Supply Chain Management: Concepts, Strategies, and Optimization Techniques

With regard to the cost-based price model of negotiation strategy, which of the following is true?

Prices are based upon vendor costs

The term vertical integration means to produce goods or services previously purchased.
Which of the following is a reason for making a component rather than buying it?

Obtain desired quality

The advantage of many potential suppliers is their willingness to lower prices in the short term.
Trucking is increasingly using computers to manage its operations.
Airfreight is the fastest-growing mode of shipping.
The negotiation strategy that bases price on a published, auction, or index price is the market-based price model.
The vendor selection stage that requires the development of evaluation criteria and the importance of each is vendor evaluation.
A producer decides to implement new quality procedures and send their engineers and production personnel to a supplier’s plant in order to train them on these new procedures. This activity takes place in the development stage of vendor selection.
An unfilled order with a vendor that is a contract to purchase items but not an authorization to ship anything is known as a blanket order.
A lawnmower assembly plant uses a variety of nuts, bolts, screws, and other fasteners in their operation. Their supplier delivers these items directly to the point of use on the assembly line and ensures that there are always sufficient quantities of fasteners to maintain the production schedule. This is an example of vendor-managed inventory.

….The workaround was a computer based system that added predetermined quantities of pigments to a gallon can of base paint depending on the desired shade, in this case, Musical Mist. The hardware store now needed to stock only the base paint, this machine, and a small supply of paint pigments in order to create the thousands of colors in their catalog. This scenario is a prime example of postponement.

For many firms, purchasing spends the most money.


The ‘bullwhip effect’ occurs as orders are relayed from retailers, to wholesalers, to manufacturers.


The supply chain suffers from distortions in the flow of inventory as a result of local optimization, incentives, and large lots.


One reason for buying rather than making is to utilize surplus labor.


A strategy of few suppliers implies looking for short-term attributes.


Forward integration suggests a firm purchase its suppliers.


In order to achieve a response strategy, a firm would seek to invest in excess capacity and flexible processes for its supply chain.


In order to be responsive to the market, supply chain members should seek to minimize inventory.


Outsourcing is a make or buy decision that involves the transfer of tangible product.


In general, members of a supply chain are not susceptible to ethical lapses.


Most organizations are better off concentrating on their specialty and outsourcing functions that their supply chain partners do well.


Keiretsu networks are Japanese companies that form a temporary supply chain as a trial before becoming one company that has achieved perfect vertical integration.


The greater the number of days of supply, the greater the rate of inventory turnover.


The list of quantities of components, ingredients, and materials required to produce a product is the bill-of-materials.
____________ allows a segment of the master schedule to be designated as “not to be rescheduled.” Time fence.
A lot-sizing technique that generates exactly what was required to meet the plan is lot-for-lot.
Breaking up the order and running part of it ahead of schedule is known as lot splitting.
The difference between a gross material requirements plan (gross MRP)
And a net material requirements plan (net MRP)

Is the net MRP includes consideration of the inventory on hand, whereas the gross MRP does not

A phantom bill-of-materials is a bill-of-materials developed for a subassembly that exists only temporarily.
Which of the following lot-sizing techniques is likely to prove the most complex to use?

The Wagner-Whitin algorithm

When a bill-of-materials is used in order to assign an artificial parent to a bill-of-materials, it is usually called a planning bill-of-materials.
The operations manager has several tools available to deal with MRP system nervousness. Those tools are time fences and pegging.
An MRP system that provides feedback to the capacity plan, master production schedule, and production plans is called closed-loop MRP.
A time-phased stock-replenishment plan for all levels of a supply chain is called DRP.
Which of the following is an advantage of ERP?

Creates commonality of databases

Use the product structure tree and the inventory records to determine how many item Cs should be ordered in order to produce 20 phones.


Use the product structure tree and the lead time information (in weeks) to determine when an order for Fs should be placed to deliver phones in week 10 if the phones require 2 weeks to assemble. Assume there is no starting inventory for any component or end item.

Week 2

A(n) ________ system provides feedback to the capacity plan, master production schedule and production plan. Closed-loop.
Which of these pieces of information is NOT contained in a bill of material?

Lead times

A report that shows the resource requirements in a work center for all currently assigned work as well as all planned and expected orders is a load report.

Dependent demand means that the demand for one item is related to the demand for another item. True.
The master production schedule specifies what is to be made and when. True.
The master production schedule disaggregates the aggregate production plan. True.
An engineering change notice is a list of components, ingredients, and materials required to make a product. False.
A phantom bill of materials is created in order to assign an artificial parent to the bill of materials. False.
The objective of ERP systems (to coordinate a firm’s entire business) is seldom achieved. True.
An MRP system for a restaurant may contain a bill of material for a menu item’s recipe and a bill of labor for the chef’s time to prepare the dish. True.
A DRP system tends to push inventory through the supply chain. False.
In production systems, lead time for a component is a measure of how long it takes to process the item. False.
Nervousness occurs when the MRP system realizes that it will not be able to complete an order as promised. False.
MRP is an infinite scheduling technique. True.
A lot-for-lot approach to lot sizing does not produce safety stock or anticipate further orders. True.
Company A and their supplier, Company B, are located close to each other and have worked diligently to reduce lot sizes to JIT-size levels. The best lot-sizing procedure to pursue as part of their MRP system would be part period balancing. False.

Which of these statements regarding outsourcing is best?

The reduced cost of more reliable transportation is a contributing factor to increased outsourcing

The motivation for internal outsourcing comes from:

The theory of comparative advantage

A recent survey of business executives revealed that the most important reason for outsourcing was cost savings.
Occasionally an outsourcing agreement is reconsidered and the business activities are returned to the original firm. This practice is called backsourcing.
A company considers four locations to outsource critical services and decides to evaluate each location on six factors. Each of these six factors is assigned an importance weight and the results appear in the colorful table. Which site is the best candidate for outsourcing?


Gargoyle of Seattle, Washington has chosen a company in San Francisco, California to produce lanyards for their new Ichiro line of sunglasses. This approach to outsourcing is called nearshoring.
Which of these positions would be considered an unethical practice in outsourcing?

Pollution laws in some developing countries are less strict than those in the U.S., so manufacturing practices that generate significant pollution are best offshored.

Inappropriate planning and analysis result in the failure of what percentage of outsourcing agreements?

About 50%

Which of these statements about outsourcing is best?

Call centers must disclose their locations to customers

ABC Company is at a crossroads; the flux capacitor, an integral component of their new product requires production volumes and quality levels that they have had difficulty achieving in the past. If they choose to purchase the flux capacitors from another company rather than continue to make them, then they have outsourced production.


A firm should outsource core competencies so they can focus improvement efforts on processes they haven’t mastered.


In the area of global operations, the term China price means “the lowest price possible”.


In a recent survey of executives from over 50 major corporations, the top reasons for outsourcing were cost savings, gaining outside expertise, and improving services.


Most U.S. Jobs that are outsourced are outsourced offshore.


The United States receives more outsourcing business from other countries than it outsources.


Nearshoring is the term for the return of a business activity to the client firm.


One hidden advantage of outsourcing is increased control for the client firm.


The outsourcing client enjoys the benefit of ceasing to track or measure the outsourced service; this burden lies solely with the outsourcing provider.


Over 10% of everything produced in China is sold at Wal Mart.