Chapter 9: Supply Chain Management

CHAPTER 9: SUPPLY CHAIN MANAGEMENT

TRUE/FALSE

1. Materials management involves organizing and coordinating all management functions that are responsible for every aspect of materials movements and transformations.

ANS:T

1. Internal MM systems do not require control of production materials.

ANS:F

1. Logistics which are the tactics of MM production and distribution should always be in harmony with the company’s strategies.

ANS:T

1. Raw materials have value added by the operations. Mining, growing, refining, cleaning, packing and shipping add value.

ANS:T

1. Quality standards for components and subassemblies do not have to be clearly set by the materials manager for the producer.

ANS:F

1. Flow shops require continuous supply of specific sets of unchanging materials.

ANS:T

1. Flow shops, like job shops, have a varied and changing set of materials requirements.

ANS:F

1. Vertical integration is achieved by buying companies able to provide components that are otherwise purchased from suppliers.

ANS:T

1. Companies that can compete globally have achieved an organizational integration of the information required for materials control on a global basis.

ANS:F

1. Purchasing agents and their buying organizations, have the traditional role of bringing needed supplies into the organization.

ANS:T

1. Purchasing departments in the twentieth century are best described as information-gathering agencies.

ANS:F

1. The price-tag approach has been thrown out in favor of long-term relationships with special, trusted suppliers.

ANS:T

1. The performance of purchasing agents in the supply chain is related to the speed with which goods move out of the warehouse and off the shelves in relation to the amount of inventory that is on hand to be drawn down.

ANS:T

1. DOI (days of inventory) is a measure that is equivalent to dividing total stock on-hand by the average demand per day.

ANS:F

1. Good turnover brings large rewards and a reputation for purchasing success.

ANS:T

1. Purchasing records provide a history of what has been done in the past.

ANS:T

1. The purchasing mission includes achieving deliveries on time, receiving inventories, inspecting all incoming goods, certifying suppliers, and making sure the relationship with trusted suppliers is stable.

ANS:T

1. In the business environment of the United States, personal relationships are not considered to be a reasonable basis for enterprise decisions. They exist nevertheless in less blatant forms than in other cultures.

ANS:T

1. Wal-Mart uses cross-docking to transfer goods from incoming trucks at the receiving dock to outgoing trucks at the shipping docks.

ANS:T

1. Bidding is a process by which the seller requests competing companies to specify how much they will charge for their products.

ANS:F

1. In bidding, steps must be taken to ensure that quality is not compromised by price considerations.

ANS:T

ANS:F

1. ABC classification of materials is most often done in terms of annual dollar volume. This identifies the most important SKUs as A-class. Increasing numbers of organizations try to prepare for shortage situations by overstocking the C-class of items. (Read Chapter 5 on inventory control.)

ANS:F

1. A variant of the dollar volume ABC classification is based on the criticality of SKUs. The most critical are called A-critical items. (Read Chapter 5 on inventory control.)

ANS:T

1. A possible description of critical parts relates to the probability of total process or product failure when that critical part fails. (Read Chapter 5 on inventory control.)

ANS:T

1. Dollar volume is the surrogate for potential savings that can be made by improving the inventory management of specific materials.(Read Chapter 5 on inventory control.)

ANS:T

1. Certification of suppliers is a process for grading suppliers to ensure that suppliers’ organizations conform to standards that are essential for meeting the buyer’s needs.

ANS:T

1. Certification of suppliers is not expensive or time-consuming.

ANS:F

1. The strategic component came into play during start-up, when deciding what goods were to be made and what services were to be offered.

ANS:T

1. Strategies can be tweaked or changed significantly if they are not delivering according to plans.

ANS:T

1. Value adding occurs when purchased components are further transformed by the company’s production process.

ANS:T

1. Critical can mean that when a part fails, it causes product or process failure.

ANS:T

1. The bullwhip effect is the amplification of oscillation caused by competitive actions.

ANS:F

1. Simulation is a means for studying the complex interactions of various linkages along the supply chain.

ANS:T

1. The beer game originated at MIT and has since been used to demonstrate how difficult it can be to make good decisions without adequate and current information about what is going on at all points of the supply chain.

ANS:T

1. The distribution chain is another name for the supply chain.

ANS:F

1. The acquisition chain is upstream in the supply chain.

ANS:T

1. Downstream in the supply chain is the distribution chain.

ANS:T

1. Upstream and Downstream are relative terms. What is upstream for one supply chain participant can be downstream for another.

ANS:T

1. The ethics of purchasing is a moral issue and not a legal one in the USA.

ANS:F

MULTIPLE CHOICE

1. Our company makes an extensive line of products. Marketing lands a big contract for one particular item that normally sells hundreds per year. The new contract is for thousands per year. What is triggered by these marketplace demands?

ANS:C

1. The materials management system must be synchronized and coordinated to be

ANS:A

1. Co-produced products have much of their additional value-added supplied by the

ANS:C

1. It is to be expected that analysis will continue to indicate that materials have the _____ leverage for making cost savings.

ANS:A

1. Penalties for mistakes made in ordering materials (generally) do not depend on

ANS:D

1. _____ are needed to evaluate and balance the disadvantages of having large amounts of stock on-hand (SOH) against the benefits of large order quantities placed long in advance of delivery so that substantial quantity discounts can be obtained.

ANS:B

1. _____ involve smaller order quantities of far more kinds of materials than _____.

ANS:A

1. The cost of materials is often less crucial than _____

ANS:A

1. Management issues such as what items to buy, when to buy them, from whom to buy, how much to buy at one time, and how much to pay, are captured by what systems?

ANS:B

1. Which function is part of the responsibilities of the materials control department?

ANS:E

1. _____ has become a global system.

ANS:C

1. What captures the essence of supply chain objectives regarding throughput and value added?

ANS:E

1. Failing to achieve high turnover rates can be caused by

ANS:E

1. _____ provide a useful history of _____.

ANS:A

1. Coordinating the goals of materials management with those of process management is one of the greatest responsibilities of the _____

ANS:B

1. It is neither ethical nor legal for vendors to use bribes to influence purchasing decisions in _____

ANS:C

1. The receiving facility is often called the _____, and another location for shipping is called a _____.

ANS:B

1. Cross-docking is the transfer of goods from _____

ANS:A

1. Bidding models show that as the number of bidders competing _____, the size of the winning bid decreases.

ANS:C

1. Material shortages hit particularly hard at the _____, because it has the least flexibility in adapting to changes in the use of materials.

ANS:A

1. The ABC classification for materials is best described by the _____.

(Read Chapter 5 on inventory control.)

ANS:B

1. Critical parts refers to

ANS:A

1. In what way can suppliers be monitored for their compliance with total quality management programs?

ANS:D

1. The step-by-step procedure for dealing with criticality relationships is:

ANS:B

1. MM connects the _____ sourcing of supplies to the _____ scheduling of product to be delivered to the customer.

ANS:A

1. _____ occurs when purchased components are further transformed by the company’s production process.

ANS:C

1. Organizations that are in the business of supplying raw materials at the very start of the upstream acquisition process are themselves dependent on

ANS:A

1. Components (C) and subassemblies (SA) are purchased materials that have _____ value added than the raw materials of which they are made.

ANS:B

1. Analysis is based on running the numbers for alternative taxes and _____ in the countries where finished goods are purchased and sold.

ANS:C

1. It is to be expected that analysis will continue to indicate that for most suppliers, their materials costs have averaged _____ their labor costs.

ANS:B

1. Alternatively, carrying large amounts of inventory can be _____, requiring more storage space than is justified, and running up carrying costs.

ANS:D

1. _____ is reflected in the dollar demand, which is a good measure of item importance.

ANS:A

1. Expectations of buyers for the performance of their suppliers change when there is continuity of their

ANS:B

1. Companies that can _____ have achieved an organizational integration of the information required for materials control on an international basis.

ANS:B

1. _____ purchasing may not be best for every organization, but it is more likely to be the best approach when the information systems infrastructure supports a global network.

ANS:A

1. _____ means following up on orders and doing whatever can be done to move materials faster.

ANS:C

1. The importance of the buying function depends upon the extent to which the company requires

ANS:B

1. The performance of the _____ in the supply chain is related to the speed (or velocity) with which goods sell and amount of inventory that is on hand to be drawn down.

ANS:A

1. Bullwhip effect refers to

a. shortages c. both a. and b.

b. overstock d. safety stock

ANS: C

1. Simulation is used to

a. demonstrate the damping effect of good purchasing decisions

b. the flow of materials upstream

c. the flow of materials downstream

d. effect of purchasing decisions on SOH

ANS: D

1. The beer game is so named because:

a. the distribution of beer is complex,

b. the first application of simulation to the acquisition chain was Budweiser,

c. students understand the product,

d. the creators at MIT named it that way

ANS: D.

SHORT ANSWER

1. Explain analytic processes. How are they different from synthetic processes?

ANS:

The text does this very well, so we will take a look at one particular aspect at this time.

The analytic process start with tons of raw materials and reduces them to smaller amounts of work-in-process based on the thought that less bulky goods require less storage space. The opposite effect occurs for many manufactured products, which employ synthetic processes. They assemble components into bigger and heavier subassemblies and eventually finished products like farm tractors, diesel locomotives, automobiles, and commercial airliners. There is clearly an advantage in having such large and heavy finished goods near to their marketplace so they do not have to be transported great distances to the customers.

1. To which geographic location has outsourcing moved the labor component?

ANS:

In the 1990s, outsourcing the labor component meant moving plants to Mexico. Later, the plants were moved to Thailand, Indonesia, Pakistan, Taiwan, and the Republic of China. There have been rotations from one location to another as problems have surfaced in locations that are far from corporate headquarters. At the current time, China has become one of the largest sources for labor-intensive production. India has the award for information services and software.

1. When purchasing is a centralized operation that buys for many different subsidiaries, problems can surface because some like what they get and others do not. What should be done to prevent antagonism under such circumstances?

ANS:

When there is antagonism between the buyers and those for whom they buy, many problems can surface. To prevent this from happening, close communication must be established and the needs of all parties taken into consideration. Working with purchasing, a good relationship should be established between subsidiaries and the suppliers. There is increasing belief in a materials system with fewer suppliers and a greater trust relationship between all parties.

1. The determination of what to make and what to buy depends on what factors?

ANS:

The importance of the buying function depends upon the extent to which the company requires outside suppliers. The determination of what to make and what to buy is a P/OM decision; however, purchasing department information can be crucial. It is evident that the decision often depends on the terms to buy, including price, quality, delivery, and innovations, among others, which purchasing learns about and communicates the P/OM team. There is also a need to know about new technology that makes buying from someone a knowledge drain which cannot be supported.

1. What happens to large unsold inventories?

ANS:

Fashion is fickle. Women’s clothing styles change in complex ways. Manufacturers have been caught with large unsold inventories as a result of committing to a style that did not gain acceptance. When turnover is poor for retail or mail order, the goods are marked down and sold quickly at large discounts that provide no profit, and often at a loss. Books and toys that do not sell are marked down and remaindered.

1. How is DOI calculated?

ANS:

DOI is equivalent to dividing total stock on-hand by the average demand per day.It is the expected length of time before running out of stock—if no further stock is added. DOI changes when new stock is added (DOI goes up) and when daily demand speeds up (DOI goes down). When daily demand slows down (DOI goes up). Read Chapter 5 on inventory control.

1. What are Purchasing Records?

ANS:

Purchasing records provide a history of what has been done in the past. Documenting history is useful, including what the costs were, who the major suppliers were, what discounts were obtained, what quality levels achieved, and delivery periods for specific items. Without documentation, the supplier history of a company can be lost. At the same time, the history must be updated regularly since things change at a rapid rate.