Deck 2: Purchasing Management

Question 1

The possibility of events like strikes, assembly line breakdowns, and natural disasters are all reasons a company should favor using a single supplier.

Answer 1

False

Question 2

In the context of Supply Chain Management, the acts of obtaining raw materials, services, maintenance, repair and operating supplies for money can all be defined as purchasing.

Answer 2

True

Question 3

NAFTA and the WTO are trade organizations seeking to reduce tariff and non-tariff barriers among its member countries.

Answer 3

True

Question 4

The acquisition of services is also known as contracting.

Question 5

A purchase order is legally binding once issued by the buyer.

Question 6

If the break-even point in a typical make-buy scenario is 24,000 units and 8,000 units are required, than the firm should choose to make.

Question 7

The WTO is a trade organization seeking to establish trade barriers that will protect member countries by excluding nations that pose an economic threat.

Question 8

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.

Question 9

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.

Question 10

There is a clear line between purchasing activities and the supply management function.

Question 11

Purchasing can be broadly classified into two categories: merchants and industrial buyers.

Question 12

A growing trend among firms that practice supply chain management is supplier development.

Question 13

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

Question 14

According to the Annual Survey of Manufacturers, the cost of materials exceeds the value added to the materials during manufacturing.

Question 15

Decentralized 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.

Question 16

Industrial supply chain member buyers purchase their merchandise in volume to take advantage of quantity discounts, transportation economy, and storage efficiency, and then they create value through services like consolidating merchandise or break bulking.

Question 17

If the break-even point in a typical make-buy scenario is 10,000 units and 15,000 units are required, than the firm should choose to make.

Question 18

The goal of a good purchasing system is to ensure efficient information transitions between the materials users, the purchasing personnel, and the suppliers.

Question 19

The goal of a proper purchasing system is to ensure the efficient transmission of information from the users to the purchasing personnel, and ultimately, to the suppliers.

Question 20

Procurement credit cards can be used for small purchases excluding meals, lodging, and travel expenses.

Question 21

Inventory Turnover can be calculated by:

A)Ratio of average inventory cost over cost of goods sold
B)Ratio of cost of goods sold over average inventory cost
C)Ratio of inventory days in stock over average inventory cost
D)Ratio of average inventory cost over inventory days in stock

Question 22

Given the following make-buy information, what would be the break-even point? Make Option
Buy Option
Fixed Costs
$15000
$1250
Variable Costs
$ 5
$ 10

A)917 units
B)2875 units
C)1083 units
D)2750 units

Question 23

The primary goals of purchasing include all EXCEPT:

A)Secure materials at the lowest cost
B)Ensure the highest quality raw materials are purchased
C)Improve the quality of finished goods produced
D)Maximize customer satisfaction

Question 24

The Uniform Commercial Code governs the purchase and sale of goods in the US except in the state of:

A)Hawaii
B)Louisiana
C)Mississippi
D)South Dakota

Question 25

When calculating Return on Investment, current 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

Question 26

A pre-printed order form for purchasing materials and standard parts that are requested on a recurring basis is referred to as:

A)Material Requisition
B)Purchase Requisition
C)Planned Order Release
D)Traveling Requisition

Question 27

The measurement of the impact of change in purchase spend on a firm profit before taxes, assuming gross sales and other expenses remain unchanged, is referred to as:

A)Break-Even Analysis
B)Direct Offset
C)Profit-Leverage Effect
D)Leveraging Purchase Volume

Question 28

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)

Question 29

On occasion, firms assist suppliers, new or old, to improve their processing capabilities, product or service quality, delivery effectiveness, and cost performance by providing the required technical and financial assistance.This is referred to as:

A)Supplier development
B)Outsourcing
C)Centralized purchasing
D)Supplier hybridization

Question 30

Given the following make-buy information, what would be the break-even point? Make Option
Buy Option
Fixed Costs
$7500
$1500
Variable Costs
$ 4
$ 9

A)1200 units
B)1708 units
C)690 units
D)460 units

Question 31

Which of the following would be a good reason to outsource (buy) versus making?

A)A firm lacks the technology or expertise to produce an item
B)To utilize existing capacity within a company's own firm
C)To have more direct control over the design and production of an end item
D)No competent supplier presently produces the needed item

Question 32

The hybrid purchasing system, such as the one utilized by Harrah's, includes many benefits.In such a system the regional office preserves four fundamental purchasing rights.Which of the following is NOT one of those rights?

A)Allow suppliers to bid for each purchase
B)Select the supplier
C)Use whichever pricing method is appropriate
D)Monitor contacts with potential suppliers

Question 33

According to the textbook, the Las Vegas division of Harrah's Entertainment utilizes which of the following purchasing structures?

A)Autocratic
B)Decentralized
C)Centralized
D)Hybrid (centralized-decentralized)

Question 34

When a material is not available in the warehouse and there is no current supplier for the item, the buyer must identify a pool of suppliers and issue a:

A)Request for Quotation
B)Purchase Order
C)Contract for Sale
D)Sales Order

Question 35

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)Sony buying trucks to deliver their finished goods inventories to their customers' warehouses

Question 36

Benefits derived from implementing e-procurement systems include all of the following EXCEPT:

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)Tracking bids and transactions is easier and faster

Question 37

Which of the following documents is considered the buyer's offer to purchase products or services from a supplier, is legally binding once the supplier accepts it, and usually has the terms and conditions of purchase preprinted on the back of the document?

A)Purchase requisition
B)Planned order release
C)Material requisition
D)Purchase order

Question 38

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 is referred to as:

A)Material Requisition
B)Purchase Requisition
C)Planned Order Release
D)Traveling Requisition

Question 39

If a distribution company that focused on warehousing and distribution of grocery items decided to purchase a chain of grocery stores, the distribution company would be exemplifying:

A)Backward vertical integration
B)Forward vertical integration
C)Backward horizontal integration
D)Forward horizontal integration

Question 40

Benefits derived from implementing an e-procurement system include all EXCEPT:

A)Time Savings
B)Real Time Access
C)Trackability
D)Decentralized Purchasing

Question 41

Use what you understand about the outsourcing decision (Make vs.Buy) to answer this question.List and explain three reasons a person might decide to buy a meal at a restaurant rather than making a meal at home.

Question 42

Which of the following is a reason that single sourcing is considered risky/bad?

A)The buyer's required ordering quantities are very low
B)Larger orders make quantity discounts more likely
C)The limited (finite) capacity of one supplier
D)Decreases the item to item quality variability of items purchased

Question 43

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

a.What are the fixed costs for the make decision?
b.What is the breakeven quantity for the two options illustrated?
c.At Q = 500, would you choose the make or buy option? Why?
d.At Q = 100, what will be the total cost associated with the best decision at this quantity?

Question 44

While most public procurement is focused on goals similar to those of purchasing departments in the private sector, U.S.federal government purchases must comply with the:

A)Federal Acquisition Regulation
B)Fair Standards and Equitable Purchases Act
C)Federal Code of Conduct for Procurement
D)Services and Materials Acquisition Act

Question 45

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.

Question 46

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)Manufacturer certification programs
C)Early supplier involvement
D)Total Cost of Ownership initiatives

Question 47

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.

Question 48

Your firm needs to purchase office supplies.What method do you choose to use for this small dollar value purchase? Justify your answer.

Question 49

The term Supply Management is used to describe responsibilities above and beyond those of traditional purchasing.What are three of these key activities and why are they considered important to Supply Management?

Question 50

Which of the following is NOT a form of countertrade?

A)Barter
B)Offset
C)Incoterming
D)Counterpurchase

Question 51

Which of the following statements is FALSE?

A)More than 50% of each sales dollar typically goes towards covering supply chain costs
B)Decentralized purchasing means not having any purchasing departments and allowing all employees to act as purchasing agents
C)Electronic procurement systems can aid a company in saving both time and money
D)If a firm lacks the technology to make a required component they will need to consider buying/outsourcing.