Introduction to operations and supply chain management 5th edition bozarth test bank

Introduction to Operations and Supply Chain Management 5th Edition Bozarth Test Bank Visit to download the full and correct content document: https://testbankdeal.com/dow nload/introduction-to-operations-and-supply-chain-management-5th-edition-bozarth-t est-bank/

Introduction to Operations & Supply Chain Management, 5e (Bozarth) Chapter 7 Supply Management 7.1 Why Supply Management is Critical 1) Firms do not compete only against global competitors, but against: A) their suppliers.

B) themselves.

C) the customers of their competitors.

D) their competitors' supply chains.

Answer: D Diff: 1 Reference: 7.1 Why Supply Management Is Critical Keywords: supply chain AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

2) The percentage of value of shipments that come from materials for the average manufacturer is: A) greater than or equal to 40 and less than or equal to 49 percent.

B) greater than or equal to 50 and less than or equal to 59 percent.

C) greater than or equal to 60 and less than or equal to 69 percent.

D) greater than or equal to 70 percent.

Answer: B Diff: 1 Reference: 7.1 Why Supply Management Is Critical Keywords: material value, financial impact AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

3) The ratio of earnings to sales for a given time period is the: A) cost of goods sold.

B) merchandise inventory.

C) profit margin.

D) return on assets.

Answer: C Diff: 2 Reference: 7.1 Why Supply Management Is Critical Keywords: profit margin AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

1 Copyright © 2019 Pearson Education, Inc.

4) The analyst turned on his banker's lamp, adjusted his eye shade, and slowly pulled a legal pad from his desk. His weathered hands punched the buttons on his desk calculator deliberately as he divided earnings by total assets in order to calculate: A) return on assets.

B) cost of goods sold.

C) merchandise inventory.

D) profit margin.

Answer: A Diff: 2 Reference: 7.1 Why Supply Management Is Critical Keywords: ROA, return on assets AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

5) Flingers Inc. reveals the following information in their annual report for FY 2018 Earnings and Expenses Sales Cost of goods sold Pretax earnings

$10,000,000 $5,000,000 $500,000

Selected Balance Sheet Items Merchandise inventory Total assets

$80,000 $2,000,000

What is Flingers' return on assets?

A) 16% B) 20% C) 25% D) 40% Answer: C Diff: 2 Reference: 7.1 Why Supply Management Is Critical Keywords: ROA, return on assets AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

2 Copyright © 2019 Pearson Education, Inc.

6) Flingers Inc. reveals the following information in their annual report for FY 2018 Earnings and Expenses Sales Cost of goods sold Pretax earnings

$10,000,000 $5,000,000 $500,000

Selected Balance Sheet Items Merchandise inventory Total assets

$80,000 $2,000,000

What is Flingers' profit margin?

A) 5% B) 16% C) 2% D) 4% Answer: A Diff: 2 Reference: 7.1 Why Supply Management Is Critical Keywords: profit margin AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

7) Flingers Inc. reveals the following information in their annual report for FY 2017 Earnings and Expenses Sales Cost of goods sold Pretax earnings

$10,000,000 $5,000,000 $500,000

Selected Balance Sheet Items Merchandise inventory Total assets

$80,000 $2,000,000

Every dollar Flingers saves in purchasing has the same impact as what amount of increased sales?

A) $10 B) $14 C) $17 D) $20 Answer: D Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: profit leverage effect AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

3 Copyright © 2019 Pearson Education, Inc.

8) Flingers Inc. reveals the following information in their annual report for FY 2017 Earnings and Expenses Sales Cost of goods sold Pretax earnings

$10,000,000 $5,000,000 $500,000

Selected Balance Sheet Items Merchandise inventory Total assets

$80,000 $2,000,000

Upper management plans to cut cost of goods sold by 5% for the coming year but retain the same sales.

What will Flingers' return on assets figure be for 2018 A) 26% B) 29% C) 33% D) 38% Answer: D Diff: 2 Reference: 7.1 Why Supply Management Is Critical Keywords: ROA, return on assets AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

9) Flingers Inc. reveals the following information in their annual report for FY 2017 Earnings and Expenses Sales Cost of goods sold Pretax earnings

$10,000,000 $5,000,000 $500,000

Selected Balance Sheet Items Merchandise inventory Total assets

$80,000 $2,000,000

Upper management plans to cut cost of goods sold by 5% for the coming year but retain the same sales.

What will Flingers' profit margin be for 2018 A) 5% B) 7.5% C) 9% D) 11% Answer: B Diff: 2 Reference: 7.1 Why Supply Management Is Critical Keywords: profit margin AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

4 Copyright © 2019 Pearson Education, Inc.

10) Flingers Inc. reveals the following information in their annual report for FY 2017 Earnings and Expenses Sales Cost of goods sold Pretax earnings

$10,000,000 $5,000,000 $500,000

Selected Balance Sheet Items Merchandise inventory Total assets

$80,000 $2,000,000

Upper management plans to cut cost of goods sold by 5% for the coming year but retain the same sales.

What will Flingers' profit leverage effect be for 2018 A) $13.33 B) $14.71 C) $17.50 D) $18.50 Answer: A Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: profit leverage effect AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

11) The phenomenon that a dollar in cost savings increases pretax profits by a dollar, while a dollar increase in sales increases pretax profits only by the dollar multiplied by the pretax profit margin is known as the: A) profit margin.

B) return on assets.

C) saving to spending ratio.

D) profit leverage effect.

Answer: D Diff: 2 Reference: 7.1 Why Supply Management Is Critical Keywords: profit leverage effect AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

5 Copyright © 2019 Pearson Education, Inc.

12) Dusty is evaluating three bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit with a defect rate of 2%; Lady's bid is $50 per unit with a defect rate of 0.5%; and Spike's bid is $30 per unit with a defect rate of 5%. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras. Dusty believes it will take 1000 units to fence in this pasture configuration; what is the lowest total cost?

A) $47,500 B) $50,000 C) $52,500 D) $55,000 Answer: B Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: performance impact, failure cost AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

13) Dusty is evaluating three bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit with a defect rate of 3%; Lady's bid is $50 per unit with a defect rate of 0.5%; and Spike's bid is $30 per unit with a defect rate of 5%. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras (giant rodents from South America — their leather makes fine gloves). Dusty believes it will take 500 units to fence in this pasture configuration; which supplier should win the business?

A) Spike B) Breezy C) Lady D) no difference between Breezy and Spike Answer: C Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: performance impact, failure cost AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

14) Dusty is evaluating two bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit with a defect rate of 3%; Lady's bid is $50 per unit and their product manager estimates the defect rate to be around 0.5%. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras (giant rodents from South America — their leather makes fine gloves). Dusty believes it will take 500 units to fence in this pasture configuration.

The product manager's uncertainty has Dusty concerned; what defect rate for Lady would make Dusty indifferent between the two suppliers as far as total cost is concerned?

A) 1% B) 0.5% C) 0.33% D) 0% Answer: A Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: performance impact, failure cost AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

6 Copyright © 2019 Pearson Education, Inc.

15) Dusty is evaluating three bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit, Lady's bid is $50 per unit, and Spike's bid is $30 per unit. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras (giant rodents from South America — their leather makes fine gloves). Dusty believes it will take 500 units to fence in this pasture configuration. What defect rates for the three suppliers would make Dusty indifferent among them from a total cost standpoint?

A) Breezy 5%, Spike 6%, Lady 2% B) Breezy 3%, Spike 5%, Lady 1% C) Breezy 1%, Spike 3%, Lady 2% D) Breezy 2%, Spike 3%, Lady 4% Answer: B Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: performance impact, failure cost AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

16) For the average manufacturer, over 50 percent of the value of shipments comes from materials.

Answer: TRUE Diff: 1 Reference: 7.1 Why Supply Management Is Critical Keywords: material value, financial impact AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

17) Company A spends $250 million purchasing materials and subassemblies that it processes and sells for a total of $350 million. The cost of goods sold by Company A is $350 million.

Answer: FALSE Diff: 1 Reference: 7.1 Why Supply Management Is Critical Keywords: CGS, cost of goods sold AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

18) The ratio of earnings to sales for a given time period is a firm's profit margin.

Answer: TRUE Diff: 1 Reference: 7.1 Why Supply Management Is Critical Keywords: profit margin AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

19) Profit margin is the ratio of ________ to ________.

Answer: earnings; sales Diff: 1 Reference: 7.1 Why Supply Management Is Critical Keywords: profit margin AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

7 Copyright © 2019 Pearson Education, Inc.

20) Flingers Inc. reveals the following information in their annual report for FY 2017 Earnings and Expenses Sales Cost of goods sold Pretax earnings

$10,000,000 $5,000,000 $500,000

Selected Balance Sheet Items Merchandise inventory Total assets

$80,000 $2,000,000

Calculate Flingers' profit margin, return on assets, and leverage effect Answer: Profit margin = Return on assets = Leverage effect =

= =

= 5% = 25%

=

= $20

Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: profit margin, return on assets, ROA, leverage effect AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

8 Copyright © 2019 Pearson Education, Inc.

21) Flingers Inc. reveals the following information in their annual report for FY 2017 Earnings and Expenses Sales Cost of goods sold Pretax earnings

$10,000,000 $5,000,000 $500,000

Selected Balance Sheet Items Merchandise inventory Total assets

$80,000 $2,000,000

They plan to aggressively pursue cost savings in the purchasing area for FY 2018 and expect to lower their cost of goods sold by 8% while maintaining the same level of sales. Calculate Flingers' leverage effect for 2017and their expected leverage effect for 2018. Compare the two results for your leverage effect calculations and provide insight as their relative magnitude.

Answer: Leverage effect 2017 = Leverage effect 2018 =

= =

= $20.00

= $11.11

The leverage effect drops for 2017 to 2018 because Flingers is purchasing more economically, or at least plans to, for 2018 They do not need as large an increase in sales to offset the dollar saved in purchasing because their operations have become more efficient.

Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: performance impact, failure cost AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

9 Copyright © 2019 Pearson Education, Inc.

22) Dusty is evaluating three bids to supply fence hardware for the 5 acres of pasture that need to be fenced. Breezy submits a bid of $40 per unit with a defect rate of 2%; Lady's bid is $50 per unit with a defect rate of 0.5%; and Spike's bid is $30 per unit with a defect rate of 5%. If a section of fence fails, it costs an average of $500 in losses and herding costs to round up all of the capybaras, giant rodents native to Brazil. Dusty believes it will take 1000 units to fence in this pasture configuration; what is the BEST choice for supplier?

Answer: Total cost is a combination of the material cost plus anticipated losses. The table shows all costs for each supplier, with Breezy's total cost of $50,000 being the lowest.

Price per unit % good Material Cost # Units failing Failure cost Total Cost (material + failure)

Lady $50.00 0.995 $50,000.00 5 $2,500.00 $52,500.00

Breezy $40.00 0.98 $40,000.00 20 $10,000.00 $50,000.00

Spike $30.00 0.95 $30,000.00 50 $25,000.00 $55,000.00

Diff: 3 Reference: 7.1 Why Supply Management Is Critical Keywords: performance impact, failure cost AACSB: Analytical Thinking LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

7.2 The Strategic Sourcing Process 1) When compared with single sourcing, multiple sourcing has the advantage of: A) spreading risk.

B) volume leveraging.

C) lower transportation costs.

D) reduced quality variability.

Answer: A Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: single sourcing, multiple sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

2) Single sourcing is a better choice than multiple sourcing because of the following: A) increased competition.

B) ensuring that a supplier will not become complacent.

C) spreading risk.

D) gaining access to the supplier's design and engineering capabilities.

Answer: D Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: single sourcing, multiple sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

10 Copyright © 2019 Pearson Education, Inc.

3) A sourcing strategy in which two suppliers are used for the same purchased product or service is: A) cross sourcing.

B) dual sourcing.

C) contingency sourcing.

D) multisourcing.

Answer: B Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: dual sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

4) The purchasing team examined all of its purchasing patterns in order to identify any irregularities or possible areas of cost savings. This refers to: A) internal auditing.

B) purchase consolidation.

C) spend analysis.

D) cooking the books.

Answer: C Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: spend analysis, strategic sourcing process AACSB: Application of Knowledge LO: 7.2: Perform and interpret the results of a simple spend analysis.

5) Which of the following is required in order to execute a successful spend analysis?

A) graphics capabilities found in charting packages and Visio B) a sophisticated statistical software package such as SPSS or SAS C) ability to analyze large quantities of data D) a minimum of six months uninterrupted work time Answer: C Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: spend analysis, strategic sourcing process AACSB: Application of Knowledge LO: 7.2: Perform and interpret the results of a simple spend analysis.

6) In a typical portfolio analysis, office supplies are placed in the: A) leverage quadrant.

B) bottleneck quadrant.

C) critical quadrant.

D) routine quadrant.

Answer: D Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis, routine quadrant AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

11 Copyright © 2019 Pearson Education, Inc.

7) The primary goal of this quadrant is to ensure a continuous supply of products or services found in the: A) leverage quadrant.

B) bottleneck quadrant.

C) critical quadrant.

D) routine quadrant.

Answer: B Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis, bottleneck quadrant AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

8) Building relationships for key suppliers and preparing contingency plans in case of supply interruptions is vital for products or services found in the: A) leverage quadrant.

B) bottleneck quadrant.

C) critical quadrant.

D) routine quadrant.

Answer: C Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis, critical quadrant AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

9) A supplier that has previously demonstrated its performance capabilities through purchase contracts may well receive: A) maverick status.

B) a request for description.

C) preferred supplier status.

D) a request for proposal.

Answer: C Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: strategic sourcing process, preferred supplier AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

12 Copyright © 2019 Pearson Education, Inc.

10) A company using portfolio analysis decides to streamline the purchasing process for a few items by use of EDI and automated requisitions to the greatest extent possible. The quadrant that these items fall in is most likely the: A) bottleneck quadrant.

B) critical quadrant.

C) leverage quadrant.

D) routine quadrant.

Answer: D Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis, routine quadrant, EDI, strategic sourcing process, electronic data interchange AACSB: Information Technology LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

11) Competitive bidding, active sourcing, and using industry standards are all actions that are appropriate if the sourcing strategy is to: A) form partnerships with suppliers.

B) maximize commercial advantage.

C) simplify the acquisition process.

D) ensure supply continuity.

Answer: B Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis, leverage quadrant, commercial advantage, strategic sourcing process AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

12) The use of supply chain partners to provide products or services is called: A) outsourcing.

B) insourcing.

C) offloading.

D) partnering.

Answer: A Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: outsourcing, insourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.4 Describe the rationale for outsourcing and discuss when it is appropriate.

13) One advantage of outsourcing is that it: A) gives the company a high degree of control over its operations.

B) increases the company's access to state-of-the-art products and processes.

C) protects the company's proprietary designs and processes.

D) discourages the development of the company's core competencies.

Answer: B Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: outsourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.4 Describe the rationale for outsourcing and discuss when it is appropriate.

13 Copyright © 2019 Pearson Education, Inc.

14) Which of these is a direct cost associated with outsourcing?

A) direct material B) direct labor C) variable overhead D) price from invoice Answer: D Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: outsourcing, direct cost, strategic sourcing process AACSB: Application of Knowledge LO: 7.4 Describe the rationale for outsourcing and discuss when it is appropriate.

15) Which of these is an indirect cost associated with insourcing?

A) maintenance B) purchasing C) receiving D) quality control Answer: A Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: insourcing, indirect cost, strategic sourcing process AACSB: Application of Knowledge LO: 7.4 Describe the rationale for outsourcing and discuss when it is appropriate.

16) The deans' suite hoped to cut costs and decided to perform a total cost analysis on its vodka supplier.

Consumption was currently 6,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $9.50 per bottle and packed 288 bottles in a crate. The cost to ship the crate was $15. Another potential source of vodkas was Pancho's, who charged $9.00 per bottle but could ship only 100 bottles in a crate and at a higher price, $20. Assume that a partial crate may be purchased. What is the total annual cost to supply vodka from their current supplier?

A) $54,000 B) $55,200 C) $57,000 D) $57,312 Answer: D Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: total cost, strategic sourcing process AACSB: Analytical Thinking LO: 7.5: Perform a simple total cost analysis.

14 Copyright © 2019 Pearson Education, Inc.

17) The deans' suite hoped to cut costs and decided to perform a total cost analysis on its vodka supplier.

Consumption was currently 6,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $9.50 per bottle and packed 288 bottles in a crate. The cost to ship the crate was $15. Another potential source of vodkas was Pancho's, who charged $9.00 per bottle but could ship only 100 bottles in a crate and at a higher price, $20. Assume that a partial crate may be purchased. What is the total annual cost to supply vodka from Pancho's?

A) $54,000 B) $55,200 C) $57,000 D) $57,312 Answer: B Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: total cost, strategic sourcing process AACSB: Analytical Thinking LO: 7.5: Perform a simple total cost analysis.

18) The deans' suite hoped to cut costs and decided to perform a total cost analysis on its vodka supplier.

Consumption was currently 6,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $9.25 per bottle and packed 500 bottles in a crate. The cost to ship the crate was $5. Another potential source of vodkas was Pancho's, who charged $9.20 per bottle but could ship only 100 bottles in a crate. Assume that a partial crate may be purchased.

At what annual shipping price per crate from Pancho's would the college face equal total costs?

A) $7.00 B) $6.50 C) $6.00 D) $5.50 Answer: C Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: total cost, strategic sourcing process AACSB: Analytical Thinking LO: 7.5: Perform a simple total cost analysis.

15 Copyright © 2019 Pearson Education, Inc.

19) This table contains the performance criteria and scores (larger numbers are better) for four potential suppliers to Kramerica Industries. Evaluate the data and identify the BEST source for Kramerica.

Performance Dimension Quality (W = 0.4) Cost (W = 0.3) Flexibility (W = 0.2) Speed (W = 0.1)

Company A 3 4 5 2

Company B 4 3 3 5

Company C 2 5 4 5

Company D 5 3 2 4

A) Company A B) Company B C) Company C D) Company D Answer: D Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: weighted-point evaluation, strategic sourcing process AACSB: Analytical Thinking LO: 7.6: Show how multicriteria decision models can be used to evaluate suppliers and interpret the results.

20) This table contains the performance criteria and scores (larger numbers are better) for four potential suppliers to Los Pollos Hermanos. Evaluate the data and identify the BEST source for Los Pollos Hermanos.

Performance Dimension Purity (W = 0.5) Cost (W = 0.2) Stability (W = 0.2) Speed (W = 0.1)

Company W 5 4 2 3

Company P 4 3 1 5

Company D 2 5 4 5

Company G 5 2 5 2

A) Company W B) Company P C) Company G D) Company D Answer: C Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: weighted-point evaluation, strategic sourcing process AACSB: Analytical Thinking LO: 7.6: Show how multicriteria decision models can be used to evaluate suppliers and interpret the results.

16 Copyright © 2019 Pearson Education, Inc.

21) This table contains a list of three companies that have been rated on four weighted performance dimensions (larger numbers are better). Which of the following statements regarding this information is BEST? Performance Dimension Quality (W=0.5) Cost (W=0.4) Speed (W=0.1)

Strickland 4 4 2

Thatherton 4 3 2

Mega-Low 2 5 4

Amerigas 4 3 5

A) Thatherton is superior to Amerigas.

B) Amerigas is superior to Strickland.

C) Mega-Low is superior to Thatherton.

D) Strickland is superior to Mega-Low. Answer: D Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: weighted-point evaluation, strategic sourcing process AACSB: Analytical Thinking LO: 7.6: Show how multicriteria decision models can be used to evaluate suppliers and interpret the results.

22) A description method used when a product or service is proprietary or when there is a perceived advantage to using a particular supplier's product or services is: A) description by market grade.

B) description by brand.

C) description by specification.

D) description by performance characteristics.

Answer: B Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: purchasing process, description by brand, strategic sourcing process AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

23) The two basic types of purchasing contracts are: A) fixed-price and cost-based.

B) bid-rigged and cost-plus.

C) cost-zero and fixed-variable.

D) fixed-quantity and variable-cost.

Answer: A Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: purchasing contract, fixed-price, cost-based, strategic sourcing process AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

17 Copyright © 2019 Pearson Education, Inc.

24) The first step of the purchasing process is to select the supplier.

Answer: FALSE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: assess opportunities, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

25) Maverick spending is often promoted by top management as a way to improve the bottom line and break out of a purchasing cycle.

Answer: FALSE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: maverick spending, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

26) A manufacturer seeking to reduce the variability of the quality of purchased products should use multiple sourcing.

Answer: FALSE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: single sourcing, multiple sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

27) A manufacturer that wants to make sure that suppliers do not become complacent should use multiple sourcing.

Answer: TRUE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: single sourcing, multiple sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

28) Cross sourcing is a strategy in which two suppliers are used for the same purchased product or service.

Answer: FALSE Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: cross sourcing, dual sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

29) Portfolio analysis begins with assignment to a quadrant before a sourcing strategy is formulated.

Answer: TRUE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis, quadrant, strategic sourcing process AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

18 Copyright © 2019 Pearson Education, Inc.

30) A company that uses portfolio analysis would probably classify things like office supplies in the Bottleneck quadrant.

Answer: FALSE Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis, bottleneck quadrant, strategic sourcing process, routine quadrant AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

31) Outsourcing can be risky because it decreases the firm's strategic flexibility.

Answer: FALSE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: outsourcing, strategic flexibility, strategic sourcing process AACSB: Application of Knowledge LO: 7.4 Describe the rationale for outsourcing and discuss when it is appropriate.

32) Total cost analysis divides costs into direct (costs that are tied to the level of operations or supply chain activities) and indirect (costs that are not tied to the level of operations or supply chain activity).

Answer: TRUE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: direct cost, indirect cost, total cost, strategic sourcing process AACSB: Application of Knowledge LO: 7.5: Perform a simple total cost analysis.

33) The weighted-point evaluation system allows for a completely objective decision to be made.

Answer: FALSE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: weighted-point evaluation, strategic sourcing process AACSB: Application of Knowledge LO: 7.6: Show how multicriteria decision models can be used to evaluate suppliers and interpret the results.

34) The request for quotation is a formal request for suppliers to deliver a product or service that includes key terms and conditions, such as price, delivery, and quality requirements.

Answer: FALSE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: RFQ, PO, request for quotation, purchase order, strategic sourcing process AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

35) In the description of the purchasing process, the product should be described only by brand or specification.

Answer: FALSE Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: description activity, brand, specification, strategic sourcing process AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

19 Copyright © 2019 Pearson Education, Inc.

36) When a supplier does not exist, competitive bidding and negotiation are two methods commonly used for final supplier selection.

Answer: TRUE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: preferred supplier, competitive bidding, strategic sourcing process AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

37) In a cost-based contract, the stated price does not change, regardless of fluctuations in the general overall economic conditions.

Answer: FALSE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: fixed-based contract, strategic sourcing process, cost-based contracts AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

38) Use of EDI in the supply chain has led to shorter lead times and lower inventory.

Answer: TRUE Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: EDI, electronic data interchange, strategic sourcing process AACSB: Information Technology LO: 7.8: Describe the major steps of the procure-to-pay cycle.

39) A company that regularly outsources goods and services may have established close relationships with their suppliers and therefore will allow these suppliers the first opportunity to bid for new business needs. These suppliers are known as ________.

Answer: preferred suppliers Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: preferred supplier, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

40) ________ are high-level, often strategic decisions regarding which products or services will be provided internally and which will be provided by external supply chain members.

Answer: Make or buy decisions Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: make-or-buy decision, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

20 Copyright © 2019 Pearson Education, Inc.

41) Use of a single supplier for a part or service in part of the business and another supplier with the same capability for a different part or service in another area of the business is known as ________.

Answer: cross sourcing Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: cross sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

42) Among the disadvantages of ________ are that different product attributes with varying qualities may be produced which can actually result in reduced supplier loyalty over time.

Answer: multiple sourcing Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: multiple sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

43) The purchasing team occasionally examined its spending patterns to identify irregularities as part of a(n) ________.

Answer: spend analysis Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: spend analysis, strategic sourcing process AACSB: Application of Knowledge LO: 7.2: Perform and interpret the results of a simple spend analysis.

44) A company using portfolio analysis decides to form partnerships with suppliers; the products in question probably fall in the ________ quadrant.

Answer: critical Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis, critical quadrant, strategic sourcing process AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

45) The bulk of insourcing costs are usually ________ costs.

Answer: indirect Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: insourcing, indirect cost, strategic sourcing process AACSB: Application of Knowledge LO: 7.4 Describe the rationale for outsourcing and discuss when it is appropriate.

46) ________ is the name for a process requiring a company to identify and determine all of the major costs associated with different sourcing possibilities.

Answer: Total cost analysis Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: sourcing, total cost analysis, strategic sourcing process AACSB: Application of Knowledge LO: 7.5: Perform a simple total cost analysis.

21 Copyright © 2019 Pearson Education, Inc.

47) ________ is a purchasing description method that focuses attention on the outcomes the customer wants.

Answer: Description by performance characteristics Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: description by performance characteristics, strategic sourcing process AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

48) Perhaps the best way to describe standard items is to use ________ which is a description method that is applicable when the requirements are well understood.

Answer: description by market grade or industry standard Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: description by market grade, industry standard, strategic sourcing process AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

49) Horace Smithfield, Esq., was insistent that he pay a flat rate of $10,000,000 and not a penny more to transfer his inheritance through your checking account so he could move vast sums of cash out of his country. Sure, he had fallen out of favor with the government and the economy in his country was in a dire situation, but a deal was a deal and $10,000,000 was all he could afford to pay. This type of purchase contract was to be a(n) ________ if you would kindly provide your account information.

Answer: fixed-price contract Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: fixed-price contract, strategic sourcing process AACSB: Application of Knowledge LO: 7.7: Understand when negotiations should be used and the purpose of contracts.

50) What are the four sourcing strategies, how do they work, and what are the advantages of each?

Answer: The main sourcing strategies are single, multiple, dual, and cross sourcing. In single sourcing, the firm depends on a single company for all or nearly all of a product or service, but in multiple sourcing, the firm shares its business across multiple suppliers. In between those ends of the spectrum is dual sourcing, where two suppliers are used for the same purchased product or service, and cross sourcing, where different business units in a single firm use different suppliers for similar parts.

Single sourcing has the advantages of volume leveraging, lower transportation costs, reduced quality variability, and stronger relationships with suppliers. Multiple sourcing creates competition, spreads risk, can help ensure that suppliers do not become complacent, may be required if the purchased volume is too great for one supplier, and may be desired if the buyer wishes to meet obligations to support minority suppliers. Dual sourcing accrues the same advantages as multiple sourcing as does cross sourcing.

Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: multiple sourcing, single sourcing, cross sourcing, dual sourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

22 Copyright © 2019 Pearson Education, Inc.

51) What are the advantages and disadvantages of insourcing and outsourcing?

Answer: Insourcing gives a company a high degree of control over its operations and can also lower costs but only if a company enjoys the business volume necessary to achieve economies of scale. On the downside, insourcing can be risky because it decreases a firm's strategic flexibility. Making a product or providing a service internally often requires a company to make long-term capacity commitments that cannot be easily reversed. Outsourcing typically increases a firm's flexibility and access to state-of-the-art products and processes. As markets or technologies change, many firms find changing supply chain partners easier than changing internal processes. With outsourcing, less investment is required up front in the resources needed to provide a product or service. The benefits of outsourcing can be significant. Of course, outsourcing has risks. Suppliers might misstate their capabilities: Their process technology might be obsolete, or their performance might not meet the buyer's expectations. In other cases, the supplier might not have the capability to produce the product to the quality level required. Control and coordination are also issues in outsourcing. Buying firms may need to create costly safeguards to regulate the quality, availability, confidentiality, or performance of outsourced goods or services. Coordinating the flow of materials across separate organizations can be a major challenge, especially when time zone differences, language barriers, and even differences in information systems come into play. Companies that outsource also risk losing key skills and technologies that are part of their core competencies.

Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: multiple sourcing, strategic sourcing process, insourcing, outsourcing AACSB: Application of Knowledge LO: 7.1: Identify and describe the various steps of the strategic sourcing process.

52) Briefly describe the objective of spend analysis and the general requirements for accomplishing it.

Answer: Spend analysis is the application of quantitative techniques to purchasing data in an effort to better understand spending patterns and identify opportunities for improvement. Spend analysis can be used to answer a wide variety of questions. For example, management might want to know the categories of products or services that make up the bulk of company spending, how much is being spent with various suppliers, and how spending patterns vary across different locations. The primary requirement for accomplishing the analysis is having the necessary data and a means for manipulating it. Because the questions are varied, the analytical tools needed also vary widely. Some companies have software systems used for operations that contain the ability to perform these analyses. Other companies may turn to a spreadsheet package to perform the required analyses.

Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: spend analysis AACSB: Application of Knowledge LO: 7.2: Perform and interpret the results of a simple spend analysis.

23 Copyright © 2019 Pearson Education, Inc.

53) What is sourcing portfolio analysis? Discuss the model and the strategies and tactics associated with each quadrant.

Answer: In portfolio analysis, the products or services to be sourced are assigned to one of four strategic quadrants, based on their relative complexity and/or risk impact to the firm and their value potential. In general, the more money a company spends on a particular good or service, the higher its value potential.

Depending on what quadrant a product or service is assigned to, the buying firm can then identify the most appropriate sourcing strategy, tactics, and actions.

The four quadrants are Routine, Leverage, Bottleneck, and Critical.

The "Routine" Quadrant - Products or services in the routine quadrant are readily available and represent a relatively small portion of a firm's purchasing expenditures. Typical examples include office supplies and cleaning services. The sourcing strategy therefore becomes one of simplifying the acquisition process, thereby lowering the costs associated with purchasing items in this quadrant. Specific actions can include automating the purchasing process, reducing the number of suppliers used, and using electronic data interchange (EDI) or purchase cards to streamline payment.

The "Leverage" Quadrant - Products or services in the leverage quadrant tend to be standardized and readily available, and they represent a significant portion of money spent. The sourcing strategy therefore focuses on leveraging the firm's spending levels to get the most favorable terms possible.

The "Bottleneck" Quadrant - Bottleneck products or services have unique or complex requirements that can be met only by a few potential suppliers. In this case, the primary goal of the sourcing strategy is to not run out; in effect, the goal is to ensure supply continuity. This might involve carrying extra inventory to protect against interruptions in supply or contracting with multiple vendors to reduce supply chain risks.

The "Critical" Quadrant - Like bottleneck items, products or services in the critical quadrant have complex or unique requirements coupled with a limited supply base. The primary difference is that these items can represent a substantial level of expenditure for the sourcing firm. In cases such as this, the sourcing firm will spend considerable time negotiating favorable deals and building partnerships with suppliers, as well as preparing contingency plans in case of an interruption in supply.

Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: strategic sourcing process, portfolio analysis, bottleneck quadrant, critical quadrant, leverage quadrant, routine quadrant AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

54) What is portfolio analysis and how is it accomplished? Provide an example of a purchased product or service that would fall in each area for a university applying portfolio analysis.

Answer: In portfolio analysis, the products or services to be sourced are assigned to one of four strategic quadrants, based on their relative complexity and/or risk impact to the firm and their value potential. In general, the more money a company spends on a particular good or service, the higher its value potential.

Depending on what quadrant a product or service is assigned to, the buying firm can then identify the most appropriate sourcing strategy, tactics, and actions. Examples will vary: Routine products could be housekeeping services. Leverage products could be high expenditure commodity items. Bottleneck products may be IT services and the critical quadrant may include adjunct faculty services for professional programs.

Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: portfolio analysis AACSB: Application of Knowledge LO: 7.3: Use portfolio analysis to identify the appropriate sourcing strategy for a particular good or service.

24 Copyright © 2019 Pearson Education, Inc.

55) Define outsourcing and discuss its advantages and disadvantages.

Answer: Outsourcing is the use of supply chain partners to provide products or services. The advantages of outsourcing are a very low investment risk, improved cash flow, access to state-of-the-art products and services, and high strategic flexibility. The disadvantages of outsourcing include the possibility of choosing a bad supplier, loss of control over the process and core technologies, communication and coordination challenges with the supplier, and an increased risk of supply chain disruptions and CSR risks.

Diff: 1 Reference: 7.2 The Strategic Sourcing Process Keywords: insourcing, outsourcing, strategic sourcing process AACSB: Application of Knowledge LO: 7.4 Describe the rationale for outsourcing and discuss when it is appropriate.

56) The deans' suite hoped to cut costs and decided to perform a total cost analysis on its tequila supplier.

Consumption was currently 10,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $15.50 per bottle and packed 300 bottles in a crate. The cost to ship the crate was $15. Another potential source of tequilas was Pancho's, who charged $14.75 per bottle but could ship only 100 bottles in a crate and at a higher price, $75. Assume that a partial crate may be purchased. Conduct a total cost analysis and make a recommendation.

Answer: Byron has a product cost of $155,000 and shipping cost of $500 for a total cost of $155,500.

Pancho has a product cost of $147,500 and a shipping cost of $7,500 for a total cost of $155,000 and is therefore the low-cost provider by $500.

Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: total cost, strategic sourcing process AACSB: Analytical Thinking LO: 7.5: Perform a simple total cost analysis.

57) The deans' suite hoped to cut costs and decided to perform a total cost analysis on its tequila supplier.

Consumption was currently 10,000 bottles per semester and this was predicted to maintain that level for the next few years. Their current source, Byron's, charged $15.50 per bottle and packed 300 bottles in a crate. The cost to ship the crate was $15. Another potential source of tequilas was Pancho's, who charged $14.75 per bottle but could ship only 100 bottles in a crate and at a higher price, $75. Assume that a partial crate may be purchased. By how much does Byron need to lower its per bottle price to reduce their total cost to that of Pancho?

Answer: Reducing the price by 5 cents per bottle, to $15.45 will make Byron's total cost equal to Pancho's.

Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: total cost, strategic sourcing process AACSB: Analytical Thinking LO: 7.5: Perform a simple total cost analysis.

25 Copyright © 2019 Pearson Education, Inc.

58) This table contains the performance criteria and scores (larger numbers are better) for four potential suppliers to Los Pollos Hermanos. Evaluate the data and identify the BEST source for Los Pollos Hermanos.

Performance Dimension Purity (W = 0.5) Cost (W = 0.2) Stability (W = 0.2) Speed (W = 0.1)

Company W 5 4 2 3

Company P 4 3 1 5

Company D 2 5 4 5

Company G 5 2 5 2

Answer: Company G has the highest score, 4.1, and would be the supplier of choice ScoreX = ScoreW = 0.5 × 5 + 0.2 × 4 + 0.2 × 2 + 0.1 × 3 = 4.0 ScoreP = 0.5 × 4 + 0.2 × 3 + 0.2 × 1 + 0.1 × 5 = 3.3 ScoreD = 0.5 × 2 + 0.2 × 5 + 0.2 × 4 + 0.1 × 5 = 3.3 ScoreG = 0.5 × 5 + 0.2 × 2 + 0.2 × 5 + 0.1 × 2 = 4.1 Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: weighted-point evaluation, strategic sourcing process AACSB: Analytical Thinking LO: 7.6: Show how multicriteria decision models can be used to evaluate suppliers and interpret the results.

26 Copyright © 2019 Pearson Education, Inc.

59) This table contains the performance criteria and scores (larger numbers are better) for four potential suppliers to Satriale's Pork Store. Evaluate the data and identify the BEST source for Satriale's. Consider the two runners-up to the best source and what points of negotiation might lead them to becoming the optimal supplier.

Performance Dimension Innovation (W = 0.4) Cost (W = 0.3) Stability (W = 0.2) Speed (W = 0.1)

Company T 4 4 2 3

Company C 4 3 1 5

Company S 2 5 4 5

Company P 5 2 5 2

Answer: Company P has the highest score, 3.8, and would be the supplier of choice ScoreX = ScoreT = 0.4 × 4 + 0.3 × 4 + 0.2 × 2 + 0.1 × 3 = 3.5 ScoreC = 0.4 × 4 + 0.3 × 3 + 0.2 × 1 + 0.1 × 5 = 3.2 ScoreS = 0.4 × 2 + 0.3 × 5 + 0.2 × 4 + 0.1 × 5 = 3.6 ScoreP = 0.4 × 5 + 0.3 × 2 + 0.2 × 5 + 0.1 × 2 = 3.8 Company S is two-tenths behind Company P, and has an abysmal innovation score to thank for this position. If the innovation factor is based on new product or service lines, then Satriale's might request that Company S consider exploring new products more aggressively. Company T is only three-tenths behind Company P, and is slightly behind in the Innovation factor but far behind on the Stability factor.

An increase of 1 point in the stability score raises the overall score of Company T by two tenths, so whatever Company T can do to become more stable should be considered. Satriale's might take a partnership stance, perhaps increase the frequency of meetings in order to help Company T in the stability arena. A single digit increase in Innovation raises a score by four tenths of a point, but Company T has a high score already in this area. It might be easier to raise an extremely low score (Stability) than squeeze another point higher in an area where they are already performing well.

Diff: 3 Reference: 7.2 The Strategic Sourcing Process Keywords: weighted-point evaluation, strategic sourcing process AACSB: Analytical Thinking LO: 7.6: Show how multicriteria decision models can be used to evaluate suppliers and interpret the results.

27 Copyright © 2019 Pearson Education, Inc.

60) The entire plant needs a fresh coat of paint so you, as the operations manager, are charged with securing a painting contract to accomplish this. You locate four painting contractors and ask them for their performance on four criteria. Their responses, along with your minimum standards and the importance you place on each criterion, is shown in the table. Note that strongly positive references are 9 or better on a ten-point scale and positive references are 7 up to 9 on a ten-point scale. Assign scores from 1 to 5 where 1 is terrible and 5 is excellent, for each contractor's performance on each criterion and determine who should be awarded the contract. Write a brief explanation for all the 1s and 5s you assign.

Contractor 1

Cost 20% $22,000

Paint Time 25% 5 days

Experience 20% 15 years

2 3

$20,000 $25,000

4 days 8 days

10 years 3 years

4

$22,500

5 days

25 years

Minimum Standard

Less than $25,000

Less than 1 week

5 years in business

References 20% Positive Strongly positive Positive Strongly positive No negative references out of three

Paint Quality 15% 20 year Lifetime 25 year 20 year 15 year guarantee

Answer: Answers will vary. Contractor 3 cannot meet the paint time criterion, does not have 5 years of experience, and is past the limit on cost. They should either be excluded from bidding or possibly assigned a score of 1 in each of those categories. Contractor 2 is best in cost, time, and paint quality and is tied for best in references and should probably be the highest overall score.

Diff: 2 Reference: 7.2 The Strategic Sourcing Process Keywords: weighted-point evaluation, strategic sourcing process AACSB: Analytical Thinking LO: 7.6: Show how multicriteria decision models can be used to evaluate suppliers and interpret the results.

7.3 The Procure-to-Pay Cycle 1) Terms and conditions for a purchased service that indicate what services will be performed and how the service provider will be evaluated is called a: A) request for quotation.

B) bid specification.

C) preferred supplier contract.

D) statement of work.

Answer: D Diff: 2 Reference: 7.3 The Procure-to-Pay Cycle Keywords: statement of work, strategic sourcing process AACSB: Application of Knowledge LO: 7.8: Describe the major steps of the procure-to-pay cycle.

28 Copyright © 2019 Pearson Education, Inc.

2) Money is automatically drawn from the buyer's account and deposited into the supplier's account in an electronic funds transfer (EFT).

Answer: TRUE Diff: 2 Reference: 7.3 The Procure-to-Pay Cycle Keywords: electronic funds transfer, EFT, procure-to-pay cycle AACSB: Information Technology LO: 7.8: Describe the major steps of the procure-to-pay cycle.

3) Authorization to a supplier to deliver a product is done through a(n) ________, and released using the form of technology known as ________.

Answer: purchase order (PO); electronic data interchange (EDI) Diff: 3 Reference: 7.3 The Procure-to-Pay Cycle Keywords: procure-to-pay process, purchase order (PO), electronic data interchange (EDI) AACSB: Information Technology LO: 7.8: Describe the major steps of the procure-to-pay cycle.

4) Business partners that transfer payments between banks using an information system are using ________.

Answer: electronic funds transfer (EFT) Diff: 2 Reference: 7.3 The Procure-to-Pay Cycle Keywords: electronic funds transfer, EFT, procure-to-pay cycle AACSB: Information Technology LO: 7.8: Describe the major steps of the procure-to-pay cycle.

29 Copyright © 2019 Pearson Education, Inc.

5) What takes place in each step in the procure-to-pay cycle and which step is most critical?

Answer: Answers may vary on which step is most critical.

In contrast to the strategic sourcing process, the procure-to-pay cycle is decidedly tactical in nature: It involves day-to-day communications and transactions between the buyer and supplier, and it is completed once the goods or services have been received, the supplier has been paid, and the information has been recorded into the database.

The five main steps of the procure-to-pay cycle are: • Ordering — The most common way the ordering step begins is through the release of a purchase order.

A purchase order is simply a document that authorizes a supplier to deliver a product or service and often includes terms and conditions, such as price, delivery, and quality requirements.

• Follow-up and expediting — Someone (typically purchasing or materials personnel) must monitor the status of open purchase orders.

• Receipt and inspection — When the order for a physical good arrives at the buyer's location, it is received and inspected to ensure that the right quantity was shipped and that it was not damaged in transit. If the product or service was provided on time, it will be entered into the company's purchasing transaction system. Physical products delivered by suppliers then become part of the company's working inventory.

• Settlement and payment — Once an item or a service is delivered, the buying firm will issue an authorization for payment to the supplier. Payment is then made through the firm's accounts payable department.

• Records maintenance — After a product or service has been delivered and the supplier paid, a record of critical events associated with the purchase is entered into a supplier performance database.

Diff: 3 Reference: 7.3 The Procure-to-Pay Cycle Keywords: procure to pay cycle AACSB: Application of Knowledge LO: 7.8: Describe the major steps of the procure-to-pay cycle.

7.4 Trends in Supply Management 1) A recent survey of executives at Global 1000 companies uncovered what single biggest threat?

A) the fear of a supply chain disruption B) the fear of the unknown C) the fear of improperly weighting performance dimensions D) the fear of misclassifying direct and indirect costs Answer: A Diff: 2 Reference: 7.4 Trends in Supply Management Keywords: supply chain disruptions AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

30 Copyright © 2019 Pearson Education, Inc.

2) Which of these factors is most likely to increase the risk of a missed shipment, communication problem, or human error?

A) supply base alienation B) global outsourcing C) multicriteria decision models D) electronic data interchange Answer: B Diff: 2 Reference: 7.4 Trends in Supply Management Keywords: supply chain disruptions, global sourcing AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

3) A recent trend in supply management is a move towards a more sustainable supply chain.

Answer: TRUE Diff: 2 Reference: 7.4 Trends in Supply Management Keywords: sustainability AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

4) Top executives name ________ as a significant threat to their companies' revenue streams.

Answer: (supply chain) disruptions, disruptions Diff: 2 Reference: 7.4 Trends in Supply Management Keywords: supply chain disruptions AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

31 Copyright © 2019 Pearson Education, Inc.

5) Identify the major trends in supply management and their impact from a strategic perspective.

Answer: The trends in supply management identified in this section are sustainable supply and supply chain disruptions. As more companies become conscious of the importance of being environmentally friendly, environmental performance is becoming an important criterion in selecting suppliers.

Companies want to ensure that suppliers are in compliance with environmental regulations and that they are well positioned to deal with changes in the regulatory environment. Similarly, companies are looking for ways to reduce packaging, promote recycling, and use other strategies designed to reduce cost while being good for the environment.

As supply chains become more extended and firms depend even more on outside companies to provide critical goods and services, many firms are feeling the sting of disruptions to the supply chain. Causes of supply chain disruptions vary from natural disasters to manmade, but in a recent survey of senior executives at Global 1000 companies, the respondents identified supply chain disruptions as the single biggest threat to their companies' revenue streams. The complexity associated with multiple links in the supply chain increases the probability of disruptions.

From a strategic perspective, a company perceived as being "greener" than its competition may win orders that it otherwise wouldn't. Streamlining and outsourcing (or offshoring) allow a company to become more productive by having companies better-suited to produce the outsourced component or service do just that. This carries with it the risk of supply chain disruption, which is deleterious to their competitive position.

Diff: 2 Reference: 7.4 Trends in Supply Management Keywords: sustainable supply, supply chain disruptions AACSB: Application of Knowledge LO: 7.9: Discuss some of the longer-term trends in supply management and why they are important.

32 Copyright © 2019 Pearson Education, Inc.