Principles of Supply Chain Management A Balanced Approach 6th Edition by Joel Wisner, Keah TEST BANK

TEST BANK Principles of Supply Chain Management: A Balanced Approach 6th Edition

by Joel D. Wisner, Keah-Choon Tan, G. Keong Leong

TABLE OF CONTENTS CHAPTER 1. Introduction to Supply Chain Management CHAPTER 2. Purchasing Management CHAPTER 3. Creating and Managing Supplier Relationships CHAPTER 4. Ethical and Sustainable Sourcing CHAPTER 5. Demand Forecasting CHAPTER 6. Resource Planning Systems CHAPTER 7. Inventory Management CHAPTER 8. Process Management—Lean and Six Sigma in the Supply Chain CHAPTER 9. Domestic U.S. and Global Logistics CHAPTER 10. Customer Relationship Management CHAPTER 11. Global Location Decisions CHAPTER 12. Service Response Logistics

CHAPTER 13. Supply Chain Process Integration CHAPTER 14. Performance Measurement along Supply Chains

Chapter 01: Introduction to Supply Chain Management Indicate whether the statement is true or false.

1. According to the textbook, the keys to successful supply chain management include trust, cooperation, collaboration and honest, accurate communications between supply chain partners. a. True b. False 2. Supply chain management is concerned about how suppliers’ products are designed, produced, and transported. a. True b. False 3. One definition of supply chain management is "Coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers." a. True b. False 4. The universally accepted definition of supply chain management is "the management and integration of the parties involved in producing the end items coveted by consumers." a. True b. False 5. The assembly or production of finished products, producing the right amount of product, and ensuring that finished products meet specific quality, cost, and customer service requirements can all be considered elements of operations. a. True b. False 6. According to the textbook, supply chains include raw material suppliers, intermediate component manufacturers, endproduct manufacturers, wholesale distributors, retailers and end-product consumers. a. True b. False 7. Trade estimates suggest that the bullwhip effect results in excess costs on the order of 50 percent for each firm in a supply chain. a. True b. False 8. According to the textbook, a supply chain's end customers are the only true source of income for all supply chain organizations. a. True b. False 9. The foundation elements of supply chain management are Supply, Operations, Customer Service, and Logistics. a. True b. False 10. Supply chain management activity includes managing the various compensation and benefit programs within an organization.

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Chapter 01: Introduction to Supply Chain Management

11. Highly valued customers with large purchasing budgets who achieve moderate supply chain management success have been known to lower purchasing and inventory carrying costs and create better quality products with higher levels of customer service. a. True b. False 12. Many large firms are moving to in-house vertically integrated structures where they have more control over each business unit. a. True b. False 13. Supply chain analytics can be used along the supply chain to schedule production according to expected supplier deliveries a. True b. False 14. According to the textbook, in the 1950s and 1960s, mass production techniques focused on creating supplier partnerships, improving process design and flexibility, and improving product quality. a. True b. False 15. Supply Chain Management activities work with computer-aided design programs to ensure continued supply of a scarce item. a. True b. False 16. According to the textbook, environmental and social impacts are considered outside of supply chain management. a. True b. False 17. Trends in supply chain management include expansion of the supply chain and decreasing supply chain visibility. a. True b. False 18. Circular economy refers to an economic system aimed at eliminating waste and the continual use of resources. a. True b. False 19. The bullwhip effect causes an amplification of the variation in the demand pattern along the supply chain. a. True b. False 20. The bullwhip effect is the result of companies producing excessive defective products; defective items are whipped back from the end customer toward the manufacturer of the defect.

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Chapter 01: Introduction to Supply Chain Management a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

21. When a particular item is in short supply accompanied by rising prices, a firm might find it beneficial to: a. Discontinue buying the product and focus more on cheaper products. b. Align itself with one of the suppliers to ensure a continued supply of the scarce item. c. Purchase the item from a manufacturer who cuts corners and provides a product below market price. d. All of these 22. Supply chain management includes the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. It also includes: a. Human resources and job design b. Selling and marketing products c. Coordination and collaboration with channel partners d. Program evaluation and review techniques.

23. Which of the following companies are indirectly involved in most supply chains? a. Trucking and airfreight companies b. Freight forwarders c. Public warehousing firms d. All of these 24. According to the textbook, conditions which must be present for successful supply chain management include: a. High level of trust among firms b. Corporate contracts regarding performance expectations c. Short-term company focused performance d. Benchmarking 25. According to the text, the FOUR important elements of the supply chain are: a. Purchasing, manufacturing, transportation, retail stores b. Supply, operations, logistics, integration c. Purchasing, manufacturing, logistics, transportation d. Supply, operations, manufacturing, distribution 26. Encouraging or helping a firm's suppliers to perform in a desired fashion can be referred to as: a. Progressive procurement b. Supplier management c. Right-shoring d. Supply chain performance management 27. Which of the following activities would fall under the foundational element of operation? a. Distribution network b. Supplier management

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Chapter 01: Introduction to Supply Chain Management c. Demand management d. Third-party logistics services 28. One operational method for managing inventory is the implementation of a software system which can be referred to as: a. Customer relationship management (CRM) b. Demand capacity tracking (DCT) c. Material requirements planning (MRP) d. Demand process reengineering (DPR) 29. Which of the following tends to reduce duplicate testing and inspections and the need for extensive supplier evaluations? a. Supplier certification b. Right-shoring c. Business process reengineering d. Pilot Production 30. According to the textbook, the order of product and service flow is as follows: a. Raw material supplier, retailer, component manufacturer, wholesale distributor, end product manufacturer, end-product consumer b. Raw material supplier, component manufacturer, retailer, wholesale distributor, end product manufacturer, end-product consumer c. Component manufacturer, raw material supplier, retailer, wholesale distributor, end product manufacturer, end-product consumer d. Raw material supplier, component manufacturer, end product manufacturer, wholesale distributor, retailer, end-product consumer 31. Which of the following is a reverse logistics activity? a. Delivering finished goods to your customer b. Recycling products and components c. Developing a collaborative relationship with your supplier d. Managing the quality of products 32. Which of the following would be considered a third party logistics provider? a. A raw materials supplier b. An intermediate component manufacturer c. A firm that leases storage warehousing d. An end product manufacturer 33. Which of the following statements is TRUE? a. Supply chain management was invented by the auto manufacturing industry. b. Strategic partnerships are seen as one of the foundations of supply chain management. c. Purchasing is seen as the final and most difficult step in the supply chain. d. Service response logistics is the digital distribution of services.

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Chapter 01: Introduction to Supply Chain Management 34. Which of the following acronyms is NOT paired with its correct "translation"? a. TQM − Total Quality Management b. JIT − Just-in-Time c. TLS − Third-party Logistics Services d. ERP − Enterprise Resource Planning 35. Lean production is typically associated with which of the following company's production systems? a. Procter and Gamble b. Kraft c. Samsung d. Toyota 36. Customer relationship management, distribution network, transportation management, and service response logistics are all important issues that are most closely related to: a. Purchasing b. Logistics c. Integration d. Manufacturing 37. The following strategy is usually employed by lean organizations in an effort to ensure continued quality compliance among suppliers and with internal production facilities: a. Six Sigma b. MRP II c. 3PL d. CAPS 38. Indicate which of the following can be defined as “the ability to meet the needs of current supply chain members without hindering the ability to meet the needs of future generations.” a. Reverse logistics b. Enterprise resource planning c. Sustainability d. Strategic partnerships 39. According to the text, which of the following is considered a current trend in supply chain management? a. Outsourcing the CRM function b. Increasing supply chain visibility c. Use of self-directed teams d. None of these 40. Developed in the 1990s as a popular way of developing radically new business processes in an effort to reduce waste and increase performance is referred to as: a. Process integration b. Benchmarking c. Business process reengineering d. Vertical integration

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Chapter 01: Introduction to Supply Chain Management 41. The term Supply Chain Management and the field of study it represents today seems to have emerged in the: a. 1960s b. 1970s c. 1980s d. 1990s 42. An example of an internal or external event that causes a disruption or failure of supply chain operations is: a. Supply chain risk b. Back-shoring c. Six Sigma quality management d. COVID-19 Pandemic 43. Which of the following can happen as a result of the bullwhip effect? a. Increase in defective products b. Excess costs for each firm in a supply chain c. Decreased levels of safety stock d. Quicker distribution to warehouses 44. The continuing cycle of erratic demand causing forecasts to include safety stock which in turn magnify supplier forecasts and cause production planning problems is known as: a. Supply chain management b. Process integration c. Back-shoring d. Bullwhip effect 45. The following is an example of the bullwhip effect: a. Nike includes safety stock of 5,000 units of shoestrings in its demand forecast causing its shoestring supplier to increase their normal output for Nike. b. Nike products are so successful that it adds a new retailer for distribution c. Nike produces a defective product and thus realizes an excessive increase in consumer returns d. Nike is unhappy with the performance of a distributor which causes a chain-reaction of replacements to companies involved in its supply chain

46. There are many definitions for supply chain management. a. Define supply chain management in your own words. b.

What is the goal of supply chain management?

47. Give three examples of benefits that may be realized by a firm that successfully manages its supply chain.

48. Briefly explain how technology has impacted supply chain management. Give three examples.

49. Briefly discuss three current trends in supply chain management:

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Chapter 01: Introduction to Supply Chain Management 50. Discuss the differences between supply chain partnerships of the past and those that have developed today.

51. List the four elements of supply chain management and provide a brief explanation of each of the four elements. What types of failures might each of those elements create within the supply chain? Why might those results be linked to errors in a particular element?

52. Explain the bullwhip effect. What can be done to reduce the bullwhip effect? Give an example of how the bullwhip effect results in excess costs in the supply chain.

53. Draw a generic global supply chain and label all the participants.

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Chapter 01: Introduction to Supply Chain Management Answer Key 1. True 2. True 3. True 4. False 5. True 6. True 7. False 8. True 9. False 10. False 11. True 12. False 13. True 14. False 15. False 16. False 17. False 18. True 19. True 20. False 21. b 22. c 23. d 24. a 25. b

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Chapter 01: Introduction to Supply Chain Management 26. b 27. c 28. c 29. a 30. d 31. b 32. c 33. b 34. c 35. d 36. b 37. a 38. c 39. b 40. c 41. c 42. d 43. b 44. d 45. a 46.46. a.

b.

Supply chain management is managing the activities involved in sourcing, production, and distribution of products. It is also involved in coordinating or integrating a number of goods- and services-related activities among supply chain participants.

The goal of supply chain management typically involves improving operating efficiencies, increasing quality of products and strengthening customer service among the collaborating organizations.

47.47. a.

Benefits from successfully managing the supply chain Lower purchasing and inventory carrying costs

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Chapter 01: Introduction to Supply Chain Management b. c. d.

Better product quality Higher levels of customer service Increase in sales

48.48. a. b. c. d.

49.49. a.

b.

c.

How technology has impacted supply chain management Shipments can be tracked and monitored using technology and alerts sent to shippers about items that are in transit and delivered.

Technology can be used to help a facility make more economic use of their utilities such as automated controls for lighting and air conditioning.

RFID and automated storage and retrieval systems can be used to move product through a warehouse Inventory visibility is made easier by technology and the use of MRP and ERP systems.

Use of supply chain analytics which refers to examining raw supply chain data and then reaching conclusions or making predictions with the information.

Improving supply chain sustainability which involves meeting the needs of current supply chain members without hindering the ability to meet the needs of future generations in terms of economic, environmental, and social challenges.

Increasing supply chain visibility so manufacturers, business partners, and customers know exactly where products are, at any point in the supply chain.

50. In the past, supply chain partnerships did not really exist. ∙ Supply chains were seen as a series of independent organizations that were looked on, to perform their core competency for the sake of their downstream "partner." ∙ Firms in the past did not seek to share information. ∙ Buyers of supplies and services instead usually were reduced to bargain hunters. Low cost was valued over quality. ∙ Traditional relationships were also characterized by a large number of partners and shortterm contracts. This put an emphasis on low cost that would provide short-term profits versus sustainable profits that might come along with consistently high quality goods and services. ∙ In some cases, conglomerates were formed by firms seeking more supply chain control.

Modern supply chain partnerships are much different. ∙ Partnerships of today encourage sharing and collaboration from the design phase to the delivery phase. ∙ Partners, nowadays, see each other as a chain of customers connected by their goal of pleasing the final end customer. ∙ While cost is still an important aspect of creating value for the customer, today supply chains also focus on the importance of higher quality, more customization, and swift delivery service. ∙ It is for this reason that modern partnerships focus on collaboration from the moment they

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begin to design a product until the product's lifecycle has run its course.

Modern partnerships often include a small number of partners who understand the value of long-term contracts that value quality, speed, and flexibility as much, if not more, than cost.

51. Note: While the descriptions of each of the four elements are relatively general and accurate, the types of failures each of the elements may be responsible for, are rather long lists. Therefore, in many cases it is important for the student to explain why one element may ultimately be responsible for a certain problem with a list. a.

Supply Elements − Supply management professionals most often perform the purchasing function. Effective supply management has resulted in smaller supply bases and the development of more long-term supplier relationships to achieve the competitive benefits.

Supply management is one of the foundations of supply chain management, since incoming material quality, delivery timing, purchase price, product safety, and purchasing’s impact on the environment are all affected by the buyer-supplier relationship and the capabilities of suppliers.

Some of the mistakes in purchasing can cause low-quality end-items, high inventories, stockouts, excessive cost of goods sold, interruptions in production, or excessive operational costs.

b.

Operations Elements − The operations elements of the supply chain take into account the assembly or processing of materials and components into finished products or services.

Operations is also responsible for creating the right amount of product within an appropriate period of time that will meet the demand needs of the customer while still satisfying their specific needs in terms of quality, cost, customization, and timely delivery.

Mistakes in operations can cause shortages, stockouts, high inventories, low inventories, excessive operational costs, late deliveries, low-quality end-items, defects, or dangerous end-items.

c.

Logistics Elements − the distribution elements of the supply chain are focused on delivering products to customers at the right time, quality, and volume. The distribution elements include transportation, warehousing, break-bulking, packaging, containerization, and any services related to developing and keeping a distribution itinerary.

Mistakes in distribution can cause shortages, stockouts, excessive operational costs, damaged end-items, high pilferage rates, customer complaints, delivery errors (wrong item to the wrong destination), and lost inventory.

d.

Integration Elements − The integration elements involve the planning and coordination required to create a seamless supply chain. Supply chain integration requires management to inform all supply chain parties of how important it is for them to share information, articulate their needs, and develop relationships.

Poor supply chain integration will cause conflicts between supply chain partners, late deliveries, tardy production, overproduction, under production, poor forecasting, over purchasing, material shortages, long lead times, high operational costs, excessive waiting times, and excessive inventories.

52.52. a.

The bullwhip effect is a build-up of safety stocks due to poor forecasting and

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b.

c.

communication that cause order quantities to be increased throughout the supply chain.

The increases become amplified as the product continues farther down the supply chain.

This will likely cause overstock and excess costs for each firm in a supply chain.

Better communication between each link in the supply chain and sharing of upcoming demand forecasts makes it easier for companies to feel confident about their order quantity.

Trading partners feel more comfortable with manufacturers who consistently produce high quality products. Firms feel more confident and have better working relationships with manufactures that have better products and better services. Better working relationships lead to single source for supplies and this helps the manufacturer plan for demand.

Example of the bullwhip effect – Company A sells widgets to customers. Actual demand from customers is 20 widgets. Company A orders 25 widgets from the distributor B; an extra 5 units are to ensure it doesn’t run out of floor stock. Distributor B wants to order in bulk to save costs, so it orders 30 widgets from supplier C. Supplier C always keeps safety 20% stock on hand, so it orders 36 widgets from Manufacturer D. At Manufacturer D’s factory, it must produce in runs of 50. Now 50 units have been produced for a demand of only 20 units causing each firm in the supply chain excess costs.

53. A Generic Supply Chain

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Indicate whether the statement is true or false.

1. Purchasing can be broadly classified into two categories: merchants and industrial buyers. a. True b. False 2. Merchant buyers primary task is to purchase raw materials for resale purposes. a. True b. False 3. A low ROA suggests that management is capable of generating large profits with relatively small investments. a. True b. False 4. The procedures for public procurement differ from the private sector. a. True b. False 5. The supply base refers to the list of suppliers that a firm uses to acquire its materials, services, supplies, and equipment. a. True b. False 6. The goal of a good purchasing system is to ensure efficient information transitions between the materials users, the purchasing personnel, and the suppliers. a. True b. False 7. The purchase order is NOT a legally binding contract until it is accepted by the supplier. a. True b. False 8. A material requisition and a purchase requisition are the same thing. a. True b. False 9. The Uniform Commercial Code (UCC) governs the purchase and sale of goods in every state in the U.S. a. True b. False 10. Procurement credit cards can be used for small purchases including meals, lodging, and travel expenses. a. True b. False 11. Blank check purchase orders, Corporate purchasing cards, Petty cash, and Open-end purchase orders are all possible alternatives to dealing with small value purchases such as those for office supplies. a. True

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Chapter 02: Purchasing Management b. False 12. Generally, firms outsource noncore activities while focusing on core competencies. a. True b. False 13. If the break-even point in a typical make-buy scenario is 19,000 units and 10,000 units are required by the firm, then the firm should choose to make the units. a. True b. False 14. A reason for making items instead of buying them would include better quality control. a. True b. False 15. The Total Cost of Ownership Concept includes qualitative costs. a. True b. False 16. The total cost analysis demonstrates how the unit cost alone can affect purchase decisions. a. True b. False 17. The possibility of events like strikes, assembly line breakdowns, and natural disasters are all reasons a company should favor using a single supplier. a. True b. False 18. Centralized purchasing is the practice where individual, local purchasing departments throughout a single corporation make their own, individual purchasing decisions to fulfill their individual local needs. a. True b. False 19. USMCA and the EU are trade organizations seeking to reduce tariff and non-tariff barriers among its member countries. a. True b. False 20. Foreign suppliers located farther away may be able to deliver goods faster than domestic suppliers due to more efficient transportation and logistical systems. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

21. The primary goals of purchasing include all EXCEPT:

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Chapter 02: Purchasing Management a. Secure materials at the lowest cost b. Maximize customer satisfaction c. Improve the quality of finished goods produced d. Ensure the highest quality raw materials are purchased 22. Which of the following refers to the measurement of the impact of change in purchase spend on a firm’s profit before taxes, assuming gross sales and other expenses remain unchanged? a. Break-Even Analysis b. Profit-Leverage Effect c. Direct Offset d. Leveraging Purchase Volume 23. When calculating Return on Investment, fixed assets include: a. Cash, Accounts Receivable, and Inventory b. Cash, Accounts Receivable, and Equipment c. Accounts Receivable, Equipment, and Real Estate d. Equipment, Buildings, and Real Estate 24. Inventory Turnover can be calculated by: a. Ratio of cost of goods sold over average inventory cost b. Ratio of average inventory cost over cost of goods sold c. Ratio of inventory days in stock over average inventory cost d. Ratio of average inventory cost over inventory days in stock 25. Which type of requisition is used for materials and standard parts that are requested on a recurring basis? a. Open requisition b. Blanket requisition c. Traveling requisition d. Recyclable requisition (Cyc-Rec) 26. Which of the following is a form of purchasing that is placed directly to the supplier and suitable when firms use the same components to make standard goods over a relatively long period of time? a. Material requisition b. Green purchasing c. Planned order release d. Distributed purchasing 27. When a product is purchased that is complicated or highly technical, what may be issued instead of a request for quotation? a. Request for proposal b. Purchase order c. Contract for sale d. Sales order 28. Benefits derived from implementing e-procurement systems include all of the following EXCEPT:

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Chapter 02: Purchasing Management a. Allows buyers to submit bids and suppliers to respond to those bids in real time b. Increases the accuracy in communication between buyers and suppliers c. Creates numerous additional job opportunities in the purchasing department d. Allows buyers to support minority or locally owned businesses by storing this supplier information 29. While most public procurement is focused on goals like those of purchasing departments in the private sector, U.S. federal government purchases must comply with the: a. Services and Materials Acquisition Act b. Fair Standards and Equitable Purchases Act c. Federal Code of Conduct for Procurement d. Federal Acquisition Regulation 30. Petty cash is being phased out in favor of: a. Hard cash b. A blank check c. P-card d. Wire transferring 31. Blanket or open-end purchase orders are suitable for buying a. Computers b. Heavy equipment c. Custom built components d. Office supplies 32. Which of the following is a reason small value purchases are handled differently? a. To give the buyer additional supplier choices b. To obtain a higher quality product c. To have better tracking of material usage d. To control unnecessary administrative costs 33. Which of the following illustrates Forward Vertical Integration? a. Microsoft starting a new division that designs and manufactures clothing b. Ford automotive buying additional machines for production c. Subway sandwich company buying a bakery to make the bread for their sandwiches d. Dell Computers buying retail computer stores to sell computers to the public 34. Which of the following would be a good reason to outsource (buy) versus making? a. To utilize existing capacity within a company's own firm b. A firm is running at or near capacity and is unable to meet demand requirements c. To have more direct control over the design and production of an end item d. No competent supplier presently produces the needed item 35. Given the following make-buy information, what would be the break-even point?

Make Option

Buy Option

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Chapter 02: Purchasing Management Fixed Costs Variable Costs a. 1500 units b. 1000 units c. 800 units d. 250 units

$6500 $ 5

$2500 $ 9

36. Given the following make-buy information, what would be the break-even point?

Fixed Costs Variable Costs a. 2280 units b. 1550 units c. 1080 units d. 550 units

Make Option $13,000 $ 5

Buy Option $1600 $ 10

37. As firms seek to improve the products they offer to the market, companies are seeking help from their suppliers in new product design and development through: a. Supplier certification programs b. Heuristics c. Early supplier involvement d. Focused Work Centers 38. Firms typically use all of the following factors when considering which suppliers to select for important materials EXCEPT: a. Order system and cycle time b. Location c. Process and product technologies d. Slotting fees 39. Total Cost of Ownership does NOT consider which of the following factors? a. Purchase order costs b. Freight costs c. Currency exchange fees d. Tooling costs 40. The total cost of ownership for Supplier A is $1,670,000. The total cost of ownership for Supplier B is $2,250,000.

The total cost of ownership for Supplier C is $1,990,000. Using Total Cost Analysis, it will be more cost-effective to use a. Supplier A b. Supplier B c. Supplier C d. Cannot be determined 41. Which of the following is a reason for favoring single sourcing? a. Encourages competition among suppliers

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Chapter 02: Purchasing Management b. Spreads the risk of supply interruption c. Reduces variabilities in quality levels d. Reduces information about new processing technologies 42. Which of the following is a reason that single sourcing is considered risky/bad? a. There could be supplier interruptions due to political instability b. It could establish close relationships with the supplier c. Larger orders make quantity discounts more likely d. Decreases the item quality variability of items purchased 43. Which of the following is an advantage of a centralized purchasing department? a. Less bureaucracy b. More frequent shipments c. Common supply base d. Closer contact between buyer and user 44. Which of the following statements is FALSE? a. Centralized purchasing is where individual, local purchasing departments, such as at the plant level, make their own purchasing decisions. b. Centralized purchasing minimizes the competition problem when scarce materials are purchased from the same supplier. c. Centralized purchasing eliminates the duplication of job functions. d. Centralized purchasing allows larger shipments to be made which can decrease overall transportation costs.

45. Which of the following is NOT a potential challenge for global sourcing? a. Long delivery lead times b. Costs involved in selecting foreign suppliers c. Reduction of international trade barriers d. Labor and legal problems 46. Which of the following is NOT a form of countertrade? a. Barter b. Kaizen blitz c. Offset d. Counterpurchase 47. According to the Buy American Act, which of the following does the Buy American Act apply to? a. The procurement is intended for public use within the U.S. b. The materials to manufacture the goods are available in the U.S. c. U.S. government purchasers must purchase domestically produced goods d. All of the choices are correct 48. Which of the following would decrease purchase spend? a. Increasing safety stock levels b. Increasing queue management

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Chapter 02: Purchasing Management c. Decreasing information visibility along the supply chain d. Purchasing materials at a lower total acquisition cost 49. Return on assets (ROA) can be calculated by: a. Ratio of cost of goods sold over total assets b. Ratio of net income over total assets c. Ratio of average inventory cost over total assets d. Ratio of net income over average inventory cost 50. Which of the following states is NOT governed by the Uniform Commercial Code (UCC) in the purchase and sale of goods in the United States? a. Delaware b. Louisiana c. Texas d. Maine 51. Which of the following best describes incoterms? a. Incoterms deal with dispute resolutions. b. Incoterms are a substitute for a sales contract. c. Incoterms simplify international transactions of goods with respect to transport obligations. d. Incoterms deal with consequences for breach of performance.

52. When using the Total Cost of Ownership concept, explain how a supplier with a higher unit price and higher tooling cost can end up being more cost effective than another supplier with a lower unit price and tooling cost.

53. Use what you understand about the outsourcing decision (Make vs. Buy) to answer this question. List and explain three reasons a restaurant might decide to buy pre-made desserts from a supplier rather than making the goods from scratch.

54. Answer the questions that follow, based on the diagram provided below

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a. b. c. d.

What are the fixed costs for the buy decision?

What is the breakeven quantity for the two options illustrated?

At Q = 250, would you choose the make or buy option? Why? At Q = 300, what will be the total cost associated with the best decision at this quantity?

55. Global sourcing has become commonplace. Many companies now consider expanding their supply base to include foreign suppliers. List three reasons why companies choose to source globally.

56. The BOEHM Cell Phone Company has developed a new series of phones that it plans to bring to the market in the next 18 months. Management is considering whether to produce the product in-house or to contract out the purchasing and manufacturing of their new cell phones.

Provide FOUR conditions that would favor outsourcing and FOUR conditions that would favor making the cell phones inhouse.

57. Under which conditions would you most likely utilize a centralized purchasing system? List two advantages that would be gained by utilizing a centralized purchasing system.

Under which conditions would you most likely utilize a decentralized purchasing system? List two advantages that would be gained by utilizing a decentralized purchasing system.

58. The term Supply Management is used to describe responsibilities above and beyond those of traditional purchasing.

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Chapter 02: Purchasing Management What are three of these key activities and why are they considered important to Supply Management?

59. Use the following information to determine which supplier for steering wheels is more cost-effective using total cost analysis. Late delivery of the component results in 50% lost sales and 50% back orders of finished goods.

Table 1 Order lot size Annual Requirements Weight per steering wheel Order processing cost Inventory carrying rate Cost of working capital Profit margin Price of finished golf cart Back order cost Table 2 Unit Price 1 to 999 units/order 1000 to 2,999 units/order Tooling cost Terms Distance Supplier Quality Rating (defects) Supplier Delivery Rating (late)

300 3600 units 20 pounds $125 20% per year 10% per year 20% $5000 $15 per unit Supplier A $50 $48 $1000 2/10 net 30 120 miles 3% 1%

Supplier B $52 $50 $1000 1/10, net 30 100 miles 2% 2%

Here are the freight rates for Truckload (TL ≥ 40,000 lbs): $0.90 per ton-mile Truckload Less-than-truckload (LTL): $1.10 per ton-mile Note: per ton-mile = 2000 lbs. per mile; number of days per year = 365

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Chapter 02: Purchasing Management Answer Key 1. True 2. True 3. False 4. True 5. True 6. True 7. True 8. True 9. False 10. True 11. True 12. True 13. False 14. True 15. True 16. False 17. False 18. False 19. True 20. True 21. d 22. b 23. d 24. a 25. c

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Chapter 02: Purchasing Management 26. c 27. a 28. c 29. d 30. c 31. d 32. d 33. d 34. b 35. b 36. a 37. c 38. d 39. a 40. a 41. c 42. a 43. c 44. a 45. c 46. b 47. d 48. d 49. b 50. b 51. c

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Chapter 02: Purchasing Management 52. When calculating the Total Cost of Ownership, unit price and tooling cost are not the only criterion used in supplier selection. Other qualitative and quantitative factors, including freight and inventory costs, tariffs and duties, currency exchange fees, payment terms, maintenance and nonperformance costs should be considered. After calculating these other factors, the Total Cost of Ownership may have been lower with the second supplier.

53. Reasons a restaurant might decide to buy pre-made desserts from a supplier.

a. b. c. d.

Cost – Creating a high-quality dessert might require unusual, as well as, a large number of ingredients. They may not be able to take advantage of economies of scale, if they do not sell a lot of desserts. It also may be quite costly to hire a specialist to make the desserts.

Insufficient Capacity – A restaurant may not have the capacity to make fresh desserts daily to fulfill the demand. They might not be able to offer a large selection of desserts.

Lack of expertise – The restaurant personnel may not know how to make specialized desserts. Or perhaps it is difficult to hire a dessert specialist.

Quality – While they may have the time, money, and skill to make desserts, they may not be able to make them as well as a place which specializes in desserts.

Similar answers with slightly different rationale may also be acceptable.

54.54.

a.

What are the fixed costs for the buy decision? $750

b.

What is the breakeven quantity for the two options illustrated?

The Break-even quantity seems to be near 225 units. Using this chart, anything within 205 and 245 would probably be deemed acceptable.

c.

At Q = 250, would you choose the make or buy option? Why? The choice is close, but technically, the buy option is better since the total costs for buying are about $3100 versus about $3250 for making.

d.

At Q = 300, what will be the total cost associated with the best decision at this quantity?

The best decision is to make, and the total cost is around $3400.

55. Lower price of materials (and services) Overseas products may be of higher quality Faster delivery times Better array of services offered by the material supplier Favorable exchange rates Support local economies Countertrade contracts 56. Conditions that favor outsourcing: a.

If other firms are offering cost advantages. b.

If Boehm Cell Phone does not have sufficient capacity to meet the expected demand for the new line of cell phones.

Perhaps Boehm is largely a design company that does not have expertise in purchasing and manufacturing. An outside firm might be better qualified to deliver a high quality product c. at a lower price. d.

Outside companies may offer higher quality due to advantages in areas of skill, technology,

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Chapter 02: Purchasing Management and business processes.

Conditions that favor making the cell phones in-house: If the technology associated with the new lines of phones is proprietary, it may be easier to a. maintain secrecy in both manufacturing and in first-to-market marketing.

Perhaps no one is capable of producing this product or a necessary component. b.

If the firm feels that its quality programs are superior to any potential business partner, they c. may prefer to do it themselves to preserve the integrity of the brand.

The company expects manufacturing capacity to be available once the product goes into d. production.

If the company prefers to have more control over distribution related activities. e.

If the company has the capability to produce the product at a lower cost if advantages in f. supply chain capabilities and/or economies of scale exist.

57. Under which conditions would you most likely utilize a centralized purchasing system?

A centralized purchasing system would be favored by a company that is looking to reduce safety stocks, increase control in purchasing, centralize decision making, avoid duplicate purchases, centrally manage supplier relationships, and maximize available quantity discounts.

List two advantages that would be gained by utilizing a centralized purchasing system. a.

Concentration of purchasing leading to lower purchase costs b.

Avoiding duplication of job functions c.

Buyer specialization d.

Lower transportation costs e.

Easier to negotiate contracts and manage relationships with a common supplier base f.

No competition between units when purchasing the same material Under which conditions would you most likely utilize a decentralized purchasing system?

A decentralized purchasing system would be favored by a company that is looking to make quicker decisions, maintain stocks that are closer to their customers, and identify and respond to changing customer needs at the local level.

List two advantages that would be gained by utilizing a decentralized purchasing system. a.

Individual and decentralized buyers often have a greater knowledge of the exact needs for each individual unit utilized by organization. b.

Decentralization is more conducive to local sourcing. Local sourcing offers an organization the opportunity to obtain faster delivery times, more frequent deliveries, while still maintaining very close supplier ties. c.

Decentralization allows quicker response because the decentralized purchasing allows for faster decisions because of decreased bureaucracy.

58. Other answers are possible. a.

Supply Management is responsible for the uninterrupted flow of raw materials. b.

Supply Management is responsible for the acquisition of materials at lowest total cost. c.

Supply Management is responsible for improving the quality of finished goods through the purchase of high-quality components and/or raw materials. d.

Modern supply chains require close partnerships with suppliers; Supply Management departments are very often responsible for maintaining those relationships. e.

Pushing suppliers to improve the quality of their raw materials and/or components. f.

Supply Management departments are often responsible for assisting in collapsing design-to-production cycle time.

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Chapter 02: Purchasing Management g.

Supply Management departments are often seen as a conduit between external suppliers and internal design and/or operations people.

59. Total cost of ownership = Total steering wheel cost - Cash Discount + Tooling cost + Transportation cost + Ordering cost + Carrying Cost + Quality cost + Delivery rating (Back Order Cost and Lost Sales).

Supplier A 1. Total steering wheel cost = 3600 x 50 = $180,000 2.

-Cash Discount A = 180,000 x (10% x 30/365) = $1479 - Cash Discount B = 180,000 x (10% x 10/365 + 2%) = $4093 use this for biggest savings 3. Tooling cost = 1000 4. Transportation cost = (300 x 20) = 6000 so must use LTL shipment at $1.10 per ton-mile 120 x 3600 x 20 x 1.10/2000 = 4752 5. Ordering cost = (3600/300) x 125 = $1500 6. Carrying Cost = (300/2) x 50 x 20%= $1500 7. Quality cost = 230,400 x 3% = $6912 8. Delivery rating - Back order cost (50%) = 4800 x 1% x 50% x 15 = $360 Lost Sales (50%) = 4800 x 1% x 50% x 5000 x 20% = $24,000 Total cost of ownership = 180,000 - 4093 + 1000 + 4752 +1500 + 1920 + 6912 + 360 + 24,000 = $267,189 Supplier B 1.Total steering wheel cost = 3600 x 52 = $187,200 2.

- Cash Discount A = $187,200x (10% x 30/365) = $1539 - Cash Discount B = 187,200 x (10% x 10/365 + 2%) = $4257 use this for biggest savings 3. Tooling cost = 1000 4. Transportation cost = (300 x 20) = 6000 so must use LTL shipment at $1.10 per ton-mile 100 x 3600 x 20 x 1.10/2000) = 3960 5. Ordering cost = (3600/300) x 125 = $1500 6. Carrying Cost = (360/2) x 52 x 20%= $1872 7. Quality cost = 187,200 x 2% = $3744 8. Delivery rating - Back order cost (50%) = 3600 x 2% x 50% x 15 = $540 Lost Sales (50%) = 3600 x 2% x 50% x 5000 x 20% = $3600 Total cost of ownership = 187,200 - 4257 + 1000 + 3960 +1500 + 1872 + 3744 + 540 + 36,000 = $231,559 The total cost analysis shows that Supplier A is more cost-effective. Supplier A has a better unit price, cash discount rate, and better delivery performance rating.

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Chapter 03: Creating and Managing Supplier Relationships

Indicate whether the statement is true or false.

1. If a company is effectively focusing on its core competencies, its level of outsourcing is likely to increase. a. True b. False 2. It is critical that customers and suppliers develop stronger relationships and partnerships based on a strategic rather than a tactical perspective. a. True b. False 3. As companies outsource more and more parts, it becomes easier to achieve cost savings internally. a. True b. False 4. Building Trust, Shared Vision and Objectives, Personal Business Relationships, Mutual Benefits and Needs are key factors that contribute to a lasting supplier partnership. a. True b. False 5. Before entering into any partnership, organizations should conduct a thorough investigation of its suppliers’ capabilities and core competencies. a. True b. False 6. Successful supplier relationships should NOT involve equal decision-making control. a. True b. False 7. The development of relationships with suppliers brings about changes that must be managed for a company to stay focused on their core businesses. a. True b. False 8. As companies outsource more and more parts, a smaller portion of costs lies outside the company in a supply chain and it becomes easier to achieve further cost savings internally. a. True b. False 9. Unless an organization has a firm grasp of the key issues surrounding supplier relationships, it cannot reap the benefits of such relationships. a. True b. False 10. In a Total Cost of Ownership system, certification and training of suppliers would be considered post-transaction costs. a. True

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Chapter 03: Creating and Managing Supplier Relationships b. False 11. In a weighted-criteria evaluation system the weights of all the performance dimensions must add up to more than 1.00 and less than 100. a. True b. False 12. A criterion used in supplier certification programs might include being ISO 14001 certified. a. True b. False 13. The supplier certification process implies a willingness on the part of customers and suppliers to share goals, commitments, and risks to improve their relationships. a. True b. False 14. It is illegal for corporations to provide their suppliers appreciation banquets to award performance. a. True b. False 15. Offering an awards program to suppliers both motivates the suppliers to commit to a program of continuous improvement as well as provides role models for other suppliers to follow. a. True b. False 16. Today, it is sufficient to just reward your best suppliers with more business. a. True b. False 17. Transactional SRM enables an organization to track supplier interactions such as order planning, order payment, and returns. a. True b. False 18. An SRM strategy refers to a situation wherein a supplier’s employee is permanently housed in the purchasing department of the buyer’s organization. a. True b. False 19. Smoother processes, faster cycle times, reduced new product development, and improved time-to-market are possible benefits from the increased visibility that is offered by SRM software. a. True b. False 20. Automating procurement activities can lead to significant cost savings as buyers move toward managing processes by exception. a. True

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Chapter 03: Creating and Managing Supplier Relationships b. False 21. According to the text, no industry was more severely affected by the pandemic than healthcare supply chains. a. True b. False 22. During the COVID-19 pandemic, organizations found that supplier relationships were not important to mitigate the risk of supply chain disruptions. a. True b. False 23. Supply chain finance reduces the risk of supply chain disruption and enables both buyers and suppliers to optimize their working capital. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

24. The Supplier Working Relations Index (WRI®) is an annual survey of the working relationships between which of the following? a. NAFTA and WTO b. North America-based OEM customers and their Tier 1 suppliers c. The European Union and the United States d. North America-based OEM customers and their product development teams 25. Which of the following is important in developing successful relationships in a partnership? a. Commitment by top management b. Interpersonal business relationships between employees of the companies c. Mutual/compatible needs that result in a win-win situation for the partners d. All of these are correct 26. Which of the following is NOT important in developing a successful strategic alliance? a. Developing performance metrics b. Developing cross-functional team capabilities externally and within the company c. Developing customer contact centers d. Open lines of communication that both promote sharing and secure confidentiality 27. Which of the following is NOT a true statement? a. Trust is critical for any partnership or alliance to work. b. Many alliances and partnerships have failed because objectives are not well aligned or are overly optimistic. c. When both parties share in the benefits of the partnership, the relationship will be productive and long lasting. d. All of these are true statements.

28. According to the text, key ingredients for developing successful supply partnerships include all of the following EXCEPT:

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Chapter 03: Creating and Managing Supplier Relationships a. Personal relationships b. Performance metrics c. Mutual benefits and needs d. Individualized objectives 29. According to the text, one of the most basic and successful approaches to protecting trade secrets is: a. Threat of litigation b. Working with law makers to increase fines and sentences for those that steal trade secrets c. Requiring employees and vendors to sign nondisclosure agreements d. Requiring employees and partners to get ISO 9000 certified 30. Costs associated with field failures, company’s goodwill/reputation, maintenance costs, and warranty costs can be classified as: a. Pre-transaction costs b. Post-transaction costs c. Transaction costs d. All of these are correct 31. What type of major cost category is considered in the cost associated with placing and receiving the order? a. Turnover Cost b. Supplier-Development Cost c. Transaction Cost d. Pre-transaction Cost 32. Field failures, loss of goodwill, a decreased reputation, and warranty costs can all be classified as: a. Pre-transaction costs b. Post-transaction costs c. Transaction costs d. All of these are correct 33. Which of the following is TRUE? a. Performance metrics and personal business relationships are both keys to building successful partnerships. b. ISO 75000 is the supplier award given to the highest rated supplier in Japan. c. The key to successful partnerships is developing performance measures with weights greater than 3.50. d. SRM software modules are very affordable (less than $50,000) and can be implemented with a week.

34. According to the text, the goal of a good performance evaluation system is to provide metrics that are: a. Understandable, easy to measure, focused on value-added results b. Understandable, quantitative, focused of cost-related results c. Understandable, qualitative, focused on short-term results d. Understandable, quantitative, focused on quality-related results 35. An organization's process for evaluating the quality systems of key suppliers in an effort to eliminate incoming inspections can be referred to as: a. Quality Systems Certification

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Chapter 03: Creating and Managing Supplier Relationships b. Supply Management c. Supplier Inspection d. Supplier Certification 36. The benefits of implementing an effective supplier certification program include all of the following EXCEPT: a. Building long-term beneficial relationships b. Increasing supplier base c. Reducing time spent on incoming inspections d. Recognizing excellence 37. When using a Weighted Criteria Evaluation System to evaluate suppliers, all of the following are true EXCEPT: a. Use a tracking signal to determine if the system is within acceptable limits b. Assign weights to each of the dimensions of performance based on their relative importance to the company’s objectives c. Evaluate each of the performance measures on a rating between zero and one-hundred d. Multiply the dimension ratings by their respective important weights and then sum to get an overall weighted score 38. A company using a weighted criteria evaluation system has established these 3 categories and the appropriate weight in parentheses: Quality (0.30), Delivery (0.40), Cost (0.30).

The scores for each category are shown below. Which of the following companies has the highest total score? a. Company A: Quality (90), Delivery (85), Cost (60) b. Company B: Quality (70), Delivery (95), Cost (60) c. Company C: Quality (80), Delivery (80), Cost (70) d. All companies scored the same.

39. A company using a weighted criteria evaluation system has established these 5 categories and the appropriate weight in parentheses: Quality (0.25) Responsiveness (0.10) Delivery (0.20) Cost (0.15) Technology (0.30) Company X received the following ratings in each of the five categories: Quality (90), Responsiveness (90), Delivery (75), Cost (80), Technology (85). What is its total score? a. 81.0 b. 85.5 c. 83.0 d. 84.0 40. According to the text, in 2019 which of the following were the top two countries with ISO 14001 certificates? a. Japan and United States b. China and Mexico c. China and Japan d. Singapore and United States

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Chapter 03: Creating and Managing Supplier Relationships 41. In general, ISO certification encourages organizations to: a. Develop concurrent engineering teams for product design b. Consistently deliver products that meet customer and applicable statutory and regulatory requirements c. Increase their reliance on nearshoring d. Develop a critical path method to control large projects 42. Which of the following is NOT a reason for supplier recognition programs? a. To help suppliers’ reputation in the marketplace b. To select the best suppliers c. To encourage suppliers to be more innovative d. To reward suppliers for excellent performance 43. According to the textbook, Supplier Recognition Programs: a. Are generally not very effective b. Are used by 90% of companies c. Encourage suppliers to keep their performance high d. Are difficult to implement 44. The Hormel Company awards its Hormel Food Corporation's No. 1 Award to its top supplier. How often do they give this award? a. Every year b. Every 6 months c. Every 5 years d. Every 3 years 45. Before supplier relationship management (SRM), buyers typically spent 40% of their time on expediting orders. After SRM implementation buyers spent about: a. 10% of their time on expediting orders b. 20% of their time on expediting orders c. 30% of their time on expediting orders d. None of the these is correct 46. Streamlining the processes and communications between the buyer and supplier using software applications that enable these processes to be managed more efficiently and effectively can be referred to as: a. Material Requirements Planning (MRP) b. Supplier Relationship Management (SRM) c. ISO 9000 d. Distribution Resource Planning (DRP) 47. SRM software should be capable of: a. Automating transactional processes b. Making information flow between partners more visible c. Integration of the supply chain making it possible to monitor multiple departments and processes both internally and externally d. All of these are correct

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Chapter 03: Creating and Managing Supplier Relationships 48. Summers, Inc. needs to generate a list of good/services purchased per supplier. Which type software program can the manager consult to obtain this information? a. ISO 9000 b. MRP c. SRM d. SCSS 49. Which of the following statements is TRUE regarding SRM? a. Transactional SRM tends to focus on short-term reporting and is event driven, focusing on such questions as: What did we buy yesterday? b. Analytic SRM tends to focus on short-term reporting and is event driven, focusing on such questions as: What did we buy yesterday? c. Transactional SRM enables more difficult and important questions about supplier relationships, such as: Which suppliers should we develop long-term relationships with? d. None of these answers is true.

50. Which of the following is NOT a key tenet of an SRM system? a. Automation b. Lean operations c. Visibility d. Collaboration 51. SRM software can automate procurement activities that lead to significant cost savings as purchasing professionals move toward: a. Collaborative planning b. Diversifying their hiring c. Improving capacity d. Expediting each order 52. Which of the following events caused one of the biggest disruptions in global supply chain history? a. World War II b. COVID-19 c. 2011 Japanese tsunami d. Hurricane Katrina 53. During the COVID-19 pandemic, organizations found out that what were more important than ever to mitigate the risk of supply chain disruptions? a. Time horizons b. Computer numerical controls c. Developing missions and strategies d. Supplier relationships 54. Which of the following is NOT an appropriate strategy for managing supplier relationships during a pandemic? a. Keep in touch with suppliers to see how they are doing and to offer any assistance if needed

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Chapter 03: Creating and Managing Supplier Relationships b. Employees must exhibit a good balance of empathy and patience c. Enforce compliance to contracts made before COVID-19 d. Ensure there is open and transparent information sharing 55. To soften supply chain disruptions in the event we face another global crisis, a good strategy for organizations would be: a. To add more customer flexibility to better meet changing product preferences b. To build a more resilient supply chain c. For managers to focus on a limited number of products d. To develop a time-phased stock-replenishment plan

56. Provide a list of four ways companies can motivate their suppliers to improve.

57. What are the two external certification programs discussed in the text? What does each certification attempt to certify?

58. A company using a weighted-criteria evaluation system has established these 4 categories and the appropriate weight in parentheses: Technology (0.25), Quality (0.30), Environmental (0.20), Cost (0.25). Currently they use supplier ABC that presently has a supplier score of 82. Calculate supplier XYZ’s total score and decide (based on supplier score) if the company should change suppliers.

The scores for supplier XYZ are shown below for each category.

Performance Measure Technology Quality Environmental Cost

Score 85 90 87 85

59. According to the textbook, SRM software varies based on capabilities offered. AMR research has identified 5 areas of distinction for an SRM system. Provide three of these key tenets of SRM and explain how it is used.

60. Suppose your organization is attempting to set up a new strategic alliance with a supplier. You are considered the key manager from your organization to manage this alliance. What would be your goals for the planning stages of this proposed alliance? What would be your goals for the first few months of the alliance? What would be your long-term goals for the alliance?

61. The TCO as defined in the textbook adds "all costs associated with the acquisition, use, and maintenance of a good or service."

The TCO is then broken up into three major cost categories. List the three cost categories, provide a definition of each, and then provide two examples of each of the three types of costs.

62. Blaize Manufacturing Company is using a weighted criteria evaluation system to certify suppliers. a. Determine the total weighted score for the supplier shown below. b. Based on the evaluation system and weights used by this firm, what is its purchasing objective?

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Chapter 03: Creating and Managing Supplier Relationships c. Give an example of a real company that might be using this type of strategy. d. If Blaize classifies its vendors based on the following scores, how well is this supplier doing?

• • • •

Unacceptable (less than 50) Conditional (between 50 and 70) Certified (between 70 and 90) Preferred (greater than 90)

Performance Criteria Technology Quality Environmental Responsibility Price On-time deliveries Flexibility Customer Service

Weight 23% 30%

Score (0-100) 92 90

10%

82

15% 10% 4% 8%

85 86 78 83

63. For each of the following programs, processes, certifications, etc. explain how they can be useful in improving supplier relationships and motivating business partners to provide the best possible products and services. a.

ISO 9000 b.

TCO c.

Supplier development programs d.

Supplier recognition programs 64. What were some of the problems that the COVID-19 pandemic caused for buyers, suppliers, and customers?

What can firms do to avoid these problems in the future?

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Chapter 03: Creating and Managing Supplier Relationships Answer Key 1. True 2. True 3. False 4. True 5. True 6. False 7. True 8. False 9. True 10. False 11. False 12. True 13. True 14. False 15. True 16. False 17. True 18. False 19. True 20. True 21. True 22. False 23. True 24. b 25. d

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Chapter 03: Creating and Managing Supplier Relationships 26. c 27. d 28. d 29. c 30. b 31. c 32. b 33. a 34. a 35. d 36. b 37. a 38. a 39. d 40. c 41. b 42. b 43. c 44. c 45. a 46. b 47. d 48. c 49. a 50. b 51. a

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Chapter 03: Creating and Managing Supplier Relationships 52. b 53. d 54. c 55. b 56.56. a.

Develop supplier recognition/awards programs b.

Create supplier development programs c.

Create an internal certification program d.

Motivate suppliers to get a quality certification like ISO 9000 e.

Utilize Supplier Relationship Management software f.

Utilize a performance metrics system 57.57. a.

ISO 9000 − ISO 9000 certifies an organization's management structure and practices and their quality output in the areas of design, development, production, installation, and service.

ISO 14000 − ISO 14000 certifies an organization's environmental management. ISO 14000 maintains standards in energy consumption, resource consumption, environmental liability and risk, waste and pollution generation, and community goodwill.

b.

58. SCORE for Company XYZ: (0.25 x 85) + (0.30 x 90) + (0.20 x 97) + (0.25 x 85) =21.25 + 27 + 17.4 + 21.25 = 86.9 Based on supplier score they may want to consider purchasing supplies from Company XYZ since they have a higher supplier score. It should be noted that quality performance is most important to this company and supplier XYZ scored high in that category.

59. The key tenets of supplier relationship management software are: • • • • •

Automation of transactional processes between an organization and its suppliers.

Integration that provides a view of the supply chain that spans multiple departments, processes, and software applications for internal users and external partners.

Visibility of information and process flows in and between organizations. Views are customized by role and aggregated via a single portal.

Collaboration through information sharing and suppliers’ ability to input information directly into an organization’s supply chain information system.

Optimization of processes and decision-making through enhanced analytical tools such as data warehouse and Online Analytical Processing (OLAP) tools with the migration towards more dynamic optimization tools in the future.

60. What would be your goals for the planning stages of this proposed alliance?

One of the most important goals in developing this type of relationship is to ensure that the vision and objectives of the proposed alliance can be agreed upon by those parties involved. Also, it is important to create interpersonal business relationships in the buyer-supplier partnerships since it is the people who communicate and make things happen. Make sure that both organization's needs will be met and the benefits will be shared as this will keep the relationship productive

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Chapter 03: Creating and Managing Supplier Relationships and long-lasting. Be sure to get support and commitment from top management so you can dedicate your time, best people and resources to make the partnership succeed. It is also important that all parties communicate the constant need to share information and support programs of continuous improvement. While not all of these things will be accomplished during the planning stages it is vital that they are all discussed into certain degree agreed upon before the alliance gets off the ground.

What would be your goals for the first few months of the alliance?

The goals for the first few months of the alliance would center around the partnering organizations communicating to their employees their support for the alliance. In addition, it would be important for management to communicate the objectives, the benefits, and the changes that are sought via the alliance. This would also include communicating the goal of continuous improvement to all the parties involved Also during these first few months personal relationships and trust must continue to be nurtured. In terms of physical changes, the organizations would need to make the required changes to their rules and regulations, their information systems, and their processes that would facilitate the success of the alliance.

What would be your long-term goals for the alliance?

The long-term goals of the alliance would be to serve the customer by offering them high quality products in the most effective and efficient manner possible. This would be achieved by the organization’s long-term commitment to building trust, sharing information, teaching each other, measuring progress, reevaluating the vision and objectives of the alliance from time to time, and continuing the support of continuous improvement programs.

61.61. a.

Pre-transaction Costs − Costs incurred before the order and receipt of the purchased goods.

Examples: supplier certification, supplier training, investigating delivery options for new suppliers, cost associated with finding a new supplier, costs associated with comparing suppliers and their supplies... b.

Transaction Costs − Costs of goods/services and cost associated with placing and receiving the order.

Examples: purchase price of the product, order preparation, delivery costs, insurance, packaging, costs associated with requesting the order...

c.

Post-Transaction Costs − Costs incurred after goods are in possession of the company.

Examples: Field failures, defective items delivered to the customer, damage to the company’s reputation, costs with maintaining broken items, warranty costs, legal costs, fines, and logistical costs associated with retrieving damaged or defective items in the field.

62.62. a. Total weighted score = (0.23) x 92 + (0.30) x 90 + (0.10) x 82 + (0.15) x 85 + (0.10) x 86 + (0.04) x 78 + (0.8) x 83 = 21.16 + 27 + 8.2 + 12.75 + 8.6 + 3.12 + 6.64 = 87.47 b. Its purchasing objective seems to value Technology and Quality very high. Product price is also relatively important to this company as well as on-time deliveries. c. Answers will vary, but some examples might include tech companies like Samsung, Sony, and Apple. d. With a score of 87.47 this supplier meets the firms intended purpose. Blaize would certify this supplier since the score is between 70 and 90. It should encourage this supplier to raise its customer service, flexibility, and environmental scores. Blaize might not consider this supplier for new product development or opportunities for

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Chapter 03: Creating and Managing Supplier Relationships more business unless it can raise its score above 90.

63.63. a.

ISO 9000 − ISO 9000 is a certification that proves an organization is committed to quality and has a quality management system in place that is dedicated to monitoring and improving quality. Companies that are ISO 9000 certified are more likely to experience a reduction in production cost due to an improvement in quality made. b.

TCO − TCO is a performance metric system designed to isolate the total cost of purchases, which can include costs that are incurred before, during and after a transaction. This then allows companies to identify inefficiencies and key cost drivers.

c.

Supplier development programs − These programs allow buyers to share programs, ideas, and recommendations in an effort to not only improve the output purchased by the buyer, but it ultimately also helps the supplier improve in ways that will make it more competitive in the eyes of other potential buyers. This strengthens relationships and facilitates in fostering open communication lines between these companies.

d.

Supplier recognition programs − People like to be recognized and awarded for their accomplishments. Supplier recognition programs help communicate what buyers value and they also communicate whether or not a supplier's efforts are being appreciated. Winners know they should continue on their present path, those who do not win may be motivated to change in positive ways.

64.64. a.

The COVID-19 pandemic caused major supply chain disruptions all over the world. Many products were out of stock or in short supply such as toilet paper eggs, milk, hand sanitizer, face masks, cleaning wipes and spray, paper towels, hand soap, diapers, thermometers, and tissue paper. As the pandemic wore on and people became ill, many manufacturing plants and food processing plants were shut down causing even more shortages. The service industry took a big hit. Hotels, restaurants, cruises, and airlines were badly affected. b.

It is important for firms to keep channels of communication open and to ensure there is open and transparent information sharing. Experts say that the stronger the existing supplier relations are, the more likely the company will have the capability to navigate through a crisis. Firms should try to develop even stronger relationships with current and future suppliers.

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Chapter 04: Ethical and Sustainable Sourcing

Indicate whether the statement is true or false.

1. Reverse logistics has become an important trend in ethical and sustainable sourcing. a. True b. False 2. According to the text, TenTree is a company that plants 10 trees for every garment produced. a. True b. False 3. Sustainable sourcing considers the long-term impact on people, profits, and the planet. a. True b. False 4. There are two approaches to deciding whether or not an action is ethical. The first approach is utilitarianism. The second approach is force majeure. a. True b. False 5. A practice aimed at ensuring that purchased products or materials meet environmental objectives of the organization is referred to as green purchasing. a. True b. False 6. As described in the text, a “fair trade product” refers to one that is manufactured or grown by a disadvantaged producer in a developing country that receives a fair price for its goods. a. True b. False 7. Ethical sourcing policies should NOT include use of independent verification of supplier compliance. a. True b. False 8. Sustainable sourcing practices include promoting diversity by intentionally buying from ethnic minority businesses. a. True b. False 9. It is considered unethical for a firm to intentionally buy from women-owned businesses. a. True b. False 10. In developing ethical and sustainable sourcing strategies, today companies use strategies like, “squeezing” or hardbargaining suppliers to generate a lower annual purchasing spend. a. True b. False

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Chapter 04: Ethical and Sustainable Sourcing 11. Sourcing criteria for innovative products may be more closely aligned with a supplier’s quality reputation, delivery speed and flexibility, and communication capabilities. a. True b. False 12. It is important for firms to addresses the impact of ethical and sustainable sourcing on other facets of the organization and its trading partners. a. True b. False 13. Because internationally recognized certifications like ISO 9000 are becoming so common among suppliers, it is becoming more important that purchasing firms develop internal certification programs that are geared toward the specific needs of the purchasing organization. a. True b. False 14. Environmental supplier certifications can be used to identify rogue suppliers before they can cause problems. a. True b. False 15. The use of ethical and environmental certifications for suppliers is decreasing. a. True b. False 16. Companies can design supply base rationalization initiatives based in part on ethical and sustainable performance requirements. a. True b. False 17. Creating strategic supplier alliances benefits firms by increasing the performance and value of suppliers as well as increasing brand awareness. a. True b. False 18. Developing a collaborative negotiation infrastructure includes four steps: build a preparation process, develop a negotiation database, design a negotiation launch process, and institute a feedback mechanism. a. True b. False 19. Rewarding suppliers for maintaining high levels of performance is an important step used in maintaining a successful strategic alliance program. a. True b. False 20. Benchmarking is the practice of copying what other businesses do best and is a very effective way to quickly improve sourcing practices and supply chain performance. a. True

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Chapter 04: Ethical and Sustainable Sourcing b. False 21. Benchmarking is the practice of watching the mistakes other businesses do and trying to avoid the same mistakes. a. True b. False 22. There are not many resources available for firms seeking to learn about and implement successful sourcing practices. a. True b. False 23. It is best for firms to learn through their own experiences the methods and tools that work the best, rather than benchmarking. a. True b. False 24. Firms assess their sourcing capabilities because the sourcing function is one of the most value-enhancing functions in an organization. a. True b. False 25. Criteria to evaluate a purchasing department’s performance should include only quantitative assessments. a. True b. False 26. Early supplier involvement is one of the most effective supply chain integration techniques. a. True b. False 27. The use of strategic supplier alliances, if successful, can result in better market penetration, better service, and access to new technologies and knowledge. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

28. All of the following are reasons for the increasing use of ethical and sustainable sourcing practices EXCEPT: a. Global population growth b. Increasing environmental awareness c. Legislation requiring corporate ethical and sustainable sourcing d. Consumers’ desires for better corporate responsibility 29.

considers the public consequences of organizational buying. a. The bullwhip effect b. Ethical sourcing c. Benchmarking d. Vendor managed inventory

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Chapter 04: Ethical and Sustainable Sourcing 30. Which of the following is a trend in ethical and sustainable sourcing? a. Using suppliers who are reducing their carbon footprint b. Discontinuing purchases from firms that use unacceptable labor practices c. Reducing dependencies on only a few foreign suppliers d. All of these 31. Some businesses refer to sustainability in terms of supporting the three P’s. This stands for: a. People, place, price b. Place, price, promotion c. People, planet, profit d. Planet, people, price 32. An activity where a supplier manages its own inventories at the buyer’s site is called: a. Purchase spend reduction forecasting b. Early supplier involvement scheduling c. Strategic inventory planning d. Vendor managed inventory (VMI) 33. Which of the following terms refers to an act that creates the greatest good for the greatest number of people? a. Value analysis b. Utilitarianism c. Keiretsu d. Ergonomics 34. The Ethical Trading Initiative (ETI) does NOT include which of the following? a. Working conditions are safe and hygienic b. No discrimination is practiced c. Workers receive a 30-minute break for an 8-hour shift d. Child labor shall not be used 35. What term refers to a product that is manufactured or grown by a disadvantaged producer in a developing country that receives a fair price for its goods? a. Best of breed product b. Fair trade product c. Gateway product d. Lean production product 36. The purchasing department at Phyllie Design Corporation decided to intentionally increase purchases from womenowned enterprises. This decision can be considered: a. Sustainable sourcing b. Unethical Sourcing c. Utilitarianism d. Ethical Sourcing

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Chapter 04: Ethical and Sustainable Sourcing 37. Growing food in ways which minimize water and fertilizer use and protect biodiversity while enhancing farmers’ livelihoods is an example of: a. Ethical sourcing b. Sole sourcing c. Sustainable sourcing d. Global sourcing 38. Green purchasing is a practice aimed at ensuring that purchased products or materials meet environmental objectives of the organization such as: a. Exploiting product opportunities b. Remanufacturing, and material reuse c. Variable inspections d. Aggregate planning 39. Today sustainability measures for American companies are: a. Required in the U.S. b. Mandated quarterly c. Required every 3 years d. Increasingly moving from voluntary to legally mandated initiatives 40. Which of the following is NOT a step suggested in the Supply Chain Sourcing Strategy Framework? a. Establish corporate ethical and sustainable sourcing policies. b. Certify suppliers as Kaizen Blitz compliant. c. Increase use of certified fair trade and green products and services. d. Prioritize items based on ethical and sustainability opportunities and ease of implementation.

41. Sustainable sourcing policies should include which of the following? a. Use of minority workers b. Fair working conditions c. Use of renewable energy d. Use of child labor 42. In designing an ethical and sustainable strategy a firm might make use of which of the following? a. Hire more supervisors to address problems quickly b. Use performance measures to identify weaknesses c. Create many short term relationships with suppliers d. All of these are correct 43. Leading companies practicing sustainable sourcing and seeking to reduce costs would NOT use which of the following strategies? a. Backward integration to purchase suppliers b. Increase resource efficiencies c. Avoid use of noncompliant suppliers d. Rethink transportation and distribution systems

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Chapter 04: Ethical and Sustainable Sourcing 44. The use of environmental supplier certification programs assists companies by which of the following? a. Further developing existing alliances b. Identifying companies who are the most popular with consumers c. Helping communities who are in jeopardy of plant closures d. All of these are correct 45. One standard which is measured in environmental supplier certification is: a. The number of trucks owned by the supplier b. Technology investment by the supplier c. The suppliers’ recycled content d. The number of on-time deliveries 46. Some firms develop their own formal certification programs, and the requirement might include: a. Forest Stewardship Council (FSC) certification b. Energy Star certification c. Fair Trade certification d. All of these are correct 47. ISO 14000 may play a role in a firm’s: a. Manufacturing flexibility program b. Supplier certification program c. Customer certification program d. Negotiated pricing program 48. Successful strategic supplier alliances can result in which of the following? a. Better market penetration b. Stockpiling c. Tax breaks and incentives d. All of these are correct 49. Alliance development among a firm and its key suppliers tends to: a. Increase the risk for both parties b. Be more of a collaborative activity c. Benefit the buyer and not the supplier d. All of these are correct 50. Which of the following is NOT a benefit of strategic supplier agreements? a. Company and public recognition in the form of awards b. Access to in-house training seminars c. Improve forecasting accuracy across product hierarchies d. More business and/or longer contracts for higher performance 51. Which of the following is TRUE? a. VMI stands for Vertically Managed Inventory.

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Chapter 04: Ethical and Sustainable Sourcing b. 3PL stands for Third Party Leverage. c. VMI stands for Vendor Managed Inventory. d. 3PL stands for Three Point Logistics.

52. For a large company with many strategic supplier alliances, what would be the best way to manage them? a. Create an alliance board to oversee alliances b. Reduce the number of supplier alliances to less than five c. Hire an outside firm to manage them d. All of these are correct 53. Which of the following is NOT a typical strategy for firms to obtain benchmarking data about other companies? a. Discussing sourcing strategies with colleagues at business association meetings b. Hiring former employees from other companies and assessing their knowledge c. Utilizing resources from the Center for Advanced Purchasing Studies d. Collecting published trade information on benchmarking studies 54. Benchmarking is: a. A system of performance metrics that seeks to motivate suppliers to perform better. b. A practice where companies attempt to learn and apply the best practices of other companies. c. A system of marking defective inbound inventory so it can quickly be identified for return to the supplier. d. A program where suppliers compete for contracts, but those companies who are outbid are provided advice for winning future contracts.

55. The main benefit(s) from benchmarking sourcing practices is: a. Savings in energy consumption and materials, lower distribution costs, and improved corporate image among regulators, customers and community. b. Lower prices of goods and services, use of fewer buyers and lower administrative costs. c. Larger market for products, economies of scale in purchasing and production, and lower labor costs. d. Allows firms to leapfrog the experience-gaining stage by trying things that have worked well for other companies.

56. Why do firms assess their sourcing capabilities? a. They are looking for ways to reduce their employee headcount. b. They can easily spot suppliers who are not practicing sustainable sourcing practices. c. They can gauge their success in improving their own value-enhancing contributions to the firm. d. All of these are correct.

57. Which of the following is an important cost-controlling activity performed by purchasing personnel? a. Reducing the supply base b. Negotiating global agreements with suppliers c. Managing supplier relationships d. All of these are correct 58. Which of the following should NOT be used as assessment criteria to evaluate the purchasing department’s performance?

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Chapter 04: Ethical and Sustainable Sourcing a. Creating early supplier involvement initiatives b. Performance of dispatch rules c. Participating in value engineering/value analysis efforts d. Optimizing the supply base 59. Suppliers can be rewarded when performance meets or exceed expectations by: a. Sharing of the cost reductions resulting from supplier improvements. b. Enjoying a billback penalty. c. Engaging in capacity sharing. d. All of these are correct

60. Purchasing goods from suppliers in developing countries can be risky. Why might this be risky? How can firms reduce this risk?

61. Sustainable sourcing is a rather common practice among firms in many industries. What are three possible benefits companies practicing sustainable sourcing seek to achieve: 62. As relationships with suppliers become more trusted, reliable, and long-term in nature, early supplier involvement has become a popular strategy among firms. Explain three benefits gained from using this strategy.

63. What is the purpose of supplier certification programs? Describe a certification program that would help companies who are looking for ethical and sustainable suppliers.

64. Describe three important steps in organizing and managing a successful strategic alliance program.

65. Service companies like hair salons, cleaning companies, and delivery services are also becoming aware of the trends in ethical and sustainable sourcing. Describe four ways a service company can use ethical and sustainable sourcing.

Provide an example of how this can happen.

66. Lowe’s is a retail leader in selling home improvement tools and materials. Lowe’s wants to become more environmentally conscious.

Answer the following series of questions in an effort to develop a plan that will guide Lowe’s executives into transforming Lowe’s into a sustainable organization through green sourcing. a.

Define sustainability. b.

Outline a set of goals (FOUR) that would lead Lowe’s down a sustainable path. c.

How do these goals make sense from both a financial and environmental perspective? d.

What are some ways supplier managers can aid in achieving these goals?

67. Explain why sourcing practices are benchmarked. Provide TWO examples of resources available for firms seeking to implement successful sourcing practices.

68. Answer the following three questions: a.

Why would a firm want to assess their sourcing capabilities? b.

List five assessment criteria to evaluate the purchasing department’s performance. c.

What kind of performance tool can be used to assess the criteria listed?

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Chapter 04: Ethical and Sustainable Sourcing

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Chapter 04: Ethical and Sustainable Sourcing Answer Key 1. False 2. True 3. True 4. False 5. True 6. True 7. False 8. False 9. False 10. False 11. True 12. True 13. True 14. True 15. False 16. True 17. True 18. True 19. True 20. True 21. False 22. False 23. False 24. True 25. False

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Chapter 04: Ethical and Sustainable Sourcing 26. True 27. True 28. c 29. b 30. d 31. c 32. d 33. b 34. c 35. b 36. d 37. c 38. b 39. d 40. b 41. c 42. b 43. a 44. a 45. c 46. d 47. b 48. a 49. b 50. c 51. c

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Chapter 04: Ethical and Sustainable Sourcing 52. a 53. b 54. b 55. d 56. c 57. d 58. b 59. a 60.60.

•

•

Negative publicity could be connected to a firm if human rights, animal rights, safety, or environmental abuses become associated with the firm’s suppliers or foreign manufacturing facilities, this could lead to product boycotts, a tarnished company image, brand degradation, lower employee morale, and ultimately lower sales, profits, and stock prices.

Firms can minimize risk by making sure ethical sourcing policies include: Use of ethical ratings for suppliers as well as other standard performance criteria; Use of independent verification of supplier compliance; Reporting of supplier compliance performance to shareholders; Providing detailed ethical sourcing expectations to suppliers.

Determining where their purchased goods come from and how they are made; and Knowing if suppliers promote basic workplace principles; Firms can minimize risk by making sure ethical sourcing policies include: Use of ethical ratings for suppliers as well as other standard performance criteria; Use of independent verification of supplier compliance; Reporting of supplier compliance performance to shareholders; Providing detailed ethical sourcing expectations to suppliers. Determining where their purchased goods come from and how they are made; and Knowing if suppliers promote basic workplace principles.

61.61.

• • • •

Increased revenues via new and differentiated products.

Cost reduction gained via resource efficiency, avoidance of noncompliance fines, and rethinking transportation and distribution systems.

Managing risk by reducing damage to the brand, developing approaches for meeting regulations and capturing sustainability-conscious customers.

Building intangible assets − Improving brand and reputation by being more socially and environmentally responsible.

62. Other answers are also possible.

•

Reduce Costs − Input from a supplier representative can help firms reduce material cost by suggesting use of lessexpensive materials or more standardized parts. Reductions can be achieved in operational costs, costs associated with defects, costs associated with downtime, standard parts, fewer parts, and less expensive materials.

•

Improved Quality − The sharing of information allows the best parts and processes to be designed and used in the

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Chapter 04: Ethical and Sustainable Sourcing manufacturing of the end item. Getting suppliers involved in the product design process can help firms to design better quality products.

•

Reduced New Product Development Time − When a supplier is involved in the buyer’s new product design process, the part and process changes can be timed to be in place and available when first needed by the buyer.

•

Establishes a Level of Trust and Cooperation − In this age of strategic alliances, establishing trust and cooperation early in the lifecycle product can pay dividends long into the future of the product's lifecycle. Firms can establish levels of trust and cooperation that may result in future collaborative projects.

63.63.

•

Ethical and sustainable supplier certifications are one way to identify strategic alliance candidates or to further develop existing alliances. To become certified, a supplier must undergo a series of audits as well as on-site assessment. The certifications are beneficial when a firm is seeking to reduce purchases from marginal or poorperforming suppliers.

•

ISO 14000 is a family of international standards for environmental management. Becoming ISO 14000 certified enables an organization’s management, employees and external stakeholders to measure and improve environmental impact. Standards include reduced cost of waste management, savings in energy consumption and materials as well as lower distribution costs.

64.64.

•

Determine how the program will be organized. For example, it can be based on business units, geographical areas, or product lines.

•

Create ways to disseminate information. Alliance management and development information should be centrally controlled and available through internal websites, pamphlets, and workshops.

•

Elevate the importance of the strategic alliance program. Assign a director or vice president of alliance programs, reporting to top management. Establish consistent procedures for alliance programs throughout the organization.

•

Provide continuous evaluation of alliance performance, visibility, and support. Management can increase the value and acceptance of alliance programs when successes are made visible to the firm’s lower-level managers and employees. Alliance management requires resources and ongoing reevaluations.

•

Reward suppliers for improving or maintaining high levels of performance. Rewards typically include increased business, banquets and other nonmonetary awards.

65.65.

•

A service company that uses ethical and sustainable sourcing practices can advertise this to the public. This will demonstrate their commitment to saving the environment as well as promoting their ethical standards. Example − Display this commitment on their website.

•

It is also important for a service company to make sure its working conditions are safe and hygienic and that working hours comply with national laws. Employees should have the right to join unions. Example − Company reviews the ETI Base Code and makes sure it is maintaining proper standards.

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Chapter 04: Ethical and Sustainable Sourcing •

When a service company purchases supplies for the company, it should select environmentally and socially conscious suppliers. Example − Company uses suppliers who have ethical and environmental certifications.

•

Management can encourage its employees to make conscious decisions in cutting back on electricity use. This will help to reduce a firm’s energy consumption. Example − Raising/lowering thermostats or turning off appliances when not in use.

•

Products used by the service company should be energy efficient. This can include low-water consumption products. Example – Product has automatic shut-off when not in use.

•

They should make sure there is no discrimination in their hiring, compensation, promotion, training, retiring or termination practices. Example − Service companies can make a concerted effort in their hiring practices to promote diversity.

•

Many others possible.

66.66. a.

According to the textbook, sustainability is the ability to meet current needs without hindering the ability to meet the needs of future generations in terms of economic, environmental, and social changes. b.

The following are some potential goals that would lead Lowe’s down a sustainable path: 1.

Reduce waste 2.

Reduce packaging 3.

Reduce fuel and energy consumption 4.

Reducing material consumption 5.

Avoid using noncompliant suppliers 6.

Better route management 7.

Many others possible.

c.

All of the goals directly translate into lower costs, which can then easily translate in economic gains for the organization. Also, while they are all methods that translate into cost saving, they all reduce the burden on future generations by conserving resources and minimizing both toxic and non-toxic wastes.

Additionally, the reduction or elimination of dangerous wastes or non-environmental practices can reduce or eliminate government fines and penalties and also negative publicity.

d.

Supplier managers are required to 1.

Explore material/product options that are deemed environmentally friendly 2.

Purchase more efficient packaging options ⎯ Explore re-usable packaging options 3.

Motivate suppliers to change their business practices 4.

Consider suppliers that are located closer to reduce emissions created during transportation 5.

Communicate corporate environmental policies to suppliers 6.

Communicate with operations and distribution so that integrated supply chain actions are aligned with corporate goals.

7.

Communicate with designers and manufacturers on methods and materials that lead to more sustainable business practices.

8.

Many others possible.

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Chapter 04: Ethical and Sustainable Sourcing 67. Sourcing practices are benchmarked to allow firms to develop a standard against which to compare their performance.

Benchmarking shortens the learning curve by allowing firms to make use of what works for other companies.

•

CAPS – Center for Advanced Purchasing Studies provides research studies, benchmarking reports, and best practices case studies They organize purchasing symposiums and roundtable discussions for purchasing professionals and academics.

•

The Supply-Chain Council helps practitioners reduce their supply chain costs and improve customer service by providing their Supply Chain Operations Reference (SCORE) model as a framework for supply chain improvement. They also provide case studies and bring together practitioners to discuss best practices in periodic business conferences around the world.

•

The Arizona-based Institute for Supply Management (ISM) provides resources such as a monthly publication featuring the latest supply management trends and information. They are globally recognized for their Certified Professional in Supply Management (CPSM) and Certified Professional in Supplier Diversity (CPSD) programs.

They also publish the Journal of Supply Chain Management, organize several annual global supply management conferences, and support many seminars and web conferences for supply management professionals.

68.68. a.

Why would a firm want to assess their sourcing capabilities?

Firms assess their sourcing capabilities because it is one of the most value-enhancing functions in an organization. There can be tremendous cost savings for the firm and its customers when purchases are made with the objectives of the firm in mind. To verify whether the sourcing function is performing in a positive manner, they must be evaluated against some standards or benchmarks. Management should continuously audit their capabilities and successes in these areas. b.

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

List five assessment criteria to evaluate the purchasing department’s performance. contributing to the improvement of purchased product and service quality participating in value engineering/value analysis efforts finding and evaluating ethical and sustainable suppliers furthering the integration and development of existing key suppliers managing and developing local, regional, and global suppliers creating early supplier involvement initiatives creating strategic supplier alliances contributing to new product development efforts maintaining and improving internal cooperative relationships initiating supplier cost reduction programs

c.

What kind of performance tool can be used to assess the criteria listed?

A weighted-factor rating method could be used since the criteria are both qualitative and quantitative.

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Chapter 05: Demand Forecasting

Indicate whether the statement is true or false.

1. The goal of a good forecasting technique is to minimize the deviation between actual demand and the forecast. a. True b. False 2. Using price discount strategy to increase sales during periods with excess inventory or slow demand is considered an ideal or partnership-friendly approach to satisfying demand. a. True b. False 3. Inaccurate forecasts would lead to imbalances in supply and demand. a. True b. False 4. Retailers are reluctant to share the type of proprietary information required by Collaborative planning, forecasting, and replenishment (CPFR) concept. a. True b. False 5. Random variations represent either increasing or decreasing movements over many years due to factors such as population growth, population shifts, cultural changes and income shifts. a. True b. False 6. The Business Cycle is one example of cyclical variations in a time series forecast. a. True b. False 7. Trend variations are wavelike movements that are shorter than a year. a. True b. False 8. The Delphi forecasting approach is applicable for high-risk technology forecasting; large, expensive projects; or major new product introductions. a. True b. False 9. Quantitative forecasting methods are based on opinions and intuition, whereas qualitative forecasting methods use mathematical models and relevant historical data to generate forecasts. a. True b. False 10. Individual biases could negatively impact the effectiveness of the Sales Force Composite forecasting approach, due to the proximity of the sales personnel to the consumers. a. True

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Chapter 05: Demand Forecasting b. False 11. If you felt that recent demand trends were more significant, and thus should be emphasized more in formulating a forecast, then in forecasting demand for the upcoming demand period, you would probably favor using a simple moving average over the conventional weighted moving average. a. True b. False 12. Regression analysis is commonly used in the cause-and-effect forecasting model. a. True b. False 13. Given the following information, the forecast for period two using exponential smoothing and α = 0.3 is 60.5.

Period Demand Forecast 1 66 59 2 70 a. True b. False 14. The calculated forecast for May is 47.2, using the actual demand shown in the table below, and a 3-month weighted moving average with weights 0.2, 0.3, 0.5 (the heaviest weight applied to the most recent period).

Nov. 39

Dec. 36

Jan. 40

Feb. 49

Mar. 48

Apr. 46

a. True b. False 15. The Naïve forecast, Mean Profit Leverage, and Mean Square Error are examples of forecasting accuracy measures. a. True b. False 16. As tighter control limits are instituted for the tracking signal, there is a greater probability of finding exceptions that require no action, but it also means catching changes in demand earlier. a. True b. False 17. Forecast error is the actual quantity minus the forecast. a. True b. False 18. The true value of Collaborative planning, forecasting, and replenishment (CPFR) comes from the sophisticated forecasting algorithms that provide companies with highly accurate forecasts, not from the exchange of forecasting information. a. True b. False

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Chapter 05: Demand Forecasting 19. In today’s competitive business environment, collaboration (or cooperation and information sharing) between buyers and sellers is the rule rather than the exception. a. True b. False 20. Early adopters of Collaborative planning, forecasting, and replenishment (CPFR), Walmart and West Marine, were not very successful implementing the system. a. True b. False 21. CPFR is more likely to succeed if companies educate their employees on the benefits of the process changes and the disadvantages of maintaining the status quo. a. True b. False 22. A good demand sensing solution would include an automated model with self-adjusting algorithms that can learn from data without human intervention and generates forecasts for execution daily. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

23. All of the following may influence demand and should be considered when developing a forecast EXCEPT: a. New competition b. Supplier quality c. Ergonomic conditions d. Emerging markets 24. Which of the following should NOT be considered when demand planning after the COVID-19 pandemic? a. Switching off from traditional models and manually override forecasts if needed. b. Clean data for the future c. Increase communication with customers d. Focus on managing slow moving products to minimize uncertainty 25. Inaccurate forecasts can result in negative outcomes like: a. High inventory costs and increased profits b. Imbalances in supply and demand c. Material shortages and decreased costs of obsolescence d. Low inventory costs and stockouts 26. Apple did NOT properly forecast demand for their new iPhone12, causing a. Excess stock b. Apple to increase 2021 production plans by 20-30 percent c. Price reductions d. The bullwhip effect

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Chapter 05: Demand Forecasting 27. What component of a time series has either increasing or decreasing movements over many years and are due to factors such as population growth, population shifts, cultural changes, and income shifts? a. Trend Variations b. Cyclical Variations c. Random Variations d. Seasonal Variations 28. Your company is conducting forecasting that revolves around population growth in large cities. This type of forecasting can be referred to as what component of a time series? a. Cyclical Variations b. Trend Variations c. Seasonal Variations d. Random Variations 29. Cyclical variations are longer than a year and can be influenced by: a. Events such as natural disasters b. Imbalances in supply and demand c. Political factors d. Population growth 30. Random variations in a Time Series component are due to: a. Population growth b. Unpredictable events c. Seasonal variations d. Inaccurate responses of the expert participants 31. When there is not a lot of currently relevant data available it is generally best to use: a. Qualitative forecasting b. Time series forecasting c. Naive forecasting d. Simple moving average forecasting 32. Which one of the following is NOT a type of qualitative forecasting? a. Sales force composite b. Delphi Method c. Jury of executive opinion d. Simple moving average 33. Quantitative forecasts use mathematical techniques that are based on: a. Expert opinions b. Surveys c. Historical data d. Sales force knowledge of the market 34. When using linear trend forecasts, the trend line is determined using the least squares method, which does what to

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Chapter 05: Demand Forecasting determine the characteristics of the linear equation? a. Minimizes the sum of the squared deviations b. Applies the smallest weight to most recent data c. Forecasts the next period demand by adjusting the current period’s actual demand d. Estimates the next period forecast by using the current period’s actual demand 35. Which of the following time-series approach to forecasting uses historical data to generate a forecast and works well when demand is fairly stable over time? a. Naïve Forecast b. Weighted Moving Average c. Simple Moving Average d. Exponential Smoothing 36. Using the data set below, what would be the forecast for period 4 using a three period moving average? (Choose the closest answer.)

Period 1 2 3 4 5 6 a. 13,525 b. 11,883 c. 12,908 d. 13,917

Actual Demand 11,900 12,500 14,325 15,750 10,500 15,500

37. Using the data set below, what would be the forecast for period 5 using a four period weighted moving average? The weights for each period are 0.05, 0.15, 0.30, and 0.50 from the oldest period to the most recent period, respectively.

(Choose the closest answer.)

Period 1 2 3 4 5 6 a. 13,619 b. 13,269 c. 13,710 d. 15,238

Actual Demand 11,900 12,500 14,325 15,750 10,500 15,500

38. Using the data set below, what would be the forecast for period 6 using the exponential smoothing method? Assume the forecast for period 5 is 14,000. Use a smoothing constant of α = 0.4. (Choose the closest answer.)

Period

Actual Demand

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Chapter 05: Demand Forecasting 1 2 3 4 5 6 a. 14,070 b. 13,190 c. 12,600 d. 14,030

11,900 12,500 14,325 15,750 10,500 15,500

39. Using the actual demand shown in the table below, what is the forecast for May (accurate to 1 decimal) using a 3month weighted moving average and the weights 0.20, 0.35, 0.45 (with the heaviest weight applied to the most recent period? (Round to nearest whole number.)

Nov. 39 a. 51 b. 52 c. 47 d. 46

Dec. 36

Jan. 40

Feb. 38

Mar. 48

Apr. 51

40. Given the following information, calculate the forecast (round to nearest whole number) for period three using exponential smoothing and α = 0.4.

Period 1 2 a. 67 b. 65 c. 68 d. 71

Demand 68 74

Forecast 59

41. The smoothing constant for exponential smoothing must be: a. Positive b. Negative c. Between 0 and 1 d. Greater than 1 42. A positive error implies that a forecast was: a. Too low b. Too high c. Neither too high nor too low d. The sign of an error gives no information as to the direction of the error 43. A forecast tracking signal is used to determine: a. If the product has shipped on time

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Chapter 05: Demand Forecasting b. The location of the current shipment c. The price to charge for the product d. If the forecast bias is within the acceptable control limits 44. The formula for the forecast error is calculated by using the equation: a. Actual demand for period t minus the forecasted demand for period t b. Actual demand for period t divided by the forecasted demand for period t c. Actual demand for period t plus the forecasted demand for period t d. The average of Actual demand for period t and forecasted demand for period t 45. What is considered an acceptable range for a tracking signal? a. ±1 b. ±2 c. ±3 d. ±40 46. A forecasting method has produced the following data over the past 5 months shown in the data set. What is the mean absolute deviation (accurate to 1 decimal)?

Month 1 2 3 4 5 a. 1.2 b. 1.4 c. -0.8 d. -4.0

Actual 12 13 10 11 10

Forecast 11 14 8 12 11

47. Based on the information in the data set below, what is the mean squared error (accurate to 1 decimal)?

Month 1 2 3 4 5 a. 36.0 b. 1.6 c. 1.0 d. 0.0

Actual 12 13 10 11 9

Forecast 11 10 8 6 8

48. According to the text, which of the following is a major cultural issue and considered a big hurdle to widespread implementation of Collaborative Planning, Forecasting, and Replenishment (CPFR)? a. Prejudice b. Trust

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Chapter 05: Demand Forecasting c. Turnover d. None of these 49. Collaborative planning, forecasting, and replenishment (CPFR) is a concept that aims to enhance supply chain integration by: a. Sequencing jobs using priority rules b. Supporting and assisting joint practices c. Utilizing statistical process control measures d. Dividing activities in accordance with the work breakdown structure 50. Which of the following is one of the key objectives of the Collaborative planning, forecasting, and replenishment concept? a. The arrangement of counter-purchasing b. Increased supplier certification c. Build a production process that meets customer requirements d. Information sharing between suppliers and retailers that aids in planning and satisfying customer demands 51. Which of the following is a benefit of SAS Forecasting Software? a. Improve forecasting accuracy across your product hierarchy b. Enhance accuracy with forecast-value-added (FVA) and reporting c. Reduce finished goods inventory and stock-outs d. All of these are correct 52. Which of the following is NOT a recommended plan of action, according to supply chain management experts, for the pandemic and beyond? a. Change forecasting models b. Understand supply chain dynamics c. Identify future demand drivers d. Decrease communication with customers 53. What is one of the challenges of widespread application of AI in demand forecasting? a. Access to “right” data b. Talent scarcity c. Trust in AI systems d. All of these are correct 54. Which of the following is an advanced forecasting application that is provided to companies on a subscription basis? a. CRM systems b. Cloud-based forecasting c. Enterprise Resource Planning software d. All of these are correct

55. List and explain two types of qualitative forecasting methods.

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Chapter 05: Demand Forecasting 56. Given the following information, calculate the forecast (round to nearest whole number) for period 4using exponential smoothing and α = 0.2. Use a tracking signal to determine if there is a bias problem with the forecasting method. (Assume the control limit for the tracking signal is ± 3.)

Period 1 2 3 4

Demand 1587 1590 1595 1580

Forecast 1590

57. What is a tracking signal? How can managers use the information provided by the tracking signal to improve the quality of forecasts?

58. Explain the key challenges of CPFR implementation.

59. List four (4) of the advantages of using artificial intelligence (AI) and machine learning (ML) in demand forecasting.

60. The four components of time series data are: trend variations, cyclical variations, seasonal variations, and random variations. Briefly describe each type of variation.

61. Answer the following questions regarding quantitative and qualitative forecasting: a. b. c. d.

Define quantitative forecasting.

Explain the naïve forecasting method and give an example.

What are the benefits of using the naïve forecasting method?

Under which circumstances would one utilize a combination of both quantitative and qualitative forecasting?

62. Use the data set below to answer the questions that follow.

Period 1 2 3 4 5 6 a. b. c.

d.

Demand Sales Volume 1150 1275 1550 1600 1650 1725

Find the four-period simple moving average forecasts for Periods 5 and 6.

Find the four-period weighted moving average forecasts for Periods 5 and 6 using weights of 0.10, 0.20, 0.30, and 0.40 from the earliest period to the latest period, respectively.

Which set of forecasts is more accurate, the simple moving average forecasts or the weighted moving average forecasts? Why is that set of forecasts more accurate in this particular case (using Data Set E4)?

Will that type of forecast always be more accurate? Why or why not?

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Chapter 05: Demand Forecasting Answer Key 1. True 2. False 3. True 4. True 5. False 6. True 7. False 8. True 9. False 10. True 11. False 12. True 13. False 14. True 15. False 16. True 17. True 18. False 19. True 20. False 21. True 22. True 23. c 24. d 25. b

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Chapter 05: Demand Forecasting 26. b 27. a 28. b 29. c 30. b 31. a 32. d 33. c 34. a 35. c 36. c 37. d 38. c 39. c 40. a 41. c 42. a 43. d 44. a 45. c 46. a 47. b 48. b 49. b 50. d 51. d

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Chapter 05: Demand Forecasting 52. d 53. d 54. b 55.55. a.

Jury of Executive Opinion: This type of qualitative forecasting is usually used for longrange forecasting. An experienced group of senior management executives knowledgeable about the market, competitors, and the business environment develop a forecast in the hopes that their experience will provide them with a competitive advantage. b.

Delphi Method: Internal and external experts are surveyed about future events and longterm forecasts of demand. Following the survey, the answers are summarized, and this summary is sent back out to the experts. Experts are then able to modify their responses based on the summary. The process continues until a consensus is reached. Experts in this process never physically need to meet; they communicate only through their survey responses and their subsequent responses to the summaries.

c.

Sales Force Composite: This qualitative forecasting method utilizes the knowledge of the sales force. The sales force is seen to have recent and accurate information concerning the market and the needs of the customer. Based on this knowledge the sales force is asked to create a forecast to estimate the needs of the customer.

d.

Consumer Survey: Surveys are administered to customers via phone, mail, Internet, or personal interviews. Customers are surveyed about issues such as future buying habits, new product ideas, and opinions about existing products. Using statistical tools and managerial judgment, a forecast is devised.

56. Since you do not have the forecast for periods 2 and 3, you must calculate those first in order to use them in calculating the forecast for period four.

F 2 = 1590 + 0.2(1587 – 1590) = 1589.4 F 3 = 1589.4 + 0.2(1590 – 1589.4) = 1589.5 F 4 = 1589.5 + 0.2(1595 – 1589.5) = 1590.6 RSFE = (1587 – 1590) + (1590 - 1589.4) + (1595 – 1589.5) + (1580 – 1590.6) = -7.5 MAD = 4.925 Tracking signal = -7.536/4.924 = -1.52 The results indicate no bias in the forecasts as the tracking signal is within the control limits of ± 3.

57. Tracking signal is used to determine if a forecasting model is stable over time. If the tracking signal falls outside the pre-set control limits, there is a bias problem with the forecasting method and an evaluation of the way forecasts are generated is warranted. The tacking signal provides an indication of whether the forecasts are consistently over or under actual demand. A biased forecast will lead to excessive inventories or stock-outs. Adjustments to the forecasts can be made accordingly. Some inventory experts suggest using ±4 for high-volume items and ±8 for lower-volume items while others prefer a lower limit. For example, a company may start off with a control limit for their tracking signal of ±4. Over time, the quality of forecasts improved and the control limits were reduced to ±3. As tighter limits are instituted there is a greater probability of finding exceptions that require no action, but it also means catching changes in demand earlier.

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Chapter 05: Demand Forecasting 58.58.

The key challenges are the difficulty of making internal changes, total implementation cost, and trust. Resistance to change should be addressed by top management. A project will be more likely to succeed if top management commits time and resources to the project. It is important that companies educate their employees on the benefits of the process changes.

Companies need to budget for the cost of using this technique as demands for employee time and resources will be a factor. Trust is challenge because many retailers are reluctant to share the type of proprietary information required by CPFR. 59.59. a.

Utilizing AI in demand forecasting has shown that reductions in forecasting errors of between 20 and 50 percent are feasible. b.

Reduction in lost sales due to out of stock products by up to 65 percent.

c.

Inventory reductions of 20 to 50 percent.

d.

Large amounts of data can be analyzed quickly

e.

Things that normally take 2 to 3 persons to do manually can be done in minutes using AI

60.6 0 Trend variations: Trend variations can either be increasing or decreasing demand . movements over a number of years. These variations can be due to factors such as population growth, population shifts, cultural change, and income shifts. a.

b.

Cyclical variations: This type of variation is typified by wave-like movements where demand fluctuates up-and-down. These fluctuations must be sustained for leased one year.

Variation is usually influenced by macroeconomic and/or political factors.

c.

Seasonal variations: variation is seasonal; demand becomes somewhat predictable on certain days, weeks, months, years, or seasons. In the United States the most common form of seasonal variation is seen in many retail industries during the Christmas season when demand usually spikes.

d.

Random variations: Unexpected or unpredictable events such as natural disasters, strikes, and wars will cause random variations in demand. The threat of hurricane will usually cause a tremendous spike in demand for items like batteries, bottled water, and wood products.

61.61. a.

Define quantitative forecasting.

Quantitative forecasts use various mathematical models which use historical data and/or associative variables to forecast demand. b.

Explain the naïve forecasting method and give an example.

The naïve method uses the forecast for the next period to be the same as the actual demand in the last period. For example, if actual demand for January was 150 units, then forecast the demand for February to be 150 units.

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Chapter 05: Demand Forecasting c.

What are the benefits of using the naïve forecasting method?

The naïve method is easy to understand, and is inexpensive to develop, store data and operate.

d.

Under which circumstances would one utilize a combination of both quantitative and qualitative forecasting?

When there is a long-time horizon, it is generally recommended to utilize a combination of both quantitative and qualitative techniques.

62.62. a.

Find the four period simple moving average forecasts for Periods 5 and 6.

Forecast for Period 5 = (1150 + 1275 + 1550 + 1600)/4 = 1394 Forecast for Period 6 = (1275 + 1550 + 1600 + 1650)/4 = 1519 b.

Find the four period weighted moving average forecasts for Periods 5 and 6 using weights of 0.10, 0.20, 0.30, and 0.40 from the earliest period to the latest period, respectively.

Forecast for Period 5 = .1(1150) + .2(1275) + .3(1550) + .4(1600) = 1475 Forecast for Period 6 = .1(1275) + .2(1550) + .3(1600) + .4(1=1650) = 1578

c.

Which set of forecasts is more accurate, the simple moving average forecasts or the weighted moving average forecasts?

In this case the weighted moving average forecasts are more accurate, using the mean absolute deviation (MAD) to compare forecast accuracy. For the Simple moving average, the MAD for the 2 periods is 231. For the Weighted moving average forecast, the MAD is 161 for the 2 periods.

Why is that set of forecasts more accurate in this particular case?

Because demand is increasing in every period and the weighted moving average forecast, which weighs more heavily recent periods of demand in calculating the forecast versus early periods of demand, is more capable of reflecting recent changes in demand patterns.

d.

Will that type of forecast always be more accurate? Why or why not?

While the weighted moving average forecast works very well with this particular data set, it might not be as effective if demand were more stable from period to period. When there's a greater degree of stability in demand from period to period, a simple moving average forecast would likely be more effective. Nonetheless, if demand patterns were very random it is uncertain which forecasting model would be more accurate. It is for this reason the textbook describes a number of different forecasting methods that when used together can help an organization see a more complete picture of what the future may hold. Use of the MAD is necessary to compare forecast accuracy.

The student may also note that while the weighted moving average forecast was more accurate, neither forecasting model would have aptly prepared the organization for the increasing demands that were experienced during periods 5 and 6. The student might even mention some of the other models from the textbook. The exponential smoothing forecasting model and trend adjusted exponential smoothing forecasting model may be more effective for this particular data set.

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Chapter 06: Resource Planning Systems

Indicate whether the statement is true or false.

1. The chase production strategy works well when highly skilled workers are needed, especially in a tight labor market. a. True b. False 2. The three basic production strategies for addressing the aggregate planning problem are the chase production strategy, the level production strategy, and the aggregate production strategy. a. True b. False 3. A chase production strategy works well for make-to-stock manufacturing firms, which typically emphasize immediate delivery of off-the-shelf, standard goods at relatively low prices. a. True b. False 4. The mixed strategy uses subcontracting, or the hiring of part-time and temporary workers to manage short-term high demand. a. True b. False 5. MRP is the production planning system intended to develop long-range plans (more than a year away) concerning product families manufactured by the organization. a. True b. False 6. A Master Production Schedule is an engineering document that shows an inclusive listing of all component parts and subassemblies making up the end item. a. True b. False 7. System nervousness is when even small changes to upper-level production plans cause major changes in lower-level production plans. a. True b. False 8. Lag Capacity Strategy is a reactive approach that adjusts its capacity in response to demand. a. True b. False 9. For MRP, a dependent demand management system, to work effectively, it requires the independent demand information from the Master Production Schedule. a. True b. False 10. MRP Explosion is the process of converting a parent item's planned order releases into component gross requirements. a. True

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Chapter 06: Resource Planning Systems b. False 11. Distribution requirements plan (DRP) operates in a dependent demand situation. a. True b. False 12. Legacy systems were designed to perform a very specific operational function and were programmed as independent entities. a. True b. False 13. ERP systems were designed to coordinate the information requirements for purchasing, planning, scheduling and distribution of an organization operating in a complex multi-unit global environment. a. True b. False 14. The legacy MRP system was programmed to coordinate with other functional areas in the firm. a. True b. False 15. Legacy MRP systems typically utilized multiple software packages and databases which caused the same information to be stored in multiple locations. a. True b. False 16. The traditional MRP systems lacked the capability to directly interface with external supply chain members. a. True b. False 17. Two reasons ERP implementations have been known to fail include: lack of top management commitment and lack of proper training. a. True b. False 18. ERP provides the mechanism for supply chain members to share information so that scarce resources can be fully utilized to meet demand, while minimizing the bullwhip effect and supply chain inventories. a. True b. False 19. In general, single integrator ERP solutions fit the less complex business environments. a. True b. False 20. When a single company that is implementing an ERP system chooses to use one company to provide an operations module, another to provide the sales and marketing application, and yet another company to provide the finance and accounting module, that single company has chosen to utilize the single integrator approach. a. True

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Chapter 06: Resource Planning Systems b. False 21. The best-of-breed solution picks all the desired applications from a single vendor for the ERP system. a. True b. False 22. Implementing a best-of-breed solution may cause firms to link databases from multiple software applications of different vendors. a. True b. False 23. Lack of communication between the implementing firm and its ERP software provider can become a major hindrance for a successful implementation. a. True b. False 24. A time-phased requirement prior to considering on-hand inventory and lead time to obtain the item which is satisfied from inventory and production is called gross requirement. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

25. Which of the following basic production strategies works best with make-to-order manufacturing firms? a. Capacity Production Strategy b. Mixed production Strategy c. Level Production Strategy d. Chase Production Strategy 26. Which of the following results from using the chase production strategy? a. The workforce fluctuates in response to the demand pattern b. It relies on fluctuating finished goods inventories and backlogs to meet demand c. The firm keeps its workforce levels constant d. None of these is correct 27. Which strategy allows finished goods inventories to accrue and relies on backlogs to handle the demand? a. The Level Production Strategy b. Mixed Production Strategy c. The Chase Production Strategy d. The Aggregate Production Strategy 28. Which strategy uses overtime and subcontracting to cope with the high demand periods? a. The Level Production Strategy b. Mixed Production Strategy c. The Chase Production Strategy

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Chapter 06: Resource Planning Systems d. The Aggregate Production Strategy 29. What plan specifies which end product is to be made, how many are required, and when they need to be completed? a. Aggregate production plan b. Master production schedule c. Bill of material d. Super bill of materials 30. What type of plans involve minor changes in capacity such as changes in employment levels? a. Long-range b. Material requirements c. Short-range d. Medium-range 31. What plan is used to check the feasibility of the Master Production Schedule? a. Distribution Requirement Plan b. Material Requirement Plan c. Capacity Requirement Plan d. Rough-Cut Capacity Plan 32. Which of the following keeps the production plan’s capacity fixed during the planning horizon? a. Materials Requirements Plan b. Master Capacity Plan c. Aggregate Production Plan d. Capacity Requirements Plan 33. Which planning horizon is shorter than the aggregate production plan’s but must be longer than a firm’s production lead time to ensure the end item can be completed within the planning horizon? a. Material requirements plan b. Master production schedule c. Demand time fence d. Capacity Requirements Plan 34. If an available-to-promise (ATP) for any period is negative, the deficit must be subtracted from the: a. Master Production Schedule b. Most recent positive ATP c. Beginning inventory d. Bill of materials 35. Calculate the final discrete available-to-promise quantity for Week 2 using the following table.

Weeks MPS BI = 30 Committed Customer Orders

1 10 20

2 10 5

3 15 25

4 10 15

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Chapter 06: Resource Planning Systems ATP:D a. ATP2 = 0 b. ATP2 = 5 c. ATP2 = 10 d. ATP2 = 15 36. Complete the following MRP record and provide the planned order releases for Week 1. Lead time is 2 weeks. Safety stock is 3. Use Lot-for-lot lot sizes.

Part X Gross Requirements Scheduled Receipts Projected On-Hand inventory Planned Order Releases

Week 1 32

2 16 10

3 34

4 40

50

a. 25 b. 26 c. 29 d. 22 37. What is the most important output of the MRP? a. Bill of materials b. Distribution requirements plan c. Planned order releases d. Aggregate production plan 38. In a bill of materials, items at which level are independent demand items? a. Level 0 b. Level 1 c. Level 2 d. Level 3 39. Which of the following is NOT one of the three basic methods used to calculate the available-to-promise quantities? a. Discrete available-to-promise b. Cumulative available-to-promise without looking ahead c. Indiscrete available-to-promise d. Cumulative available-to-promise with looking ahead 40. Which of the following equals the gross requirement for that period minus the current on-hand inventory and any scheduled receipts? a. Gross requirement b. Planned order release

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Chapter 06: Resource Planning Systems c. Net requirement d. Safety Stock 41. Which of the following MRP terms represents the parts demanded by a parent? a. Gross requirement b. Component c. Net requirement d. Scheduled receipt 42. Which of the following MRP terms represents a committed order awaiting delivery for a specific period? a. Gross requirement b. Component c. Net requirement d. Scheduled receipt 43. Legacy MRP systems had which of the following limitations? a. The systems needed continuous modifications b. The systems were not user-friendly c. The systems were designed to perform a very specific operational function d. All of these are correct 44. Why are firms migrating to ERP systems? a. ERP systems are easy to implement, particularly in large organizations b. ERP systems tie together a variety of specialized systems c. ERP systems are successful with two-dimensional processes d. ERP systems are inexpensive to implement 45. While ERP is a relatively new technology, it has grown rapidly since the early 1990s. Which of the following is the reason that has contributed to its rapid growth? a. The increased use of email during the 1990s b. The trend for companies to eliminate their supply chain partners c. The year 2000 millennium bug d. All of these are correct 46. Legacy MRP systems typically utilized multiple software packages and databases which caused: a. The system to crash often b. Duplicate and inconsistent information across different branches or even departments within an organization c. The Y2K bug d. Production change orders 47. The acronym ERP is short for: a. Enterprise Resource Planning b. Electronic Resource Provider c. Executive Resource Plan

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Chapter 06: Resource Planning Systems d. Electronic Requirements Provider 48. An advantage/benefit of utilizing an ERP system includes which of the following? a. ERP systems are inexpensive to implement for a small firm b. ERP system can provide a firm and its supply chain partners with a significant competitive advantage c. ERP systems require very little training to get the system up and running d. All of these are correct 49. Which of the following is considered a disadvantage of implementing an ERP system? a. Fairly inexpensive to purchase and implement b. Companies utilize a single centralized database system, thus causing duplicate data entries c. ERP systems are very complex and have proven difficult to implement d. All of these are correct 50. Not all ERP software is designed to provide the exact same tools, nonetheless, some of the common modules usually included in ERP software packages include: a. Customer relationship management and human resource management b. Computer assisted drawing and photo enhancing c. Operating systems and Internet browsing d. 3D Printing 51. Which of the following is NOT a common module of ERP systems? a. Human Resources Management b. Customer Relationship Management c. Marketing Resources Management d. Supply Chain Management 52. Which of the following is considered a DISADVANTAGE of utilizing an ERP system? a. ERP systems decrease supply chain inventories b. ERP systems are very complex and have proven difficult to implement c. ERP systems use a single database and common infrastructure d. Once ERP information is entered it is made available to all users 53. Which solution picks all the desired applications from a single vendor for the ERP system? a. Best-of-breed b. Elite integrator c. Single integrator d. Premier application 54. Which of the following multiple software infrastructures and databases may have to be used to link the multiple applications obtained from different vendors? a. Best-of-breed solution b. Elite integrator solution c. Multi-modular solution d. Premier application solution

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Chapter 06: Resource Planning Systems 55. According to the textbook, which of the following is considered a reason that ERP implementations fail? a. Top management becomes overcommitted to the point where they constantly encourage the employees during implementation b. Lack of communication within an organization c. Organizations tend to spend too much time and money training their employees on the new system d. All of these are correct 56. In general, best-of-breeds ERP solutions: a. Are easier to get the system up and running b. Tend to have applications that all work well together c. Fit the less complex business environments d. Are better suited to more intricate workplaces

57. Explain the three basic production strategies used to complete the aggregate plan.

58. Complete the Projected on Hand Inventory and Planned Order Release rows.

Item – Speed Boat A Gross Requirements Schedule Receipts Projected on Hand Inventory Planned Order Releases

1 25 10

2 30 40

3 35

4 40

35

Q = Lot-for-lot; Lead time = 2; Safety stock = 10 59. Describe the limitations of a legacy MRP system.

60. What is ERP? Why was it developed?

61. What is a best-of-breed ERP solution? Describe one benefit and one criticism of choosing the best-of-breed solution.

62. This chapter discussed both materials planning and capacity planning. Consider those concepts in answering the following questions: a.

Which is more appropriate for a conventional service organization? Why? b.

Which is more appropriate for a conventional manufacturing organization? Why? c.

What are the three hierarchical components of materials planning? Provide a brief description of each. d.

What are the three hierarchical components of capacity planning? Provide a brief description of each.

63. Calculate the final discrete available-to-promise quantity row using the following table below and explain how the numbers are generated.

Weeks 1

2

3

4

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Chapter 06: Resource Planning Systems MPS BI = 25 Committed Customer Orders ATP:D

10 20

15 5

10 20

20 30

64. Given the following information, complete the MRP records below and explain how the numbers are generated. Note the bill of materials. (Level 0 is Part 1. Level 1 is Part 2. Part 1 requires 2 of Part 2. Also note the lot sizes and lead times.

There are no scheduled receipts and no safety stock is required.

PART 1 (Lot size=lot-for-lot) (Lead time=2 weeks) Gross Requirements Sched. Receipts On-Hand Inventory Pl. Order Releases PART 2 (Lot size=lot-for-lot) (Lead time=1 week) Gross Requirements Sched. Receipts On-Hand Inventory Pl. Order Releases

1

WEEK 2 3 85

4 100

65

Bill of Materials

1

WEEK 2 3

4

40

65. Your firm is considering modernizing its organizational information systems.

Your boss asks you, "Do you think our company needs an ERP system?" Obviously, without knowing the details of this company or the industry in which it operates, it would be difficult to provide a detailed answer to this question.

Your new project may take days, weeks, or even months to answer accurately, but before you begin your research you should develop a short but detailed outline for a paper that will inform the boss about the basics of ERP, the advantages of ERP, as well as the disadvantages of ERP. Answer some of these questions within your outline/answer: ∙ What is ERP? ∙ Why should the organization get an ERP system? ∙ Why might the organization not want to get ERP? ∙ If we did get an ERP system, what would be required for successful implementation?

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Chapter 06: Resource Planning Systems Answer Key 1. False 2. False 3. False 4. True 5. False 6. False 7. True 8. True 9. True 10. True 11. False 12. True 13. True 14. False 15. True 16. True 17. True 18. True 19. True 20. False 21. False 22. True 23. True 24. False 25. d

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Chapter 06: Resource Planning Systems 26. a 27. a 28. b 29. a 30. d 31. d 32. c 33. b 34. b 35. a 36. a 37. c 38. a 39. c 40. c 41. b 42. d 43. d 44. b 45. c 46. b 47. a 48. b 49. c 50. a 51. c

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Chapter 06: Resource Planning Systems 52. b 53. c 54. a 55. b 56. d 57. Chase strategy − Adjusts capacity to match demand patterns. Firms must hire and lay off workers to match its production rate to demand. Hiring, training, and termination costs are significant cost components in the chase production strategy.

Level strategy − Relies on a constant output rate and capacity while varying inventory and backlog levels to handle the fluctuating demand patterns. Firms keep their workforce levels constant and rely on fluctuating finished goods inventories and backlogs to meet demand. This strategy it is more suited for firms that require highly skilled labor.

Mixed strategy − Strives to maintain a stable workforce while using short-term means to manage short-term high demand.

This strategy uses overtime and subcontracting to cope with the high demand periods. Some firms will schedule preventive maintenance or produce complementary products that require similar resources but different demand cycles during the off-peak demand periods.

58. Answer: Item – Speed Boat A Gross Requirements Schedule Receipts Projected on Hand Inventory Planned Order Releases

35

1 25 10 20 15

2 30 40 30 40

3 35

4 40

10

10

Rationale: POH1= 35 – 25 + 10 = 20 POH2 = 20 – 30 + 40 = 30 POH3 = 30 – 35 + 0 = -5; therefore, POR1 = 5 + 10 = 15 and POH3 - 10 POH4 = 10 – 40 = -30; therefore, POR2 = 30 + 10 = 40 and POH4 = 10 59. Legacy MRP systems were designed to perform a very specific operational function and were programmed as independent entities with little regard for meeting requirements or coordinating with other functional areas.

Communication between systems is often limited and visibility across functional areas is severely restricted. Legacy systems were implemented to gather data for transactional purposes, and thus lacked analytical capabilities.

60. ERP stands for Enterprise Resource Planning systems. ERP systems are manufacturing information systems that are intended to connect all functional areas and operations of an organization, as well as its suppliers and customers, in some cases, via a common software infrastructure and database. The systems utilize a centralized and shared database that allows the organization to easily share information and communicate quickly with all of its internal functional members as well as any participating supply-chain partners.

61. ERP systems utilize numerous applications or modules that are integrated during implementation in hopes of creating

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Chapter 06: Resource Planning Systems a single coordinated system. These applications or modules are developed, sold, and integrated by a number of different providers. Some modules or applications are considered to be better than others. The textbook outlines two solutions in developing a coordinate ERP system. One is a best-of-breed solution and the other is the single integrator solution.

The best-of-breed solution takes the best application or module for each individual function and supply chain. Some businesses such as small and medium-sized enterprises require unique best-of-breed software to do advanced or big data analytical decision making. A major criticism of the best-of-breed solution is that multiple software infrastructures and databases may have to be used to link the multiple applications obtained from different vendors. This may severely affect the ability of the system to update the databases rapidly and efficiently.

62.62. a.

Which is more appropriate for a conventional service organization? Why? Because services are unable to inventory their services, capacity planning is considered more important to service industries than materials planning. b.

Which is more appropriate for a conventional manufacturing organization? Why? Because manufacturers are typically able to build inventories of their products, materials planning is considered more important to manufacturing industries than capacity planning.

The answers to the first two questions should not imply that both capacity planning and materials planning cannot be important in both service and manufacturing industries, but due to nature of what each provides for their customer, services are more often concerned with meeting demand with available capacity while many manufacturers can meet demand with built up inventories. Nonetheless, many modern manufacturers are moving to pull type systems so they too will be concerned with capacity. c.

What are the three hierarchical components of materials planning? Provide a brief description of each.

1.

Aggregate Production Plan - APP − long-range materials plan/more than 1 year. This plan is likely to deal with product groups/families. This plan sets the aggregate output rate, workforce size, utilization and inventory, and/or backlog levels for an entire facility.

2.

Master Production Schedule - MPS − a medium range materials plan/6 to 18 months.

The master production schedule deals with end items. It shows the quantity and timing of the end items or services that will be produced.

3.

Materials Requirement Planning - MRP − a short-range materials plan/days or weeks. MRP deals with components/subassemblies. A detailed planning process for components in parts that supports the Master production schedule. The end item requirements from the Master production schedule are converted into a set of time phased components in part requirements

d.

What are the three hierarchical components of capacity planning? Provide a brief description of each.

1.

Resource Requirement Planning - RRP − This is a long-range capacity planning module. The RRP is used to check whether aggregate resources are capable of satisfying the aggregate production plan. The RRP typically considers labor hours and machine offers. Additional considerations include new facilities and/or additional capital equipment.

2.

Rough Cut Capacity Planning - RCCP − the medium-range capacity planning. This plan checks the feasibility of the Master production schedule. The RCCP takes a master production schedule and converts it for production to capacity require. Then it compares the capacity available during each production period.

3.

Capacity Requirement Planning - CRP − this is short-range capacity planning. This

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Chapter 06: Resource Planning Systems plan is used to check the feasibility of the MRP. This plan computes the capacity requirements at each workstation during specific periods to see whether or not they will be capable of manufacturing the items specified by the MRP. 63. Answer: Weeks 1 10 20 5

MPS BI = 25 Committed Customer Orders ATP:D

2 15 5 0

3 10 20 0

4 20 15 0

Rationale: ATP1 = 25 + 10 – 20 = 15 ATP2 = 15 - 5 = 10 ATP3 = 10 - 20 = -10; Need to use 10 units from ATP2; Revising: ATP2 10 - 10 = 0 and ATP3 = 10 – 10 = 0 ATP4 = 20 - 30 = -10; Need to use 10 units from ATP1; Revising: ATP1 15 - 10 = 5 and Revising: ATP4 -10 + 10 = 0 64.

PART 1 (Lot size=lot-for-lot) (Lead time=2 weeks) Gross Requirements Sched. Receipts On-Hand Inventory Pl. Order Releases PART 2 (Lot size=lot-for-lot) (Lead time=1 week) Gross Requirements Sched. Receipts On-Hand Inventory Pl. Order Releases

1

65

65 20

65 100

1

40

WEEK 3 85

2

40 0 200

4 100

0

0

WEEK 2 3

4

200 0

Part 1: Since on-hand inventory is not enough to satisfy the gross requirements in week 3, we must add 20 planned order releases in week 1. To satisfy the gross requirements in week 4 of 100, we must add 100 planned order releases in week 2 (since there is a 2 week lead time for the part).

POH1= 65 – 0 = 65 POH2 = 65 – 0 = 65 POH3 = 65 - 85 = -20; therefore, POR1 = 20 and POH3 = 20 – 20 = 0 POH4 = 0 – 100 = -100; therefore, POR2 = 100 and POH4 = 100 – 100 = 0 Part 2: To generate the gross requirements for part 2, we must multiply the planned order releases of part 1 by 2 since the bill-of-materials states that 2 of part 2 are required for each part 1. The on-hand inventory of 40 satisfies the gross requirements for week 1. In order to satisfy the gross requirements of 200 in week 2, we must have planned order releases of 200 in week 1 (since there is a 1 week lead time for the part).

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Chapter 06: Resource Planning Systems POH1= 40 – 40 = 0 POH2 = 0 – 200 = -200; therefore, POR1 = 200 and POH2 = 200 – 200 = 0 65. ∙

What is ERP? An ERP System is an organizational information system that runs on a single database.

Some of the key objectives of an ERP system include coordinating the information requirements for many or all of the functional departments of an organization and making data readily available to everyone associated with the supply chain and via a user-friendly system.

∙

Why should the organization get an ERP system?

Some of the benefits to getting in ERP system include utilization of a single database, which requires a fairly simple computer infrastructure, easy access to data and information for all employees of the organization, the potential for improved data analysis because of the easy access to data, greater coordination with supply-chain partners, the potential to hand off important decisions to supply-chain partners who may be more qualified to respond to market changes.

∙

Why might the organization not want to get ERP? Investing in an ERP system can be extremely costly. An organization, in addition to paying for the ERP system, will incur high costs to implement the system, train its employees, alter its processes, and convert data from Legacy systems for use on the new ERP system.

Also, organizations need to prepare for a drop in productivity due to the learning curve associated with the implementation of the ERP system.

∙

If we did get an ERP system, what would be required for successful implementation?

Successful implementation of an ERP system requires the commitment and backing of top management, adequate investment resources, appropriate system training, excellent organizational communication, and an ERP system that's capabilities match the requirements of the organization/processes it will be serving.

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Chapter 07: Inventory Management

Indicate whether the statement is true or false.

1. LCD screens purchased by Apple are an example of dependent demand. a. True b. False 2. Dependent demand may have a pattern of abrupt and dramatic change because of its dependency on the demand of the final product. a. True b. False 3. The four categories of inventory are raw materials, intermediate assemblies, work-in-progress and finished goods. a. True b. False 4. MRO supplies are a type of work-in-progress. a. True b. False 5. The inventory turnover ratio shows how efficiently a firm is using its inventory to generate revenue. a. True b. False 6. Raw materials become part of finished goods after the manufacturing process is completed. a. True b. False 7. Cycle counting means to physically count inventory on a periodic basis. a. True b. False 8. The ABC inventory control prioritizes dependent demand inventory items into three groups, A, B, and C. A items receive the smallest amount of safety stock, while C items typically have the most safety stock. a. True b. False 9. Pareto Analysis means that 20 percent of the items get about 80 percent of the safety stock. a. True b. False 10. The ABC inventory matrix combines two ABC analyses—one is based on current inventory valuation and the other is based on annual inventory dollar usage. a. True b. False 11. Radio Frequency Identification (RFID) is beginning to replace bar code inventory tracking; however a weakness is

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Chapter 07: Inventory Management that it requires a direct line of sight for RFID tags to be read. a. True b. False 12. The economic order quantity model (EOQ) is the optimal independent demand order quantity that minimizes total annual inventory costs. a. True b. False 13. One of the assumptions of the economic order quantity model (EOQ) is that purchase price must remain constant. a. True b. False 14. The EOQ equation is derived by setting the annual purchase cost equal to the annual holding cost. a. True b. False 15. The optimal order quantity for the quantity discount model is always at either a feasible EOQ or one of the price breakpoints. a. True b. False 16. In the economic manufacturing quantity model (EMQ), the production rate must be greater than the demand rate. a. True b. False 17. When demand and lead time are constant, the reorder point (ROP) is less than the demand during lead time. a. True b. False 18. When both the demand and lead time of a product are variable, firms must keep a higher safety stock level compared to variations in just demand, to offer the same service level. a. True b. False 19. The statistical reorder point is calculated as the average demand during the delivery lead time plus the desired safety stock. a. True b. False 20. When both the demand and lead time of a product are unknown, it is impossible to calculate the reorder point. a. True b. False 21. Excessive inventory is a sign of poor inventory management. a. True

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Chapter 07: Inventory Management b. False 22. In manufacturing, setup costs are used in place of order costs to describe the costs associated with preparing machines and equipment to produce a batch of product. a. True b. False 23. Retail stores could benefit from item-level RFID tagging by recommending products to consumers to complement products in their shopping cart. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

24. Independent demand: a. Is the internal demand for parts based on the demand of the final product in which the parts are used. b. Has a demand pattern affected by trends, seasonal patterns, and general market conditions. c. Is the forecasted demand for purchased items. d. Is the materials that are partially processed but not yet ready for sales.

25. Which of the following would be considered a dependent demand item? a. Paint b. Microwave Oven c. Microchips used in automobiles d. Shoes 26. Lubricants for production equipment which are not parts of the final products are called: a. Raw materials b. Work-in-process c. Maintenance, repair and operating supplies d. Finished goods 27. Which one of the following is a reason for firms to NOT carry inventory? a. Inventory can become obsolete very quickly b. It is expensive and requires storage space c. Inventory can deteriorate quickly while it is in storage d. All of these are correct 28. Which of the following is a disadvantage of carrying too much inventory? a. It ties up a firm’s working capital b. It leads to higher annual inventory ordering costs c. It reduces the need to conduct cycle counts d. It increases the need to purchase items 29. If at the end of the year, the cost of revenue = $3,500, total revenue = $10,000 and inventory value = $3,000, the

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Chapter 07: Inventory Management inventory turnover ratio would be: a. 0.35 b. 1.17 c. 3.33 d. 0.857 30. What should the inventory turnover ratios for items be used in conjunction with to get a sense of how fast or slow inventories are turning over? a. Product-focused layouts b. Level capacity loading c. The ABC inventory matrix d. None of these 31. Classify the following inventory items as either A, B, or C items using the ABC inventory control system: Item # Annual Sales Unit Cost 1 125 units $ 4.00 2 400 units 15.30 3 26 units 17.00 4 1390 units 3.75 5 90 units 20.10 a. item 1 (C), item 2 (A), item 3 (C), item 4 (B), item 5 (C) b. item 1 (B), item 2 (A), item 3 (A), item 4 (C), item 5 (C) c. item 1 (C), item 2 (B), item 3 (C), item 4 (A), item 5 (C) d. item 1 (C), item 2 (A), item 3 (C), item 4 (A), item 5 (B) 32. Which of the following would refer to the 80/20 rule when applied to the ABC inventory control system? a. 80 percent of the items account for 20 percent of the groups. b. 20 percent of the items account for 80 percent of the tasks. c. 80 percent of the unit cost accounts for 20 percent of the items. d. 80 percent of the total annual $ usage is accounted for, by 20 percent of the items.

33. Which of the following describes a global RFID challenge? a. Foreign firms will not use global RFID since the field communication standards tend to vary from country to country. b. Globally, the RFID industry does not have its own UHF spectrum allocation. c. RFID tags are passive in undeveloped countries. d. RFID can track outbound shipments only.

34. The primary purpose of the basic economic order quantity (EOQ) model is to: a. Calculate the reorder point, so that replenishments take place at the proper time b. Minimize the sum of purchase cost and holding cost c. Derive the optimum order quantity to minimize total inventory costs d. Calculate the optimum safety stock level 35. The Economic Manufacturing Quantity Model (EMQ):

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Chapter 07: Inventory Management a. relaxes the constant unit price assumption by allowing purchase quantity discounts. b. relaxes the instantaneous replenishment assumption by allowing usage or partial delivery during production. c. is used when customer demand is relatively low and lead times are long. d. is used to process several models of the same product requiring machine reprogramming and tool changes.

36. If an item is ordered using its economic order quantity, the annual carrying cost should be: a. slightly less than the annual ordering cost. b. equal to the annual ordering cost. c. twice the annual purchase price. d. the square root of the annual ordering cost.

37. What inventory factor may be omitted from the basic EOQ derivation because it is a constant? a. Annual order-processing cost b. Annual setup costs c. Annual capital cost d. Annual purchase cost of goods 38. Which of the following is NOT an assumption of the economic order quantity (EOQ) model? a. Demand is known and constant b. Stockouts are not allowed c. Sufficient capacity exists to execute the production schedule d. Price is constant 39. The cost of a product is $10, and the holding rate is 20%; the cost of processing an order is $50 and the annual demand is 4000. What is the economic order quantity (EOQ)? Round to the nearest whole number. a. 295 b. 447 c. 300 d. 333 40. Which one of the following statements regarding the economic order quantity (EOQ) is true? a. If an order quantity is smaller than the EOQ, then the annual holding cost is slightly lower and the annual ordering cost is slightly higher. b. The EOQ model combines several different item orders to the same supplier. c. The EOQ model assumes a variable demand pattern. d. When the holding cost rate drops, both the annual holding cost and the EOQ decrease.

41. Use the information below to calculate the number of orders per year when using the EOQ: Annual demand for an item is 35,000 units The cost to place an order is $150 The per unit cost of the item is $40.00 The annual holding rate is 35% Round to the nearest whole number. a. 59

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Chapter 07: Inventory Management b. 291 c. 866 d. 40 42. If your company had an annual purchase cost of items equal to $1,000,000, an annual holding cost of $70,000 and an annual ordering cost of $100,000 this scenario would reveal that: a. Your order quantity was lower than the EOQ b. Your order quantity was equal to the EOQ c. Your order quantity was higher than the EOQ d. Nothing because there is insufficient information to discern where the EOQ would be.

43. The EOQ model with quantity discounts attempts to determine: a. the lowest purchasing price. b. whether to use a fixed-quantity or fixed-period order policy. c. how many units should be ordered. d. the shortest lead time to use.

44. When demand and delivery lead time are known and constant, daily demand = 10, purchase lead time = 5 days, and the purchase price = $30/unit, then the reorder point is: a. 2 b. 50 c. 150 d. 300 45. When demand during the delivery time is unknown but delivery lead time are known and constant, the reorder point can be calculated as: a. Holding rate + the delivery lead time b. Safety stock – delivery lead time c. Average demand during lead time + desired safety stock d. Average inventory / delivery lead time 46. The College Bookstore sells a unique clicker to college students. The demand for this clicker has a normal distribution with an average daily demand of 45 units and a standard deviation of daily demand is 5 units per day. The lead time for this clicker is a constant 7 days. Compute the statistical reorder point that results in a 95 percent in-stock probability.

Round to the nearest whole number. a. 280 units b. 464 units c. 337 units d. 35 units 47. The College Bookstore sells a unique clicker to college students. The demand for this clicker is constant at 45 units per day. The lead time for this clicker is variable at an average of 7 days with a standard deviation of 2 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Round to the nearest whole number. a. 337 units b. 149 units

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Chapter 07: Inventory Management c. 246 units d. 464 units 48. Which of the following is true under the Periodic Review System? a. a lower level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system b. a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system c. it is more expensive to administer compared to the Continuous Review System d. the only uncertainty is the magnitude of demand during the delivery lead time

49. Briefly describe the differences between dependent and independent demand. Provide examples of dependent and independent demand items for each of the following industries: automotive, personal computer, bicycle.

50. Name and briefly explain the four basic types of inventory.

51. List five of the assumptions of the EOQ model.

52. The manager at Gigi’s greeting cards wants to determine the lowest cost order policy given the following purchase discounts offered: greeting cards costs are $3 each for orders less than 500; $2.50 each for orders of 500 – 1000; and $2.25 each for orders greater than 1000. The order cost = $40, annual demand forecast = 8000 greeting cards, inventory carrying cost = 30% per year.

53. Describe the ABC inventory matrix, and how is it used to manage inventory.

54. What is Radio Frequency Identification (RFID)? Provide four examples or scenarios of how RFID can be used to aid in supply chain management.

55. Draw a graph depicting the Economic order quantity model. Answer the following questions about the EOQ components and graph. a. b. c. d.

Provide a brief description of what the Annual Holding Cost curve represents.

Provide a brief description of what the Annual Ordering Cost curve represents.

Provide a brief description of what the Annual Total Cost curve represents.

Provide a brief description of what the Economic Order Quantity represents.

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Chapter 07: Inventory Management Answer Key 1. True 2. True 3. False 4. False 5. True 6. True 7. True 8. False 9. False 10. True 11. False 12. True 13. True 14. False 15. True 16. True 17. False 18. True 19. True 20. False 21. True 22. True 23. True 24. b 25. c

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Chapter 07: Inventory Management 26. c 27. d 28. a 29. b 30. c 31. d 32. d 33. b 34. c 35. b 36. b 37. d 38. c 39. b 40. a 41. d 42. a 43. c 44. b 45. c 46. c 47. d 48. b 49.49. a.

Dependent demand items are those parts whose demand is based on the demand of the final product in which the parts are used. Independent demand items are the demand for end items, and whose demand is affected by trends, seasonal patterns, and general market conditions.

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Chapter 07: Inventory Management b.

c.

d.

50. a. b. c. d.

51. a. b. c. d. e. f. g.

52.

Step 1

Automotive Industry: 1.

Independent demand item − car/truck and service parts purchased by customers.

2.

Dependent demand item − tires, axles, steering wheel, microchips, and battery used to assemble the automobiles.

Personal Computer Industry: 1.

Independent demand item − computer/laptop computer and hardware sold directly to consumers.

2.

Dependent demand item – LCD Screen, Computer ports, microchips, and keyboard used to assemble the PC. Bicycle Industry: 1.

Independent demand item − bicycle and service parts 2.

Dependent demand item − tires, handlebars, chain, and seats used to assemble the bicycles.

Raw materials − unprocessed, purchased inventories.

Work-in-process − partially processed inventories.

Finished goods − inventory or materials that have been completely processed or assembled, ready for sales or shipping to customers.

Maintenance, repair and operating (MRO) supplies − (e.g., lubrication) goods used to maintain, repair, or operate the manufacturing equipment, but do not become part of the finished goods.

Demand must be known and constant Delivery time must be known and constant Replenishment is instantaneous Price is constant/quantity discounts are not allowed Holding cost is known and constant Ordering cost is known and constant Stockouts are not allowed Determine the 3 EOQ’s— For $3 greeting cards, EOQ =

Step 2

= 843 (infeasible, since EOQ > 500.

For $2.50 greeting cards, EOQ =

= 924 (feasible)

For $2.25 greeting cards, EOQ = order 1001 to get the discount.

= 974 (infeasible, since EOQ < 1000, so must

Calculate the total annual inventory costs for the $2.25 and the $2.50 cards: TIC(2.25) = O + I + P = (8000/1001) × (40) + (1001/2) × (0.3) x (2.25) + 8000 × (2.25) = $319.68 + $337.84 + $18,000 = $18,657.51 TIC(2.50) = O + I + P = (8000/924) × (40) + (924/2) × (.3) × (2.50) + 8000 × (2.50) = $346.32 + $346.50 + $20,000 = $20,692.82 So, the lowest cost order policy is to order 1001 greeting cards at a time, pay $2.25 per card, for a total inventory cost of $18,657.51

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Chapter 07: Inventory Management

53. An ABC inventory matrix is used to assist in identifying obsolete stocks and to analyze whether a company is stocking the correct inventories by comparing two ABC analyses. The vertical axis of the ABC inventory matrix shows the firm's inventory classification based on inventory usage whereas the horizontal axis shows the firm's inventory classification based on physical inventory.

Items appearing along the diagonal of the matrix suggest inventory matches sales. Items in the top left triangle indicate under-stocked A and B items, whereas items in the lower right triangle suggest overstocked B and C items, or obsolete stocks.

54. RFID aids in inventory management by making it easier to track inventories in the supply chains. It can synchronize information and physical flow of goods along supply chains from manufacturers to retail outlets and to the consumers.

Moreover, it is also very useful for tracking returned goods through supply chains and to prevent counterfeits. For example, a.

Materials management: As a supply vehicle enters the warehouse, the fixed-portal RFID reader positioned at the entrance reads the tags on the pallets or individual items to provide handling, routing, and storage information of the incoming goods, and inventory status can be updated automatically.

b.

Manufacturing: An RFID tag can be placed on the unit being produced so that specific customer configurations can be incorporated automatically during the production

process. This is invaluable in a make-to-order environment. c.

Distribution center: As the logistics vehicle arrives at the loading dock, the fixed-portal RFID reader communicates with the tag on the vehicle to confirm that it is approved to pick up goods. When the loaded vehicle leaves the dock and crosses the portal, the reader picks up the signals from the tags to alert the RFID software and ERP system to update the inventory automatically and initiate an advanced shipping notice (ASN), proof of pickup, and invoices.

d.

Retail store: As a delivery vehicle enters the unloading dock, the fixed-portal reader picks up the signals from the tags, and the RFID software application processes the signals to provide specific handling instructions and initiates automatic routing of the goods. An RFID reader can also be placed on the store shelf to trigger automatic replenishments when an item reaches its reorder point. Moreover, inventory status can be updated automatically in real time at any stage of the supply chain, and handheld readers can be used to assist in cycle counting.

55.55.

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Chapter 07: Inventory Management

a.

Draw the Annual Holding Cost curve. Provide a brief description of what the Annual Holding Cost curve represents.

Curve K. This curve represents the cost to a firm for holding inventory for an entire year.

The larger the order size, the more inventory a firm holds, thus the higher the annual cost of holding inventory. On a graph with Cost on the x axis and Order Quantity on the y axis, holding cost curve is a straight line that begins at coordinate (0,0) and goes up to the right.

b.

Draw the Annual Ordering Cost curve. Provide a brief description of what the Annual Ordering Cost curve represents.

Curve L. This curve represents the cost to a firm for ordering inventory for an entire year.

The larger the order size, the fewer the orders required to accumulate a year's worth of inventory, thus the lower the annual cost of ordering, and the higher the annual holding cost. On a graph with Cost on the x axis and Order Quantity on the y axis, Annual Ordering cost curve starts high near the x axis and curves downward toward the right.

c.

Draw the Annual Total Cost Curve. Provide a brief description of what the Annual Total Cost curve represents.

Curve J. This curve is the sum of Curve K and Curve L. It begins very high as ordering costs are very high when order quantities are small, but as curve L and curve K near an intersection, the annual costs decrease. The intersection of K and L represents the lowest annual total cost, and thus reveals the EOQ. After K and L intersect, the annual total cost again begins to increase as order quantities increase causing holding costs to increase. On a graph with Cost on the x axis and Order Quantity on the y axis, annual total cost curve starts high near the x-axis and curves down toward the right, but curves upward as it nears the K curve. Curve J stays above and between curves J and L.

d.

Identify the Economic Order Quantity point. Provide a brief description of what the Economic Order Quantity represents.

Point. G. This is the EOQ order size at which annual holding cost and annual ordering cost are equal, and where annual total cost is at its minimum. On a graph with Cost on the x axis and Order Quantity on the y axis, EOQ is a point G where curve K and L intersect.

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain

Indicate whether the statement is true or false.

1. According to the text, the term lean production essentially refers to the Tesla Production System. a. True b. False 2. Lean production, JIT, and Six Sigma quality mean the same thing. a. True b. False 3. Toyota initially designed their JIT program on Ford’s manufacturing system. a. True b. False 4. Manufacturing cells are often U-shaped to make operator and material movements easier within the cell. a. True b. False 5. The primary design objective with lean layouts is to increase movements of workers, customers, and/or work-inprocess. a. True b. False 6. When lean firms share their best practices with supply chain members, this is referred to as yokoten. a. True b. False 7. For companies following the lean thinking philosophy, waste can include excess wait times and inventories, wasted or unneeded material and people movements, too many processing steps, and/or variabilities in processing, a. True b. False 8. Lean thinking and Six Sigma quality are both concerned with achieving low cost, fast response and high quality throughout the supply chain. a. True b. False 9. A type of card called a kanban is used to signal when a process is out of control in a JIT production process. a. True b. False 10. A lean system is also known as a push system. a. True b. False 11. Toyota coming under fire in 2010 for recalls involving over eight million vehicles worldwide for several quality and

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain safety problems prompted Toyota to emphasize “the customer first” principle in their manufacturing efforts. a. True b. False 12. A weakness of lean systems is that none of its practices are related to the environment or sustainability. a. True b. False 13. Deming, Crosby, and Juran are all prominent quality professionals whose ideas were vital to the development of Six Sigma. a. True b. False 14. Some of Deming's 14 points actually conflict with many Six Sigma concepts. a. True b. False 15. A Pareto Chart is a useful tool for presenting data in an organized fashion, indicating process problems from most to least severe. a. True b. False 16. The Malcolm Baldrige National Quality Award recognizes firms for their quality achievements and is given to organizations worldwide. a. True b. False 17. When designing a manufacturing or service process, a Pareto chart would be an essential tool for evaluating the process in terms of its action elements, waiting periods, and process flow. a. True b. False 18. Statistical process control uses control charts to monitor the outputs of a process to identify variations due to assignable causes and variations due to common causes. a. True b. False 19. Statistical process control (SPC) allows firms to compare process performance to desired levels or required standards. a. True b. False 20. Acceptance sampling is a statistical technique that enables a shipment reject or accept decision to be made based on information obtained from a representative sample drawn from the population. a. True b. False 21. Manufacturing cells are small assembly lines and are designed to be flexible, allowing machine configurations to

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain change as processing requirements dictate. a. True b. False 22. Adopting lean practices will reduce waste and could lead to improved environmental performance. a. True b. False 23. The concepts of Lean Systems and Six Sigma do not work well together to achieve better overall firm performance, since lean production is all about reducing waste, while Six Sigma is all about solving problems and improving quality. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

24. Which of the following are among the MOST important elements of the lean production philosophy? a. Quality inspections and a standardized product line b. Fully automated assembly lines and a large supplier base c. Large inventories and quality inspections d. Small batch production scheduling and workforce empowerment 25. Which of the following is NOT one of the Seven Wastes? a. Excess inventory b. Environmental waste c. Transportation d. Scrap and rework 26. The Five-Ss refer to: a. Overspending habits b. Keiretsu relationships c. Industrial housekeeping d. Robust evaluation techniques 27. Calculate the inventory container size required given the following: Demand rate = 15 parts per hour, Safety stock required = 14% Number of containers = 11, Time to cycle through entire system = 5 hours a. 8 parts b. 5 parts c. 6 parts d. 3 parts 28. Which of the following layouts is primarily designed to process parts, components, or jobs requiring the same or similar processing steps, saving duplication of equipment and labor: a. Work centers b. Production kanbans

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain c. Work-in-process d. Manufacturing Cells 29. Which of the following is a method that translates into end consumers getting what they want, when they want it, for a price they are willing to pay? a. Concurrent Scheduler Approach b. Exponential Smoothing c. Six Sigma d. Low Cost Leadership 30. Six Sigma (with capital S’s) is a registered trademark of: a. Hewlett Packard b. Toyota c. Motorola d. IBM 31. Which of the following is NOT consistent with the lean philosophy? a. Cross-training employees to increase processing flexibility b. Developing a culture of continuous improvement within the organization c. Increasing batch sizes to take advantage of economies of scale d. Positioning WIP inventories near each processing center 32. Lean production emphasizes all of the following EXCEPT: a. Continuous improvement b. Large batch production scheduling c. Inventory and setup time reduction d. Reduction of waste 33. Which person was a key figure in developing the Toyota Production System and also developed the concept of pokayoke? a. Deming b. Ohno c. Toyoda d. Shingo 34. Waste in Japan is also referred to as: a. Muda b. Kanban c. Poka-yoke d. Yoi 35. Lean production systems are sometimes referred to as pull systems because demand from customers activates the production actions of the manufacturing facilities. In order for this demand to be communicated to everyone in the supply chain/manufacturing facility a signal must be passed from downstream processing centers to the upstream processing centers. This system of relaying signals is referred to as a:

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain a. Kanban System b. Kaeru System c. Keiretsu Network d. TQM Network 36. When compared to their U.S. counterparts, a benchmarking study found that Japanese auto manufacturers used: a. Twice the manufacturing labor to produce a new automobile model b. Double the engineering hours to produce a new automobile model c. Half the manufacturing labor to produce a new automobile model d. All of these are correct 37. Which of the following terms refers to error or mistake proofing? a. Kaizen b. Muda c. Tadashi d. Poka-yoke 38. Which of the following is an example of how lean programs can help to protect the environment? a. Parts made from recycled materials b. Using rubber from used tires in auto parts c. Reusing waste water d. All of these are correct 39. Six Sigma refers to the statistical likelihood that 99.99966 percent of the time a process sample average will fall below a control limit placed what number of standard deviations (or sigmas) above the true process mean, assuming the process is in control? a. 4.5 b. 5 c. 5.5 d. 6 40. Efficient Consumer Response was initially developed in the 1990s for which of the following industries? a. Fashion b. Grocery c. Small Electronics d. Automobile 41. Japanese manufacturing firms sometimes create cooperative memberships with their suppliers in order to provide the suppliers with a certain degree of financial support. What are these cooperative coalitions called? a. Himan Networks b. Keiretsu Networks c. Kanban Networks d. Hana Networks 42. Which company probably played the largest role in the development of the Toyota Production System?

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain a. General Motors b. Volkswagen c. Ford d. Boeing 43. If order quantities are cut in half, what impact will this have on average inventory levels? (Assuming usage remains constant) a. Increase by 50% b. Increase by 75% c. Decrease by 25% d. Decrease by 50% 44. Which of the following quality gurus believed that companies should strive for zero defects and that quality was, in a sense, free since quality improvement programs invariably paid for themselves? a. Juran b. Deming c. Baldrige d. Crosby 45. Which tool is useful for presenting data in an organized fashion, indicating process problems from most to least severe? a. Pareto Charts b. Check Sheets c. Cause-and-Effect Diagrams d. Fishbone Diagrams 46. A company that produces 8 pound bags of copper sulfate gathered 5 samples of 6 bags each. The weights of each bag's contents are listed below. Determine for sample 2.

Sample 1 2 3 4 5 a. 8.1 b. 7.92 c. 8.21 d. 8.03

1 7.85 8.3 7.89 8.2 7.87

2 8.34 8.22 7.77 8.05 8.13

3 8.02 8.08 7.91 7.82 7.92

Bag Number of each sample 4 5 6 7.94 8.44 7.68 8.12 8.41 8.12 8.04 8 7.89 8.05 7.9 8.09 7.99 8.1 7.81

47. A company produces 8-pound bags of copper sulfate; as shown below, it gathered 5 samples with 6 bags in each sample for quality control purposes. The weights of each of the bags are listed below.

Determine

.

Bag Number of each sample

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain Sample 1 2 3 4 5

1 7.85

2

3

4

5

6

8.3

8.34 8.22

8.02 8.08

7.94 8.12

8.44 8.41

7.68 8.12

7.89

7.77

7.91

8.05

7.82

7.87

8.13

7.92

8.04 8.05 7.99

8 7.9 8.1

7.89

8.2

8.09 7.81

a. 8.13 b. 8.03 c. 8.06 d. 7.92 48. A company sells eggs in boxes with 12 cartons and 12 eggs in each carton, thus there are 144 eggs in each box. The organization wants to construct a P-chart to track the proportion of broken eggs in each sample (shown below). If the company used one box of eggs in each sample in the dataset below, what would be the centerline, upper control limit (UCL), and lower control limit (LCL) for the appropriate P-chart? (Use z = 3.) Choose the closest answer.

Sample Eggs Sample Eggs Sample 1 3 8 6 15 2 5 9 4 16 3 3 10 9 17 4 4 11 5 18 5 2 12 6 19 6 4 13 5 20 7 7 14 8 TOTAL a. Centerline = 0.50, UCL = 0.625, LCL = 0.375 b. Centerline = 0.025, UCL = 0.064, LCL = 0 c. Centerline = 0.32, UCL = 0.076, LCL = 0 d. Centerline = 0.083, UCL = 0.152, LCL = 0.014

Eggs 5 0 2 6 2 6 92

49. Calculate the defects per million opportunities (DPMO) given the following: Blake, owner of Blakester's T-shirt Shop, keeps track of customer complaints. For each T-shirt sold, there are four possible complaints: T-shirt shrinks, poor quality, design wears off, and doesn't fit right. Each week, Blake calculates the rate of T-shirt "defects" per total T-shirts sold, and then uses this information to determine his company's DPMO. During the past week, his company sold 1500 T-shirts. His company received 20 customer shrinkage complaints, 14 poor quality complaints, 12 design wears off complaints, 8 doesn't fit right complaints.

Calculate his firm's DPMO. a. 600 b. 9000 c. 5.8 x 10−6 d. 12,083 50. An important outcome of statistical process control is: a. Firms taking corrective actions before process variabilities get out of control b. Firms reducing the time products spend in the distribution center c. Firms minimizing total inventory cost d. Firms identifying the optimal processing schedule

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain

51. Why is the workforce considered such an important element of lean production?

52. Discuss the linkages between lean production and environmental sustainability.

53. A Nevada bank keeps track of errors from 20 clerks. Each sample has 100 records. They want to construct a P-chart to track the proportion of errors in each sample. The table below shows the number of errors per sample. (Use z = 3 for control limit calculations.)

Sample 1 2 3 4 5 6 7

a. Determine

Errors 6 5 3 4 5 4 2

Sample 8 9 10 11 12 13 14

Errors 6 4 9 2 6 5 4

Sample 15 16 17 18 19 20 TOTAL

Errors 5 1 2 6 2 7 88

.

b. Determine σP. c. Determine the 3-sigma UCL and LCL. d. Does the process appear to be in statistical control?

54. Briefly explain THREE of the statistical tools of Six Sigma.

55. What are the TWO primary techniques/philosophies discussed in Chapter 8 that are used to manage processes in the supply chain such that they'll meet the needs of customers today. Provide the prime objectives for each of the two techniques/philosophies. Also, for each technique, provide three elements used to achieve the prime objectives.

56. Provide an overview of the beliefs of each of the following quality professionals: W. E. Deming Philip Crosby Joseph Juran 57. Describe SPC and Acceptance Sampling. What is the key difference between the two?

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain Answer Key 1. False 2. False 3. True 4. True 5. False 6. True 7. True 8. True 9. False 10. False 11. True 12. False 13. True 14. False 15. True 16. False 17. False 18. True 19. True 20. True 21. True 22. True 23. False 24. d 25. b

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain 26. c 27. a 28. d 29. c 30. c 31. c 32. b 33. d 34. a 35. a 36. c 37. d 38. d 39. a 40. b 41. b 42. c 43. d 44. d 45. a 46. c 47. b 48. c 49. b 50. a 51. Lean production is a philosophy that centers upon the ideals of eliminating waste and continuously improving.

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain Employees are the keys to identifying and developing waste reduction programs and building a culture of continuous improvement in a flexible production environment. But here are some ways employees contribute to eliminating waste, creating a flexible production system, and improving the organization: a.

Cross trained employees add processing flexibility b.

Employees are capable of inspecting quality throughout the processing stages c.

Employees not only identify problems, but are empowered to fix problems d.

Skilled and well trained employees are more equipped to identify and fix high-level problems e.

An intelligent workforce is more capable of supporting a strong program of continuous improvement 52. Since lean production is ultimately concerned with waste reduction throughout the firm and its supply chains, the linkage between lean production and environmental sustainability should seem clear. Many organizations have realized the positive impact lean production can have on their environmental performance − adopting lean practices reduces the cost of environmental management and then leads to improved environmental performance. Further, lean production increases the possibility that firms will adopt more advanced environmental management systems, leading to yet further improvements in environmental performance.

53. a. 88/2000 = 0.044 or 4.4% b. σP =

=

= 0.02

c. UCL = .044 + 3(.02) = 0.105; LCL = .044 – 3(.02) = 0 d. 1 point close to UCL; half above and below 54.

Flow diagrams

Check sheets

Pareto charts

Cause and effect diagrams

Control charts

55.

1. a.

; probably in control. Should create a graph to look for patterns.

These are sometimes called process maps. It is used to help evaluate a manufacturing process or service. They use ovals, boxes and arrows to show the flow of people or material through a process.

Check sheets are used to collect data about problems in a business. It allows managers to review and compare problems and determine which problems occur most frequently.

Pareto charts present data in an organize graph. They expose the critical problems by presenting the data from most severe to least severe. This allows managers to focus on problems which may yield the greatest payoff.

This is sometimes called the fish-bone chart as it resembles the bones of a fish. Each of four diagonals of the diagram presents a possible cause of an error/problem. The four group causes are Material, Machine, Methods, and Manpower. Managers use a brainstorming method to associate possible causes in each group.

This show data over time with upper and lower limits as well as a centerline. Operators use these to plot data and compare performance over time. When a sample plot falls out of acceptable limits, the process is stopped and measures are taken to rectify the problem.

Lean production The prime objectives of lean production are to employ a program of continuous improvement in order to minimize/eliminate waste.

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain b.

2. a.

b.

56. a.

The elements of lean used to achieve the prime objectives are: i.

Waste reduction ii.

Close supplier and customer relationships iii.

Effective and efficient layouts iv.

Inventory reduction programs v.

Effective and efficient scheduling vi.

Developing and promoting programs of continuous improvement within the organization and throughout the supply chain vii. Exemplifying a commitment to the workforce Six Sigma The prime objectives of Six Sigma are to understand, meet, and then strive to exceed customer expectations. In essence, Six Sigma is all about pleasing the customer. Six Sigma programs attempt to make a firm capable of satisfying customers in the present as well is in the future.

The elements of Six Sigma are: i.

Focus on the Customer ii.

Workforce Involvement iii.

The philosophies of Deming iv.

The philosophies of Crosby v.

The philosophies of Juran vi.

The guidelines of the Malcolm Baldrige National Quality Award vii. The guidelines/standards required to become ISO 9000 certified viii. Utilization of Six Sigma tools: flow diagrams, check sheets, Pareto charts, causeand-effect diagrams, SPC, acceptance sampling

W. E. Deming: since managers developed a system used by an organization, managers are ultimately responsible for the organization's problems. Management should fix problems by using the right tools and resources, demonstrating employee encouragement, program commitment, and facilitating cultural change. Deming also developed the 14 points for management that are similar to the principles of TQM.

b.

Philip Crosby: Strive for zero defects. Quality is free − quality programs invariably paid for themselves. Developed four absolutes of quality − conform to requirements, practice prevention, zero defects, the measure of quality is the price of nonconformance. Crosby also emphasized management's commitment, prevention systems, employee education and training, and continuous assessment. Crosby also developed the 14 steps to quality improvement.

c.

Joseph Juran: Advocated the determination of costs of quality, and the use of statistical methods. He felt costs caught the attention of managers, and statistics caught the attention of workers. Juran created the quality trilogy: quality planning, quality control, and quality improvement.

57. a.

SPC − SPC stands for statistical process control. SPC is a statistical quality control method.

SPC monitors quality during production through the use of statistical methods.

In other words, it is a way to monitor the quality being output by a process using statistical methods. SPC allows firms to visually monitor performance, compare the performance to desired levels or standards, and take corrective steps quickly before major errors are made

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Chapter 08: Process Management - Lean and Six Sigma in the Supply Chain and/or reach the customer.

Acceptance Sampling − Acceptance sampling is also a statistical quality control method.

Acceptance sampling determines the quality of a finished batch of product based upon statistical methods using a sample of finished batch.

DIFFERENCE: While both SPC and acceptance sampling are statistical quality control methods, SPC monitors quality during production in the hopes of detecting defects early in the process and preventing continued production of defective product. Acceptance sampling, on the other hand, measures quality of finished products. Acceptance sampling is utilized only after processing is complete. In some cases, though, it may be the only statistical quality control method option, especially if the organization is purchasing product rather than producing it. b.

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Chapter 09: Domestic U.S. and Global Logistics

Indicate whether the statement is true or false.

1. Logistics is what creates the flow of goods between supply chain trading partners, such that costs, service requirements, competitive advantage, and profits can be optimized. a. True b. False 2. Trucking volumes increased initially in 2020 by about 30 percent due to panic buying. a. True b. False 3. According to the textbook, the five basic modes of transportation are motor, rail, air, water, and drones. a. True b. False 4. A small LTL shipment that originates on a truck in San Francisco and is moved from San Francisco to Las Vegas where it is unloaded and put onto another truck for final shipment to Phoenix would be considered an intermodal shipment since it utilizes more than one vehicle during shipment. a. True b. False 5. Generally speaking, motor carriers are less expensive than rail carriers to haul goods. a. True b. False 6. Limitations of air carrier transport include cost and airport accessibility. a. True b. False 7. Railroads are at a disadvantage compared with motor carriers with respect to shipment damages, equipment availability, and service frequency. a. True b. False 8. With FOB pricing, a supplier is the legal owner of a product until the product reaches its destination. a. True b. False 9. Air Carriers compete most favorably when the distance is long and the shipments are heavy or bulky. . a. True b. False 10. The Department of Transportation Act of 1966 created the Department of Transportation (DOT) to coordinate the executive functions of all government entities dealing with transportation-related matters.

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Chapter 09: Domestic U.S. and Global Logistics a. True b. False 11. It can be argued that transportation regulation is good because it encourages competition and allows prices to adjust as supply, demand, and negotiations dictate. a. True b. False 12. When air freight was deregulated in 1977, size restrictions were lifted and carriers were free to charge any rate, provided there was no discrimination. a. True b. False 13. In Europe, rail transportation tends to be much more prevalent and reliable than rail transportation in the United States, because European track, facilities, and equipment are newer and better maintained. a. True b. False 14. International intermediaries can provide shipping, consolidation, and other import and export services. Some examples of these international intermediaries include: NVOCCs and trading companies. a. True b. False 15. Foreign-trade zones (FTZs) are secure sites within the European Union under the supervision of the EU Customs and Tariffs. a. True b. False 16. The responsibility of transportation is to create both time utility and place utility, which means that products will be delivered at the right time to the desired location. a. True b. False 17. Poor logistics management can bring a supply chain to its knees, regardless of the quality of the products. a. True b. False 18. When mistakes occur in deliveries along the supply chain, more safety stocks must be held, adversely impacting both customer service levels and costs. a. True b. False 19. Private warehouses refer to warehouses that are owned by the firm storing the goods. a. True b. False 20. One of the main advantages associated with public warehouses is the control provided to the goods owners.

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Chapter 09: Domestic U.S. and Global Logistics a. True b. False 21. Transportation management system (TMS) applications allow firms to find carriers, track fuel usage and product movements, and stock the shelves at customers’ location. a. True b. False 22. Third-party logistics (3PL) services can assist with customs clearance and storage location. a. True b. False 23. Fulfillment by Amazon and DHL are both considered third-party logistics providers. a. True b. False 24. In 2020, during the global pandemic, use of 3PLs grew. a. True b. False 25. In many cases, reverse logistics is viewed as an unwanted activity of supply chain management. a. True b. False 26. Returned goods can still create value as original goods, refurbished goods, or repair parts. a. True b. False 27. Reverse logistics refers to the movement and storage of returned goods. a. True b. False 28. The Customs-Trade Partnership Against Terrorism program (C-TPAT) is a mandatory supply chain security program focused on improving the security of private companies' supply chains (international trucking in particular) with respect to terrorism. a. True b. False 29. Good logistics management can be one of the elements creating a competitive advantage for supply chains. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

30. Which of the following creates the efficient flow of goods between supply chain partners, allowing profits and competitive advantage to be maximized?

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Chapter 09: Domestic U.S. and Global Logistics a. Operations b. Transportation planning c. Logistics d. Procurement 31. According to Table 9.1 in the text, for-hire logistics expenditures in the United States have done what since 2000? a. Remained the same b. Slowly declined c. More than doubled d. Decreased for the first 10 years, then increased 32. What carry the majority of the world’s water-transported manufactured goods? a. Supertankers b. Containerships c. Barges d. Submarines 33. What carriers are the most flexible mode of transportation and account for 71 percent of all the freight tonnage moved in the United States? a. Water b. Rail c. Air d. Motor 34. Which of the following modes of cargo transport can be characterized as being the most inexpensive and very slow, yet good for transporting very heavy goods a long-distance? a. Air Carriers b. Rail Carriers c. Water Carriers d. Motor Carriers 35. Which of the following are intermodal transportation alternatives? a. Truck trailer-on-flatcar b. Roll-on-roll-off c. Piggyback service d. All of these are correct 36. Which of the following allow truck trailers, automobiles, heavy equipment, and specialty cargo to be directly driven on and off the ship, into secured below-deck garages without use of cranes.? a. Truck trailer-on-flatcar b. Roll-on-roll-off vessels c. Piggyback service d. Container-on-flatcar 37. Which of the following marked the end of the initial push by Congress to deregulate the entire U.S. transportation

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Chapter 09: Domestic U.S. and Global Logistics industry? a. The Granger Laws b. The Transportation Act of 1920 c. The Shipping Act of 1984 d. The Interstate Commerce Act of 2013 38. The first major transportation regulation in the United States was which of the following? a. Railway Passenger Service Act b. Granger Laws c. Federal Aviation Act d. Shipping Act 39. Transportation deregulation is argued to be good because: a. It tends to ensure adequate transportation service throughout the country b. It protects consumers in terms of monopoly pricing, safety, and liability c. It encourages competition and allows prices to adjust as supply, demand, and negotiations dictate d. All of these are correct 40. Which of the following would be considered an act of deregulation? a. Reed Bullwinkle act − legalized rate bureaus or conferences b. Granger law − Established maximum rates, prohibited discrimination, and forbade mergers for railroads. c. Trucking Industry Regulatory Reform Act − Motor carriers freed from filing rates with the Interstate Commerce Commission d. Freight Forwarders Act − Allowed Interstate Commerce Commission control over freight forwarders; controlled entry, rates, and services.

41. It is argued that transportation regulation is good because: a. It established minimum standards of regulation for transportation of hazardous materials b. It ensures adequate transportation service throughout the country c. It protects consumers in terms of monopoly pricing d. All of these are correct 42. Which of the following is an example of what companies can do to improve environmental performance? a. Horizontal collaboration b. Increase zombie inventory c. Mass customization manufacturing d. Niche segmentation 43. Which of the following agreements was put in place in 2020 to replace NAFTA? a. The COVID-19 international trade law (CIT) b. The Interstate Commerce Agreement (ICA) c. The United States–Mexico–Canada Agreement (USMCA) d. The Ocean Shipping Agreement (OSA) 44. Foreign-trade zones are:

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Chapter 09: Domestic U.S. and Global Logistics a. Secure sites within the United States where goods and materials can be assembled and exported without being levied domestic duties or excise taxes b. Secure sites in foreign countries where goods wait for clearance by importing country c. Markets in the United States where foreign countries set up and sell products d. Bodies of water where cargo ships are allowed to dock to deliver imported goods 45. Which of the following international intermediaries helps foreign buyers and sellers find each other and then handles all the shipping arrangements and documentation preparation? a. Customs broker b. Foreign freight forwarder c. Trading company d. NVOCC 46. Which of the following service companies consolidate small shipments into larger TL or CL shipments and decide what transportation modes and methods to use? a. Customs broker b. Foreign freight forwarder c. Trading company d. NVOCC 47. Which of the following is NOT a benefit from USMCA? a. It adds additional protections for workers in Mexico b. It combines near-shore, far-shore, and domestic opportunities into a single, flexible, and cost-driven approach to purchasing and logistics c. Technology and data companies now enjoy increased protections related to intellectual property and privacy concerns d. It increased efforts to keep production in North America rather than competing nations in Europe and Asia 48. When mistakes occur in the supply chain, which of the following things might happen? a. More safety stock must be held b. Cost may increase due to expedited deliveries c. Customer service levels drop d. All of these are correct 49. When firms begin evaluating and using foreign suppliers, which of the following becomes a critical factor in the sourcing decision? a. The Seven R Rules b. Logistics costs c. The Silo Mentality d. Sunk costs 50. What type of firm would be most interested in using a third-party logistics service? a. Small firm with no logistics expertise b. Large integrated global manufacturing company c. A for-hire transportation company

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Chapter 09: Domestic U.S. and Global Logistics d. A freight forwarder 51. The acts of receiving shipments, breaking down shipments, repackaging shipments, and distributing components to a manufacturing location or finished products to customers by a distribution center is referred to as: a. Piggy backing b. Risk pooling c. Crossdocking d. Customs Brokering 52. What warehouses are for-profit organizations that contract out or lease a wide range of light manufacturing, warehousing, and distribution services to other companies? a. Public b. Private c. Breakbulk d. Consolidation 53. Which of the following is NOT consistent with a decentralized warehousing system? a. Delivery service levels will increase b. Warehousing system operating costs will increase c. Inventory cost will increase d. Outbound transportation costs will be higher 54. A current warehouse system has four warehouses with 8,000 units at each warehouse. The company desires to change to three warehouses to become more centralized and keep the same customer service levels. Determine the average warehouse inventory levels, using the square root rule. (Choose the closest answer.) a. 10,667 b. 16,210 c. 15,492 d. 12,820 55. A product positioned strategy: a. Places warehouses close to customers b. Places warehouses midway between the sources of supply and the customers c. Places warehouses close to the sources of supply d. None of these is correct 56. The following are all examples of lean warehousing capabilities EXCEPT: a. Decreased automation b. Greater emphasis on crossdocking c. A tendency to be green d. Increased assembly operations 57. Which of the following consolidates large numbers of small shipments to fill entire truck trailers or rail cars to achieve truckload or carload transportation rates? a. Consolidation forwarder

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Chapter 09: Domestic U.S. and Global Logistics b. Freight forwarder c. Transportation broker d. Load broker 58. Which of the following can aggregate cargo and arrange for the domestic or international shipment of members' cargo at favorable volume rates? a. Transportation Broker b. Freight Forwarder c. Shippers' Associations d. Integrated Logistics Service Provider 59. Intermodal marketing companies (IMCs) are companies that act as intermediaries between intermodal: a. Trucking companies b. Railroad companies c. Waste management companies d. Warehouse management companies 60. What does the term “Zombie Inventory” refer to? a. Items that show up on the books, but are not on the shelf b. Unsold products that get packaged and shipped with sold goods c. Product returns that sit unsold in storerooms d. Extra items in inventory to help reduce stockouts 61. Returns management is also known as: a. Reverse logistics b. Backward logistics c. Inverted logistics d. Waste reduction 62. Reverse logistics can have a positive impact on the environment through activities such as: a. Data warehousing b. Reneging c. Risk pooling d. Recycling

63. Explain some intermodal transportation alternatives.

64. Does risk pooling favor a centralized or decentralized warehousing system? Why? 65. List and explain three capabilities of lean warehousing.

66. Suppose you have a shipment of products that needs to be transported. Explain the type of service that each of the following intermediaries offer.

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Chapter 09: Domestic U.S. and Global Logistics a. Freight forwarders b. Transportation brokers c. Shippers' Associations

67. List the five modes of transportation. For each mode provide a brief description (or examples) of the type of cargo that typically travels via that mode of transport.

68. Answer the following concerning deregulation in the transportation industry. a. List the benefits of deregulation in the transportation industry b. List the disadvantages of deregulation in the transportation industry c. Give an example of when deregulation led to disastrous consequences 69. As a logistics specialist for your organization you are being asked to develop a model, which will aid your company in future global expansion projects.

Answer the following questions as part of your initial step in developing a helpful model. a. List 5 key components of the local infrastructure that must be investigated before committing to expansion. Why are these important? b. Provide 4 aspects of government relating to logistics that need to be considered before committing to expansion.

70. Joxcel Corporation is a company that sells an enormous amount of fine jewelry worldwide from its headquarters in Paris, France. Presently 10% of their revenues come from sales in the United States. Joxcel Corporation would like to grow the business by about 200% over the next three years. Presently, a majority of their product is kept in a private warehouse in France.

While the shipments to the United States will always be relatively small in size due to the cost and nature of the product, Joxcel Corporation would still like to take advantage of any possible distribution efficiencies by sending their shipments to a distribution center in United States that can then package their small shipments with other jewelry shipments headed towards common retailers and/or wholesalers. In order to do so they'll need to make accommodations for shipment, find retail and wholesale companies willing to distribute their product, find intermediaries to both help export the product out of France and help import the product into the United States.

Based on the above information and your knowledge of international transportation, answer the questions below in the hopes of providing Joxcel Corporation with some preliminary information that will aid them in creating a successful logistical itinerary: a. Which modes of transportation should be utilized in getting the product from Joxcel Corporation's warehouse in France to a distribution center in the United States? Why? b. Which intermediaries should Joxcel Corporation consider in finding customers in the United States and exporting the product out of France? Why? c. Which intermediary should Joxcel Corporation consider in helping them import the product into the United States? Why? d. Briefly discuss their warehousing plan. Does it make sense? Why?

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Chapter 09: Domestic U.S. and Global Logistics Answer Key 1. True 2. True 3. False 4. False 5. False 6. True 7. True 8. True 9. False 10. True 11. False 12. True 13. True 14. True 15. False 16. True 17. True 18. True 19. True 20. False 21. False 22. True 23. True 24. True 25. True

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Chapter 09: Domestic U.S. and Global Logistics 26. True 27. True 28. False 29. True 30. c 31. c 32. b 33. d 34. c 35. d 36. b 37. c 38. b 39. c 40. c 41. d 42. a 43. c 44. a 45. c 46. b 47. b 48. d 49. b 50. a 51. c

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Chapter 09: Domestic U.S. and Global Logistics 52. a 53. d 54. b 55. c 56. a 57. b 58. c 59. b 60. c 61. a 62. d 63. The most common are truck trailer-on-flatcar (TOFC) and container-on-flatcar (COFC), also called piggyback service. The same containers can be placed on board containerships and airliners. Another example of intermodal transportation are RO-ROs or roll-on-roll-off containerships. These allow truck trailers and containers to be directly driven on and off the ship, without use of cranes.

64. Risk pooling favors a centralized warehousing system.

Risk pooling, through the square root rule, illustrates the relationship between inventory, customer service levels, and the number of warehouses. By using the square root rule formula, it can be seen that demand in different markets is negatively correlated. This means that high demand in one area will likely be offset by low demand in another area. Thus, having fewer warehouses offsets the need for a large pool of safety stock distributed amongst a large number of warehouses. In other words, system variability can be better controlled from one centralized warehouse versus a large number of warehouses all of which would have to have their own pool of safety stocks in order to control demand variability within their region.

65.65. a. Greater emphasis on cross docking − Faster inbound and outbound turnaround results in lower overall inventory requirements b. Reduced lot sizes and shipping quantities − inbound and outbound shipments are smaller in size.

Faster, but more handling is required c. A commitment to customers and service quality − Employees more focused on satisfying warehouses inbound and outbound customers d. Increased automation − To be faster and more reliable, more automation is required to remain competitive. e. Increased assembly operations − lean systems and mass customization will require last minute assembly. This increases the requirements for employee skill and machinery at these facilities.

66.66.

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Chapter 09: Domestic U.S. and Global Logistics a. Freight forwarders − These intermediaries take small shipments from numerous companies and consolidate them to make large shipments. These larger consolidated shipments can thus realize the lower rates associated with large shipments. Some of these savings can then be passed along to the individual shippers. b. Transportation brokers − These intermediaries bring together shippers and transportation companies. They often have excellent knowledge of transportation alternatives. Small companies that need transportation options may approach transportation brokers who can then lead them to the optimal shipping solution available to them. c. Shippers' Associations − These are non-profit cooperatives made up of companies that seek to move product domestically or internationally. They take their members' shipments consolidate them into full truckloads and thus help their members realize volume discounts. In addition, the larger pooled shipments can then allow for the negotiation of improved terms of service.

67.67. a. MOTOR: Motor carriers are actually quite versatile, so nearly anything from packaged household goods to building materials to liquid petroleum are all candidates to be moved via motor carrier. b. RAIL: Rail carriers typically carry very heavy shipments. This might include heavy building materials, construction equipment, or coal. c. AIR: Air carriers typically carry items with a high cost to weight ratio. In other words, air carriers carry very light, high-value goods that need to travel long distances quickly. This might include items like jewelry, fine wines, or even racehorses. On occasion items are also shipped by air because of an emergency, for convenience, or perhaps to offset high packaging and/or insurance costs. d. WATER: Water carriers typically haul heavy, bulky, low value materials like cold, grain, and sand. Nonetheless, because transport by water is so cheap almost any item may be shipped by water. Some items that typically travel via water carrier include: automobiles, petroleum, liquefied natural gas, containerized cargo, frozen fish, and produce. e. PIPELINE: Pipelines move materials only when they are in a liquid or gaseous state. Items that would typically move via pipeline include: petroleum, coal in a slurry form, natural gas, drinking water, or gasoline.

68.68. a. Advantages of deregulation • • • •

Encouraged competition Allowed the free market to set prices and often prices dropped as a result Allowed the people most directly involved to apply their best judgment to solve problems Increased efficiency and safety

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Chapter 09: Domestic U.S. and Global Logistics • • •

Inhibited the growth of monopolies Increased the number of air passenger carriers almost three-fold Made it easier for firms to enter the motor carrier market

b. Disadvantages of deregulation • • • • • •

Rural and other unprofitable populations were underserved It tended to lead to unfair, unpoliced markets Social concerns were lost. For example, businesses ignored damage to the environment Many regulations were imposed to solve problems and deregulation brought the same problems back Increased competition to the point where many companies went out of business Exposed people to fraud and excessive risk-taking by companies

c. Example when deregulation led to disastrous consequences In 1999, U.S. banks were deregulated to allow them to compete globally with more profitable financial firms. This lead to banks investing in risky derivatives to increase profit and shareholder value. This culminated in the global financial crisis.

69.69. a. List 5 key components of the local infrastructure that must be investigated before committing to expansion. Why are these important?

There are many possible answers, below is a list of some of the more common/likely answers: 1.

Roads − Important to trucking and intermodal transportation. Accessibility.

2.

Ports − Important to ocean shipping and intermodal transportation.

Accessibility.

3.

Rail network − Important to shipment by rail and intermodal transportation.

4.

Airports − Important to shipment by air.

5.

Telecommunication infrastructure − Important to all modes of transport.

Provides supply chain/shipment visibility.

6.

Fuel/Utility network − Allows for shipment via all modes without interruption.

7.

Warehousing/DC availability − Allows for efficient shipment and storage, as well as complex distribution systems.

8.

Pipeline network − Allows for uninterrupted shipment via pipelines. b. Provide 4 aspects of government relating to logistics that need to be considered before committing to expansion.

There are many possible answers, below is a list of some of the more common/likely answers: 1.

Transportation regulations 2.

Amount Bureaucracy 3.

Ability to maintain a stable uncorrupt law enforcement team 4.

Commitment to secure logistics network

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Chapter 09: Domestic U.S. and Global Logistics 5.

6.

7.

8.

Commitment to building and maintaining infrastructure Commitment to international trade − Trade agreements, open markets...

Level of environmental regulations that might affect logistics Customs laws, Import/export laws

70. a. Which modes of transportation should be utilized in getting the product from Joxcel Corporation's warehouse in France to distribution Center in the United States? Why? The most likely mode of transportation to get product with such a high cost to weight ratio out of France and into the United States would be air.

The student should probably also include information on how the product will get to the airplane from the private warehouse and from the airplane to the final distribution Center. For this portion of the shipment a motor carrier would most likely be used. Motor transportation is both versatile in terms of the products that it can carry and agile in terms of the locations it can reach. b. Which intermediaries should Joxcel Corporation consider in finding customers in the United States and exporting the product out of France? Why? A trading company most likely would be the best answer for this particular question. Trading companies aid foreign sellers in finding foreign buyers. In addition, they can handle the export arrangements, documentation, and transportation of the goods in question.

While the student may also cite foreign freight forwarders, this answer is not as desirable. While a foreign freight forwarder can handle the export arrangements, documentation, and transportation of goods, they typically do not aid foreign sellers in finding foreign buyers. Nonetheless, partial credit may be deserved. c. Which intermediary should Joxcel Corporation consider in helping them import the product into the United States? Why? Customs brokers aid in moving international shipments through customs. They are knowledgeable on documentation and other customs related areas; thus, they make the importation of product easier and they help in answering any questions Customs Officials may have.

Some students may cite that trading company's help make import arrangements also. This would also be an acceptable answer according to the language in the textbook. d. Briefly discuss their warehousing plan. Does it make sense? Why? This question is fairly open-ended. The student may comment on the positive and negative aspects of Joxcel Corporation utilizing a private warehouse in France.

They may then discuss the benefits of taking their moderate sized shipments that were imported into United States and then consolidating those shipments at consolidation warehouses with other small shipments headed towards common customers.

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Chapter 10: Customer Relationship Management

Indicate whether the statement is true or false.

1. One of the motivations behind customer relationship management is; finding a new customer costs about 5 times as much as keeping an old customer. a. True b. False 2. The objectives of any CRM initiative should be focused on what the company can reasonably achieve. a. True b. False 3. Some applications allow a company for instance to extract information automatically about people from a social network like LinkedIn and load it directly into one of its CRM systems. a. True b. False 4. Segmenting Customers is an important component of a CRM initiative. a. True b. False 5. A customer flow map is useful in determining customer profitability. a. True b. False 6. Through the use of permission marketing programs, customers are allowed to select the type of communications that companies can make with them. a. True b. False 7. Sales force automation (SFA) products are used for documenting field activities, communicating with the home office, and retrieval of sales history. a. True b. False 8. The three inputs for calculating Customer Lifetime Value are Average Annual Sales, Expected Lifetime and Forecasted Profits. a. True b. False 9. Customer lifetime value is calculated as the net present value of an annuity. a. True b. False 10. According to the text, poor planning is typically the cause of most unsuccessful CRM initiatives. a. True b. False

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Chapter 10: Customer Relationship Management 11. Employees do NOT need to understand how the CRM program will affect their jobs before implementation. a. True b. False 12. Segmenting customers on the basis of things like products purchased, sales history, demographic information, and desired product features can dilute the results of a CRM program. a. True b. False 13. There is a direct relationship between CRM program success and employee involvement. a. True b. False 14. As customers navigate through a company’s website, CRM software can record and analyze the customer's clickstream so website images and ads can be tailored to the needs and desires of that one individual customer. a. True b. False 15. Safeguarding customer information is a legal and ethical responsibility for any company collecting, processing, and transmitting sensitive customer data. a. True b. False 16. Customers of companies that use CRM applications should be concerned with their personal information becoming compromised by firms outsourcing call center services to offshore companies. a. True b. False 17. Social media has recently become a focal point for CRM, due to the impact of COVID-19. a. True b. False 18. Continuous connectivity is desired by many users of CRM applications; however, this is still something the systems can’t deliver yet. a. True b. False 19. The use of artificial intelligence (AI) lets customer service agents deliver a more personalized customer interaction. a. True b. False 20. The customer lifetime value for Customer A is $103,700 (when rounded to nearest hundred) given: Customer A has average annual sales of 29,000, average profit margin of 31%, and expected lifetime of 26 years. a. True b. False 21. The objectives of any CRM initiative should be employee-focused.

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Chapter 10: Customer Relationship Management a. True b. False 22. Knowledge of customers, their behaviors, and their preferences allows firms to customize communications aimed at specific groups of customers. a. True b. False 23. A CRM application that can offer the right goods and services to customers at just the right time is referred to as basic alliance marketing. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

24. Companies work very hard to reduce the number of customers who don’t return. This customer defection is often referred to as: a. Customer churn b. Clickstream defection c. Balking d. Revenue Exodus 25. All forms of Customer Relationship Management: a. Try to minimize direct interactions with customers b. Use benchmarking to keep information current c. Rely on forecasting methods that use historical data d. Seek to keep the firm’s customers satisfied 26. Which of the following is one of the most basic and important activities of CRM? a. Segmenting customers b. Cross-selling customers c. Increasing churn d. Finding customers 27. Which of the following is NOT a required element for the development of an effective CRM initiative? a. Segmenting customers b. Customer value determination c. Customer call centers d. Managing customer service capabilities 28. Some firms identify customers based on geography such as in local or neighborhood marketing. This is an example of: a. Target marketing b. Mobile marketing c. Viral marketing d. Focus group marketing

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Chapter 10: Customer Relationship Management 29. A firm allows customers to "opt-in" to get advertising and messages through text on their phone. This is referred to as: a. Event-based marketing b. Permission marketing c. Customer churn d. Customer preference marketing 30. A customer purchases a hair dryer, and the salesperson recommends a hair heat protection product. This is an example of: a. Up-selling b. Target marketing c. Customer churn d. Cross-selling 31. The element of a CRM program involved with the use of data-mining software and customer behavior analytics is: a. Segmenting customers b. Predicting customer behaviors c. Customer value determination d. Customer preference determination 32. When restaurants offer individual promotions tied to specific events like birthdays and anniversaries, this is referred to as: a. Event-based marketing b. Seven Rule marketing c. Personal holiday marketing d. Clickstream marketing 33. Which of the following is NOT an element of an effective CRM initiative? a. Predicting customer behavior b. Determining customer value c. Preserving a traditional sales force that communicates with the supply-chain members d. Segmenting customers 34. A customer's lifetime value is calculated by: a. Summing the projected annual profitability of the customer b. Summing the annual sales of the customer and then dividing by the projected lifetime c. Adding up all the sales to the customer plus the sales for all sales generated by referrals from said customer d. Finding the NPV of a customer’s projected lifetime profits for the firm 35. Tire manufacturer GoodT sells tires to retail firm A. Average annual sales for firm A is $150,000. Average profit margin is 20%. The expected lifetime is 5 years. Using a discount rate of 6 percent, calculate the Customer Lifetime Value of firm A and choose the closest answer below: a. $169,283 b. $229,651 c. $631,855

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Chapter 10: Customer Relationship Management d. $126,371 36. Kalisha’s restaurant supply company offers a group discount for orders exceeding 20. Two firms are taking advantage of this offer. Sales to Company A averages $25, 000 of annual sales, has a 18% profit margin and an expected lifetime of 8 years. Company B averages $22, 000 of annual sales, has a 20% profit margin and an expected lifetime of 9 years.

Which is the more important customer based on the higher expected lifetime value? Assume a 7% discount rate. a. Company A because its NPV = $29,654 b. Company A because its NPV = $26,871 c. Company B because its NPV = $28,667 d. Company B because its NPV = $25,349 37. Why do so many CRM programs fail? a. They are so expensive that it is hard to recover the investment b. They take the firm away from concentrating on their key suppliers c. There are incompatible information and communication systems d. There is a lack of understanding the problems the CRM program is trying to solve 38. All of the following are recommended for designing and implementing a successful CRM program EXCEPT: a. Support from the firm's top executives b. Having employees ‘learn on the job’ and adapt their way of working c. Creating a CRM plan d. Involving CRM users at the outset 39. A CRM implementation process that allows managers to monitor the progression of their systems in meeting their objectives is called: a. Establishing Performance Measures b. Process mapping c. Integration of existing CRM applications d. Work flow analysis 40. CRM systems allow organizations to identify which customers have stopped purchasing products or services, so that the organization can target those former customers for future promotions and/or perhaps to investigate why they stopped purchasing in the first place. This CRM attribute is called: a. Customer profitability determination b. Customer-base retention initiative c. Customer defection analysis d. Customer clickstream analysis 41. All of the following are a type of CRM program performance measurement EXCEPT: a. Location analysis rate b. CRM user satisfaction c. Customer loyalty d. Average sales revenue per customer 42. Which of the following customer service elements can be classified as an example of posttransaction elements?

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Chapter 10: Customer Relationship Management a. Salesperson politeness b. Warranty repair capabilities c. Customer service policies d. Distribution system accuracy 43. You are a manager at Muhammad’s Appliances. A customer who recently purchased a refrigerator contacts you with a problem and requests warranty information. This is an example of: a. Sales force automation b. Posttransaction customer service c. Transaction customer service d. Pretransaction customer service 44. Integrating existing CRM applications serves to: a. Combine customer data with different ethnic backgrounds b. Provide customers immediate access to a firm’s inventory c. Eliminate duplication of customer data d. Reduce the environmental impact 45. A practical independent measure firms can take to improve information security is to: a. Eliminate employee internet use at work b. Not collect information about their customers c. Continuously monitor employee desktop applications, e-mails and phone calls d. None of these 46. Which of the following is NOT used in CRM software to measure customer satisfaction? a. Providing an opportunity for customer feedback b. Personalizing surveys to fit specific customer segments c. Following their customers’ clickstream d. Ability to look for commonly occurring problems 47. Firms can safeguard customer information by doing which of the following? a. Allow customers to opt-in and out of mailing lists b. Outsourcing call centers to only domestic companies c. Keeping call centers within the company d. All of these are correct 48. Which of the following is used to increase data security in CRM systems? a. Outsourcing call center services to foreign companies b. Using a traditional CRM application c. Choosing call center services from domestic companies d. Using the CRM cloud 49. One of the top trends in CRM includes: a. Use of Artificial intelligence

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Chapter 10: Customer Relationship Management b. Use of social media c. Adopting mobility d. All of these are correct 50. According to the text, going forward, consumer interactions with companies are projected to be: a. 60 percent online and 40 percent in-person b. 50 percent online and 50 percent in-person c. 42 percent online and 58 percent in-person d. 80 percent online and 20 percent in-person 51. Which of the following allows companies to capture customer activity such as customer service interactions, website visits, purchase transactions, and shipping history in a historical timeline? a. A high-service application b. Smart CRM c. All-time CRM d. Cloud based CRM applications

52. The textbook describes a perfect order as one in which all seven of the rules in the "Seven Rs Rule" are satisfied. List five of the seven Rs. 53. For the information given, rank the two customers in terms of their customer lifetime value.

Customer A: Customer B:

Avg. Annual Sales $41,000 $43,000

Avg. Profit Margin 20 % 22 %

Expected Lifetime 10 years 8 years

Use a discount rate of 5 percent and calculate the customer lifetime value.

54. Creating a good CRM plan is necessary prior to purchasing a CRM system. Briefly describe a CRM plan.

55. Because a large number of CRM applications exist, integrating these in one company can be problematic. Briefly describe the issue and discuss how integration can be achieved.

56. A CRM program primarily attempts to monitor and/or manage three things: an organization's customers, sales force, and customer service capabilities.

List two different tools or components of CRM for each of three areas: a.

Customers b.

Sales Force c.

Customer Service Capabilities Describe how each tool or component is utilized in the monitoring and/or managing of the customers, sales force, or customer service capabilities.

57. A good CRM program is only good if it is successfully implemented. Describe three important elements a firm should consider when designing and implementing a CRM program.

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Chapter 10: Customer Relationship Management 58. Explain three of the sales force tools that firms have been using to help automate field activities.

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Chapter 10: Customer Relationship Management Answer Key 1. True 2. False 3. True 4. True 5. False 6. True 7. True 8. False 9. True 10. True 11. False 12. False 13. True 14. True 15. True 16. True 17. True 18. False 19. True 20. False 21. False 22. True 23. False 24. a 25. d

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Chapter 10: Customer Relationship Management 26. a 27. c 28. a 29. b 30. d 31. b 32. a 33. c 34. d 35. d 36. c 37. d 38. b 39. a 40. c 41. a 42. b 43. b 44. c 45. c 46. c 47. d 48. c 49. d 50. a 51. d

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Chapter 10: Customer Relationship Management 52.52.

1.

Right Product 2.

Right Quantity 3.

Right Condition 4.

Right Place 5.

Right Time 6.

Right Customer 7.

Right Cost 53. NPVA = a

NPVB = a

= NPVA = $41,000 (.20) = NPVB = $43,000 (.22)

= $63,318 = $61,142

The rankings from best to worst are A, B. 54. The plan should include the objectives of the CRM program, its fit with corporate strategy, new applications to be purchased or used, the integration with or replacement of existing methods or legacy CRM systems, the requirements for personnel, training, policies, upgrades, and maintenance, and the costs and time frame for implementation. It is important to have support from the firm's top executives and the various departments that will be using the CRM tools. Once this document is completed, the firm will have a roadmap for guiding the purchase and implementation process.

55. CRM systems are not one single product, but rather a suite of various applications that have been implemented over time. One of the biggest mistakes made is that departments across the firm implement various CRM applications without communicating these actions to other departments. Eventually, these systems will interfere with each other, as they communicate with the same customer, sending confusing and irritating signals that can chase customers away quickly.

Customer contact mechanisms need to be coordinated so that every CRM application user within the firm knows about all the contact activity for each customer. Compatible CRM modules are needed which are linked to one centralized database or data warehouse containing all customer information. Thus, from one database, users in the organization can retrieve information on a customer’s profile, purchase history, promotion responses, payment history, web visitations, merchandise returns, warranty repairs, and call center contacts.

56.56. a. Customers 1.

Segmenting Customers − Using data to categorize customers so that specialized communications can be used to more effectively utilize target marketing efforts.

2.

Permission Marketing − Allowing customers to select the type and time of communication with individual organizations.

3.

Cross-selling − Selling, or attempting to sell, additional products to customers during or following the sale based on initial purchases.

4.

Customer Defection Analysis − Utilizing modeling technologies to find data patterns among customers who have quit purchasing, as opposed to those data patterns of customers that continue to purchase.

5.

Customer Profitability Determination − Determining the value/profitability of each customer. This allows organizations to determine the amount of resources they invest in each customer.

6.

Event-based Marketing − Individual marketing programs based on the customers birthday, anniversary, etc. b. Sales Force 1.

Sales Activity Management Tools − Based on a firm's sales policies and procedures, these tools and aid a salesperson through a sequence of sales activities during their

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Chapter 10: Customer Relationship Management 2.

3.

4.

interactions with each customer.

Sales Territory Management Tools − Allows managers to monitor the status of each salesperson's activities on each customer's account.

Lead Management Tools − Assist sales reps by providing them with sales tactics that will aid them in completing sales.

Knowledge Management Tools − Provide sales reps with a large amount of information relating to contracts, clients, corporate policies, regulatory issues, sales presentations, promotional materials, etc.

c. Customer Service Capabilities 1.

Customer Service Defined − Determining what service means to your customer and building metrics to measure an organization's performance in delivering service are important steps in creating programs to support customer service. Firms must consider the costs of providing good customer service (such as faster transport, greater safety stock levels, more service provider training, and better comforts) as well as the benefits (keeping customers’ future profit streams).

2.

Call Centers − Modern call centers are sophisticated enough to be capable of collecting, organizing, and evaluating call data in order to provide better service in the present as well as in the future. Some organizations have used these effectively to satisfy and keep customers loyal, while others have seen them as a necessary cost of doing business and viewed them as a drain on profits.

3.

Measuring Customer Satisfaction − CRM programs allow personalized service to have it specific customer segments. Furthermore, these results can be compared to those inside or outside of the respondents segment. Customer satisfaction surveys can be personalized to fit specific customer segments, and responses can be matched to respondents’ profiles to provide the company direction on improving its communication and service capabilities for various groups of customers.

57. a.

Understand the Problem Being Solved – The firm should be able to answer the question; What are the problems a CRM program is going to solve? They must avoid the temptation to start working on a solution or to hire a CRM application provider before understanding the problem. They can involve employees from all functional groupings within the firm as well as receive input from the firm’s key customers. A good starting point could be looking at piecemeal programs that have already been started at the firm and listing the benefits and drawbacks of such program.

b.

Create the CRM Plan - The firm should put together a solid plan for a CRM project. Next, they must be sure to obtain executive management approval and funding for the project.

The plan should include the objectives of the CRM program; new applications to be purchased or used; the integration or replacement of existing methods or legacy CRM systems; the requirements for personnel, training, policies, upgrades, and maintenance; and the costs and time frame for implementation This will provide them with a roadmap for guiding the purchase and implementation process.

c.

Involve CRM Users from the Outset – There is a direct relationship between CRM program success and employee involvement so it is important to get users on board at the start of implementation. The firm should create a project team with members from sales, customer service, marketing, finance, and production. Employees need to know how their job will be affected from the very beginning. The firm can help the users understand the value of the program. This will help keep everyone committed to its success.

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Chapter 10: Customer Relationship Management d.

Selecting the Right Application and Provider - Finding the best application and supplier can be accomplished by: • • • • •

Attending a CRM-oriented tradeshow using a CRM consulting firm searching CRM or business publications using the knowledge of internal IT personnel searching the many CRM supplier directories and websites

One of the primary criteria for firms to consider is the support available from the application provider. After-sale user support is essential and vendors who provide good support should be valued more highly than those that do not. e.

Integrate Existing CRM Applications – All customer data from current applications need to be linked to one centralized database. This assures that those employees communicating with customers have access to all the contact information. It annoys customers when they must repeat information they have already provided to a firm just because their call has been transferred to a different department. If the customer data is not integrated, it causes duplicate effort from employees entering the data, wasted money and disgruntled customers.

58. Some possible answers: a.

Sales Activity Management –These tools are customized to each firm’s sales policies and procedures and offer sales personnel a sequence of pages/activities guiding them through their sales processes with each customer. These standardized steps assure the proper sales activities are performed and put forth as a uniform sales process across the entire organization. Using these systems reduces errors, improves sales force productivity and boosts customer satisfaction. b.

Sales Territory Management − These systems allow sales managers to obtain current information and reporting capabilities regarding each sales person’s activities on each customer’s account, total sales in general for each sales rep, their sales territories, and any ongoing sales initiatives. Using these tools, sales managers can create sales teams specifically suited to a customer’s needs, generate profiles of sales personnel, track performance, and keep up with new leads generated in the field.

c.

Lead Management − Using a lead management system allows sales reps to follow prescribed sales tactics when dealing with sales prospects or opportunities, to aid in closing the deal. These applications can generate additional steps as needed to help refine the deal closing and negotiation process.

d.

Knowledge Management − Sales personnel require access to a variety of information before, during, and after a sale including information on contracts, client and competitor profiles, client sales histories, corporate policies, expense reimbursement forms, regulatory issues and laws, sales presentations, promotional materials, and previous client correspondence. Easy access to this information enables quick decision-making, better customer service, and a better-equipped and more productive sales staff.

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Chapter 11: Global Location Decisions

Indicate whether the statement is true or false.

1. Once a decision on locating a facility is made, it is costly to move or shut down that facility. a. True b. False 2. Facility location has a short-term impact on the firm’s supply chains. a. True b. False 3. Global location decisions are made to optimize the performance of supply chains and to be consistent with the firm's competitive strategy. a. True b. False 4. Facility location decisions can affect the level of service provided to customers and a firm’s overall competitive advantage. a. True b. False 5. A firm competing on cost is more likely to select a location that provides a cost advantage. a. True b. False 6. Many multinational corporations are moving their facilities into China to have access to the local markets rather than for export reasons. a. True b. False 7. Exchange rates do NOT play an important role in determining the cost of production in another country. a. True b. False 8. Low tariffs encourage multinational corporations to set up factories to produce locally. a. True b. False 9. In the United States there is a trend to locate manufacturing facilities in the sunny, incentive-friendly, nonunionized South. a. True b. False 10. A list of quality-of-life factors would most likely include proximity to customers, proximity to suppliers, tariff rates, and currency stability. a. True b. False

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Chapter 11: Global Location Decisions 11. While many developing countries are attractive to companies seeking out low labor costs, there are other factors such as productivity levels, employee skill and education levels, turnover rates, and employment trends that certain industries find just as important, if not more important, in determining facility locations. a. True b. False 12. The United States-Mexico-Canada Agreement (USMCA), replaced the North American Free Trade Agreement (NAFTA). a. True b. False 13. Regional trade agreements and the World Trade Organization provide a framework for managers in terms of investigating important facility location elements like tariffs, costs, and the free flow of goods and services in different regions of the world. a. True b. False 14. The European Union (EU) is considered a regional trade agreement. a. True b. False 15. A country that imposes high tariffs encourages foreign-based companies to import goods. a. True b. False 16. Using the weighted-factor rating model, the location with the highest total weighted score is the recommended location. a. True b. False 17. The weighted-factor rating model, is a useful location analysis technique when fixed and variable costs can be determined for each potential location. a. True b. False 18. A firm is planning to open a bicycle store and is using the weighted-factor rating model to decide which site should be selected. Using only the data from the table below, the firm should locate the store in Henderson.

Critical location factors

Factor

Labor cost Proximity to market Supplier base Quality of life Taxes

0.30 0.10 0.22 0.20 0.18

Reno Scores (1–100) 70 87 80 90 85

Henderson Scores (1– 100) 82 98 90 80 75

Las Vegas Scores (1– 100) 85 80 70 60 75

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Chapter 11: Global Location Decisions a. True b. False 19. Two models that utilize quantitative data, which can help determine the attractiveness of one location versus another, are the Break-Even Model and the Extrapolated Average Cost Model. a. True b. False 20. Locating research and development, component manufacturing, assembly operations, marketing, and other associated businesses in one area can improve the supply chain, technology sharing, and information sharing. a. True b. False 21. Business clusters provide the competitive environment that promotes increasing innovation and profitability. a. True b. False 22. Business clusters are geographic concentrations of interconnected companies and institutions in a particular field. a. True b. False 23. The development of cleaner, more fuel-efficient and affordable energy technologies will have a direct impact on the cost of production of goods and delivery of services. a. True b. False 24. The critical issues in sustainable development are energy consumption/production, air pollution, and climate change. a. True b. False 25. The primary objective of offshore factories is simply to take advantage of low labor costs. a. True b. False 26. The affordability of 3D printers could affect facility location decisions and keep businesses from going overseas for their manufacturing needs. a. True b. False 27. As a result of the COVID-19 pandemic, many companies are expected to increase their use of digital technologies and automation in the future. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

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Chapter 11: Global Location Decisions 28. Which of the following strategic foreign facilities is set up in a location with an abundance of advanced suppliers, competitors, research facilities, and knowledge centers to get access to the most current information on materials, components, technologies, and products? a. Offshore factory b. Server factory c. Source factory d. Outpost factory 29. According to the text, which of the following would be an example of Coca-Cola’s international bottling plants, each serving a small geographic region? a. Offshore factory b. Server factory c. Source factory d. Outpost factory 30. Once a decision on locating a facility is made, and the new facility is built and occupied, it is shut down that facility. a. Easy b. Costly c. Economical d. None of these

to move or

31. Facility location has what impact on the supply chain? a. A short-term impact b. Minimal impact c. A long-term impact d. No impact 32. Which of the following issues is (are) important to consider when trying to determine the location of a firm's facilities? a. The stability in the location considered b. Environmental issues regulated by domestic laws or international trade agreements c. Labor availability and skill levels d. All of these are correct 33. Which of the following would be considered a quality-of-life factor? a. Wage rates b. Foreign exchange rates c. Maintaining responsive government d. All of these are correct 34. Choosing to manufacture in China to sell to Chinese customers would likely involve which location decision consideration? a. Proximity to markets b. Environmental issues c. Land availability and cost

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Chapter 11: Global Location Decisions d. Utility availability and cost 35. Right-to-work laws allow: a. Immigrants the right to work in the United States b. Employees the right to decide to join a union c. U.S. workers the right to work abroad d. Children the right to work 36. If goods are produced in a U.S. foreign trade zone, then: a. Duty must always be paid when materials arrive b. The products must be exported c. Duty is always paid when they leave the free trade zones d. Duty must be paid if they are sold domestically 37. Which of the following is a factor in choosing a location? a. Environmental Issues b. Seven wastes c. Price break point d. Process integration 38. A server factory is typically used to: a. Take advantage of government incentives b. Make critical procurement decisions c. Get involved in production planning d. Get involved in product engineering 39. Regional trade agreements assist with which of the following? a. Monitor national trade policies b. Provide technical assistance for developing countries c. Provide a forum for trade negotiations d. All of these are correct 40. Examples of regional trade agreements include all of the following EXCEPT: a. Association of Southeast Asian Nations (ASEAN) b. European Union (EU) c. Association of Korean Markets (AKM) d. Regional Comprehensive Economic Partnership (RCEP) 41. Which of the following trade agreements replaced NAFTA? a. Association of Southeast Asian Nations (ASEAN) b. Regional Comprehensive Economic Partnership (RCEP) c. United States-Mexico-Canada Agreement (USMCA) d. Southern Common Market (MERCOSUR)

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Chapter 11: Global Location Decisions 42. The World Trade Organization (WTO) is critical to the facility location decision process because of their impact on: a. Southeast Asian Nations b. Tariffs c. Innovation d. Relationship marketing 43. Use the breakeven model to determine which of the statements below is TRUE according to the information provided in the table relating to two different locations considered for a new manufacturing facility.

LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS Site A $120,000 $18 Site B $110,000 $29 a. The breakeven point for these two locations is 909 units per year b. The breakeven point for these two locations is 625 units per year c. Site A is the desired location if the production rate is 500 units per year d. Site B is the desired location if the production rate is 1000 units per year 44. Use the breakeven model to determine which of the statements below is TRUE according to the information provided in the table relating to three different locations considered for a new manufacturing facility.

LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS Site A $39,000 $15 Site B $30,000 $21 Site C $20,000 $25 a. The breakeven point for Site B and C is 1500 units per year b. Choose site C if you are producing 2000 units per year c. Choose site A if you are producing more than 1900 units per year d. Site B is the desired location if the production rate is 1800 units per year 45. A certain organization trying to decide where to locate their future factory is considering three locations. They are taking into account three factors: labor costs, currency stability, and proximity to market. Using the weights for each factor listed below and the scores achieved by each of the three considered locations, determine which location should be chosen for the new facility based on the weighted factory location model.

FACTOR WEIGHT Labor Cost 0.20 Currency Stability 0.30 Proximity to Market 0.35 Taxes 0.15 a. Site A b. Site B c. Site C d. All sites are equally attractive

SITE A 92 75 80 69

SCORES (Maximum 100) SITE B 82 85 50 88

SITE C 84 88 75 91

46. A company is considering Denver, Seattle, and Portland as candidate locations for a new facility. For the weightedfactor rating technique, the company is evaluating each location on three factors (distance to customers, labor costs, and utility costs). The factors are weighted 0.5, 0.3, and 0.2, respectively. Denver received scores of 80, 77, and 65 for the

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Chapter 11: Global Location Decisions three factors. Seattle received scores of 87, 82, and 75. Portland received scores of 84, 86, and 73. Which of the three cities is ranked the lowest by the weighted-factor rating technique? a. Denver b. Seattle c. Portland d. There is a tie between Seattle and Portland 47. The first step in the weighted-factor rating technique is to: a. Assign a weight to each factor b. Multiply each factor score by its weight and sum the weighted scores for each location c. Identify all factors considered important to the facility location decision d. Assign a performance score to each factor for each location 48. The following facility location technique uses fixed and variable costs to analyze potential locations: a. Break-even model b. Business cluster analysis model c. Weighted-factor rating model d. Mean absolute deviation model 49. Which of the following is NOT a reason for locating in a business cluster? a. Technology sharing b. Supply chain improvements c. Sophisticated retailers d. Competition 50. Milan, Silicon Valley, and Detroit are examples of: a. Business conglomerates b. Business clusters c. Regional trade agreements d. Strategic supplier alliances 51. According to the text, research parks and special economic/industrial zones serve as magnets for: a. Business clusters b. Metroplex c. Regional business center d. Industrial point 52. Which of the following is important because what we do today will affect future generations? a. Customer churn b. Sustainable development c. An offshore factory d. Progressive design 53. Which of the following is a critical issue in sustainable development? a. Labor and legal problems

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Chapter 11: Global Location Decisions b. Countertrade c. Energy consumption d. Supply base optimization 54. Which of the following is TRUE about green development? a. Green development is the same as sustainable development b. Green development considers total cost when considering new development c. Green development prioritizes environmental sustainability over economic considerations d. All of these are correct 55. Which of the following is NOT a benefit of additive manufacturing (3D printing)? a. Mass customization b. High volume manufacturing c. Lower energy consumption d. Parts on demand 56. As a result of the COVID-19 pandemic, what issue has become important for global location decisions? a. Supply chain diversification b. Risk mitigation c. Use of digital technologies d. All of these are correct 57. According to the text, about what percentage of survey respondents indicated they were planning to consolidate activities in their home country in 2020 due to the global pandemic? a. 25% b. 50% c. 60% d. 80%

58. What are the three levels of any location decision and what general factors are considered at each level?

59. When an organization is considering future facility locations, provide three human resource related issues that the organization would need to consider.

60. What specific advantages would a Free Trade Zone (or Foreign Trade Zone in the United States) offer a manufacturing company? Also, under which circumstances would a company utilize a Free Trade Zone?

61. Canniz Tee is looking to open a new fulfillment center as part of their expanding network to meet faster delivery needed for their prime customers in Arizona. To assist the company in deciding where to locate this new fulfillment center, three sites have been identified with the information shown below. Use the weighted-factor rating model to answer the questions below.

Critical Location Factors

Factor Weight (Sum to 1)

Mesa Scores (1–100)

Surprise Scores (1–100)

Phoenix Scores (1–100)

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Chapter 11: Global Location Decisions

Labor availability Proximity to market Supplier base Taxes Utilities Transportation

0.25 0.20 0.15 0.20 0.05 0.15

78 89 90 80 75 81

85 80 100 70 85 75

88 84 90 80 75 85

a. What are the scores for each location? b. Which location should be chosen?

62. Briefly define a business cluster. Give a location that exemplifies a real-life example of a business cluster, which is not listed in the textbook. Describe why it should be considered a business cluster.

63. Suppose a company in the United States was trying to decide whether to locate their manufacturing facility in the United States or in Southeast Asia. Consider the following information in answering the question below: ∙ Presently, this U.S. company, which makes only one type of finished good, sells 40% of their product in the United States, 10% of the product in Mexico, 15% of their product in Canada, and 35% of their product to the rest of the world. ∙ The product this company produces is presently tariffed heavily when imported into the United States. ∙ The product consists of about 150 components of which 75 components are imported from Southeast Asia, 40 components are imported from Mexico, and 35 components come from U.S. suppliers.

List four reasons why it would be favorable to locate the new manufacturing facility in the United States rather than in Southeast Asia.

64. Your organization is considering building a new automobile manufacturing plant. The company is considering building their facility in either China or Tennessee (USA).

China is a rapidly expanding economic market, Tennessee is situated in a more mature market in which other car manufacturers are already located.

Using this limited information and your knowledge of these two options, China and Tennessee, provide THREE reasonable arguments for each option that relate to supply chain management.

65. If a country is seeking to attract foreign investment in the form of manufacturing related facilities, list three things the government might do to increase the chances of this occurring.

66. Walton Corp is considering building a new bottling plant. They have collected information on fixed and variables costs for four potential plant locations.

LOCATION ANNUAL FIXED COSTS UNIT VARIABLE COSTS A $200,000 $11 B $175,000 $32 C $150,000 $21 D $160,000 $36 a. Plot the total cost curves for the four plant locations on a single graph. b. Find the break-even points and determine the range of demand for which each location has a cost advantage.

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Chapter 11: Global Location Decisions c. Which plant location is best if demand is 6,000 units?

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Chapter 11: Global Location Decisions Answer Key 1. True 2. False 3. True 4. True 5. True 6. True 7. False 8. False 9. True 10. False 11. True 12. True 13. True 14. True 15. False 16. True 17. False 18. False 19. False 20. True 21. True 22. True 23. True 24. True 25. True

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Chapter 11: Global Location Decisions 26. True 27. True 28. d 29. b 30. b 31. c 32. d 33. c 34. a 35. b 36. d 37. a 38. a 39. d 40. c 41. c 42. b 43. a 44. c 45. c 46. a 47. c 48. a 49. c 50. b 51. a

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Chapter 11: Global Location Decisions 52. b 53. c 54. c 55. b 56. d 57. c 58. Level 1 - The global market or country selection is where an analysis of the region of the world that bears a strategic interest to the organization, and, eventually, a country is targeted.

Level 2 - The subregion or state selection. Once the country is selected, the focus shifts to finding a subregion or state within the country that best meets the company’s location requirements.

Level 3 - The community and site selection. Lastly, the community and site for the facility are selected possibly using one of the models discussed in Chapter 11.

59. While there are a number of possible answers to this question, some of the more basic answers discussed in the textbook include: Cost of Labor – unemployment and underemployment rates; wage rates; turnover rates; a. labor force competitors; and employment trends Employee pool skill set – post pandemic digital technologies and automation will likely b. alter skills requirements Employee pool education level – engineers, managers, quality experts c.

Whether right-to-work laws/labor unions legal in the location considered. d.

Quality-of-life issues for employees − schools, taxes, housing, natural environment, public e. safety, and health.

60. A free trade zone offers a manufacturing firm the ability to import components or subassemblies into a designated area without paying any import related tariffs on the condition that any subassemblies or end items assembled in the designated free trade zone will be exported to customers in other countries.

A company would seek to utilize a free trade zone when import tariffs for subassemblies or components were considerable and somewhat significant amount of product was going to ultimately be re-exported. This allows a company to avoid the opportunity cost associated with paying the import tariffs. When expertise is needed on a large scale, assembling in a free trade zone where this expertise is available, allows firms to utilize this resource.

61. Answer: a. Mesa score is 82.7. Surprise score is 81.75. Phoenix score is 84.8. b. Phoenix should be chosen for the location of the new fulfillment center.

Rationale: Mesa weighted score = 0.25 x 78+ 0.20 x 89+ 0.15 x 90+ 0.20 x 80 + 0.05 x 75 + 0.15 x 81 = 82.7 Surprise weighted score = 0.25 x 85+ 0.20 x 80+ 0.15 x 100+ 0.20 x 70 + 0.05 x 85 + 0.15 x 75 = 81.75 Phoenix weighted score = 0.25 x 88+ 0.20 x 84+ 0.15 x 90+ 0.20 x 80 + 0.05 x 75 + 0.15 x 85 = 84.8 62. Business cluster - Geographic concentration of interconnected firms in a particular field

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Chapter 11: Global Location Decisions Some possible examples: Hollywood − Film industry Silicon Valley − Software and technology Las Vegas − Casino industry Mexico − Electronic manufacturers Vietnam – Garment manufacturers 63.63.

1.

Proximity to markets − by locating the facility in United States this company will be locating finished goods near 65% of its customers (United States, Canada, Mexico).

2.

USMCA or formerly NAFTA − 65% of this company's products are sold in either the United States, Mexico, or Canada. USMCA allows product to flow relatively freely between these three countries.

3.

Utilities − the infrastructure of United States is among the best in the world. It is highly likely that all your utility requirements would be met by most U.S. locations.

4.

Quality-of-life issues − if this company is headquartered in United States and would like to maintain American management, it is likely that many of the employees would prefer the new location to be in United States. These employees are most likely comfortable with the government stability, housing, health care, culture, and public safety they are accustomed to in the United States.

5.

Lead times − lead times associated with purchases made from US and Mexican suppliers would most likely be quite favorable.

6.

Labor force − The US labor force is considered among the most productive, well-trained, and well-educated labor forces in the world.

7.

Right-to-work laws − there are number of states in United States that now allow workers to choose whether or not they want to join/support the union. This allows the U.S. company to hire skilled and educated workers at somewhat reasonable wages.

8.

Foreign trade zones − This company may have the capability of placing a facility within a foreign trade zone that would allow the company to assemble the finished goods that it would ultimately be exported to foreign customers.

64. Student's individual arguments should be multi-faceted. They should include an amalgamation of the individual facts listed below. In each case, there are many other arguments possible.

CHINA 1.

Enormous population with an enormous number of young people 2.

Enormous labor pool 3.

Growing economy with relatively few vehicles 4.

Relatively low labor costs 5.

Low cost Parts/Component suppliers available 6.

Developing supply chain infrastructure 7.

Government's commitment to economic growth In other words, China has positives in the areas of purchasing, manufacturing, and logistics. In addition, there are large

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Chapter 11: Global Location Decisions advantages associated with a growing demand which will likely substantiate any/most supply chain investments.

TENNESSEE 1.

Mature market that heavily utilizes vehicles 2.

Strong stable economy relative to all other nations 3.

Experienced and skilled workforce and business management 4.

Well developed supply chain infrastructure 5.

Well developed distribution system 6.

Government's commitment to economic growth 7.

Large number of experienced suppliers In other words, Tennessee will be more expensive but the risk level is lower from a logistical standpoint and also from an economic standpoint. Also, just like in certain regions of China there are advantages that would be associated with business clusters.

65. While there are a number of possible answers to this question, some of the more basic answers discussed in the textbook include: a.

FTZs: Establishing Foreign Trade Zones

b.

TRADE AGREEMENTS: Developing regional and/or international trade agreements with countries that routinely supply or purchase products or services from the country in question.

c.

TARIFFS: Establishing import tariffs in the hopes that international manufacturers might hope to locate domestically in order to avoid the import tariffs.

d.

LABOR: Creating laws that create a more competitive labor situation: reducing minimum wages, promoting right to work laws, improving the education and skill set of the labor force through government programs.

e.

ENVIRONMENT: Creating laws that create a more competitive market in terms of environmental issues.

f.

INFRASTRUCTURE: Developing the country's infrastructure: utility network, roads, ports, airports, pipelines.

66. a) Plot the four graphs as shown below.

TCA = 200,000+11Q; TCB = 175,000+32Q; TCC = 150,000+21Q; TCD = 160,000+36Q

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b) Breakeven point between Locations A and B. TCA = TCB 200,000+11Q = 175,000+32Q 21Q = 25,000

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Chapter 11: Global Location Decisions Q = 1191 units This indicates that producing less than 1,191 units per year would be cheaper at location B, while producing more than 1,191 units per year would be cheaper at location A. Breakeven point between Locations A and C. TCA = TCC 200,000+11Q = 150,000+21Q 10Q = 50,000 Q = 5000 This indicates that producing less than 5,000 units per year would be cheaper at location C, while producing more than 5,000 units per year would be cheaper at location A. Breakeven point between Locations A and D. TCA = TCD 200,000+11Q = 160,000 + 36Q 25Q = 40,000 Q = 1600 units This indicates that producing less than 1,600 units per year would be cheaper at location D, while producing more than 1,600 units per year would be cheaper at location A. Breakeven point between Locations B and C. Since Location B has both higher fixed and variable cost than location C, there is no breakeven point. Location B is always higher than C. Breakeven point between Locations B and D. TCB = TCD 175,000+32Q = 160,000 + 36Q 4Q = 15,000 Q = 3750 units This indicates that producing less than 3,750 units per year would be cheaper at location D, while producing more than 3,750 units per year would be cheaper at location B. Breakeven point between Locations C and D. Since Location D has both higher fixed and variable cost than location C, there is no breakeven point. Location D is always higher than C. c) When demand is 6,000 units, the costs for the different locations are shown below.

Location Annual Fixed Costs Unit Variable Costs Total Costs A $200,000 $11 $266,000 B $175,000 $32 $367,000 C $150,000 $21 $276,000 D $160,000 $36 $376,000 Location A has the lowest total cost and is best when demand is 6,000 units.

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Chapter 12: Service Response Logistics

Indicate whether the statement is true or false.

1. In most services, customers are not involved in the production of the service itself. a. True b. False 2. Pure services offer few, if any, tangible products to customers. a. True b. False 3. Services are generally geographically centralized in order to minimize land and building costs. a. True b. False 4. Service firms differ from manufacturers in the labor content contained in the end products. a. True b. False 5. Service response logistics is the management and coordination of the organization’s activities that occur while the service is being performed. a. True b. False 6. Service capacity is the total number of customers the firm’s delivery systems serve. a. True b. False 7. The goal of an efficient queuing system is to design an adequate system and then manage customers’ perceived waiting times. a. True b. False 8. When departmental layouts reduce distances traveled, the objective is to place high traffic volume departments close to each other. a. True b. False 9. A doctor’s office would be an example of a departmental layout that maximizes closeness desirability. a. True b. False 10. A casino layout would be designed to keep customers there for long time periods. a. True b. False 11. A firm is comparing two potential service layouts using the Closeness Desirability Rating. Option 1’s closeness

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Chapter 12: Service Response Logistics desirability score is 18. Option 2’s closeness desirability score is 22. It can be concluded that Option 1 layout is better. a. True b. False 12. The optimal capacity utilization for an organization would be 100%. a. True b. False 13. When demand exceeds capacity, one capacity management technique is to cross-train workers. a. True b. False 14. When a chase demand strategy is used for managing capacity, the firm must use a demand management or queue management tactic to deal with excess customers. a. True b. False 15. Typically, a quick recovery from a service failure can keep customers loyal and coming back. a. True b. False 16. A very popular fast food restaurant is presently staffed with three cash register attendants that are taking orders. Upon entering the restaurant, customers must choose from three separate lines, each of which leads to one of the three registers.

Immediately upon placing their order with the register attendant, customers are given their food and drinks by the register attendant. To analyze this situation, you would use the queuing model for an infinite demand source, multiple servers, and multiple channels. a. True b. False 17. A retailer with two checkout stands is an example of a multiple-channel, single-phase queuing system. a. True b. False 18. At a service facility it has been calculated that they can handle the demand per hour approximately 76 percent of the time at a rate of 4 per hour. This means that approximately 24 percent of the time, demand per hour will be greater than four customers, causing queues to develop. a. True b. False 19. According to the text, good queue management consists of managing only what the customer perceives to be as the waiting time. a. True b. False 20. Reneging occurs when customers refuse to join the queue once they see how long it is. a. True b. False

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Chapter 12: Service Response Logistics 21. When firms acknowledge receipt of an order via telephone, mail or e-mail, this is an example of starting the service. a. True b. False 22. Shopping malls that offer other things like ice skating, rock climbing, and amusement park rides are examples of Entertailing. a. True b. False 23. A microfranchise is a type of franchising concept which is seen as a good way for economically disadvantaged people to make a living. a. True b. False 24. Amazon.com is an example of a firm which uses the Mixed Internet Distribution Strategy. a. True b. False 25. The five dimensions of service quality include: reliability, responsiveness, assurance, empathy, and tangibles. a. True b. False 26. Customer satisfaction with the service depends not only on the ability of the firm to deliver what customers want, but on the customers’ perceptions of the quality of service received. . a. True b. False 27. For services, quality occurs during the service delivery process. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

28. Which of the following is an example of a person that provides a pure service? a. Attorney/Lawyer b. Bookstore Manager c. McDonald’s Employee d. All of these are correct 29. Which of the following is a difference between goods and services? a. Goods are often unique b. Services cannot be inventoried c. Goods have high customer-service interaction d. All of these are correct

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Chapter 12: Service Response Logistics 30. Countries that shift from a manufacturing-oriented economy to a service-oriented economy sometimes see their productivity growth decline over time. This phenomenon has been termed: a. Baumol's Disease b. Deming's Decline c. State Utility d. Service Shrink 31. Capacity utilization equals a. Capacity x Actual customers served per period b. Capacity / Actual customers served per period c. Actual customers served per period x Capacity d. Actual customers served per period / Capacity 32. A basic strategy for managing capacity is: a. Differentiation strategy b. Focus strategy c. Chase demand strategy d. Queue management strategy 33. According to the text, which of the following is a service strategy characterized by the idea that a service can serve a narrow target market better than a broad market? a. Differentiation strategy b. Demand strategy c. Focus strategy d. Transitional strategy 34. The four primary activities of concern in service response logistics are the management of: a. Distribution channels, service quality, reputation, and waiting times b. Service capacity, waiting times, distribution channels, and service quality c. Labor standards, distribution channels, waiting times, and service quality d. Service capacity, visual workplace, waiting times, and distribution channels 35. Calculate the closeness desirability score for the layout below. Do not count the departments with just corners touching. The desirability ratings are based on a (–1 to 3) scale, where –1=undesirable, 0=unimportant, 1=slightly important, 2=moderately important and 3=very important.

Existing Office Layout Reception Area Conference Room Engineering Office (A) (C) (E) Copy Room Accounting Office Manager’s Office (B) (D) (F) Desirability Ratings B C D E F A 3 0 1 -1 2 B -1 1 0 3

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Chapter 12: Service Response Logistics C D E

3

2 2

1 2 2

a. 24 b. 13 c. 15 d. 18 36. All of the following are considerations used in designing service layouts EXCEPT: a. Reduction of time to restock b. Impulse purchasing c. Speed up customer throughput d. Ease of access to parking lot 37. Layout strategies help firms maximize all of the following EXCEPT: a. Service efficiencies b. Four Ms c. Customer service d. Server productivity 38. As capacity utilization approaches 100%, which of the following tends to happen? a. Services become more congested b. Service times increase c. Wait times increase d. All of these are correct 39. A basic strategy for managing capacity when the firm reduces capacity when there is excess available, or develops capacity quickly when it is needed is called: a. Level demand strategy b. Differentiation demand strategy c. Chase demand strategy d. Rapid capacity strategy 40. Which of the following would NOT be considered an acceptable option in managing capacity when demand exceeds available service capacity? a. Cross-training and sharing employees b. Utilizing technological tools like computers and automated systems c. Utilizing fewer facilitating products d. Using customers to provide services 41. The order in which customers are served is called the: a. Input order b. Queue discipline c. Output arrangement d. Service characteristic

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Chapter 12: Service Response Logistics 42. Assuming the number of arrivals per time period is Poisson distributed with a mean arrival rate of 6 customers per hour, what is the mean interarrival time? a. 20 minutes b. 3 minutes c. 6 minutes d. 10 minutes 43. If the average service rate is 6 customers per hour, and assuming the negative exponential distribution is used to describe the randomness of the service time distribution, what is the probability that the service time will be less than or equal to 6 minutes? a. 0.451 b. 0.565 c. 0.283 d. 0.624 44. The average service rate at an automatic teller is 15 customers per hour and a customer arrives on average about every 10 minutes. On average, how many customers are in the queue at any one time? a. 1.667 Customers b. 0.914 Customers c. 0.291 Customers d. 2.226 Customers 45. If λ = 8 CUSTOMERS/HOUR and μ = 10 CUSTOMERS/HOUR, in a single server model, what is the probability that there will be exactly 4 people in the system? a. 0.162 b. 0.428 c. 0.148 d. 0.082 46. Which of the following is NOT a technique for managing customers’ perceived waiting times? a. Grouping customers b. Not revealing the wait time c. Keeping customers occupied d. Starting the service quickly 47. A customer who enters the waiting line but leaves the system prior to receiving service is said to have: a. Balked b. Reneged c. Stalled d. Disposed 48. First-come-first-served is an example of a(n): a. queue discipline b. unfair waiting policy

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Chapter 12: Service Response Logistics c. channel queuing arrangement d. single-phase queue design 49. David Maister's Second Law of Service is: a. It always takes longer than you think to perform the service b. Once a service is fouled up, it’s hard to turn things around c. Satisfaction = perception − expectation d. Under-promise and over-deliver 50. Service provided by multiple servers acting in parallel is referred to as: a. Multi-platform servicescape b. Multiple-phase queuing system c. Multiple-channel queuing system d. Multi-delivery servicescape 51. The average transaction at a single channel, single phase checkout stand can be completed in 5 minutes and customers arrive at the average rate of one every 4 minutes. On average, what is the server utilization? a. 0.67 b. 0.80 c. 0.90 d. 1.25 52. The difference between customer expectations and customer perceptions of what was actually received during the service encounter is referred to as service quality: a. Blips b. Bloops c. Breakeven point d. Gaps 53. All of the following are included in the five dimensions of service quality EXCEPT: a. Reliability b. Responsiveness c. Reasonability d. Assurance 54. The dimension of service quality concerned with using knowledgeable, competent, courteous employees who convey trust and confidence to customers is referred to as: a. Reliability b. Responsiveness c. Reasonability d. Assurance 55. Services typically deal with the a. Manufacturers b. Retailers

in their supply chains.

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Chapter 12: Service Response Logistics c. End customers d. Distributors

56. What are three key differences between services and manufacturing?

57. A service had 260 customers in one week, with 30 labor hours. The next week, the service had 320 customers with 42 labor hours. What was the productivity growth from period 1 to period 2?

58. Determine a full and part-time working schedule for the following work requirements: M 8

T 6

W 7

Th 6

F 9

59. How do you calculate a firm's capacity utilization? If capacity utilization is greater than 1, what are some of the resulting impacts to the service firm?

60. As a manager of a queuing system, list five important system details you would like to know about in order to manage the system effectively:

61. A bank provides service through a call center to customers internationally. Explain the importance of each of the following in terms of designing the call center and managing the daily operations: a.

Queuing management b.

Global service considerations c.

Facilitating products d.

Service quality expectations 62. Define service response logistics and describe the important elements.

63. Explain two service layout strategies that help to maximize customer service, server productivity, and service efficiencies, which support the overall business strategy.

64. Discuss four important issues involved in managing a global service.

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Chapter 12: Service Response Logistics Answer Key 1. False 2. True 3. False 4. True 5. True 6. False 7. True 8. True 9. True 10. True 11. False 12. False 13. True 14. False 15. True 16. True 17. True 18. True 19. False 20. False 21. True 22. True 23. True 24. False 25. True

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Chapter 12: Service Response Logistics 26. True 27. True 28. a 29. b 30. a 31. d 32. c 33. c 34. b 35. b 36. d 37. b 38. d 39. c 40. c 41. b 42. d 43. a 44. c 45. d 46. b 47. b 48. a 49. b 50. c 51. b

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Chapter 12: Service Response Logistics 52. d 53. c 54. d 55. c 56.56. a.

Services cannot be inventoried b.

Services are often unique − the ability to customize services to satisfy each individual customer is often considered the primary competitive advantage that separates service organizations in the same industry. c.

Services have high levels of customer/server interaction d.

Services are decentralized − in other words, they have to be where the customers are, and so location is very important. e.

Services are produced and received simultaneously f.

Barriers to entry in the service arena are rather low compared to those in manufacturing industries g.

Hours of operation are more important for services.

57.57. a.

Productivity1 = 260/30 = 8.67 customers/labor hour b.

Productivity2 = 320/42 = 7.62 customers/labor hour Productivity growth = (7.62-8.67)/8.67 = -0.121 or -12.1%

58.

PT1

M 8 6 1

PT2

1

FT

T 6 6

W 7 6 1

Th 6 6

PT3 59. a. b.

60. a. b. c. d.

F 9 6 1 1 1

Capacity utilization = (Actual customers served per period) / Capacity When capacity utilization exceeds 1.0: • Queues form and services become congested • service times increase • perceived quality of service deteriorates

Average arrival rate of customers In what order will customers be serviced?

Average service rate of service providers/servers How are customer arrivals and service times distributed? System variation?

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Chapter 12: Service Response Logistics e. f. g. h. i. j.

61. a.

How patient are customers? Will customers leave the line before receiving service? Will customers perceive the service quality is being low due to long waits?

How can customers be kept in line even longer without lowering their perceptions of service quality?

How will advertising affect arrival rates? Price changes? New locations?

How will training affect service rates?

Is inefficiency due to process capabilities or server capabilities?

Should there be specialty lines? Cash-only lines? 15 items or less lines?

Queuing Management DESIGN: process design, personnel hiring, and personnel training are all important aspects in creating a successful call center. Poor process design, personnel hiring, and personnel training can result in inefficient processes with long service processing rates that will result in unsatisfied customers, long waits, and unprofitable systems.

DAILY OPERATIONS: The number of servers staffed is important in terms of managing the number of customers waiting in line, the amount of time each customer will waiting line, and the cost to operate the system.

b.

Global Service Considerations DESIGN: Labor, facilities, and infrastructure support are all important considerations that will ultimately affect cost, effectiveness, and inefficiency. In some cases, legal and political issues may stand in the way of locating facilities internationally, or in servicing international customers.

DAILY OPERATIONS: All of the above issues would require a certain degree of monitoring and a daily basis.

c.

Facilitating Products Some of the facilitating products students may mention include: computers, furniture, office paper, light bulbs, headsets, monitors, printers, pens and pencils...

d.

Service Quality Expectations DESIGN: process designers will need to consider customer expectations when designing the service, choosing the facility, and hiring personnel. It will be important to consider whether the customer values reliability, responsiveness, assurance, or empathy, and how much.

DAILY OPERATIONS: Managers and servers need to keep in mind the customer's expectations. It is important that servers not only seek to satisfy the customer based on the information provided by the managers, but they also seek to identify changes in customer's needs as time goes by. Managers and servers should work together to identify changes and/or problems that require immediate attention and order to maintain a high level of service quality.

62. Service response logistics is defined as the management and coordination of the organization’s activities that occur while the service is being performed. The four primary activities of concern in service response logistics are the management of service capacity, waiting times, distribution channels, and service quality.

Mgt. of service capacity: Service capacity is defined as the number of customers per day the firm’s service delivery systems are designed to serve. Most services desire to operate with some excess capacity, to reduce the likelihood of having queues and long waiting times develop.

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Chapter 12: Service Response Logistics Mgt. of waiting times: Queue times are frequently encountered every day by consumers including waiting at checkout counters, waiting for a table at a restaurant, and waiting on hold on the cellphone. Managers use information they have about their customers as well as their service employees to design adequate queuing systems and then couple this with management of customers’ perceived waiting times to minimize the negative impact of waiting in line.

Mgt. of distribution channels: Distribution channels determine how a service can deliver their services and products to customers. Many of the distribution alternatives are the traditional ones everyone is used to seeing; however, services today are experimenting with other, nontraditional distribution channels as customer preferences and habits, demographics, technology, and competition change. Some distribution channels have revolutionized the way services do business. For instance, ATMs, debit cards, and the Internet have completely changed the financial services industry; many customers almost never set foot inside a bank or stockbroker’s office. Today, many people have come to expect these things, and services have responded.

Mgt. of service quality: For services, quality occurs during the service delivery process and typically involves interactions between a customer and service company personnel. In other words, service quality is closely tied to customer satisfaction. Customer satisfaction with the service depends not only on the ability of the firm to deliver what customers want, but also on the customers’ perceptions of the quality of service received. When customer expectations are met or exceeded, the service is deemed to possess high quality, and when expectations are not met, the perception of quality is poor (recall Maister’s first law of service). Thus, service quality is highly dependent upon the ability of the firm’s employees and service systems to meet or exceed customers’ varying expectations.

63. a.

b.

Departmental layouts that reduce distances traveled Often firms want to reduce the travel times of customers or service workers when moving from one area to another. It is important to take into account how far customers and workers have to walk to reach the various areas within the business. High traffic volume departments should be placed close to each other to minimize the total distances traveled per day. An example of a layout where this might be a primary consideration would be a Quick Care facility. To reduce distance traveled by staff, X-ray rooms might be placed near the storage room.

Departmental layouts that maximize closeness desirability Often, firms want specific departments close to each other, to maximize the desirability of a layout (like putting the file room next to the secretarial pool). In this strategy the importance is placed on the relationships between various departments. For each department pair, a desirability rating is determined which can be used in a calculation for the closeness desirability score. An example that pairs departments close could be a grocery store, where the frozen food items are placed near the loading doors of the store.

64. Successfully managing global services involves a number of issues including: Labor, facilities, and infrastructure support − cultural differences, education, and expertise levels can prove to be problematic for firms unfamiliar with local human resources. Firms a. must also do a good job of locating existing support facilities, suppliers, transportation providers, communication systems, and housing.

Legal and political issues − local laws may restrict foreign competitors, limit available resources, attach tariffs to prices, or otherwise impose barriers to global service expansion. b.

Some foreign countries require the formation of joint ventures with local business partners.

Domestic competitors and the economic climate − Managers must be aware of the local competitors, the services they offer, their pricing structures, and the current state of the c. local economy. Firms can devise competitive strategies by modifying their services to gain competitive advantage.

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Chapter 12: Service Response Logistics Identifying global customers − perhaps most importantly, firms must find out where their potential global customers are, through use of the Internet, foreign government agencies, use of a trading partner, or a foreign trade intermediary. Once potential customers are d. identified, services can begin to decide how their service products can be modified to meet the needs of these customers.

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Chapter 13: Supply Chain Process Integration

Indicate whether the statement is true or false.

1. Internal process integration between departments is considered the necessary foundation for successful external integration between trading partners. a. True b. False 2. One important step in the supply chain integration model is for a firm to extend process integration to 4th tier supply chain partners and beyond. a. True b. False 3. The ultimate goal in supply chain management is to create value for the services and products provided to end customers, which, in turn, will benefit the firms in the supply chain network. a. True b. False 4. Initially, internal and external collaboration create quality, cost, delivery timing, and other customer service problems that are detrimental to supply chains. a. True b. False 5. As a firm integrates processes among second- and third-tier suppliers and customers, trading partner numbers increase dramatically, which can greatly complicate integration efforts. a. True b. False 6. The development of functional silos within an organization is considered a stumbling block to achieving successful supply chain process integration. a. True b. False 7. External process integration can be an extremely challenging task because it can potentially cause a change in one or more organizational cultures. a. True b. False 8. The order fulfillment process relies on forecasting and techniques used to smooth demand variabilities when disparities exist between demand and supply. a. True b. False 9. A primary enabler of integration is the firm’s ERP system. a. True b. False 10. Passive RFID Tags are more expensive than active RFID tags, which have been used for healthcare and military

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Chapter 13: Supply Chain Process Integration applications. a. True b. False 11. Too much information visibility along a supply chain is frequently cited as a common process integration

problem. a. True b. False 12. Cloud systems provide less visibility for global supply chains. a. True b. False 13. Information visibility is critical for importers, shippers, and logistics providers. a. True b. False 14. According to the textbook, there are four key supply chain business processes: Purchasing, Manufacturing, Distribution, and Returns. a. True b. False 15. Manufacturing flow management is the key process that helps balance customer demand and the firm's output capabilities. a. True b. False 16. An integration problem known as collaborative education can result in less successful supply chains and lower partner returns. a. True b. False 17. Frequent demand forecast updating has been shown to reduce the bullwhip effect. a. True b. False 18. When demand exceeds a supplier's finished goods available, a supplier may allocate product in proportion to what buyers ordered. This rationing often results in order batching by the suppliers’ customers. a. True b. False 19. Lengthening supply chains generally has been associated with lower levels of supply risk. a. True b. False 20. Supply chain security management is concerned with reducing the risk and impacts of intentionally created disruptions

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Chapter 13: Supply Chain Process Integration in supply chain operations. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

21. The global process integration software market is expected to: a. Reach over $500 billion by 2025 b. Grow by about $100 billion from 2019 to 2025 c. Remain constant through 2025 d. Decrease slightly by the end of 2025 22. Which of the following is important for external process integration to be successful? a. Successful internal process integration b. Willing and competent trading partners c. Compatible information systems d. All of these are correct 23. The coordination and sharing of information and resources to jointly manage a process is referred to as: a. Differentiation b. Process integration c. Simplification d. Reverse logistics 24. Which of the following has made external integration more difficult to achieve? a. Problems with internal integration efforts b. Identifying key trading partners c. Lack of software applications to coordinate the effort d. Increased number of franchise operators 25. Using the cheapest suppliers, paying little attention to the needs of customers, and assigning few resources to new goods and services designs can be referred to as: a. Silo mentality b. Balking c. Shortage gaming d. Cross-selling 26. Offering only every-day-low-pricing will help to eliminate which of the following obstacles to process integration? a. Risk Pooling b. Lack of trust c. Shortage Gaming d. Bullwhip effect 27. Which of the following is an obstacle to successful process integration? a. Passive forecasting

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Chapter 13: Supply Chain Process Integration b. Stockpiling c. Lack of knowledge d. Transaction costs 28. Which of the following is NOT one of the Eight Key Supply Chain Business Processes? a. Order Fulfillment b. Customer Relationship Management c. Returns Management d. Purchasing Management 29. Building, maintaining, and strengthening beneficial relationships with suppliers and customers is accomplished through the use of: a. Data warehouses b. External process integration c. Expediting d. All of these are correct 30. Which of the following is a vital element in developing a strong supply chain through the practice of process integration? a. Developing and implementing a strong information technology system that allows for fast and easy information exchanges between supply chain partners b. Partner collaborations on methods to improve processes within the supply chain c. Partnerships, which value information sharing and partner collaborations d. All of these are correct 31. Identifying key trading partners is something that should be done to: a. Review and establish supply chain strategies b. Obtain point-of-sale information from customers c. Help the firm decide which businesses to include in its supply chain management efforts d. Assess and improve internal integration of key supply chain processes 32. Decisions regarding the types of parts purchased, suppliers used, and the manufacturing process employed should be decided in which phase of the supply chain integration model? a. Review and establish supply chain strategies b. Identify critical supply chain trading partners c. Align supply chain strategies with key supply chain process objectives d. Assess and improve internal integration of key supply chain processes 33. Which of the following develops objectives and policies to adequately respond to product and delivery failures and complaints, and to utilize the most effective means of communication? a. Collaborative Management b. Customer Relationship Management c. Customer Service Management d. Demand Management

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Chapter 13: Supply Chain Process Integration 34. The phase of the supply chain integration model concerned with identifying the important processes linking each of the supply chain partners is: a. Review and establish supply chain strategies b. Identify critical supply chain trading partners c. Align supply chain strategies with key supply chain process objectives d. Assess and improve internal integration of key supply chain processes 35. Supplier relationship management personnel routinely communicate with: a. Production personnel to obtain feedback on supplier and purchased item performance b. Marketing personnel for customer feedback c. Suppliers for new product development and performance feedback d. All of these are correct 36. To overcome , internal functional decisions must be made while considering the impact on the firm’s overall profits and those of the supply chain members. a. Silo mentalities b. Lack of supplier trust c. Forward integration problems d. All of these are correct 37. Having connectivity and visibility to all partners in a firm’s supply chain can be accomplished through the use of: a. Legacy MRP systems b. Score-carding systems c. Cloud-based communication systems d. Mobile marketing systems 38. Higher inventories, higher costs, longer response times, and lost customers can result from: a. Lack of trust between trading partners b. Lack of supply chain visibility c. Lack of vendor managed inventories d. Reactive initiatives 39. Which of the key supply chain business processes refers to determining manufacturing process requirements to enable the right mix of flexibility and velocity to satisfy demand? a. Customer relationship management process b. Order fulfillment process c. Manufacturing flow management process d. Supply chain synchronization process 40. A customer approaches a firm with a question regarding her order status and shipping date; the information the firm provides is an example of which of the eight key supply chain business processes? a. Supply management process b. Demand management process c. Customer service management process d. Order fulfillment process

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Chapter 13: Supply Chain Process Integration 41. According to the text, all of the following are considered key supply chain business processes EXCEPT: a. Manufacturing flow management process b. Purchasing management process c. Supplier relationship management process d. Product development and commercialization 42. Substance disposal and recycling are part of which supply chain business process? a. Customer relationship management process b. Returns management c. Customer service management process d. Product development and commercialization process 43. Which of the following is a contributor to the bullwhip effect? a. The inability to easily share or retrieve trading partner information in real time b. Acting only in regard to a single department within a firm c. Making large orders for goods from suppliers on an infrequent basis d. Vendor managed inventories 44. When salespeople need to fill end-of-quarter or end-of-year sales quotas, they might use greater use of safety stock causing the bullwhip effect. a. Stockpiling b. Balloon ordering c. Order fulfillment d. Order batching

, which creates

45. Price fluctuations that are the result of special product promotions, quantity discounts, and other special pricing discounts by suppliers, result in: a. Shortage Gaming b. Quantity Batching c. Buy-Back Gaming d. Forward Buying 46. What is defined as the likelihood of an internal or external event that disrupts supply chain operations? a. Shortage gaming b. Cyber attacks c. Supply chain risk d. Bullwhip effect 47. Which of the following would be considered a Supply Chain Risk Management activity? a. Increasing safety stock b. Diversifying the supply base c. Developing a formal risk management program d. All of these are correct

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Chapter 13: Supply Chain Process Integration 48. Security activities such as use of security badges and guards, conducting background checks on applicants and using antivirus software and passwords, would be classified as: a. Basic Initiatives b. Reactive Initiatives c. Proactive Initiatives d. Advanced Initiatives

49. List and describe THREE obstacles to process integration along the supply chain.

50. What is RFID, and how will it aid in management of the supply chain?

51. List and describe FIVE of the eight supply chain business processes.

52. List and explain TWO of the causes of the bullwhip effect.

53. How can corruption be managed on a global scale?

54. Explain the differences between passive and active RFID tags.

55. The textbook states that "the bullwhip effect can be a pervasive and expensive problem along the supply chain."

Answer the following questions in relation to the bullwhip effect: a.

Briefly describe the bullwhip effect. b.

List two key activities that cause the bullwhip effect. How do they exacerbate the problems associated with the bullwhip effect? c.

How can process integration help prevent/minimize the bullwhip effect? d.

List two other key activities that can act as deterrents against the bullwhip effect. How do they minimize and/or eliminate the problems associated with the bullwhip effect?

56. The textbook lists the following activities as Supply Chain Risk Management activities: a.

Increasing safety stock and forward buying b.

Identify backup suppliers and logistics services c.

Diversify the supply base d.

Utilize a supply chain IT system e.

Develop a formal risk management program Explain how each activity is used to manage supply chain risk. For each also provide the downside of utilizing that particular strategy.

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Chapter 13: Supply Chain Process Integration Answer Key 1. True 2. False 3. True 4. False 5. True 6. True 7. True 8. False 9. True 10. False 11. False 12. False 13. True 14. False 15. False 16. False 17. False 18. False 19. False 20. True 21. a 22. d 23. b 24. a 25. a

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Chapter 13: Supply Chain Process Integration 26. d 27. c 28. d 29. b 30. d 31. c 32. a 33. c 34. c 35. d 36. a 37. c 38. b 39. c 40. c 41. b 42. b 43. c 44. d 45. d 46. c 47. d 48. a 49.49. a.

Silo Mentality − the inability to see the supply chain from a big picture perspective. Single departments act alone without regard for the firm, or partner firms within the supply chain. b.

Lack of supply chain visibility − the inability to easily share or retrieve trading partner information in real-time as desired by the supply chain participants.

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Chapter 13: Supply Chain Process Integration c.

d.

Lack of trust − Supply chain partners may be unwilling to work together or share information due to the fear that their partners will either take advantage of them, share the information with competitors, or use the information unethically.

Lack of knowledge − Lack of skills in working with the process and information system.

Also, a lack of knowledge regarding the benefits of supply chain management among both management and the other employees. This lack of knowledge and/or skill is problematic when either the firm or its partners suffer from it.

The following activities, which cause the bullwhip effect, can also be considered obstacles to supply chain integration: e.

Demand Forecast Updating − Using varying customer orders to create updated forecasts, production schedules, and purchased requirements f.

Order Batching − Ordering in large amounts in order to decrease order and transportation costs g.

Price fluctuations − Price incentives may cause erratic buying patterns when buyers attempt to stock up on inventory in order to take advantage of low costs, even though demand remains low/constant h.

Rationing and Shortage Gaming − shorting buyer orders when demand exceeds supply.

This may cause buyers to over-inflate order sizes in an attempt to meet their demand during these times of short supply.

50. RFID stands for radio-frequency identification. These microchip devices can be attached to pallets or cases to relay information on the products’ whereabouts as they move through a supply chain. Using RFID tags, a firm can access realtime inventory information and allow companies to immediately replenish inventories when they are running low. This type of technology will allow supply chain managers to track inventory throughout the supply chain, collect information concerning demand, aid in keeping store shelves filled with product, and potentially decrease theft.

51.5 1 Customer relationship management- Identifying key customer segments, tailoring product . and service agreements to meet their needs, measuring customer profitability and firm’s impact on customers. a.

Customer service management- Providing information to customers such as product availability, shipping dates, and order status; administering product and service agreements. b.

Demand management- Balancing customer demand with the firm’s output capacity; c. forecasting demand and coordinating with production, purchasing, and distribution.

Order fulfillment- Meeting customer requirements by synchronizing the firm’s marketing, d. production, and distribution plans.

Manufacturing flow management- Determining manufacturing process requirements to e. enable the right mix of flexibility and velocity to satisfy demand.

Supplier relationship management- Managing product and service agreements with f. suppliers; developing close working relationships with key suppliers.

Product development and commercialization- Developing new products frequently and getting them to market effectively; integrating suppliers and customers into the process to g. reduce time to market.

Returns management- Managing used product disposition, product recalls, packaging h. requirements; and minimizing future returns.

52.52. a. b.

Demand Forecast Updating − Using varying customer orders to create updated forecasts, production schedules, and purchased requirements Order Batching − Ordering in large amounts in order to decrease order and transportation costs

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Chapter 13: Supply Chain Process Integration

c.

d.

Price fluctuations − Price incentives may cause erratic buying patterns when buyers attempt to stock up on inventory in order to take advantage of low costs, even though demand remains low/constant Rationing and Shortage Gaming − shorting buyer orders when demand exceeds supply.

This may cause buyers to over-inflate order sizes in an attempt to meet their demand during these times of short supply.

53. Firms should be aware of Transparency International, which annually publishes its Corruption Perceptions Index to publicize the degree of corruption existing in many countries. Companies need to take steps to thwart corruption by reducing business connections with countries who continue to appear on the list.

54.54. a.

Passive RFID−don’t contain a power source, require power from a tag reader, and cost an average of about four cents, depending on purchase volume, packaging, and how the tag is made. They are placed on pallets, cases, and units of product and are used in many retail and warehousing environments. b.

Active RFID−draw power from an internal battery and are priced in the $10 to $70 range depending on the volume required and battery type. Both are finding applications. They are used to track the whereabouts of expensive equipment in a hospital or for identification of fleet vehicles and shipping containers in and out of a facility.

55.55. a.

Briefly describe the bullwhip effect.

The bullwhip effect is characterized by the amplified forecasts in order sizes that become prevalent as you move farther down the supply chain. The amplifications and subsequent demand variations cause problems with capacity planning, inventory control, and workforce production scheduling. Some of the end results may be product shortages which may upset customers, or high inventories which increase total supply chain costs. b. List two key activities that cause the bullwhip effect. How do they exacerbate the problems associated with the bullwhip effect?

1.

Demand Forecast Updating − Using varying customer orders to create updated forecasts, production schedules, and purchase requirements. These fluctuating forecasts, increasing leadtimes, and growing safety stocks contribute to the bullwhip effect.

2.

Order Batching − Ordering in large amounts in order to decrease order and transportation costs. This type of ordering amplifies demand variability, which in turn contributes to the bullwhip effect.

3.

Price Fluctuations − Price incentives may cause erratic buying patterns when buyers attempt to stock up on inventory in order to take advantage of low costs, even though demand remains low/constant. This type of ordering amplifies demand variability, which in turn contributes to the bullwhip effect.

4.

Rationing and Shortage Gaming − shorting buyer orders when demand exceeds supply. This may cause buyers to over-inflate order sizes in an attempt to meet their demand during these times of short supply. This obviously inflates demand, contributes to demand variability, which in turn contributes to the bullwhip effect. c.

How can process integration help prevent/minimize the bullwhip effect?

Many of the problems which cause the bullwhip effect are related to poor communication between the supply chain partners, the manufacturing firm, and the customers. Developing a supply chain with close relationships between suppliers and buyers, equipped with

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Chapter 13: Supply Chain Process Integration effective and efficient communication systems allow supply chain partners the ability to plan more accurately for the actual demands of the system. It is also important for the supply chain partners to continually develop these relationships and strive for continuous improvement. d.

56. a.

List two other key activities that can act as deterrents against the bullwhip effect. How do they minimize and/or eliminate the problems associated with the bullwhip effect?

1.

Vendor Managed Inventory Systems − VMI systems empower suppliers to manage inventories for their customers based on information supplied directly to the supplier via the customer's system. This not only allows for increased visibility, it also allows for suppliers to act at a time closer to the actual moment of need.

2.

Increasing Information Visibility − Developing information systems which allow organizations and their supply chain members to more accurately assess the needs of the system/customers will allow for more effective planning and in turn provide a more efficient use of resources.

3.

Decreasing Order Sizes − smaller order sizes help supply chain members more accurately track changes in demand. Such orders will be more frequent and allow forecasts to be more accurate.

4.

Maintaining a policy of Everyday Low Prices − this helps to minimize or eliminate price fluctuations which may cause irregular buying patterns or create an enlarged sense of demand variability.

5.

Reducing the length of the supply chain can reduce the bullwhip effect by reducing the number of occasions when forecasts are calculated.

6.

Reducing lead times from order to delivery will allow organizations to order in a just-in-time manner and allows for more small order quantities.

7.

Attempting to limit shortage gaming by allocating product for sale to buyers based on demand histories.

Increasing safety stock and forward buying Whatever the disruption, late shipments, damaged or destroyed goods, stolen goods, etc. additional inventory will help in buying time until the disruption can be addressed.

Downside: Cost of purchasing and holding inventory

b.

Identify backup suppliers and logistics services If your suppliers are disrupted or if your shipments are disrupted, having an alternative source of supplies and delivery can help eliminate the possible negative effects or at least decrease the disruption.

Downside: Cost of researching and negotiating an agreement. Also, your present suppliers may feel slighted.

c.

Diversify the supply base Having multiple suppliers allows a company to manage risk since it is less likely that all suppliers will experience disruptions at the same time.

Downside: Having multiple suppliers requires more effort when attempting to develop close supplier relationships. A truly globally diverse supply base will also introduce different types of risk associated with global purchasing and logistics.

d.

Utilize a supply chain IT system A good supply chain IT system increases supply chain visibility, which in turn allows companies to see problems early, or possibly even before they occur. This provides the company time for a quick response.

Downside: The cost to purchase, implement, and train employees on a new IT system can

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Chapter 13: Supply Chain Process Integration be high. Also, the compatibility both internally and externally may be an issue. e.

Develop a formal risk management program Anticipating, assessing, and planning responses for supply chain risks allows companies to be prepared for common disruptions, but they also help in dealing with unanticipated disruptions. This will hopefully help the company minimize risk exposure, alert employees what to watch for, and also provide a plan of action.

Downside: The time, effort, and cost to develop a comprehensive risk management program can be a seem like an intimidating commitment.

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Chapter 14: Performance Measurement Along Supply Chains

Indicate whether the statement is true or false.

1. In well-managed supply chains, performance measurement systems become larger and less complicated due to the closer relationships, trust and interactions. a. True b. False 2. In general, firms aim toward first achieving adequate performance, and then continually improving on those measures. a. True b. False 3. In general, performance measurement systems vary substantially from company to company. a. True b. False 4. In today’s world to meet customer service requirements, the strategy is for trading partners to load their retail shelves, warehouses, and factories with large quantities of finished goods, while hiring lots of service personnel. a. True b. False 5. Supply chain strategies must consider the trade-offs between the cost, quality, sustainability, and service requirements. a. True b. False 6. Profit, revenue, and cost related performance metrics are useful in moving a company in the right direction, and often give an indication of the underlying causes of the financial performance. a. True b. False 7. Using cost alone as a departmental or business unit performance measure can result in actions that raise costs for the organization. a. True b. False 8. Financial performance measures can adequately capture a firm’s ability to excel in various process areas. a. True b. False 9. Traditional cost-based performance measures are used today by potential investors and shareholders to make stock transaction decisions and forms the basis for many managers’ performance bonuses. a. True b. False 10. A company has 4 employees that work an 8-hour shift. During those eight hours they make 100 units. The labor productivity would be 12.5 units/hr. a. True

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Chapter 14: Performance Measurement Along Supply Chains b. False 11. A weakness of the labor productivity measure is that managers might be tempted to lay off workers to improve labor productivity. a. True b. False 12. Traditional performance measures tend to be long-term oriented. a. True b. False 13. An effective performance measurement system consists of the traditional financial information for external reporting purposes along with tactical-level performance criteria used to assess the firm’s competitive capabilities. a. True b. False 14. World-class performance measurement systems today include assessments of environmental performance. a. True b. False 15. The Balanced Scorecard framework consists of four perspectives: financial perspective, human resources perspective, inventory perspective, and the logistics perspective. a. True b. False 16. The Balanced Scorecard approach is widely used in helping organizations track performance and identify areas of weakness. a. True b. False 17. Some researchers have indicated that the Balanced Scorecard approach can be problematic and costly to implement, and even after implementation may be unsuccessful in achieving the overall objectives. a. True b. False 18. A model used for integrating supply chains and measuring partner performance is the SCOR model which separates supply chain operations into four categories: Sourcing, Costs, Operations, and Returns. a. True b. False 19. Implementing the SCOR model is a simple task. a. True b. False 20. Using the SCOR software, any supply chain can be configured, evaluated, and benchmarked against best practices. a. True

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Chapter 14: Performance Measurement Along Supply Chains b. False 21. One of the primary steps in developing world-class performance measures is to define a product’s functions and attributes. a. True b. False 22. In successful supply chains, members jointly agree on appropriate supply chain performance measures. a. True b. False 23. Supply chain perfect order fulfillment is becoming the standard for delivery performance. a. True b. False 24. Supply chain cash-to-cash cycle time is a performance measure that provides the average number of days between selling the end product to the customer and receiving full payment for the goods. a. True b. False 25. Once established, performance measurement systems should remain static, with little or no change. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

26. In order to assess the performance of their firms and their supply chains, what do managers need to do to determine the needs of those customers? a. Collaborate in pricing of products b. Look at each segment of the markets they serve c. Help identify new customer requirements d. Rely on traditional performance measures 27. Once the supply chain partner requirements are understood, supply chain members can then: a. Develop an appropriate information technology system b. Develop their organizational skill sets c. Audit their capabilities to see if they are consistent with the needs of the end customers d. Implement a quality development program for the employees 28. Dominant companies within a supply chain can use their buying power to: a. Leverage demands for supplier conformance to its supply chain requirements b. Eliminate the need for performance metrics c. Increase organizational productivity d. Motivate customers to change their buying preferences 29. In well-managed supply chains, performance measurement systems become much larger and are complicated by:

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Chapter 14: Performance Measurement Along Supply Chains a. Push supply chains b. Varied relationships, trust and interactions c. Demand-driven supply networks d. SCOR supply chains 30. For companies to be successful, firms should: a. Implement well-designed performance measurement systems integrated among key trading partners b. Segment customers based on their service needs c. Invest time and effort understanding supply chain partner and end-customer requirements d. All of these are correct 31. Which of the following is NOT a problem with using cost, revenues, or profits as performance measures? a. It is difficult to attribute costs to various functional units b. Cost and profit information could be hidden or manipulated c. They are difficult to compare with other firms d. Weaknesses in functional areas are not identified 32. Which of the following is a problem with a company establishing standards for performance? For example: production rates of 10 units per hour. a. Employees are driven to work so fast they may make defects b. Employees and managers may falsify production records c. Once performance goals are reached, incentives to improve may disappear d. All of these are correct 33. When utilizing performance standards, the difference between the standard and the actual performance is called the: a. Productivity Gap b. Organizational Variance c. Certified Variance d. Performance Variance 34. Cost-based performance measures organization. a. Usually b. Always c. Rarely d. Never

reflect the underlying performance of the productive systems of an

35. Traditional performance measures include: a. Profit and Revenue b. SCOR and DCOR c. The scorecard model d. All of these are correct 36. A company produces 1000 wagons every day. The inputs used to make those wagons are labor, materials, and machine costs. The company pays their employees a total of $1200 per day, the materials to make each wagon cost $5,

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Chapter 14: Performance Measurement Along Supply Chains and the cost to operate the machines is $500 per day. Based only on the data provided, what is this company's total productivity for one day? Choose the closest answer. a. 1.2 wagons/$ b. 0.149 wagons/$ c. 0.54 wagons/$ d. 2.65 wagons/$ 37. According to the text, an effective performance measurement system should consist of the traditional financial information for external reporting purposes along with: a. Web-based customer service b. Tactical-level performance criteria c. The periodic review model d. Service blueprinting 38. A company produces 1000 bicycles in one week. The labor used to make the bicycles was 600 hours. The next week, output was 900 bicycles using 550 hours. What was the change in labor productivity? Choose the closest answer. a. Increased by 1.8% b. Increased by 5.0% c. Decreased by 1.8% d. Decreased by 3.3% 39. Which of the following is NOT a step in creating an effective performance measurement system? a. Identify internal and external trends likely to affect firm and functional area performance over time b. Develop an understanding of each functional area’s set of requirements for achieving the strategic objectives c. Determine the amount of raw materials to be consumed in the process d. Identify the firm’s strategic objectives 40. World-class performance measures can be used in different functional areas of a firm to satisfy objectives, enhance the value of the firm's products and services, and increase customer satisfaction by providing measures in which of the following capability area(s)? a. Quality b. Cost c. Customer Service d. All of these are correct 41. Which of the following is a traditional performance measure? a. Average safety stock levels b. Overall total productivity c. Number of suppliers who are quality certified d. Number of product return per units sold 42. Which of the following models (developed in 1996) helps to integrate the operations of supply chain members by linking the delivery operations of a seller to the sourcing operations of a buyer? a. Balanced Scorecard b. SCOR

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Chapter 14: Performance Measurement Along Supply Chains c. DCOR d. GSCM 43. Which of the following is NOT one of the four perspectives of the Balanced Scorecard (BSC) framework? a. Financial b. Learning and growth c. Customer d. Reliability 44. Which of the following Balanced Scorecard (BSC) framework perspectives deals with the external environment including retaining and training employees, enhancing information technology and systems, employee safety, and health and environmental sustainability? a. Financial b. Learning and growth c. Customer d. Internal Business Process 45. Companies typically like to design scorecards that fit their business and industry. As a result there are now software applications that can help companies design scorecards that fit their individual needs. These web-based balanced scorecard applications are often referred to as: a. E-Cards b. Executive Barometers c. Performance dashboards d. SCOR Boards 46. According to the SCOR model, which of the following is NOT one of the five supply chain operation process categories? a. Make b. Quickness c. Return d. Enable 47. Which of the following is focused on promoting the sharing of environmental responsibility along the supply chain? a. SCOR b. Balanced Scorecard c. GSCM d. Single-factor productivity measures 48. The focus of performance measurement systems should be on: a. Preventive maintenance b. Good personnel selection c. Proximity to markets d. Value creation for end customers 49. Which of the following supply chain performance metrics measures the average number of days between paying for

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Chapter 14: Performance Measurement Along Supply Chains raw materials and getting paid for product? a. Total supply chain management costs b. Supply chain perfect order fulfillment performance c. Supply chain cash-to-cash cycle time d. Supply chain delivery performance 50. Which of the following supply chain performance metrics measures the average percentage of orders for the supply chain members that are filled on or before the requested delivery date? a. Total supply chain management costs b. Supply chain perfect order fulfillment performance c. Supply chain cash-to-cash cycle time d. Supply chain delivery performance 51. Which of the following would be considered a way to measure Supply Chain Environmental Performance? a. Percentage of supply chain trading partners that are ISO 14000 certified b. Average number of policies adopted to reduce greenhouse gas emissions c. Average percentage of carbon footprints that have been offset by sound environmental practices d. All of these are correct 52. Which of the following is NOT true about the Triple Bottom Line Performance framework? a. It is also called the three Ps b. It can be difficult to assign numerical measurements c. It includes environmental and social measures d. It is based on the management coefficient model

53. The textbook described seven supply chain specific performance measures adopted by supply chain trading partners to further align supply chain objectives. List FOUR of those metrics.

54. Explain the difference between Total productivity and Single-factor productivity.

55. Briefly describe the FOUR primary perspectives of the balanced scorecard.

56. The textbook described seven important steps in creating an effective performance measurement system. List FOUR of those critical steps.

57. In your opinion, how can using organizational costs, revenues, and profitability performance measures be ineffective or even damaging in managing a process, system, or organization?

58. Describe, in general terms, how the SCOR model works. What are the benefits to firms using this model?

59. Briefly explain why understanding the end customer is important to all supply chain parties in developing an effective performance measurement system.

60. Josephine’s Bakery spent $5000 on a new oven last year thinking it would cut energy usage 20% over the old oven.

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Chapter 14: Performance Measurement Along Supply Chains The new oven will require more labor hours for maintenance. She has gathered her data from her business over the last year and presented it in the following table. She employs 2 people, and average wage is $25 per hour. Energy rate is $.09 per kWh. Calculate the single factor productivity measures for labor, capital, and energy as well as the total productivity measure. Discuss whether Josephine achieved her goal and if the purchase was beneficial to the company.

Josephine’s Bakery Numbers Production (Units produced) Labor (hours) Capital ($) Energy (kWh)

Last Year 60000 4000 150000 30000

This Year 65000 4500 155000 25000

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Chapter 14: Performance Measurement Along Supply Chains Answer Key 1. True 2. True 3. True 4. False 5. True 6. False 7. True 8. False 9. True 10. False 11. True 12. False 13. True 14. True 15. False 16. True 17. True 18. False 19. False 20. True 21. False 22. True 23. False 24. False 25. False

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Chapter 14: Performance Measurement Along Supply Chains 26. b 27. c 28. a 29. b 30. d 31. c 32. d 33. d 34. c 35. a 36. b 37. b 38. c 39. c 40. d 41. b 42. b 43. d 44. b 45. c 46. b 47. c 48. d 49. c 50. d 51. d

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Chapter 14: Performance Measurement Along Supply Chains 52. d 53.53. a.

Total supply chain management costs b.

Supply chain cash-to-cash cycle time c.

Supply chain production flexibility d.

Supply chain delivery performance e.

Supply chain perfect order fulfillment performance f.

Supply chain e-business performance g.

Supply chain environmental performance 54. Productivity = Outputs / Inputs Total productivity takes into account all possible inputs. For example: Single-factor productivity takes into account only those inputs related to the one factor, such as labor. For example:

55.55. a.

Financial Perspective - measures that address revenue and profitability growth, product mix, cost reduction, productivity, asset utilization and investment strategies. Traditional financial measures are typically used. b.

Internal business process perspective - focuses on performance of the most critical internal business processes of the organization including quality, new product development, flexibility, innovative elements of processes and time-based measures. c.

Customer perspective – measures that focus on customer requirements and satisfaction including customer satisfaction ratings, reliability and responsiveness, customer retention, new customer acquisition, customer valued attributes and customer profitability. d.

Learning and growth perspective – measures concentrating on the organization’s people, systems, external environment, and including retaining and training employees, enhancing information technology and systems, employee safety and health and environmental sustainability issues.

56.56.

1.

Identify the firm's strategic objectives 2.

Develop an understanding of each functional area’s set of requirements for achieving the strategic objectives.

3.

Design and document performance measures for each functional area that adequately track each required capability.

4.

Assure the compatibility and strategic focus of the performance measures to be used.

5.

Implement the new performance monitoring system 6.

Identify internal and external trends likely to affect firm and functional area performance over time.

7.

Periodically re-evaluate the firm's performance measurement system as these trends and other environmental changes occur.

57.

•

Environmental, political, and/or economic events may skew these numbers (Lucky or unlucky events).

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Chapter 14: Performance Measurement Along Supply Chains • • •

58. a.

b.

It is difficult to attribute cost, revenue, or profit contributions of the various functional units or business units of the organization. This is because departments/business units are interdependent and share costs, equipment, labor, and revenues.

Using these performance metrics may cause departments to buy cheap materials, use unskilled labor, or purchase inadequate machines, which will result in poor quality for the customer.

Since many of the costs associated with business are fixed/overhead costs, managers are left to minimize the variable costs such as labor. This may result in minor changes at best or lower quality at worst.

The SCOR model helps to integrate the operations of supply chain members by linking the delivery operations of the seller to the sourcing operations of the buyer. This model separates supply chain operations into six process categories: plan, source, make, deliver, return and enable. Within each of these categories’ performance attributes are assigned.

Firms score themselves in the categories and input their results using the SCOR software.

Member firms of the APICS Supply Chain Council can benchmark performance against peer companies using a benchmarking portal at the APICS SCC website.

The SCOR model enables effective communication, performance measurement and integration of processes between supply chain members. This leads to continuous improvements and sustainable competitive advantage for the supply chain’s participating members. Using SCOR software firms can greatly reduce the time it takes firms to perform a benchmarking study. Positive results from firms using this model have included improved flexibility and reduction of total finished goods inventory levels, leading improved shareholder confidence and stock price.

59. By being able to identify the needs of the end customer the supply chain can reconcile trade-offs between cost, quality, and service requirements.

Those in charge of developing and maintaining the supply chain will be better able to choose and manage partnering organizations such that the supply chain will be equipped to serve the needs of the customer.

Also, the supply chain is able to address deficiencies. This may require adding additional capacity or investing in new equipment, technology, and/or higher quality materials and components.

60.

Resource Labor Capital Energy Total Productivity

Last Year

This Year

Change

60000/4000 = 15 60000/150000 = .4 60000/30000 = 2 60000/ (4000x25) +150000+(30000x.09) = .0237 units per $

65000/4500 = 14.45 65000/155000 = .419 65000/25000 = 2.6 65000/(4500x25+155000+(25000x.09) =.0241 units per $

-0.556 0.019 0.6 .0004

% Change -3.7 4.8 30.

1.7

Josephine will get a 30 percent cut in her energy usage, which is more than what she expected. But she will decrease her labor productivity, which may require her employees to work overtime or hire another worker. Her total productivity changed 1.7%, which is a small gain. Emphasis on only energy performance will not tell the entire story. Factors that were not considered are employee morale, cost of supplies, and cost of energy. Without looking into these other factors, it cannot be determined if this was a beneficial purchase for her company.

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