALSE
Gate keeping manages the cost of dealing with inappropriately returned goods.
Outsourcing logistics gives a company less flexibility because it forces them to focus more on core
businesses.
FALSE
Outsourcing logistics can lead to more flexibility.
Vendor analysis examines the function of purchased parts and materials with a view towards
improvement or cost reduction.
FALSE
Vendor analysis evaluates sources of supply with respect to price, quality, reputation and service.
Using third-party fulfillment means losing control of fulfillment.
TRUE
Outsource this key function means a loss of control.
Price is the primary determining factor in choosing a vendor since most products are essentially the
same.
FALSE
With vendor analysis, price is just one of many considerations.
RFID eliminates the need for counting and bar-code scanning.
TRUE
RFID does away with the need for counting and bar-code scanning.
The importance of purchasing relates only to the cost of parts and materials purchased, which is often
60% or more of the cost of finished goods.
FALSE
Purchasing is important because other costs resulting from the purchase of parts and materials are
highly consequential.
The importance of purchasing is the cost of goods purchased, the quality of goods and services, and
the timing of deliveries of goods or services.
TRUE
These costs resulting from the purchase of parts and materials are highly consequential.
Vendor analysis is the process that evaluates the source of supply in terms of price, quality,
reputation, and service.
TRUE
Evaluating sources of terms of price, quality, reputation, and service is vendor analysis.
In e-commerce, the front-end design is significantly more important than the back-end design.
FALSE
Back-end design is often more consequential in e-commerce.
One disadvantage to RFID is that they require a 'line of sight' for reading.
FALSE
RFID doesn't need a 'line of sight' reading.
Decentralized purchasing can usually offer quicker response than centralized purchasing.
TRUE
Centralized purchasing can be more efficient, but decentralized purchasing can offer faster response.
Some firms have structured their procurement function to include both centralized and decentralized
purchasing.
TRUE
Good purchasing can involve both centralized and decentralized elements.
Creating an effective supply chain requires linking the marketing, distribution, and supplier channels.
TRUE
These need to be synchronized if the supply chain is to be effective.
An advantage of decentralized purchasing is the attention given to local needs.
TRUE
Decentralized purchasing is more responsive to specific needs.
Event management is the advanced planning required for major performances such as concerts or
conferences.
FALSE
Event management involves detecting and responding to unplanned events.
Supplier certification is the first step required in a supplier audit program.
FALSE
Even uncertified suppliers are potential targets in a supplier audit program.
Design and purchasing people should work closely because changes in design, specifications, or
materials can impact future purchase requirements.
TRUE
Purchasing interfaces with a wide variety of functional areas.
The purchasing cycle ends when the purchasing department is notified that the supplier has shipped
the items.
FALSE
The purchasing cycle ends when the shipment has been received in satisfactory condition.
Producing and shipping in large lots may reduce costs but increase lead times.
TRUE
This is one of the tradeoffs in supply chain management.
Variations create uncertainty, thereby causing inefficiencies in a supply chain.
TRUE
Reductions in disruptions helps improve supply chain efficiencies.
Disintermediation is the refusal of one party to use mediators for price negotiation.
FALSE
Disintermediation involves reducing one or more steps in a supply chain by cutting out intermediaries.
Which of the following is not a goal of supply chain management?
D. lowest possible transportation costs

Minimizing transportation costs might lead to an unacceptable tradeoff elsewhere.

Logistics includes all of these except:
D. customer selection

Logistics involves moving goods.

Small changes in consumer demand can result in large variations in orders placed because of the
D. Bullwhip effect

Variations are amplified as they move backwards in the supply chain.

RFID chips:
(I) are used to track goods in distribution
(II) are used to track job progress in production
(III) are used to provide special instructions to operators
(IV) can be used in inventory record keeping
D. I, II, and IV

RFID chips do not contain special instructions.

Which of the following is not a benefit of RFID?
C. frequent deliveries of smaller shipments

RFID does little to facilitate the cost reductions required to make frequent, small deliveries feasible.
A factor that makes it desirable for business organizations to actively manage their supply chains is:
B. increasing globalization

Globalization is making supply chain management more important.

Which of the following is not a benefit of effective supply chain management?
E. larger number of suppliers
Supply chain management often results in fewer suppliers.
Which of the following is not a measure of the reliability of the supply chain?
A. supply chain response time

Response time is a measure of supply chain effectiveness.

The automatic identification of material is part of/facilitated by:
B. RFID

RFID facilitates the automatic identification of material.

Which of the following is not an application of E-business?
E. universal product codes
Universal product codes are not part of E-business.
Which of the following is an advantage of E-business?
C. I and II

Gaining and maintaining customer loyalty is even more difficult once a firm is involved in E-business.
Which of the following is a barrier to integration of separate organizations in the supply chain?
(I) conflicting objectives of the companies in the chain.
(II) different level of capacity of the companies in the chain.
(III) reluctance of the organizations in the chain to allow other organizations access to their data.
D. I and III

Capacity imbalances can be overcome, but conflicting objectives and mistrust are substantial
barriers.
_________ has helped business concentrate on their core business.
C. Outsourcing

Outsourcing enables firms to focus on what they do, or should do, best.
Outsourcing followed by __________ is not simple.
C. Backsourcing

Backsourcing is difficult to implement effectively if outsourcing has been done.

The interface between the firm and its suppliers is:
A. purchasing

The purchasing function bridges the organization and its suppliers.

The two types of decisions that are relevant to supply chain management are:
E. Tactical, operational
Decision-making in supply chain management falls into either tactical or operational areas.
One important objective of purchasing is to:
B. be knowledgeable about new products

Purchasing can play a crucial role by helping solidify the supplier base for a new product.
The purchasing cycle begins with:
E. receiving a requisition
The requisition notes what is needed, in what quantity, and when it is needed.
Examination of the sources of supply for purchased parts or materials in order to improve
performance is called:
A. vendor analysis

Performance can be evaluated with respect to price, quality, reputation or service.

Vendor analysis has the greatest potential for savings for items which have:
E. high annual cost-volume
These represent the bulk of purchasing costs.
Which of the following is not true of vendor analysis?
A. It involves an examination of the function of purchased parts or raw materials.

The function of purchased parts or raw materials would be done by the procuring department.
Which of the following is not a performance driver?
C. Stability

Stability is not a performance driver.

Which of the following would not usually be a main factor in selecting a vendor?
D. inventory turnover

Turnover would only rarely be associated with the vendor that is selected.
Which of the following is part of the purchasing cycle?
(I) Purchasing selects a supplier.
(II) Orders from vendors are received.
(III) Purchasing receives a requisition.
B. I, II, and III

These are all part of the purchasing cycle.

Which of the following is least likely to be a key consideration when a company chooses a supplier?
C. value analysis

All the others are highly likely to be considered in supplier selection.

Which of the following is not a benefit of centralized purchasing?
C. quick response to local needs

Quick response to local needs is a benefit of decentralized purchasing.

The purchasing perspective of the supplier as a partner is characterized by:
B. one or a few suppliers

Fewer suppliers enhance the chances of building real partnerships.

Vendor Analysis is the examination of the _________ of purchased materials.
B. Source

Sources of supply are evaluated in vendor analysis.

Last quarter, a retailer sold 8,000 t-shirts, 7,000 of which were sold directly from on-hand inventory.
This retailer's ________ was 88%.
A. fill rate
This retailer's fill rate was 88%.
Which of the following is a principle required for ethical behavior in purchasing?
A. loyalty to employer.
B. justice to those you deal with.
C. faith in your profession.
D. all of the above.
The activity which begins with a request from within the organization is:
B. Purchasing cycle

The purchasing cycle begins with a requisition.

Our organization can obtain visibility to potential trading partners on the internet by using:
C. B2B

B2B helps the organization let the market know of the organization's needs.
Real time information about product movement on store shelves could benefit from the use of
D. radio frequency identification tags
RFID facilitates real-time data gathering.
The website and order fulfillment are essential features of:
B. e-commerce
These are front-end and back-end facets of e-commerce.
A given inventory item has a per-year holding cost of $500. One method of shipping this item is three
days faster than the other, but it is $2.50 more per unit. Using the slower method would be
__________ more expensive overall than using the faster method.
E. $1.61
Multiply the holding cost by the speed differential, then divide by 365. Compare this to the actual
shipping cost difference.
Chapter 14
The essence of an organization is the goods and services it offers
Every aspect of the organization is structured around them
Product and service design - or redesign - should be closely tied to an organization's strategy
What does product and service design do?
Translate customer wants and needs into product and service requirements
Refine existing products and services
Develop new products and services
Formulate quality goals
Formulate cost targets
Construct and test prototypes
Document specifications
Translate product and service specifications into process specifications
Reasons for design/re-design
The driving forces for product and service design or redesign are market opportunities or threats:
Economic
Social and Demographic
Political, Liability, or Legal
Competitive
Cost or Availability
Technological
Vocab
Manufacturability - the capability of an organization to produce an item at an acceptable profit
Serviceability - the capability of an organization to provide a service at an acceptable cost or profit
Reverse Engineering - Dismantling and inspecting a competitor's product to discover product
improvements
Idea Generation:
Supply Chain Based (consumer, distributor, etc)
Competitor Based
Research Based
Design Considerations:
Legal
Ethical
Sustainability
Sustainability
Cradle To Grave Assessment- The assessment of the environmental impact of a product or service
throughout its useful life
End Of Life Programs - EOL programs deal with products (business and consumer) that have
reached the end of their useful lives. The goal of such programs is to reduce the dumping or
incineration of products (e.g., electronics) which may pose hazards to the environment
Sustainability
Reduce (Cost and Materials)
Re-Use (Remanufacturing)
Recycle
Other Design Considerations
Strategies for product or service life stages
Standardization
Product or service reliability
Product or service robustness
Degree of newness
Product Life Cycle
THIS is what it looks like:
http://www.quickmba.com/images/marketing/product/lifecycle/plc.gif
Standardization Advantages
Fewer parts to deal with in inventory and in manufacturing
Reduced training costs and time
More routine purchasing, handling, and inspection procedures
Orders fillable from inventory
Opportunities for long production runs and automation
Need for fewer parts justifies expenditures on perfecting designs and improving quality control
procedures
Standardization Disadvantages
Disadvantages
Designs may be frozen with too many imperfections remaining.
High cost of design changes increases resistance to improvements
Decreased variety results in less consumer appeal
Design
Mass customization -A strategy of producing basically standardized goods or services, but
incorporating some degree of customization in the final product or service
Facilitating Techniques
Delayed differentiation - The process of producing, but not quite completing, a product or service until
customer preferences are known
Modular design - A form of standardization in which component parts are grouped into modules that
are easily replaced or interchanged
Kano Model
Basic quality - Refers to customer requirements that have only limited effect on customer satisfaction
if present, but lead to dissatisfaction if absent
Performance quality - Refers to customer requirements that generate satisfaction or dissatisfaction in
proportion to their level of functionality and appeal
Excitement quality - Refers to a feature or attribute that was unexpected by the customer and causes
excitement
Phases in Design & Development
Feasibility analysis
Product specifications
Process specifications
Prototype development
Design review
Market test
Product introduction
Follow-up evaluation
Concurrent Engineering
Bringing engineering design and manufacturing personnel together early in the design phase
The purpose is to achieve product designs that reflect customer wants as well as manufacturing
capabilities
Production Requirements
Production Capabilities Capabilities
Equipment
Skills
Types of materials
Schedules
Technologies
Special abilities
More Vocab
Service- Something that is done to, or for, a customer
Service delivery system -The facilities, processes, and skills needed to provide a service
Product bundle - The combination of goods and services provided to a customer
Service package - The physical resources needed to perform the service, accompanying goods, and
the explicit (core features) and implicit (ancillary features) services included
Differences Between Product & Service Design
Products are generally tangible, services intangible
Services are created and delivered at the same time
Services cannot be inventoried
Services are highly visible to consumers
Some services have low barriers to entry and exit
Location is often important to service design, with convenience as a major factor
Service systems range from those with little or no customer contact to those that have a very high
degree of customer contact
Demand variability alternately creates waiting lines or idle service resources