Deck 6: Designing Global Supply Chain Networks

Question 1

Decisions made during the supply chain design phase regarding significant investments in the supply chain, such as the number and size of plants to build, the number of trucks to purchase or lease, and whether to build or lease warehouse space, cannot be altered in the short term.

Answer 1

TRUE

Question 2

The present value of a stream of cash flows is what that stream is worth in today's dollars.

Answer 2

TRUE

Question 3

Long-term contracts for both warehousing and transportation requirements will be more effective if the demand and price of warehousing do not change in the future or if the price of warehousing goes up.

Answer 3

TRUE

Question 4

Simulation methods are very good at evaluating a decision where the path itself is decision dependent.

Question 5

The value of flexibility increases with an increase in uncertainty.

Question 6

The rate of return k is also referred to as the present value of capital.

Question 7

Offshoring typically lowers labor, working capital and fixed costs but increases risk and freight costs.

Question 8

The degree of demand and price uncertainty has a significant influence on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.

Question 9

In a complex decision tree, there are thousands of possible paths that may result from the first period to the last.

Question 10

Discounted cash flow (DCF) analysis evaluates the present value of any stream of future cash flows and allows management to compare two streams of cash flows in terms of their financial value.

Question 11

Strategic planning and financial planning should be combined during supply chain network design.

Question 12

Financial analysis should be used as an input to decision making, not as the decision-making process.

Question 13

If price and demand vary over time in a global network, flexible production capacity can be reconfigured to maximize profits in the new environment.

Question 14

The main advantage of simulation models is that they can provide low-cost evaluations of complex situations.

Question 15

A negative NPV for an option indicates that the option will lose money for the supply chain.

Question 16

During network design, managers need a methodology that allows them to estimate the certainty in their forecast of demand and price and then incorporate this certainty into the decision-making process.

Question 17

Appropriate flexibility is an effective approach for a global supply chain to deal with a variety of risks and uncertainties. Extra flexibility is always worth the cost.

Question 18

A firm may choose to build a flexible global supply chain even in the presence of little demand or supply uncertainty if certainty exists in exchange rates or prices.

Question 19

When faced with uncertain conditions it is always best to sign long-term contracts (because they are typically cheaper) and avoid all flexible capacity (because it is more expensive).

Question 20

In reality, demand and prices are highly uncertain and are likely to fluctuate during the life of any supply chain decision.

Question 21

Decisions made during the supply chain design phase regarding significant investments in the supply chain, such as the number and size of plants to build, the number of trucks to purchase or lease, and whether to build or lease warehouse space,

A) define the boundaries within which the supply chain must compete.
B) have little impact on how the supply chain must compete.
C) are irrelevant regarding how the supply chain will compete.
D) are the only consideration regarding how the supply chain will compete.

Question 22

Among the sources of risk identified in global supply chains, the highest among these four is

A) shortage of skilled resources.
B) natural disasters.
C) inflexible supply chain technology.
D) customs delays.

Question 23

What is the type of this network design?

A) Dedicated network
B) Fully flexible network
C) Chained network with one long chain
D) Chained network with two long chains

Question 24

The net present value (NPV) of a stream of cash flows is equal to

A) the sum of all cash flows for all periods being considered.
B) the sum of all cash flows for all periods being considered divided by the number of periods.
C) the average of all cash flows for all periods being considered multiplied by the number of periods.
D) the sum of all cash flows for all periods being considered discounted by the rate of return for each period.

Question 25

The discount factor used to obtain the present value of money in the next period where k represents the rate of return is

A) k.
B) 1 + k.
C) 1/(1 + k).
D) k /(1 + k).

Question 26

A global supply chain with offshoring would tend to see which of these performance dimensions decrease?

A) Working capital
B) Hidden costs
C) Supply chain visibility
D) Product returns

Question 27

Among the sources of risk identified in global supply chains, the lowest among these four is

A) shortage of skilled resources.
B) currency fluctuation.
C) inflexible supply chain technology.
D) terrorist infiltration of cargo.

Question 28

A labor dispute is a risk driver to be considered during network design. What category does a "labor dispute" belong to?

A) Disruptions
B) Inventory risk
C) Systems risk
D) Capacity risk

Question 29

Decisions made during the supply chain design phase regarding significant investments in the supply chain, such as the number and size of plants to build, the number of trucks to purchase or lease, and whether to build or lease warehouse space,

A) can be altered in the short term.
B) cannot be altered in the short term.
C) cannot be altered in the long term.
D) can only be altered in the short term.

Question 30

The present value of future cash flow is found by

A) locating the correct factor on a z-table.
B) using a discount factor.
C) plotting the function on a graph.
D) adding the total of all future cash flows.

Question 31

A global supply chain with offshoring

A) reduces the duration of the cash flow and reduces the length of the product flow.
B) increases the length of the product flow and increases the duration of the information flow.
C) increases the duration of the cash flow but reduces the duration of the information flow.
D) reduces the length of the product flow and reduces the length of the information flow.

Question 32

Decisions made during the supply chain design phase regarding significant investments in the supply chain, such as the number and size of plants to build, the number of trucks to purchase or lease, and whether to build or lease warehouse space,

A) are realigned every few weeks.
B) only remain in place for several years.
C) only remain in place for a few weeks.
D) often remain in place for several years.

Question 33

The rate of return k is also referred to as the

A) discount rate.
B) hurdle rate.
C) opportunity cost of capital.
D) all of the above

Question 34

A global supply chain with offshoring would tend to see which of these performance dimensions increase?

A) Labor costs
B) On time delivery
C) Supply chain visibility
D) Minimum order quantity

Question 35

The process of evaluating the present value of any stream of future cash flows so that management can compare two streams of cash flows in terms of their financial value is

A) annual cash flow (ACF) analysis.
B) discretionary cash flow (DCF) analysis.
C) discounted cash flow (DCF) analysis.
D) future cash flow (FCF) analysis.

Question 36

The tailored strategy "Focus on low-cost, decentralized capacity for predictable demand" follows which risk mitigation strategy?

A) Get redundant suppliers.
B) Increase capacity.
C) Increase responsiveness.
D) Increase inventory.

Question 37

As Adam Smith put it so eloquently in the Wealth of Nations, "If a foreign country can supply us with a commodity cheaper than we ourselves can make it,...

A) )..it is only right that we should learn their method of production, so that we too can master the commodity..."
B) )..then we would be well-served to include them in our supply chain..."
C) )..better buy it from them with some part of our own industry..."
D) )..we should barter with them or take it by force if they prove to be unreasonable..."

Question 38

The present value of a future stream of cash flows is what that stream

A) was worth in yesterday's dollars.
B) is worth in today's dollars.
C) will be worth in future dollars.
D) might be worth in future dollars.

Question 39

The opportunities from globalization are often accompanied by

A) a lack of domestic opportunities.
B) the need to eliminate the accounting function.
C) significant additional risk.
D) the need to eliminate the logistics function.

Question 40

Offshoring to low-cost countries is most attractive for products with

A) large production volume.
B) high variety.
C) low labor content.
D) a high ratio of transportation cost to product value.

Question 41

Scenario 6.1 - The Big Box
Bahouth Ltd. is planning for the next two years of production and debating whether to construct a large cross-dock facility with 40 truck bays or a smaller one with 20 truck bays. The cost to build the large facility is $2 million and the cost to build the small one is $1.2 million. If they construct a large facility and demand is as high as they hope, then operating costs are $450,000 annually. If they construct a large facility and demand is low, then operating costs are $300,000. If they construct a small facility and demand is low, the operating costs are $275,000 but if they experience high demand, the operating cost of a small facility increases to $600,000. After having conducted some market research, they feel that the likelihood of high demand is 0.7 and the likelihood of small demand is 0.3.
Use the information from Scenario 6.1 to determine the expected cost of operating a large facility for two years.

A) $810,000
B) $450,000
C) $405,000
D) $2,810,000

Question 42

The NPV (net present value) of a cash stream that is equal to $100 per period for 5 periods with a rate of return of 12% per period would be

A) $360.48.
B) $382.98.
C) $403.73.
D) $416.51.

Question 43

What rate of return results in a present value of $23 for $25 received one year from now?

A) 7.8%
B) 8.1%
C) 8.4%
D) 8.7%

Question 44

The NPV (net present value) of a cash stream that is equal to $75 per period for 5 periods with a rate of return of 15% per period would be

A) $261.37.
B) $289.12.
C) $312.74.
D) $322.44.

Question 45

For a global supply chain, exchange rates and inflation are

A) likely to vary over time in different locations.
B) not likely to vary over time in different locations.
C) not likely to vary over time in any locations.
D) likely to be stable over time in all locations.

Question 46

What rate of return results in a present value of $432 for $250 received one year from now and another $250 received two years from now?

A) 9.89%
B) 10.32%
C) 10.94%
D) 11.37%

Question 47

A decision tree is

A) a graphic device used to evaluate decisions under certainty.
B) a graphic device used to evaluate decisions under uncertainty.
C) a tabular device used to evaluate decisions under certainty.
D) a tabular device used to evaluate decisions under uncertainty.

Question 48

Short-term contracts for both warehousing and transportation requirements will be more effective

A) if the demand and price of warehousing do not change in the future.
B) if the price of warehousing goes up in the future.
C) if either demand or the price of warehousing drops in the future.
D) only if demand drops in the future.

Question 49

The appropriate discount rate used in decision tree methodology

A) should be risk-adjusted and risk may vary by period and decision node.
B) should be risk-adjusted and risk may not vary by period and decision node.
C) should not be risk-adjusted and risk may vary by period and decision node.
D) should not be risk-adjusted and risk may not vary by period and decision node.

Question 50

Uncertainty of demand and price

A) drives the value of building flexible production capacity at a plant.
B) eliminates the value of building flexible production capacity at a plant.
C) facilitates the value of building flexible production capacity at a plant.
D) has no effect on the value of building flexible production capacity at a plant.

Question 51

The degree of demand and price uncertainty has

A) no effect on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.
B) a limited influence on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.
C) a minor influence on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.
D) a significant influence on the appropriate portfolio of long- and short-term warehousing space that a firm should carry.

Question 52

In reality, demand and prices are

A) highly certain and not likely to fluctuate during the life of any supply chain decision.
B) highly certain and likely to fluctuate during the life of any supply chain decision.
C) highly uncertain and not likely to fluctuate during the life of any supply chain decision.
D) highly uncertain and likely to fluctuate during the life of any supply chain decision.

Question 53

The decision with the highest NPV (net present value) will provide a supply chain with

A) the highest financial return.
B) the lowest financial return.
C) a reasonable financial return.
D) the least desirable financial return.

Question 54

Flexibility should be valued by taking into account uncertainty in demand and economic factors. In general, flexibility will tend to

A) decrease in value with a decrease in certainty.
B) increase in value with an increase in uncertainty.
C) decrease in value with an increase in uncertainty.
D) increase in value with an increase in certainty.

Question 55

Scenario 6.1 - The Big Box
Bahouth Ltd. is planning for the next two years of production and debating whether to construct a large cross-dock facility with 40 truck bays or a smaller one with 20 truck bays. The cost to build the large facility is $2 million and the cost to build the small one is $1.2 million. If they construct a large facility and demand is as high as they hope, then operating costs are $450,000 annually. If they construct a large facility and demand is low, then operating costs are $300,000. If they construct a small facility and demand is low, the operating costs are $275,000 but if they experience high demand, the operating cost of a small facility increases to $600,000. After having conducted some market research, they feel that the likelihood of high demand is 0.7 and the likelihood of small demand is 0.3.
Use the information from Scenario 6.1 to determine the expected cost of operating a small facility for a period of two years.

A) $1,102,500
B) $1,005,500
C) $502,500
D) $2,205,000

Question 56

In a complex decision tree there are

A) only a few possible paths that may result from the first period to the last.
B) less than thirty possible paths that may result from the first period to the last.
C) thousands of possible paths that may result from the first period to the last.
D) an infinite number of possible paths that may result from the first period to the last.

Question 57

Decision tree analysis is based on Bellman's principle, which states that for any choice of strategy in a given state,

A) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the first period.
B) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the last period.
C) the optimal strategy in the next period is the one that is selected if the entire analysis is assumed to begin in the last period.
D) the optimal strategy in the next period is the one that is selected if the entire analysis is assumed to begin in the next period.

Question 58

A negative NPV (net present value) for an option indicates that the option will

A) gain money for the supply chain.
B) lose money for the supply chain.
C) maximize profit for the supply chain.
D) minimize profit for the supply chain.

Question 59

Uncertainty in demand and economic factors should be included in the financial evaluation of supply chain design decisions, because

A) the exclusion of certainty may have a significant impact on this evaluation.
B) the exclusion of uncertainty may have a significant impact on this evaluation.
C) the inclusion of certainty may have a significant impact on this evaluation.
D) the inclusion of uncertainty may have a significant impact on this evaluation.

Question 60

Firms should use simulation for evaluating decisions when

A) underlying decision trees are simple and explicit solutions for the underlying decision tree are difficult to obtain.
B) underlying decision trees are very complex and explicit solutions for the underlying decision tree are difficult to obtain.
C) underlying decision trees are simple and explicit solutions for the underlying decision tree are easy to obtain.
D) underlying decision trees are very complex and explicit solutions for the underlying decision tree are easy to obtain.

Question 61

The XYZ Company has a choice between two warehouses. A lease at location A costs $1000 per month with a payment of $2000 up front to guarantee the 3 year lease. Location B would cost $1200 per month and would be leased from month to month. The anticipated revenue in either location is $1500 per month. The estimated rate of return is 10% per year. Using net present value, determine which location would be the better choice.

Question 62

Discuss the ideas that managers should consider to make better supply chain network design decisions under uncertainty.

Question 63

Scenario 6.1 - The Big Box
Bahouth Ltd. is planning for the next two years of production and debating whether to construct a large cross-dock facility with 40 truck bays or a smaller one with 20 truck bays. The cost to build the large facility is $2 million and the cost to build the small one is $1.2 million. If they construct a large facility and demand is as high as they hope, then operating costs are $450,000 annually. If they construct a large facility and demand is low, then operating costs are $300,000. If they construct a small facility and demand is low, the operating costs are $275,000 but if they experience high demand, the operating cost of a small facility increases to $600,000. After having conducted some market research, they feel that the likelihood of high demand is 0.7 and the likelihood of small demand is 0.3.
Suppose the contractor has found some materials on Craigslist that can drop the construction cost of a large facility to $1,500,000. These materials cannot be used in the construction of the small facility, so its price remains as indicated in Scenario 6.1. Determine the likelihood of high demand that would make the decision maker indifferent between the two alternatives for a two year time period.

A) 1.0
B) 0.72
C) 0.92
D) 0.86

Question 64

The evaluation of supply chain networks

A) should use only one metric.
B) should use multiple metrics.
C) should not use more than one metric.
D) should be subjective.

Question 65

Scenario 6.1 - The Big Box
Bahouth Ltd. is planning for the next two years of production and debating whether to construct a large cross-dock facility with 40 truck bays or a smaller one with 20 truck bays. The cost to build the large facility is $2 million and the cost to build the small one is $1.2 million. If they construct a large facility and demand is as high as they hope, then operating costs are $450,000 annually. If they construct a large facility and demand is low, then operating costs are $300,000. If they construct a small facility and demand is low, the operating costs are $275,000 but if they experience high demand, the operating cost of a small facility increases to $600,000. After having conducted some market research, they feel that the likelihood of high demand is 0.7 and the likelihood of small demand is 0.3.
Use the information from Scenario 6.1 to determine the likelihood of high demand that would make the decision maker indifferent between the two alternatives for a two year operating time.

A) 0.86
B) 0.72
C) 0.28
D) 0.14

Question 66

Pretzle Wagon is evaluating the possibility of offshoring part of his operation and developing a spreadsheet to help assess the total cost of the decision. What elements should be included in the evaluation?

Question 67

Scenario 6.1 - The Big Box
Bahouth Ltd. is planning for the next two years of production and debating whether to construct a large cross-dock facility with 40 truck bays or a smaller one with 20 truck bays. The cost to build the large facility is $2 million and the cost to build the small one is $1.2 million. If they construct a large facility and demand is as high as they hope, then operating costs are $450,000 annually. If they construct a large facility and demand is low, then operating costs are $300,000. If they construct a small facility and demand is low, the operating costs are $275,000 but if they experience high demand, the operating cost of a small facility increases to $600,000. After having conducted some market research, they feel that the likelihood of high demand is 0.7 and the likelihood of small demand is 0.3.
Use the information from Scenario 6.1 to determine the cost of the best alternative for a two year period.

A) $2,000,000
B) $1,200,000
C) $2,205,000
D) $2,810,000

Question 68

Simulation methods are very good at evaluating decisions when

A) the paths are decision dependent.
B) the decision rules are simple.
C) there are different forms of uncertainty.
D) implicit solutions are needed for analysis.

Question 69

Briefly describe the three primary risk mitigation strategies based on the idea of flexibility that supply chain managers can use.

Question 70

Simulation models

A) require a higher setup cost to start and operate compared to decision tree tools.
B) require a lower setup cost to start and operate compared to decision tree tools.
C) require a higher setup cost to start but less to operate compared to decision tree tools.
D) require a lower setup cost to start but more to operate compared to decision tree tools.

Question 71

Summarize the steps in the decision tree analysis methodology.

Question 72

If price and demand do vary over time in a global network,

A) flexible production capacity should not be used in the new environment.
B) flexible production capacity will be ineffective in the new environment.
C) flexible production capacity can be reconfigured to maximize profits in the new environment.
D) flexible production capacity should never be used in an uncertain environment.

Question 73

One of the best ways to speed up the process of financial analysis and arrive at a good decision is to

A) use estimates of inputs when it appears that finding a very accurate input would take an inordinate amount of time.
B) use estimates backed up by sensitivity analysis when it appears that finding a very accurate input would take an inordinate amount of time.
C) use estimates of inputs except when it appears that finding a very accurate input would take an inordinate amount of time.
D) make sure that every detail is very accurate.

Question 74

A firm may choose to build a flexible global supply chain even in the presence of little demand or supply uncertainty if

A) certainty exists in both exchange rates and prices.
B) certainty exists in exchange rates or prices.
C) uncertainty exists in both exchange rates and prices.
D) uncertainty exists in exchange rates or prices.

Question 75

Strategic planning and financial planning

A) should be performed independently during supply chain network design.
B) should be performed sequentially during supply chain network design.
C) should be performed concurrently during supply chain network design.
D) should be combined during supply chain network design.