Deck 15: Sourcing Decisions in a Supply Chain

Question 1

A reliable supplier has low variability of lead time,whereas an unreliable supplier has high variability.

Answer 1

True

Question 2

Sourcing a product overseas may have lower product cost but will generally incur a higher inbound transportation cost.

Answer 2

True

Question 3

Supplier performance must be rated on several factors other than purchase price because they all impact the total supply chain cost.

Answer 3

True

Question 4

Purchasing,also known as procurement,is the process used to rate supplier performance.

Question 5

There are many supplier characteristics other than price,such as lead time,reliability,quality,and design capability that impact the total cost of doing business with a supplier.

Question 6

The less flexible a supplier is,the less lead time variability he will display as order quantities change.

Question 7

The role of sourcing planning and analysis is to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost.

Question 8

Effective sourcing processes within a firm can improve profits for the firm and total supply chain surplus in a variety of ways.

Question 9

A good supplier scoring and assessment process will primarily track performance along the price dimension when evaluating a supplier.

Question 10

The value of better information coordination will be linked to the amount of variability introduced into the supply chain as a result of the bullwhip effect.

Question 11

Quantity discounts lower the unit cost and tend to increase the required batch size.

Question 12

For many firms,price has traditionally been the only dimension that suppliers have been compared on.

Question 13

Quality has little effect on the lead time taken by the supplier to complete the replenishment order or the variability of this lead time.

Question 14

The goal of procurement is to enable orders to be placed and delivered on schedule at the lowest possible price.

Question 15

When designing a sourcing strategy,it is important for a firm to be clear on the factors that have the least influence on performance and target improvement on those areas.

Question 16

Sourcing processes include the selection of suppliers,design of supplier contracts,product design collaboration,procurement of material,and evaluation of supplier performance.

Question 17

Design collaboration ensures that any design changes are communicated effectively to all parties involved with designing and manufacturing the product.

Question 18

As the replenishment lead time from a supplier grows,the amount of safety inventory that needs to be held by the buyer also grows in direct proportion to the replenishment lead time.

Question 19

As the replenishment lot size grows,the cycle inventory at the firm grows,thus increasing the cost of holding inventory.

Question 20

Cost of Goods Sold (COGS)represents less than 20 percent of sales for most major manufacturers.

Question 21

Single sourcing is used to ensure a degree of competition and guarantee the possibility of a backup should a source fail to deliver.

Question 22

To improve overall profits,the supplier must design a contract that requires the buyer to share in some of the supplier's demand uncertainty.

Question 23

Quantity discounts can coordinate supply chain costs if the supplier has large fixed costs per lot.

Question 24

Unless each supplier has a somewhat different role,it is very likely that a firm's supply base is too small.

Question 25

The process by which companies acquire raw materials,components,products,services,and other resources from suppliers to execute their operations is

A) procurement.
B) sourcing.
C) supplier scoring and assessment.
D) supplier selection.

Question 26

Supplier viability can be especially important if the supplier is providing mission-critical products and they would be easy to find a replacement for.

Question 27

Having multiple sources ensures a degree of competition and also the possibility of a backup should a source fail to deliver.

Question 28

Quantity flexibility contracts counter double marginalization by giving the retailer the ability to modify the order based on improved forecasts closer to the point of sale.

Question 29

Revenue-sharing contracts counter double marginalization by decreasing the cost per unit charged to the retailer,thus effectively decreasing the cost of understocking.

Question 30

Exchange rates,taxes,and duties can be significant for a firm with a global manufacturing and supply base.

Question 31

Buyback contracts counter double marginalization by lowering the cost of overstocking for the retailer.

Question 32

The entire set of business processes required to purchase goods and services is

A) procurement.
B) sourcing.
C) supplier scoring and assessment.
D) supplier selection.

Question 33

The procurement process for indirect materials should focus on decreasing the transaction cost for each order.

Question 34

Two-part tariffs and threshold contracts can be used to counter double marginalization and increase agent effort in a supply chain.

Question 35

Procurement is the process by which companies acquire raw materials,components,products,services,or other resources from suppliers to execute their operations.

Question 36

Good design collaboration for manufacturability and supply chain can also increase required inventories and transportation cost.

Question 37

Unless adding a supplier with a unique and valuable capability clearly adds to total cost,the firm's supply base may be too small.

Question 38

Supplier performance analysis should be used to build a portfolio of suppliers with similar strengths.

Question 39

Supplier performance should be compared based on their impact on total cost.

Question 40

Outsourcing results in a supply chain function being performed by a third party.

Question 41

When designing a sourcing strategy,it is important for a firm to

A) develop a process that will procure materials at the lowest possible cost.
B) maintain a record of all contracts, receipts, issues and other transactions in the event of lawsuits.
C) maximize the profitability of the distributors within the supply chain.
D) be clear on the factors that have the greatest influence on performance and target improvement on those areas.

Question 42

Which of the following is not a factor that must be considered when scoring and assessing suppliers?

A) Supply flexibility
B) Supply quality
C) Inbound transportation cost
D) Information instigation capability

Question 43

Supplier performance must be rated on many different factors because

A) they impact the total supply chain cost.
B) they minimize the supply chain involvement.
C) they reduce the impact of price.
D) they maximize the supply chain price.

Question 44

Scoring the performance of suppliers in terms of replenishment lead time thus allows the firm to evaluate the impact each supplier has on

A) the cost of holding cycle inventory.
B) the cost of holding replacement inventory.
C) the purchase price of material.
D) the cost of holding safety inventory.

Question 45

The process used to rate supplier performance is

A) procurement.
B) sourcing.
C) supplier scoring and assessment.
D) supplier selection.

Question 46

Cost of Goods Sold (COGS)represents

A) less than 20 percent of sales for most major manufacturers.
B) less than 50 percent of sales for most major manufacturers.
C) well over 50 percent of sales for most major manufacturers.
D) well over 80 percent of sales for most major manufacturers.

Question 47

Design collaboration is important because

A) about 80 percent of the cost of a product is determined during design.
B) it ensures that any design changes are communicated effectively to all parties involved with designing and manufacturing the product.
C) the supplier sends product in response to orders placed by the buyer.
D) A and B

Question 48

Which of the following is not a factor that must be considered when scoring and assessing suppliers?

A) Purchase pricing
B) Sales performance
C) Design collaboration capability
D) Exchange rates, taxes, and duties

Question 49

Using the output from supplier scoring and assessment to identify the appropriate supplier(s)is

A) procurement.
B) sourcing.
C) supplier scoring and assessment.
D) supplier selection.

Question 50

Effective sourcing processes within a firm can

A) improve profits for the firm and total supply chain surplus.
B) reduce profits for the firm and total supply chain surplus.
C) reduce total supply chain surplus.
D) reduce profits for the firm.

Question 51

Which of the following is not a benefit of effective sourcing decisions?

A) Appropriate supplier contracts can allow for the sharing of risk, resulting in higher profits for both the supplier and the buyer.
B) Better economies of scale can be achieved if orders within a firm are disaggregated.
C) Design collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs.
D) Firms can achieve a lower purchase price by increasing competition through the use of auctions.

Question 52

On-time performance affects the variability of the lead time,because

A) a reliable supplier has high variability of lead time.
B) a reliable supplier has low variability of lead time.
C) an unreliable supplier has high variability of lead time.
D) B and C

Question 53

Supplier characteristics such as lead time,reliability,quality,and design capability that impact the total cost of doing business with a supplier should be considered during the process of

A) procurement.
B) sourcing.
C) supplier scoring and assessment.
D) supplier selection.

Question 54

The role of sourcing planning and analysis is

A) to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost.
B) to analyze spending across various suppliers and component categories to identify opportunities for increasing the total cost.
C) to enable orders to be placed and delivered on schedule at the lowest possible overall cost.
D) to enable orders to be placed and delivered on schedule regardless of cost.

Question 55

The selection of suppliers,design of supplier contracts,product design collaboration,procurement of material,and evaluation of supplier performance are a part of

A) procurement.
B) sourcing.
C) supplier scoring and assessment.
D) supplier selection.

Question 56

Which of the following is not a factor that must be considered when scoring and assessing suppliers?

A) Quoted price
B) Replenishment lead time
C) On-time performance
D) Supply affability

Question 57

Which of the following is not a benefit of effective sourcing decisions?

A) Better economies of scale can be achieved if orders within a firm are aggregated.
B) More efficient procurement transactions can significantly reduce the overall cost of purchasing.
C) Sequential design results in products that are easier to manufacture and distribute, resulting in lower overall costs.
D) Good procurement processes can facilitate coordination with the supplier and improve forecasting and planning.

Question 58

The goal of procurement is

A) to analyze spending across various suppliers and component categories to identify opportunities for decreasing the total cost.
B) to analyze spending across various suppliers and component categories to identify opportunities for increasing the total cost.
C) to enable orders to be placed and delivered on schedule at the lowest possible overall cost.
D) to enable orders to be placed and delivered on schedule regardless of cost.

Question 59

The delivery frequency of a supplier can be converted into the cost of holding

A) cycle inventory.
B) safety inventory.
C) both cycle and safety inventory.
D) neither cycle nor safety inventory.

Question 60

Price has traditionally been the only dimension that suppliers have been compared on during the process of

A) procurement.
B) sourcing.
C) supplier scoring and assessment.
D) supplier selection.

Question 61

If each supplier of a firm does not have a somewhat different role,it is very likely that the firm's supply base is

A) too large.
B) too small.
C) neither too large or too small.
D) both too large and too small.

Question 62

Good information coordination will not result in

A) better replenishment planning.
B) a decrease in the inventory carried as well as the sales lost because of lack of availability.
C) a decrease in the bullwhip effect.
D) a decrease in the sales lost because of lack of availability.

Question 63

Which contracts create information distortion that result in excess inventory in the supply chain and a greater mismatch of supply and demand?

A) Buyback or returns contract
B) Revenue-sharing contract
C) Quantity flexibility contract
D) A and B only

Question 64

A contract that is used to induce performance improvement from a supplier along dimensions,such as lead time,where the benefit of improvement accrues primarily to the buyer,whereas the effort for improvement comes primarily from the supplier is a

A) buyback or returns contract.
B) revenue-sharing contract.
C) quantity flexibility contract.
D) shared savings contract.

Question 65

The viability of suppliers is especially important for suppliers who

A) provide mission-critical products that would be easy to replace.
B) provide mission-critical products that would be difficult to replace.
C) provide non-critical products that would be difficult to replace.
D) provide non-critical products that would be easy to replace.

Question 66

Quantity discounts lower the unit cost

A) but tend to increase the required batch size and as a result, reduce the cycle inventory.
B) but tend to increase the required batch size and as a result the cycle inventory.
C) and tend to reduce the required batch size and as a result the cycle inventory.
D) and tend to reduce the required batch size and as a result, increase the cycle inventory.

Question 67

A contract that decreases overall costs but leads to higher lot sizes and thus higher levels of inventory in the supply chain is a

A) buyback or returns contract.
B) revenue-sharing contract.
C) quantity flexibility contract.
D) quantity discount contract.

Question 68

Good design collaboration for manufacturability and supply chain can

A) reduce product cost.
B) increase required inventories.
C) increase transportation cost.
D) decrease manufacturability.

Question 69

Supplier performance should be compared based on

A) purchase price alone.
B) their impact on total cost.
C) the supplier's quality of material.
D) the ability of the supplier to coordinate forecasting and planning.

Question 70

A downside to which contract is that it leads to surplus inventory that must be salvaged or disposed?

A) buyback or returns contract
B) revenue-sharing contract
C) quantity flexibility contract
D) all of the above

Question 71

Sourcing a product overseas may have

A) higher product cost and will generally incur a higher inbound transportation cost.
B) higher product cost but will generally incur a lower inbound transportation cost.
C) lower product cost and will generally incur a lower inbound transportation cost.
D) lower product cost but will generally incur a higher inbound transportation cost.

Question 72

To improve overall profits,the supplier must design a contract that

A) encourages the buyer to purchase more.
B) increases the level of product availability.
C) requires the supplier to share in some of the buyer's demand uncertainty.
D) all of the above

Question 73

A contract where the buyer pays a minimal amount for each unit purchased from the supplier but shares a fraction of the revenue for each unit sold is

A) buyback or returns contract.
B) revenue-sharing contract.
C) quantity flexibility contract.
D) quantity discount contract.

Question 74

A contract that allows the buyer to modify the order (within limits agreed to by the supplier)as demand visibility increases closer to the point of sale is a

A) buyback or returns contract.
B) revenue-sharing contract.
C) quantity flexibility contract.
D) quantity discount contract.

Question 75

Single sourcing for a product is used to

A) guarantee the supplier sufficient business when the supplier has to make a significant buyer-specific investment.
B) ensure a degree of competition.
C) ensure the possibility of a backup should a source fail to deliver.
D) all of the above

Question 76

The purpose of having multiple suppliers for a product is to

A) guarantee the supplier sufficient business when the supplier has to make a significant buyer-specific investment.
B) ensure a degree of competition.
C) ensure the possibility of a backup should a source fail to deliver.
D) both B and C

Question 77

A contract that allows a retailer to return unsold inventory up to a specified amount,at an agreed upon price is a

A) buyback or returns contract.
B) revenue-sharing contract.
C) quantity flexibility contract.
D) quantity discount contract.

Question 78

Which of the following is not a contract that will increase overall profits by making the supplier share some of the buyer's demand uncertainty?

A) Buyback or returns contracts
B) Quantity flexibility contracts
C) Renewal contracts
D) Revenue-sharing contracts

Question 79

Which contracts result in the supply chain producing retailer orders rather than actual consumer demand?

A) Buyback or returns contract
B) Revenue-sharing contract
C) Quantity flexibility contract
D) A and B

Question 80

If adding a supplier with a unique and valuable capability does not clearly add to a firm's total cost,the supply base may be

A) too large.
B) too small.
C) neither too large or too small.
D) both too large and too small.