Supply Chain Management: Strategy, Planning, and Operation, 7e (Chopra)
Chapter 15 Sourcing Decisions in a Supply Chain
15.1 True/False Questions
1) Sourcing processes include the selection of suppliers, design of supplier contracts, product
design collaboration, procurement of material, and evaluation of supplier performance.
2) A good supplier scoring and assessment process will only track performance along the price
dimension when evaluating a supplier.
3) Design collaboration ensures that any design changes are communicated effectively to all
parties involved with designing and manufacturing the product.
4) The goal of procurement is to enable orders to be placed and delivered on schedule at the
lowest possible price.
5) Effective sourcing processes within a firm can improve profits for the firm and total supply
chain surplus in a variety of ways.
6) 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.
7) A reliable supplier has low variability of lead time, whereas an unreliable supplier has high
variability.
8) As the replenishment lot size grows, the cycle inventory at the firm grows, thus increasing the
cost of holding inventory.
9) Post-ownership costs are not factored in when computing the total cost of ownership.
10) It is difficult to quantify the management cost of a good.
11) Supplier viability can be especially important if the supplier is providing mission-critical
products and it would be easy to find a replacement for them.
12) The procurement process for indirect materials should focus on decreasing the transaction
cost for each order.
13) Supplier performance analysis should be used to build a portfolio of suppliers with similar
strengths.
14) A production material that lies on the high end of both the value/cost scale and the criticality
scale is categorized as a strategic item.
15) A production material that lies on the high end of the value/cost scale and the low end of the
criticality scale is categorized as a general item.
16) For critical items, it is most important to ensure that they are available.
17) Supplier services should be a distinguishing factor when deciding among suppliers for bulk
purchase items.
18) Sales efforts tend to peak close to the end of an evaluation period.
19) A steady pace of sales throughout any sales period is known as the hockey stick
phenomenon.
20) The hockey stick phenomenon may be mitigated by offering threshold incentives over a
rolling time horizon.
21) To improve overall profits, the supplier must design a contract that requires the buyer to
share in some of the supplier’s demand uncertainty.
22) Buyback contracts are most effective for a product with a low variable cost.
23) Concentrating risk at one stage of the supply chain increases overall supply chain profits if
the supply chain margin is divided between the two parties and each makes its decisions
concerning only its own margin.
24) Under quantity flexibility contracts, the manufacturer allows the retailer to change the
quantity ordered after observing demand.
25) With a quantity flexibility clause, the retailer increases their market intelligence.
1) 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.
2) 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.
3) 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.
4) Without an intermediary, connecting a thousand sellers to a million buyers requires
A) a thousand relationships.
B) a million relationships.
C) a billion relationships.
D) a trillion relationship.
5) 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.
6) 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.
7) Supplier performance must be rated on many different factors because
A) the factors impact the total supply chain cost.
B) the factors minimize the supply chain involvement.
C) the factors reduce the impact of price.
D) the factors maximize the supply chain price.
8) Which of the following is a traditional logistics driver of sourcing?
A) Pricing
B) Inventory
C) Sourcing
D) Information
9) The decision to have a third party perform a supply chain function is called
A) insourcing.
B) outsourcing.
C) offshoring.
D) onshoring.
10) The decision to move a production facility outside of domestic boundaries and still maintain
ownership is called
A) insourcing.
B) outsourcing.
C) offshoring.
D) onshoring.
11) A third party can increase the supply chain surplus by aggregating demand across multiple
firms and gaining production economies of scale that no single firm can on its own. This is called
A) capacity aggregation.
B) inventory aggregation.
C) warehouse aggregation.
D) relationship aggregation.
12) An intermediary can increase the supply chain surplus by aggregating inventories across
large numbers of customers. This is called
A) capacity aggregation.
B) inventory aggregation.
C) warehouse aggregation.
D) relationship aggregation.
13) A third party may increase the supply chain surplus by aggregating warehousing needs over
several firms. This is called
A) capacity aggregation.
B) inventory aggregation.
C) warehouse aggregation.
D) relationship aggregation.
14) An intermediary can increase the supply chain surplus by decreasing the number of
relationships required between multiple buyers and sellers. This is called
A) capacity aggregation.
B) inventory aggregation.
C) warehouse aggregation.
D) relationship aggregation.
15) A third party can increase the supply chain surplus if it has a lower collection cost than the
firm. This is called
A) receivables aggregation.
B) procurement aggregation.
C) information aggregation.
D) relationship aggregation.
16) A third party increases the supply chain surplus if it aggregates the sourcing for many small
players and facilitates economies of scale in ordering, inbound transportation and production.
This is called
A) capacity aggregation.
B) procurement aggregation.
C) information aggregation.
D) relationship aggregation.
17) Craigslist and eBay are examples of
A) receivables aggregation.
B) inventory aggregation.
C) information aggregation.
D) relationship aggregation.
18) W.W. Grainger and McMaster Carr stock products from more than a thousand manufacturers
each to sell to hundreds of thousands of customers and are sterling examples of
A) transportation aggregation by transportation intermediaries.
B) inventory aggregation.
C) warehouse aggregation.
D) transportation aggregation by storage intermediaries.
19) Using a third party requires a firm to share demand information and in some cases
intellectual property. This risk would be described as
A) leakage of sensitive data and information.
B) underestimation of the cost of coordination.
C) reduced customer/supplier contact.
D) loss of internal capability.
20) 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.
21) 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.
22) 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.
23) 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.
24) 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.
25) Consider the factors influencing total cost and supplier performance. Which of the following
is the LEAST quantifiable factor?
A) Supplier price
B) Supplier terms
C) Support
D) Warehousing cost
26) 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.
27) 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.
28) Good design collaboration for manufacturability and supply chain can
A) reduce product cost.
B) increase required inventories.
C) increase transportation cost.
D) decrease manufacturability.
29) 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.