Purchasing and Supply Management, 17th Edition by Fraser SOLUTIONS MANUAL

SOLUTIONS MANUAL for Purchasing and Supply Management, 17th Edition by P. Fraser Johnson

TABLE OF CONTENTS Chapter 1: Purchasing and Supply Management Chapter 2: Supply Strategy Chapter 3: Supply Organization Chapter 4: Supply Processes and Technology Chapter 5: Make or Buy, Insourcing, and Outsourcing Chapter 6: Need Identification and Specification Chapter 7: Quality Chapter 8: Quantity and Inventory Chapter 9: Delivery Chapter 10: Price Chapter 11: Cost Management Chapter 12: Supplier Selection Chapter 13: Supplier Evaluation and Supplier Relationships Chapter 14: Global Supply Management Chapter 15: Legal and Ethics Chapter 16: Other Supply Responsibilities Chapter 17: Supply Function Evaluation and Trends

Chapter 1 EOC KEY 1.

What is the profit-leverage effect of supply? Is it the same in all organizations?

The profit-leverage effect, covered in the section “Profit-Leverage Effect,” measures the profit impact obtained by a decrease in purchase spend. A related concept is the return-on-assets effect. Good answers will be able to explain the concept of profit leverage and understand how it is impacted by the amount spent on suppliers.

2.

“Supply is not profit making; instead, it is profit taking since it spends organizational resources.” Do you agree?

From a tactical perspective, supply does spend money on goods and services and incur expenses for the administration of supply chain activities (e.g., salaries). However, good answers will be able to demonstrate the opportunities for supply to contribute to organizational goals and strategies, operationally and strategically, and directly and indirectly. The potential for the contribution of supply and the opportunities to extract competitive advantage are explained in the section “Supply Contribution.”

3.

What kind of decisions does a typical supply manager make?

There is an opportunity here for students to reflect on their own experiences, whether they have worked directly in supply or have been exposed to supply activities while working in other functions. Examples of supply decisions are described throughout the chapter and in the case studies in the book.

4.

“In the long term, the success of any organization depends on its ability to create and maintain a customer.” Do you agree? What does this have to do with purchasing and supply management?

Organizations exist to serve their customers. Without customers, organizations will not exist. In order to have customers, firms must provide value. How organizations provide value to customers can differ by the nature of the organization (refer to the section “The Nature of the Organization”) the potential for supply contribution is explained in the section “Supply Contribution.” The challenges ahead for the supply professions are described in the section “Challenges Ahead.”

5.

Is purchasing a profession? If not, why not? If yes, how will the profession, and the people practicing it, change over the next decade?

While there is not a definitive yes or no answer to whether purchasing is profession, it does have many of requisites, as described in the section “Supply Qualifications and Associations.” It has associations with ethical standards and established qualifications. Many universities have courses and programs in purchasing and supply management.

The challenges ahead for the supply professions are described in the section “Challenges Ahead.”

6.

Differentiate between purchasing, procurement, materials management, logistics, supply management, and supply chain management.

In some organizations, the nuances are subtle. The section “Purchasing and Supply Management,” provides definitions and explains the meanings of these terms.

7.

In what ways might digital technologies and e-commerce influence the role of supply managers in their own organizations? In managing supply chains or networks?

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This question requires critical thinking on the part of the students to reflect on the impact of digital and e-commerce technologies on both the role of supply and supply chains. The material covered in the section “Purchasing and Supply Management” provides the foundation for this question. Comments about digital and e-commerce technologies are covered in the introductory paragraphs and in the section “Technology.”

8.

In the energy industry, the total purchase/sales ratio is 80 percent, while it is 60 percent in the food industry and 25 percent in the financial services industry. Explain what these numbers mean. Of what significance is this number for a supply manager in a company in each of these industries?

This question requires the students to reflect on the profit-leverage effect in the petroleum and coal products and the food industries. The profit-leverage effect, covered in the section “Profit-Leverage Effect” measures the profit impact obtained by a decrease in purchase spend. A related concept is the return-on-assets effect.

9.

How does supply management affect return on assets (ROA)? In what specific ways could you improve ROA through supply management?

The return-on-assets effect is covered in the section “Return-on-Assets Effect,” including an example in Figure 1-1.

10. How can the expectations of supply differ for private versus public organizations? Services versus goods producers?

The role and expectations for supply are covered in the section “The Nature of the Organization.” Figures 1-3 and 1-4 provide summaries of the main differences for public sector and private sector organizations (including manufacturing and services). Note that public sector organizations are primarily services-based.

11. In most organizations, the potential benefits of the indirect contribution of supply are greater than the direct contributions. Do you agree? Why or why not?

See the section “Supply Contribution” and the section “The Indirect and Direct Contribution of Supply.” While the direct contribution of can originate in several ways, it is much more difficult to measure than direct contributions.

12. What are the potential benefits of suppliers regarding your organization as preferred customer?

The section “Supply Contribution” explains the many ways that the supply function and suppliers can influence organizational success. Asking students to explain what a “preferred customer” represents is a good starting point.

An important issue is recognizing that benefits in the buyer-supplier relationship flow both ways and preferred customers are more likely to be the recipients of many benefits, ranging from capacity allocation during times of shortage to early assess to innovative new products and services.

13. How can the supply function influence customer satisfaction?

The section on “The Direct and Indirect Contribution of Supply” includes areas where the function can influence customer satisfaction, which is an indirect contribution, and refer to the section on the “Effect on Competitive Position/Customer Satisfaction.” Examples include better quality, greater flexibility, and superior on-time delivery performance.

14. Why should new managers consider working in supply as part of their training and development as future leaders in their organization?

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Refer to the section “Training Ground” describing why and how supply experience represents a good training ground for new managers.

15. How can the supply function expand its influence in an organization?

Refer to the section “Growth and Influence” discussing the growth and influence of the supply function. It describes the four areas that provide opportunities: the percentage of the organization’s total spend for which it is meaningfully involved, span of supply chain activities under purchasing or supply leadership, growth can occur in the type of involvement of supply in what is acquired and supply chain responsibilities, and involvement in corporate activities.

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Chapter 2 EOC KEY 1.

What are the major challenges in setting supply strategy?

The major challenges in setting supply objectives and strategy are covered on page 31. The challenges are identified: effective interpretation of corporate objectives and supply objectives, selection of the appropriate action plan or strategy to achieve the desired objectives, and the identification and feedback of supply issues to be integrated into organizational objectives and strategies. In essence, the principal challenge is understanding corporate objectives and strategies and identifying and seizing opportunities.

2.

What factors have caused the current interest in, and attention to, strategic purchasing and supply planning?

This is an opportunity to bring current events, beyond the scope of the text, into the discussion. Examples might include geopolitical events, economic growth or contraction, supply shortages and disruptions, etc. The major challenges in setting supply objectives are covered on page 31, and the six categories of supply strategy are on pages 31-32.

3.

How can supply sell itself more effectively internally?

The question does not specify to whom supply can sell itself. Top management? Other functions? The answers provided by the students should specify the context. For example, helping top management achieve corporate goals and strategies versus helping the V.P. of operations achieve their operational objectives for cost and quality through the timely delivery of goods and services that comply with specifications. The obvious linkages internally are with operations, finance, and marketing/sales.

4.

What do you believe to be the most difficult obstacles to making a supply function strategic?

There are several possible answers, and it depends on the situation. It could be a lack of recognition by senior management of the opportunities in supply, or conversely, it could be the inability of supply to deliver value to the organization. Good answers will consider the context and possible remedies. Question 3 (selling supply internally) is also related to this question. An inability to demonstrate and communicate how and where supply can provide value can be a critical obstacle.

5. What type of data would supply need to contribute to an organization’s strategic growth? How might supply obtain such data?

Figure 2-1 shows the relationship between supply objectives/strategy and organizational objectives/strategy. Figure 2-2 shows the relationship between current/future needs and markets. Both are relevant for this question.

Understanding the relationship among these is critical if the supply function is to maximize its contribution to organizational success. Data from corporate strategic business plans, including sales growth and budgets, are a good starting point. These data can be supplemented with data from other functions, such as operations (e.g., production forecasts) and sales/marketing (e.g., sales forecasts and market share).

6. What role can (should) supply play in determining a firm’s strategy in the area of social and environmental sustainability?

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The issue of social and environmental sustainability is raised on pages 30-31 and 39. It is also covered throughout the textbook, including a section in Chapter 17. As stated in the textbook, sustainability performance must not only comply with legal obligations but also meet the values and standards of the organization’s stakeholders, including employees, shareholders, government organizations, and customers. Therefore, sustainability has economic, risk management, and legal considerations. Supply can and should play a central role in this area. It has a significant impact on the sustainability performance of the supply chain through its selection and management of suppliers.

7.

How can the supply manager determine which cost-reduction strategies to pursue?

Cost reduction strategies are covered on page 32. Understanding total costs of ownership, including the laid-down cost of what is acquired or the total cost of acquisition and use—life-cycle cost—is essential. Furthermore, cost reduction strategies must consider the competitive environment, such as with changes in technology, alternatives may be available to reduce an organization’s overall operating costs through changes in materials, sources, methods, and buyer–supplier relationships.

8.

Can you have a supply strategy in public procurement? Why or why not?

The question challenges the students to consider the context of public sector procurement. Clearly the answer to this question is yes. Public sector organizations spend a significant amount of money each year at the municipal, state/provincial, and federal levels. A sound supply strategy can help ensure value for funds spent. As stated on page 32, in the public sector, the term competitive edge usually may be interpreted to mean strong performance in achieving program objectives.

9. Why should a supply manager consider hiring (or obtaining internally) an employee without any supply background?

This question requires the students to reflect on the activities and opportunities in supply. For example, the ability of someone with engineering background to discuss technical requirements of purchase with a supplier. Or a person with an accounting/finance background to analyze total the cost of ownership of a product or service. The supply strategy questions summarized in Figure 2-4 on page 36 can be used to discuss the range of activities and why a supply manager may want to hire a person without a formal supply background, presumably to leverage their skills in other areas. Notwithstanding, there is still a need to develop staff, regardless of their background, on sound supply management practices. The issue of background (e.g., supply versus non-supply) of senior supply executives, including the chief purchasing officer (CPO), is covered in Chapter 3.

10. What are the differences between operational and financial risks? How can supply managers approach these risks differently in the following areas: identification and classification; assessment and monitoring; and risk strategy?

Risk management is covered on pages 32-34. A starting point is to define operational risks (e.g., the risk of interruption of the flow of goods or services) and financial risks (e.g., the risk that the price or cost of the goods or services acquired will change significantly). While operational risks can have financial implications (e.g., lost sales from stockouts), financial risks may not impact operations (e.g., price increases of raw materials). The section, Managing Supply Risks, on page 34 addresses issues related to identification and classification of the risks, impact assessment, and a risk strategy. As stated in the text, identification and assessment can help identify high-impact, high-probability risks as organizations strive to make their supply chains both resilient and agile.

11. Reputational risk may be the most serious risk faced by most organizations. Do you agree or disagree with this statement? Why?

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Reputational risk is covered on page 33. This question provides an opportunity to ask students to identify examples of companies that have experienced damages to their brand reputation from supply-related problems. While operational (e.g., raw material shortages) and financial (e.g., higher raw material costs) supply issues may represent short-term setbacks, reputational damages can affect shareholder value over the long term. As described in the textbook, firms such as Walmart and Apple dedicate significant resources to protect themselves from reputational risks by monitoring suppliers to ensure compliance with corporate codes of conduct.

12. How do changes in product and process technologies create potential supply risks?

Risk management is covered on pages 32-35. Changes in product and process technology have the potential of creating supply risks through obsoleting existing equipment, products, or services, or drastically changing the existing cost/price realities. For example, an organization committed to a long-term, fixed-price contract for a particular requirement may find a competitor can gain a significant advantage through a technology-driven, lowercost substitute (e.g., financial risk). Similarly, technological innovation may result in the availability of products or services with superior quality or features, requiring changes to operations (e.g., operational risk).

13. How is supply risk management different for public and private sector organizations?

The textbook does not make specific reference to differences or similarities between public and private sector organizations with respect to risk management. Therefore, students need to consider how public and private sector organizations differ and the implications for supply risks. Every organization is exposed to supply risks, and public sector organizations are exposed to operational, financial, and reputational risks. Using an example in class may help frame context for the students. For example, government agencies generally function at the national, state, and local (e.g., municipalities) levels. The context of municipalities may be more familiar to students who use local government services. Most municipal organizations are not involved in global sourcing, which limits currency exposure. However, construction projects will be affected by commodity prices (e.g., oil and aggregates for road paving). Outsourced services (e.g., garbage collection) may expose municipalities to operational risks (e.g., service disruptions). From a political standpoint, reputational risks may cause the most serious problems for government senior administrators and politicians, who would want to avoid the negative publicity. The non-profit orientation of public sector organizations should be highlighted. While private sector organizations may be concerned about how supply risks impact profits and shareholder value, public sector organizations are mostly cost centers concerned with delivering value to stakeholders. While the question asks for differences, discussing the similarities and differences will provide for a rich class discussion.

14. What can supply do to assist in minimizing a firm’s risk of product liability lawsuits?

Risk management is covered on pages 32-35. Product liability is one of the many potential risks that an organization might face. Students should be asked to consider the type of risk product liability lawsuits represent – operational, financial, reputational, or some combination. The issues of supplier quality (pages 36-37) are also relevant for this question.

15. Why should supply be concerned about the balance sheet?

This question addresses the “how much” versus “what price” on pages 37-38. Students should be able to demonstrate an understanding of assets and liabilities (balance sheet) as distinguished from revenues, costs, and profits (income statement). Most organizations tend to worry about cost savings and the cost of supply (income statement) versus opportunities to free up working capital and generate cash (e.g., inventory reductions). The section on “how much” on page 37 describes opportunities for reducing inventories and tradeoffs between pursuing lower prices through volume discounts as opposed to purchasing smaller volumes at higher prices and keeping inventories low. Also see Chapter 10, Price and Chapter 11, Cost Management.

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Chapter 3 EOC KEY 1. Relate the objectives of supply to (1) a company producing automobiles, (2) a large fast-food restaurant chain, (3) a financial institution, and (4) an integrated energy company.

The textbook lists nine objectives of supply in the section “Objectives of Supply Management.” The influence of industry sector on supply activities is covered on page 65. The four industries listed in the question (and the instructor may want to change these based on the teaching objectives) are services, manufacturing and resource sectors. The challenges for supply in each of these sectors differ in a variety of ways, including spending as a percentage of sales, customer base (e.g., B2B versus B2C), types of suppliers, and technology, to name only a few examples. Good answers will take into account differences in industry context and address the challenges in the nine supply objectives.

2. What are the challenges faced by a supply manager working in a highly centralized structure? In a highly decentralized structure?

The advantages and disadvantages of centralized and decentralized supply structures are provided in Tables 3-1 and 3-2. Challenges of operating in these structures are overcoming the disadvantages.

3.

How does specialization within supply differ in small and large organizations?

Issues related to supply in small- and medium-sized organizations, including specialization, are covered in the section “Small- and Medium-Sized Organizations.” Specialization is also covered in the section “Specialization within the Supply Function.”

4. What are the reasons for giving the CPO a title and reporting line equal to marketing, engineering, or other key business functions?

This question addresses the issue of the status of the CPO and the supply function. A central principle in this textbook is that organizations should recognize and seize opportunities for competitive advantage from the supply function and its suppliers. Providing equal status to supply is essential to accomplish this objective. Coverage of the CPO and reporting line is covered on in the section “The Chief Purchasing Officer (CPO).”

5.

What are indicators that supply is “meaningfully involved”?

The roles and responsibilities of supply, including meaningful involvement, are covered in the section “Supply Activities and Responsibilities.” As described in the textbook, one measure of meaningful involvement is the extent to which supply is expected to take part in major corporate activities.

6.

What are the challenges in expanding the role of the CPO?

Expanding the role of the CPO could include changes in organization structure (e.g., centralized versus decentralized) or changes in supply chain responsibilities, including involvement in corporate activities (see question 5 above). Managing organizational change in supply is covered in the section “Managing Organizational Change in Supply.” Supply activities and responsibilities are covered in the section “Supply Activities and Responsibilities.” Changes in organization structure usually require changes in supply activities, but changes in supply activities do not necessarily involve a change in organization structure.

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7. What implementation factors would you consider when asked to change the supply organization from a centralized to a hybrid structure? What factors would you consider if moving from decentralized to centralized?

Managing organizational change in supply is covered in the section “Managing Organizational Change in Supply.”

8.

How is team buying likely to affect the purchasing/supply function over the next decade?

Supply teams are covered in the section “Supply Teams.” The use of teams for supply, and for non-supply activities (e.g., new product development), is a popular organizational approach. As indicated in the textbook, supply teams come in several different forms and involve a variety of internal (e.g., cross-functional) and external (e.g., suppliers and customers) stakeholders. The development and application of new technologies will change the way organizations function over the next decade, including team-based buying.

9. Why and how would you go about setting up a consortium for the purchase of fuel, oil, furniture, corrugated cartons, or office supplies?

Consortia is covered in the section “Consortia” and the textbook describes five challenges (or “roadblocks”).

Addressing these objectives should be incorporated in the student responses to this question. Note that these purchase categories listed in the question are commodity-like items, which should help make it easier to set specifications and avoid issues related to confidentiality (e.g., production designs).

10. What challenges do supply managers face within the organization when attempting to gain control of the spend for indirect or nontraditional products and services? What can be done to address these challenges?

Structure for direct and indirect spend is in the section “Structure for Direct and Indirect Spend.” Examples of nontraditional/indirect purchases are provided within the section “Profile of the CPO” and Table 3-3, and some of the challenges are listed in the section “What Is Acquired” and in Table 3-3. A point to be made with students is that managing nontraditional/indirect purchases is frequently managed outside of the purchasing and supply management process, which represents a significant challenge.

11.

As a CPO, what latitude do you have in setting the supply organization structure and responsibilities? What can you control and what aspects are not within your control?

The section “Organizational Structure for Supply Management” describes the different organizational modes.

Ultimately, the supply organization structure must be aligned with the corporate structure and strategy. For example, if the CEO decides the corporate structure is centralized, then supply will be centralized, and the CPO must operate within that constraint when managing functional responsibilities.

12. How does industry sector affect supply organization structure and responsibilities? Why? Refer to the section “Influence of the Industry Sector on Supply Activities.” When discussing this topic in class, the question can be framed using broad industry sectors, such as manufacturing, services, and process industries, or private versus public sector organizations. Discussion question 1 above relates to four specific industries for supply objectives.

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Chapter 4 EOC KEY 1.

Where in the supply process is there the greatest opportunity to add value and why?

The greatest opportunity to add value is in the need recognition and description stages (see sections “1. Recognition of Need” and “2. Description of Need.”). Also refer to Figure 6-1 (Chapter 6). Sections “1. Recognition of Need” and “2. Description of Need” provide information about the need recognition and description stages.

2.

What are the steps in a robust supply management process?

The textbook describes the nine steps of the supply management process.

3. What contribution to supply efficiency might be affected through the use of (a) an e-procurement system, (b) online catalogs, and (c) online reverse auctions?

E-procurement systems are covered in the section “E-Procurement Systems”; online catalogs in the section “Marketplaces and Online Catalogs”; and, online reverse auctions in the section “Online Auctions.”

4. What approaches, other than the standard supply procedure, might be used to minimize the small-valueorder problem?

Small-value orders are covered in the section “Small-Value Orders,” which includes 14 approaches. Also see Figure 4-1.

5.

When would you issue an RFQ rather than an RFP and why?

The issue of RFx (RFQ, RFP, RFI, etc.) is covered in the section “Issue an RFx,” including when to use each method.

6. What records are needed for efficient operation of the supply function? How can data collection throughout the process help or hurt buyer–supplier relationships?

Refer to the section “9. Maintenance of Records and Relationships,” step 9 in the acquisition process.

7. What are the costs and benefits of follow-up and expediting? Are there opportunities to reduce total cost of ownership at this stage of the process?

Refer to the section “6. Follow-Up and Expediting,” step 6 in the acquisition process.

8.

How can an e-procurement system reduce the problem of small orders? Rush orders?

See the section “E-Procurement Systems,” the section “Small-Value Orders,” and the section “Reducing the Number of Requisitions Marked ‘Rush’ or ‘Emergency.’”

9.

When should you use reverse auctions to select a supplier?

Online reverse auctions are covered in the section “Online Auctions,” including a section “When to Use Reverse Auctions.”

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10. What is the difference between an online catalog and an external marketplace? Why might you prefer one over the other?

Online catalogues and marketplaces are described in the section “Marketplaces and Online Catalogs.” Issues to raise in the discussion can include the type of product or service acquired, the level of maturity of the organization’s information technology systems, and ability to control spend (e.g., guided buying).

11. How does the use of an e-procurement system change the nature of the skills and knowledge required of supply management personnel?

See the section “E-Procurement Systems.” This is not an issue for supply only. Technology is transforming the work in every area of organizations, including supply. Two considerations are the need for technology literacy of supply personnel and the ability to spend more time on strategic and value-added activities, as opposed to clerical work of managing data and administrative tasks. See the section ”Implications for Supply” for implications of information systems for supply.

12. What possible improvements in supply processes could technology offer in the future?

This question is broad and students can go down a number of potential paths. For example, they could consider the effects of radical changes to processes through new technologies, or incremental changes through more established technologies. As stated on page 100, implementation frequently takes a piecemeal approach aimed at modernizing legacy systems that comprise a range of technologies. Possible improvements include changes that can affect costs and/or improve risk management. Other improvements could include shortening lead times, improving quality and accuracy of forecasting, and providing transparency and access to data, to name only a few. The relevant material for this question is in the section “Supply Information Systems Technology.”

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Chapter 5 EOC KEY 1.

Why should an organization switch from buying to making?

Make or buy is covered in the section “Make or Buy,” including the reasons for making and buying. This question is related to insourcing. As stated “Insourcing refers to reversing a previous buy decision. An organization chooses to bring in-house an activity, product, or service previously purchased.”

2.

What is insourcing? How might one make the decision to insource an activity or not?

See Question 1 above. Insourcing is defined as “reversing a previous buy decision. An organization chooses to bring in-house an activity, product, or service previously purchased.” The reasons for making are provided in the section “Reasons for Making.”

3.

Why is the make or buy decision considered strategic?

Make or buy is covered in the section “Make or Buy.” It explains the strategic considerations, including: “The character of the organization is colored by the organization’s stance on the make or buy decision. It is one of vital importance to an organization’s productivity and competitiveness.” The section on outsourcing (“Insourcing and Outsourcing”) is also relevant for this question, as in Figure 5-1.

4.

What is the gray zone in make or buy? What are its implications?

The gray zone in make or buy is addressed in the section “The Gray Zone in Make or Buy.” 5.

Why might an organization decide to outsource? Can you give an example?

Outsourcing is covered in the section “Insourcing and Outsourcing.” As stated in the textbook, almost no function is immune to outsourcing, so examples are plentiful. There are examples provided in the textbook, but students should be expected to identify several examples independently.

6.

What is subcontracting? How does subcontracting differ from a typical purchase order (PO)?

Refer to the section “Subcontracting,” which includes the definition.

7.

Why would an organization outsource logistics? Engineering? Marketing?

As indicated in Question 5, the textbook observes that almost no function is immune from outsourcing. Outsourcing is covered in the section “Insourcing and Outsourcing.” Outsourcing logistics is reviewed in the section “Outsourcing Logistics.” A point can be made here as to whether supply and logistics are core competencies, and how this compares to other functions, such as engineering and marketing. Why consider outsourcing logistics (or supply), but not engineering and marketing?

8. In the public sector, what name is frequently used for outsourcing? What are some major advantages for outsourcing in the public sector?

Privatization is a synonym for outsourcing used in the public sector (see “Outsourcing”). The issue for students to consider is whether the opportunities for outsourcing are different between the public and private sectors, and why.

Most public sector operations are services based.

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9.

What role is expected of supply once an outsourcing decision has been made?

Supply’s role in outsourcing is covered in the section “Supply’s Role in Insourcing and Outsourcing,” including six responsibilities.

10. If you were the sole owner of your own company, would you favor making or buying? Why? Make or buy is covered in the section “Make or Buy.” This section explains the strategic considerations, including: “The character of the organization is colored by the organization’s stance on the make or buy decision. It is one of vital importance to an organization’s productivity and competitiveness.” Also see Question 3 above.

Students should be pressed to consider a variety of factors, including the type of business (service versus manufacturing) and industry, firm strategy, competition, availability of capital, technology, etc. The textbook covers the make or buy decision thoroughly, including reasons to make and reasons to buy (see Tables 5-1 and 5-2).

11. What is a service triad? What unique challenges and opportunities does a service triad present for supply?

Service triads are covered on in the section “Outsourcing,” which explains issues associated with the management of service triads. As pointed out in the textbook: “An emerging area in outsourcing is management of “service triads,” where a buyer, who may be a manufacturing or service organization, contracts with a supplier to deliver services directly to the buyer’s customer.”

12. What supply activities are candidates for outsourcing? Why? Outsourcing supply is described in the section “Outsourcing Supply.” Indirect or noncore spend is more likely to be outsourced than procurement of direct or core spend. This section also describes the three types of procurement outsourcing contracts.

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Chapter 6 EOC KEY 1. Why is it preferable to separate need identification and specification or define commercial equivalents into two separate stages?

See the sections on “Commercial Equivalents” and “Early Supply and Supplier Involvement.” As stated in the textbook: “The temptation is to collapse these two steps into one” and “each step should be analyzed separately to ensure that value opportunities are not overlooked.”

2.

Why is early supply/supplier involvement (ESI) important?

See the section “Early Supply and Supplier Involvement” and Figure 6-1.

3.

How is capital goods acquisition different from the purchase of raw materials?

See the section “Categories of Needs,” and Table 6-1. Raw materials are discussed in the section “2. Raw and Semiprocessed Materials” and capital goods are discussed in the section “Capital Assets.” As described in the textbook, about 70 percent of the opportunity for value improvement lies in these first two phases of the acquisition process.

4.

What are some major challenges in the acquisition of services? Please use examples.

Service acquisition is covered in the section “6. Service.” A list of examples of services is in Table 6-2. Students can draw from these examples or pick other examples.

5. What are some effective supply methods for dealing with maintenance, repair, and operating (MRO) requirements?

MRO items are covered in the section “Maintenance, Repair, and Operating Supplies.” The section “Repetitive or Nonrepetitive Requirements?” is also relevant. Also see question 12 below.

6.

Compare the acquisition of resale requirements to the acquisition of parts, components, or packaging.

The acquisition of resale items is covered in the section “1. Resale,” and parts, components, and packaging are covered in the section “3. Parts, Components, and Packaging.” The textbook provides examples for each category.

Students should understand the need for cross-functional involvement and the importance of early supply and supplier involvement for the acquisition of parts, components, and packaging.

7.

Why should a supply professional not acquire by brand?

Method of description by brand is provided in the section “Brand,” including four circumstances under which description by brand is desirable and necessary. This section also provides concerns about acquisition by brand, including cost, stating that: “undue dependence on brands tends to restrict the number of potential suppliers and deprives the buyer of the possible advantage of a lower price, improvements brought out by competitors, and the flexibility to use substitutes during periods of supply shortages.”

8.

What are the disadvantages of specifying by performance? What are the advantages?

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Refer to the section “Specification by Performance or Function,” including potential advantages (e.g., allowing suppliers the flexibility to use the latest technology) and disadvantages (e.g., difficulties comparing quotations and the supplier may include a risk allowance in the price.)

9.

What is the difference between standardization and simplification?

The section “Standardization and Simplification” provides a definition of each and explains the differences.

10. How does a supply professional know that a certain requirement is strategic?

Strategic requirements and methods of identifying them are covered in the section “1. Strategic Criteria.” Note that ABC analysis is one method of identifying strategic items (e.g., A items), but there are other approaches.

11. How would you determine the sustainability impact of a particular acquisition?

Sustainability considerations are provided in the section “3. Sustainability.” This section identifies potential methods of assessing both environmental and social sustainability, and issues associated with each.

12. How is the acquisition of repetitive requirements different from nonrepetitive requirements?

Refer to the section “Repetitive or Nonrepetitive Requirements?” which discusses differences between repetitive and nonrepetitive requirements. For repetitive requirements, a system or process of acquisition can be designed, as covered in chapter 4.

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Chapter 7 EOC KEY 1.

Why should a purchaser be familiar with the statistical tools for quality control and inspection?

The textbook states: “The heart of a new approach to quality centers on the appropriate use of the hard tools, techniques, and mathematics of quality along with the soft tools of relationship building.” As also stated in the section “Sampling, Inspection, and Testing”: “Sampling, testing, and inspection are quality management tools that may be used at three different stages in the acquisition process.” A number of quantitative techniques are described in the chapter, such as statistical process control (SPC), which familiarity of the purchaser is required in order to make knowledgeable decisions and to ask intelligent questions to other people in the organization and suppliers.

2.

How might you establish a supplier certification program?

Refer to the section “Supplier Certification.” Familiarity with quality standards (e.g., ISO 9001: 2015 and the Malcolm Baldrige National Quality Award) are useful when setting up supplier certification programs, as indicated on page 190: “Organizations are increasingly relying on third-party quality certifications as evidence of supplier quality management capabilities, making it important that supply personnel have a working knowledge of these programs.” The organization’s quality control/assurance group should play an important role when establishing a supplier certification program.

3.

How does the degree of tangibility of a service influence quality assessment?

Managing service quality is covered in the section “Assuring the Quality of Purchased Services,” and the section on tangibility is discussed in the section “Degree of Tangibility.”

4.

How could a quality philosophy be applied to a supply department?

The role of quality in supply management is discussed in the section “Role of Quality in Supply Management.” The lean philosophy (see the section “Lean Supply Management”), including elimination of waste and continuous improvement (discussed in Deming’s 14 Points), are directly related to the supply function and the organization’s suppliers.

5. What are the various costs associated with quality, and why is it difficult to determine the magnitude of some of these costs?

Refer to the section “The Cost of Quality,” including methods of measurement. External failure and morale costs are the most difficult to measure.

6. Why was Deming so insistent on single sourcing? What are the risks associated with single sourcing and how might they be mitigated?

Deming’s fourth point states: “End the practice of awarding business on price alone; instead, minimize total cost by working with a single supplier.” The section “The Cost of Quality” explains the advantages and concerns of longterm relationships with single sourced suppliers and the implications for quality. More information on single sourcing, including the advantages and disadvantages, is including in Chapter 12, supplier selection.

7.

What does it mean if a supplier is ISO 9001 certified? ISO 14001 certified?

See the section “ISO Quality Standards.”

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8.

What are the trade-offs between 100 percent inspection and sampling?

Sampling and 100 percent inspection are covered in the section “Sampling, Inspection, and Testing,” including an explanation of the trade-offs. Inspection has many inherent problems, as described in the textbook.

9.

What constitutes a “best buy”?

Refer to the section “Best Buy.” Best buy for services is discussed later in the chapter in the section “Formal Evaluation.”

10. What are some of the aspects of quality assurance when buying services?

Managing service quality is covered in the section “Assuring the Quality of Purchased Services.” Also see question 3 in this chapter.

11. What are the differences between lean and TQM? What are the implications for supply?

Lean and total quality management (TQM) are explained in the section “Quality Management Tools and Techniques.” Kaizen, or continuous improvement, is part of the lean philosophy. Consideration of TQM should also include the section on Deming. The lean and TQM philosophies have some important differences, as explained in the textbook.

12. What is the difference between specification limits and control limits? How are they related?

The section “Process Control” covers specification and control limits and explains the relationship among these process characteristics. The section “Process Capability” sis also relevant.

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Chapter 8 EOC KEY 1.

Of what interest is ABC analysis?

ABC classification is discussed in the section “ABC Classification.” Note that ABC analysis can be used in a variety of areas in addition to inventory management, including supplier relationship management (see Chapter 11). Also see Chapter 6, including the end of chapter question 10.

2.

What is a master production schedule and what role does it perform?

See the section “Planning Requirements and Resources.” The definition of a master production schedule is discussed in the section “MRP Inputs.”

3.

Why is it expensive to carry inventories?

Some examples of inventory carrying and holding costs are listed in the section “Costs of Inventories.” This is not a complete list and students should be able to identify other costs.

4. In a typical fast-food operation, identify various forms and functions of inventory. How could total investment in inventories be lowered? What might be the potential consequences?

Refer to the section “Function and Forms of Inventories.” A framework for analyzing inventory forms and functions is in Figure 8-6. This framework can be used to address the question in the context of a fast-food operation by identifying opportunities and assessing the consequences. For example, reducing raw material cycle inventory would require reducing order sizes.

5.

What are buffer inventories?

Refer to the section “Function and Forms of Inventories,” which discusses buffer inventories.

6.

What is a Kanban and why is it used?

Refer to the section “Lean Supply, Just-in-Time (JIT), and Kanban Systems.”

7.

What problems do inaccurate usage forecasts create for buyers? For suppliers?

Refer to the section “Forecasting.” Forecasts are seldom completely accurate, and the challenge is keeping forecast errors to a minimum. Some of the problems created by poor forecasting for the buyer and supplier are provided within this section.

8.

What is the difference between JIT and MRP?

See the section ”Planning Requirements and Resources.” JIT is covered in the sections “Functions and Forms of Inventories” and “Lean Supply, Just-in-Time (JIT), and Kanban Systems.” MRP and JIT are very different approaches. MRP is a push system, and JIT is a pull system.

9.

Why would anyone prefer to use a fixed-period reordering model over a fixed-quantity one?

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Fixed-period and fixed-quantity models are described within the sections “Fixed-Quantity Models” and “FixedPeriod Models,” including the advantages of each.

10. How does intangibility of services affect quantity decisions?

The impact of the degree of tangibility of services on quantity decisions is covered in the section “Degree of Tangibility,” including examples.

11. Describe sources of variability in the supply chain. How does variability increase supply chain costs?

The instructor may want to add context to this question by specifying an industry or purchase category. Variability occurs everywhere in the supply chain: supplier deliveries, demand and consumption, production processes for goods and services, etc. Safety/buffer inventories are held to protect against variability. Some examples of variability and the means to address it are provided within the section “The Functions of Inventory.”

12. What factors should be considered if you are asked to reduce inventories by 20 percent?

Understanding the forms and functions of the inventory in the supply chain is a good starting point. Refer to the section “Function and Forms of Inventories.” A framework for analyzing inventory forms and functions is in Figure 8-6. If inventory exists in the supply chain (e.g., raw, WIP, or FGI) and does not serve a function (e.g., cycle, decoupling, buffer, etc.), then it should/can be eliminated. Otherwise, the reason for its existence (the function) must be eliminated before the inventory can be reduced.

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Chapter 9 EOC KEY 1.

Why might an organization decide to outsource all or some of its logistics activities to a third party?

Refer to the section “Outsourcing to Third-Party Logistics (3PLs) Service Providers.” The textbook states: “transactional, operational, and repetitive activities outsourced most frequently. These include international and domestic transportation, warehousing, freight forwarding, and customs brokerage.” Students should be asked to explain why. Chapter 5 covers the topic of outsourcing in more detail and explains that organizations are not likely to outsource strategic activities that management considers core competencies.

2.

Which logistics activities are most commonly outsourced to 3PL providers?

See question 1 above. Outsourcing is a common approach used by most organizations for logistical activities.

Outsourcing is covered in Chapter 5 in more detail. The textbook identifies international and domestic transportation, warehousing, freight forwarding, and customs brokerage as the most frequently outsourced activities.

3.

How do firms organize to handle the logistics function?

Refer to the section “Organization for Logistics.” Logistics issues are covered throughout the chapter, including outsourcing various logistics activities. As with other functions, the size of the organization will impact options and strategies.

4.

What factors should be considered in selecting a mode of transportation? A carrier?

Refer to the section “Selection of Mode and Supplier,” including a list of criteria.

5.

What types of transportation damage might occur and how should each be handled?

The section on freight claims, see section “Documentation in Freight Shipments,” describes the potential carrier liability. This section also includes information on unconcealed and concealed loss or damage, along with how each should be handled. Refer to the section “FOB Terms and Incoterms.” The selection of FOB terms also affects how claims are handled and their responsibilities.

6. Why would an organization hire a freight auditor to review payments to its transportation service providers?

Refer to the section “Freight Audit and Payment Services,” including the benefits of outsourcing these services.

7.

What are the use and significance of the bill of lading?

See the section “Documentation in Freight Shipments” which gives information on bills of lading, including a definition.

8.

What does FOB mean? What variations are there in FOB terms?

Refer to the section “FOB Terms and Incoterms.” These should not be confused the FOB Incoterm (see Chapter 14).

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9.

What strategies should be developed to effectively manage the logistics function?

Refer to the sections “Transportation and Logistics Strategy” and “Organization for Logistics.”

10. How would logistics decisions be affected by a JIT purchasing arrangement?

JIT delivery arrangements have several implications for the purchasing arrangement. There are numerous references to JIT in Chapter 9, including: “With JIT, deliveries must be on time, with no damage to the items in transit, because minimal inventories are maintained. Inventory cost savings should offset additional transportation costs from a supplier providing fast, reliable deliveries.”

“Consequently, motor carriers are the preferred mode for organizations operating under a just-in-time system with many suppliers in close proximity to the manufacturing facility.”

“Time-definite services are in demand as organizations focus on time-based competition and JIT inventory management systems.”

“Volume discounts may reduce transport costs substantially. Systems contracts and blanket orders may be advantageous. If JIT purchasing is in use or being implemented, consolidation of several JIT suppliers may be costeffective.”

Also refer to Chapter 8, quantity and inventory, for more information on JIT and the implications for supply management.

11. Under what circumstances might a buyer prefer each of the following carriers: TL, LTL, air, water, rail, intermodal?

See the section “Transportation Modes and Carriers” for a comparison of carriers and modes. Also see the section “Selection of Mode and Supplier” for criteria related to carrier and mode selection.

12. What are the key issues when deciding how a service is delivered?

Refer to the section “Delivery Options for Services,” including examples.

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Chapter 10 EOC KEY 1.

What is the significance of the Sherman Antitrust and the Robinson-Patman acts for buyers?

See the section “Legislation Affecting Price Determination” for information on the Sherman Antitrust and the Robinson-Patman Acts.

2.

What disadvantages does the competitive bid process have as a method of price determination?

Refer to the section “The Use of Quotations and Competitive Bidding.” The conditions necessary for the bid process to work efficiently are provided at the end of this section. Potential disadvantages include supplier selection on the basis of price, where factors related to quality (e.g., specification), delivery, innovation, service, etc., are deemed to be equal. For example, might suppliers be able to provide alternative products or services that offer lower total cost of ownership compared to the specifications provided in the bid? The textbook also describes potential problems of timing of bids in relation to market price changes. If prices are increasing, it might be difficult to get bids.

Conversely, if prices are declining, buyers can get locked in contracts at high prices.

3.

How is supplier cost related to supplier price?

"Refer to the sections “How Suppliers Establish Price” and “The Cost Approach”.

4.

What are the various ways by which prices are determined?

Refer to the sections “Relation of Cost to Price” and “How Suppliers Establish Price.” Methods of determining prices with suppliers are described throughout the chapter (e.g., bidding). Negotiation as a price determination mechanism is covered in Chapter 11.

5. What methods can the buyer use to establish price for (a) raw materials; (b) professional services; (c) parts, components, and packaging; and (d) MRO supplies?

Refer to the section “Types of Purchases,” which addresses each of these categories.

6.

Distinguish between direct and indirect costs. How can the buyer analyze these costs?

The concepts of direct and indirect costs are explained in the section “Meaning of Cost.”

7.

What can a buyer do if there is suspicion of supplier collusion?

Refer to the section “Collusive Bidding.”

8. What are cash discounts, quantity discounts, trade discounts, and cumulative discounts? Should a buyer attempt to use these discounts? How? Refer to the section “Discounts,” including when and how to obtain them.

9.

Why might a buyer wish to hedge a commodity purchase? How might this be accomplished?

Refer to the section “Hedging.”

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10. Does hedging remove all risk? Why or why not?

Refer to the section “Hedging.” Also see question 9.

11. What is the difference between forward buying and speculation?

The distinction between forward buying and speculation is explained in the section “Forward Buying versus Speculation.” Organizing for forward buying and control of forward buying are in the subsequent sections.

12. What are the differences in bidding for purchasers in the private and public sectors?

Refer to the section “The Use of Quotations and Competitive Bidding.” Public sector bidding is explained within this section and explains the unique issues for bidding in this sector.

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Chapter 11 EOC KEY 1.

What is portfolio analysis and how can it be used to manage supply relationships?

The portfolio concept is covered in the section “Frameworks for Cost Management,” including Figure 11-1.

Portfolio analysis is a risk management approach that places each major purchase category on a spend map based on the risks to acquire in the marketplace and the value of the category to the organization.

2. What are the major cost categories that you would include when estimating a supplier’s cost for a manufacturing item? How would you estimate such costs if the supplier was either unwilling or unable to provide a detailed cost breakdown?

See the section “Manufacturing Cost Elements.” This section also provides some ideas for estimating costs, however, the students should be able to think of additional methods. Also see the section “Meaning of Cost” in Chapter 10.

3. What are the major cost categories that you would include when estimating a supplier’s cost for a service?

How would you estimate the cost if the supplier was either unwilling or unable to provide a detailed cost breakdown?

See the section “Service Cost Elements.” This section also provides some ideas for estimating costs, however, the students should be able to think of additional methods. Also, see the section ”Meaning of Cost in Chapter 10.

4.

When and how is negotiation used, and what can be negotiated?

Refer to the section “Negotiation.” As pointed out: “any aspect of the purchase/sale agreement is subject to negotiation.” However, the textbook also states that “negotiation is the most sophisticated and most expensive means of price determination,” and therefore, it is impractical to negotiate everything. For example, refer to the portfolio concept in Figure 11-1.

5.

What is a learning curve and how can it be used?

Refer to the section “The Learning Curve or Experience Curve,” which covers the concept, and is referenced in several other parts of the chapter.

6.

Why do firms use target costing? How are target costs established?

Refer to the section “Target Costing” and Figure 11-2.

7.

What is activity-based costing (ABC), and how can the buyer use ABC to reduce costs?

Not to be confused with ABC analysis (e.g., Pareto analysis) (see the section “ABC or Pareto Analysis and Cost Management”), activity-based costing (ABC) and the implications for supply are covered in the section “ActivityBased Costing.”

8.

What is total cost of ownership (TCO), and how is it determined?

TCO is an important concept in supply management and addressed in several chapters. It is covered in the section “Total Cost of Ownership.”

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9.

What is the difference between “managing costs” as opposed to “managing prices”?

This is a central point of Chapter 11. As stated in the introduction: “In the long run, companies need suppliers that provide the lowest total costs, not necessarily the lowest prices. Consequently, a focus on costs, as opposed to prices, allows purchasers to make informed decisions and identify opportunities to reduce waste in the supply chain.” Also, see the section “Strategic Cost Management.”

10. Please comment on the following statement: Target costing can only be used for manufactured items and cannot be applied to services.

Although more frequently used in manufacturing, target costing is as applicable to services as it is to manufacturing. Refer to the section “Target Costing,” including Figure 11-2.

11. What are the best methods to track and report supply cost savings?

Refer to the section “Supply Cost-Reduction Programs,” including measurement and reporting issues.

12. How can supply chain finance influence purchasing costs?

Supply chain financing is a relatively new concept covered in the section “Supply Chain Finance.” As stated in the textbook, “The objective of SCF is to improve cash flow management in the supply chain and reduce risks through improved liquidity and working capital utilization.”

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Chapter 12 EOC KEY 1. Why might a supply manager prefer to look for a new supplier rather than place additional business with an existing supplier? Why not?

See the section “Identifying Potential Sources,” and Figure 12-3.

2. What are the challenges of incorporating sustainability performance in supplier selection criteria when evaluating potential sources of supply?

Refer to the section “Sustainability.” Sustainability includes both environmental and social dimensions.

3. Why might a purchaser prefer a small supplier over a large supplier, and why? Why might a purchaser prefer a large supplier over a small supplier?

Refer to the section “Supplier Size,” including the advantages of dealing with small and large suppliers.

4.

Why should firms include supplier diversity in their sourcing strategy?

See the section ”Supplier Diversity.” This section highlights the societal and commercial benefits of supplier diversity initiatives.

5. Why might it be preferable to buy from a distributor or wholesaler rather than directly from the manufacturer?

Sourcing with manufacturer versus distributor is covered in the section “Manufacturer versus Distributor.”

6.

What are the advantages of purchasing from large, global sources?

Supplier selection decisions related to supplier size are covered in the section “Supplier Size.” As stated in the textbook at the end of the section “Supplier Development/Reverse Marketing”: “The increase in global trade will tend to widen supplier horizons and may create a need for purchaser aggressiveness in the development of global sources of supply.”

7. Why source requirements for product with a single supplier? What are the advantages and disadvantages of this approach?

Single and multiple sourcing is covered in the section “Single versus Multiple Sourcing,” including Tables 12-1 (reasons to single source) and 12-2 (reasons to multiple source). This question refers to single sourcing products, while the question that follows refers to services. Major differences between products and services are that services cannot be stored (e.g., held in inventory) and services involve customer involvement. Framing the question on the types of products and their characteristics (e.g., volume, level of customization, and nature of the supply market) will help focus the class discussion of criteria that can be used to make decision on single versus multiple sourcing.

8. Why source requirements for service with a single supplier? What are the advantages and disadvantages of this approach?

Single and multiple sourcing is covered in the section “Single versus Multiple Sourcing,” including Tables 12-1 (reasons to single source) and 12-2 (reasons to multiple source). This question refers to single sourcing products, while the previous question to products. Major differences between products and services are that services cannot

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be stored (e.g., held in inventory) and services involve customer involvement. Framing the question on the types of services and their characteristics (e.g., volume, level of customization, and nature of the supply market) will help focus the class discussion of criteria that can be used to make decision on single versus multiple sourcing. For example, it might be easy to dual source trucking services but more difficult to dual source new product development, banking, or consulting services.

9. Why is it important to focus attention on a supplier’s management as part of the supplier selection process? How might this evaluation be conducted?

Refer to the section “Management and Financial Evaluation.” A key issue is whether the supplier’s management team represents a corporate strength or a weakness. For strategic purchases, the fit between the corporate cultures of the buyer and supplier is important.

10. How might political issues impact a supplier selection decision?

Political considerations for supplier selection are covered in the section “Political.”

11. How might sustainability issues impact a supplier selection decision?

Sustainability is covered in the section “Sustainability.” Sustainability includes both environmental and social components.

12. When should a purchaser use supplier development/reverse marketing and why?

Refer to the section “Supplier Development/Reverse Marketing.”

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Chapter 13 EOC KEY 1.

What is a weighted point evaluation system? Why is it used?

Weighted point evaluation systems are in the section “Weighted Point Evaluation System.” Much of this section in the textbook focuses on the process of setting up a weighted point evaluation system. The purpose of this question is to make the students consider why it is used. Selection of the factors, weights, and form of measurement need to be aligned with the objectives.

2.

When might it be appropriate to conduct a formal, rather than an informal, supplier evaluation?

See the sections “Evaluation Methods,” “Informal Evaluation and Rating,” and “Formal Supplier Evaluation and Rating.”

3.

What are the similarities and differences between evaluating new and existing sources of supply?

As stated in the textbook at the end of section “Key Performance Indicators (KPIs)”: “Most supply professionals tend to separate suppliers into two categories: new and current. A new supplier is one about which no track record is yet available. This is a supplier new to the buying organization and in the process of attempting to meet its obligations under its first contract. The new supplier can be considered probationary and will normally be watched closely to ascertain whether preselection expectations warranted awarding the business. For current and longerterm suppliers, who have already proven in the past that their performance meets minimum expectations, the evaluation of their performance may be more routine.”

In the section “Categorical Evaluation and Rating”: “Delivery performance of a current supplier is fairly easily tracked if good records exist of delivery promises and actual receipts and few modifications have been made on an informal basis.”

Also, see the section “The Buyer–Supplier Satisfaction Matrix.”

4. Why should purchasing pay attention to a supplier’s management in the evaluation process? How might this evaluation be conducted?

Much of the material covered in Chapter 13 deals with evaluating the operational performance (e.g., the sections on measuring supplier performance and evaluation methods). This is easier because of the availability of hard data (e.g., on-time delivery and defect rates). See the Industrial Products PLC case at the end of the chapter for an example. Evaluating a supplier’s management is more subjective and may be critical in some circumstances, such as partnerships and alliances (see the section “Partnerships and Alliances” and Figure 13-4). Evaluation of management would be included as an informal evaluation (see the section “Information Evaluation and Rating”).

Also, see the section on management and financial evaluation of suppliers in Chapter 12.

5.

Why are buyer–supplier relationships important?

See the sections “Supplier Relationships,” and “Supplier Relationship Management.” An analogy can be made to relationships with customers, which most organizations see as critical. Relationship with key suppliers is equally important to firm success.

6.

Why create a partnership?

See the section “Partnerships and Alliances,” and Figure 13-4. The textbook: “More recently, partnerships and alliances have become network oriented with an emphasis on building efficient and effective multi-tiered supply chains and global networks. The focus has shifted to building and maintaining agile, resilient and sustainable supply chains.”

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7.

What is a strategic alliance and why is it used?

See the section “Partnerships and Alliances.” The textbook states: “More recently, partnerships and alliances have become network oriented with an emphasis on building efficient and effective multi-tiered supply chains and global networks. The focus has shifted to building and maintaining agile, resilient and sustainable supply chains.”

The textbook defines an alliance as a form of partnership: “Strategic alliances were partnerships that targeted strategic goods and services for joint programs related to quality, cost, and continuous improvement. The goals were linked to buyer and supplier competitive advantage.”

8.

What are the goals of early supplier involvement (ESI)? How does ESI fit in with cross-functional teams?

ESI is covered in the section “Early Supplier/Supply Involvement (ESI).” The textbook states: “The drive to cut cycle times, improve competitiveness, and reduce costs compels some organizations to include supplier(s) on crossfunctional teams.”

Also, see Chapter 6, Need Identification and Specification, for more information on ESI, and Chapter 3, Supply Organization, for more information on cross-functional teams.

9.

What are the differences between an operational alliance and a strategic alliance?

Operational and strategic partnership and alliances are covered in the section “Types of Partnerships and Alliances.”

10. What are the potential risks and problems of buyer–supplier partnerships and alliances?

Refer to the section “Concerns about Partnership and Alliances.”

11. What is the relationship between satisfaction and stability in buyer–supplier relations?

See the section “The Buyer–Supplier Satisfaction Matrix.” This section describes behavioral aspects for both the buyer and supplier based on their positions within the buyer–supplier satisfaction matrix.

12. How might the supplier evaluation process differ between suppliers providing products and suppliers of services?

There are numerous sections throughout the textbook that deal with the acquisition of services, including outsourcing in Chapter 5, service quality in Chapter 7, and supplier section in Chapter 12. In Chapter 13, the evaluation is related to the supplier, versus the service. However, the nature of the service needs to be considered.

Input from the internal users of the service needs to be taken into account.

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Chapter 14 EOC KEY 1. What are the factors/forces that have caused the increase in global trade? What changes do you think will occur in the next 10 years?

See the section “The Importance of Global Supply,” “Reasons for Global Purchasing,” and “Regional Trade Agreements.” There are a lot of changes that are affecting global trade, such as the U.S. Mexico and Canada Agreement (USMCA), Brexit, and other geopolitical events. For insights on potential changes, see the sections in Chapter 17 on supply trends, including the evolution of global sourcing (pages 529–531) and protectionism and economic nationalism (page 531).

2. Why have North American firms outsourced and offshored the manufacture of goods and delivery of services to suppliers in other regions of the world?

See the sections “The Importance of Global Supply,” “Reasons for Global Purchasing,” and “Regional Trade Agreements.”

3. What do firms see as the principal advantages to be gained when they buy globally? What are the principal disadvantages?

See the sections “Reasons for Global Purchasing,” and “Potential Problem Areas.”

4. How can the buying firm minimize the problem areas connected with global buying? Which do you feel are most serious?

See the section “Potential Problem Areas.” Each problem area is relevant, but the impact depends on the context.

For example, ethics and social responsibility are more applicable when sourcing from emerging regions (see the section “Emerging Markets”) than from developed regions.

5.

How can the buyer best identify potential international sources? Evaluate potential suppliers.

See the section “Information Sources for Locating and Evaluating Offshore Suppliers.”

6.

What are the pros and cons of buying direct versus using some form of intermediary?

The role of intermediaries in global sourcing is discussed in the section “Intermediaries.”

7. What are the forms of countertrade, and what problems do they cause for the buyer? How can the buyer help make countertrade work?

Refer to the section “Countertrade,” including the different forms of countertrade, and the potential problems and remedies.

8.

How can the buyer make effective use of foreign trade zones?

Refer to the section “Foreign Trade Zones.” While FTZ are useful in avoiding, reducing, or postposing duties, it should be recognized that using FTZ is often a long-term commitment that can require significant commitments of time, effort, resources, and investments in infrastructure.

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9. What advantages are there for buyers affected by the United States–Mexico–Canada Agreement (USMCA)?

USMCA is covered on in the section “United States–Mexico-Canada Agreement (USMCA).” The focus of this question is understanding the implications of regional trade agreements, such as the USMCA, not what the agreements represent. Such agreements affect purchasers in areas such as cost (e.g., duties) and access to markets and suppliers. Therefore, it is important that purchasers involved in global sourcing monitor change to trade agreements.

10. What are Incoterms? What factors should be considered when selecting an Incoterm?

Refer to the section “Incoterms.” Similar to the discussion of FOB terms in Chapter 9, assessment of organizational logistics capabilities and risk tolerance will influence the Incoterm delivery term.

11. What opportunities do emerging markets represent for global sourcing? What are the challenges associated with purchasing goods and services from emerging economy markets?

Chapter 14 includes a section “Emerging Markets.” There are numerous references to sourcing in emerging regions throughout the chapter, including the sections “Reasons for Global Purchasing” and “Potential Problem Areas.” Emerging regions are often referred to as “low-cost sourcing” regions. As described in the textbook, significant differences exist between sourcing with local suppliers in developed countries, such as the United States, versus emerging regions, in areas such as regulations and culture (e.g., see the potential problem areas).

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Chapter 15 EOC KEY 1.

What is counterfeiting and how does this issue affect supply managers?

Refer to the section “Trademarks.” Counterfeiting is an important issue that has implications for product safety and supply chain security, which is covered in Chapter 17.

2. Under what conditions is it realistic for a buyer to cancel a contract for goods? For services? For a seller to cancel a contract for goods? For services?

See the section “Cancellation of Orders and Breach of Contract.”

3.

Does a supplier have to accept a PO exactly as offered by the buyer to create a legally binding contract?

See the section “Acceptance of Offers.” Related sections include “Inspection” and “Acceptance and Rejection of Goods.”

4.

What is alternative dispute resolution? When and how should it be used?

Refer to the section “Alternative Dispute Resolution.”

5.

Does a salesperson have basically the same legal authority as a buyer? If not, how is it different?

Refer to the section “Authority of Suppliers’ Representatives.” The authority of the sales representative is different than that of a supply manager.

6. What are the legal rights of the buyer if goods delivered by a supplier do not measure up to the specifications?

See the sections “Inspection” and “Acceptance and Rejection of Goods.”

7.

Under what conditions might purchasers be personally liable for contracts they enter into?

See the section “Personal Liability.” Note that the supply officer may be held personally liable under certain conditions.

8.

Is an oral contract legally enforceable? Under what conditions?

See the sections “The Purchase Order Contract,” “Acceptance of Offers,” and “Purchases Made Orally—Statute of Frauds.”

9. What authority does a supply manager have to make decisions that are binding on the principal? What responsibility do buyers have for the consequences of their decisions?

Refer to the sections “Legal Authority of the Buyer” and “Personal Liability.”

10. What actions can the supply manager take to protect intellectual property rights and avoid legal action?

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Intellectual property (IP) is a complex subject, especially in the context of global trade. Refer to the section “Intellectual Property Law.” Purchasers need to be concerned with both the IP owned by their organization and supplier IP issues.

11. What can supply managers do to minimize the company’s risk of a product liability lawsuit?

Refer to the section “Product Liability.”

12. What legal issues would you want to consider before setting up an e-procurement system in a company?

See the section “Acceptance of Offers.” The issue here is that e-procurement systems, both the purchase order and the acknowledgment, are transmitted electronically.

13. Where does the borderline fall between gifts and bribery?

See the section “Ethics” and Figures 15-2, 15-3, and 15-4.

14. What is a conflict of interest? What steps should supply managers take to avoid potential conflicts of interest?

Conflicts of interest are covered in the section “Ethics” and Figures 15-2, 15-3, and 15-4.

15. Should every organization have a supplier code of conduct? Why or why not?

See the section “Sustainability.” Most large organizations have corporate codes of conduct to ensure compliance with ethical and sustainability standards. It is not difficult for small- and medium-sized enterprises to develop their own codes of conduct, although the level of sophistication and detail may not equal that of large enterprises.

16. What are the advantages and disadvantages of using third-party certifications and audits to evaluate supplier conformance with and organization’s code of conduct?

See the section “Sustainability.” This is a form of outsourcing. Many organizations that choose to audit their suppliers use third-party services. As with any other outsourcing decision, questions related to quality and cost need to be considered.

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Chapter 16 EOC KEY 1.

Why is responsibility for logistics often given to supply?

The reasons for giving supply responsibility for logistics and warehousing are covered in the section “Logistics and Warehousing.”

2.

Why is responsibility for investment recovery often given to supply?

Investment recovery is a major part of Chapter 16, including the reasons for giving supply responsibility. Refer to the section “Responsibility for Material Disposal.” Since supply is involved in the original acquisition of the materials or equipment, it is frequently seen by senior management as having the most knowledge about the markets and potential avenues for disposal or sale.

3.

What are the advantages and disadvantages for giving responsibility of accounts payable to supply?

Refer to the section “Accounts Payable.” While once seen as contrary to good management practices, the textbook describes the advantages of integrating supply and AP systems, including lower transaction costs and on-time payments to suppliers. Also see the Elizabeth Beattie case in Chapter 16.

4.

How can the firm obtain maximum return from disposal of unneeded items?

See the sections “Keys to Effective Disposal” and “Disposal Channels.”

5.

What specific procedures should supply use to dispose of unneeded items?

Refer to the section “Disposal Procedures."

6.

What are the channels used in disposing of items? What are the advantages of each?

The channels for disposal are provided in the section “Disposal Channels,” including the advantages of each.

7. What is the difference among surplus material, obsolete material, rejects, scrap, waste, and hazardous waste? How do investment recovery and disposal practices differ between these six categories?

The different categories of material for disposal are described in the section “Categories of Material for Disposal.”

This section also provides information about disposal alternatives.

8.

Where can you achieve cost reductions in disposal and investment recovery activities? What are the major cost drivers?

The section “Investment Recovery” lists seven “ways in which supply can simultaneously achieve cost reductions and make improvements in environmental performance.”

9.

How do environmental concerns affect the disposal of scrap, surplus, and obsolete materials?

There are numerous references to environmental concerns throughout the section on investment recovery. For example, within the section “Investment Recovery”: “Investment recovery has become more complex as companies face increasingly stringent environmental regulations and rising disposal costs.” And on the same page: “Thus,

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investment recovery requires attention to environmental issues and regulations (e.g., hazardous waste disposal) and the ability to identify opportunities to eliminate waste in the supply chain, recover revenues, or reduce costs (e.g., through recycling or identifying new means of disposal).” Also within the “Investment Recovery” section, refer to closed-loop supply chains and question 8.

10. How can environmental matters be incorporated into supplier selection?

There are numerous opportunities to incorporate environmental matters into the supplier selection decision. For example, within the section “Investment Recovery”: “Supplier selection should focus on total cost of ownership, and suppliers must be capable and willing to support component remanufacturing and material recycling initiatives.”

Refer to the section “Disposal Partners.” Sustainability considerations in the supplier section decision are also included in Chapter 12. Also see question 11 in Chapter 12.

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Chapter 17 EOC KEY 1.

How does value analysis differ from value engineering?

See the section “Value Analysis” and Figure 17-3. The textbook states: “The distinction is often made that value analysis is done on purchased items used in the ongoing production process and value engineering focuses on value improvement opportunities in the design stage. The value analysis process is the same at both stages. Obviously, value engineering to arrive at the best value specification and design that will adequately perform the function is the most efficient way to do the job, but unfortunately this analysis, due to time pressures, often is not done.”

2. What are the various subject areas of supply research? Which area do you think would be most productive in (a) the short run and (b) the long run?

Refer to the section “Supply Research Opportunities.” The textbook lists four areas for research projects: “(1) purchased materials, products, or services; (2) commodities; (3) suppliers; and (4) supply processes.” Criteria for deciding where to direct research efforts is also provided, although “top dollar” criterion is the most widely used method.

3. In what ways might a firm organize to do supply research? What are the advantages and disadvantages of each? Which would you recommend in a (a) small organization, (b) a medium-sized organization, and (c) a large organization?

Within the section on “Supply Research”: “A firm could conduct supply research in one of three ways: (1) full-time research positions, (2) inclusion of research as a part-time responsibility of supply personnel, or (3) crossfunctional teams to bring an expanded knowledge base to the research process.” Large organizations are obviously better able to afford full-time positions, while small- and medium-sized firms are more likely to have supply research as a part-time role. Full-and part-time research positions are addressed in the section “Full-Time or PartTime Research Positions” and Figure 17-2. Cross-functional teams for supply research are covered in the section “Cross-Functional Teams” (and in Chapter 3), and value analysis teams within the section “Value Analysis.”

Chapter 3 provides additional information on organizational issues in supply.

4.

What questions would be asked in a commodity study? Where would you obtain the information?

Commodity studies are explained in the section “Commodities.”

5. What is the difference between a supply plan and a supply budget? In which areas should a supply budget be prepared? How would these budgets be established?

Refer to the sections, “Supply Planning Process” and “Supply Budgets,” including the different types of budgets.

Budgets are derived from forecasts and plans.

6. Why isn’t there a standard system for evaluating supply performance that could be used by all types of organizations? How difficult would it be to develop such a standard system?

Refer to the section “Performance Measurement Systems” and “Developing Metrics.” As stated in the textbook: “An underlying assumption is that the designated metrics support the organizational mission.”

7.

What are the key metrics of supply performance?

Refer to the section “Developing Metrics.” This section lists a number of potential metrics. The textbook states: “Metrics can be grouped into two broad categories, efficiency and effectiveness.”

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8.

Are standard costs and budgets useful in the appraisal process? Under what conditions?

See the sections “Setting Targets” and “Operating Reports.” Supply budgets are explained in the section “Supply Budgets.”

9.

Why would an organization want to “benchmark” its supply function? How would it do this?

Refer to the section “Supply Performance Benchmarking.” Benchmarking addresses the question of how are we doing compared to other firms?

10. What is the difference between performance benchmarking and process benchmarking?

Refer to the section “Supply Performance Benchmarking.” In this section, the textbook states: “Performance benchmarking measures what results organizations have achieved in their purchasing/supply activities, and process benchmarking attempts to determine how an organization achieves results.”

11. What is the triple bottom line? How can supply influence sustainability performance in the organization?

See the section “Incorporating Sustainability in Supply Practices.” The triple bottom line is defined as the combination of their social, environmental, and financial performance.

12. What are the differences between efficiency and effectiveness metrics?

Refer to the section “Establishing Metrics.” While efficiency metrics emphasize cost and productivity, effectiveness metrics attempt to measure how well something is done.

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