Operations Management: Processes and Supply Chains, 12e (Krajewski)
Chapter 12 Supply Chain Design
1) The purpose of supply chain management is to synchronize a firm’s processes with those of its
suppliers and customers.
2) Supply chain management tries to match the flow of materials, services and information with demand.
3) The purpose of supply chain design is to shape a firm’s supply chain to meet the competitive priorities
of its operations strategies.
4) Which one of the following is true for supply chain management?
A) Supply chain applies to both manufacturing and service organizations.
B) Supply chain applies only to manufacturing because it deals with flow of materials.
C) Supply chain is about suppliers and does not include distributors or customers.
D) Supply chain includes any operation that deals with materials.
Figure 12.1
This figure represents the impact of supply chain performance on total costs.
5) Refer to Figure 12.1. The movement from point A to point B indicates the:
A) increase in time it takes for your firm to deliver goods and services.
B) decrease in time it takes for your firm to deliver goods and services.
C) increase in cost.
D) decrease in cost.
6) Refer to Figure 12.1. Which is the best statement if a company simultaneously moves from point A to
point B and from point D to point C?
A) The new supply chain efficiency curve is superior to the old one.
B) The new costs are higher, but the performance is better.
C) The new supply chain is still inferior to the supply chain efficiency curve.
D) The new performance is worse, but the costs are lower.
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7) ________ is the synchronization of a firm’s process with those of its suppliers and customers to match
flow of materials, services and information with demand.
8) ________ seeks to develop a firm’s supply chain to meet the competitive priorities of the firm’s
operations strategy.
9) Compare and contrast efficient versus responsive supply chains.
Answer: The purpose of efficient supply chains is to coordinate the flow of materials and services to
minimize inventories and maximize the efficiency of the manufacturers and service providers in the
chain. Responsive supply chains are designed to react quickly to market demands by positioning
inventory and capacities to hedge against uncertainties in demand. Efficient supply chains work best
12.2 Supply Chains for Services and Manufacturing
1) Supply chain design for a service provider is driven primarily by the need to control the materials it
consumes as it delivers its various services.
2) The fundamental purpose of supply chain design for a manufacturer is to control inventories by
managing the flow of materials.
3) While it is important to manufacturing firms, little can be done to improve supply chain strategy in
most service organizations.
4) The finished goods of one firm may actually be the raw materials for another firm.
5) A typical manufacturer spends:
A) about 25% of its total income from sales on purchased services and materials.
B) about 45% of its total income from sales on purchased services and materials.
C) more than 60% of its total income from sales on purchased services and materials.
D) almost 80% of its total income from sales on purchased services and materials.
6) Discuss the major differences between supply chains for services and manufacturing. Which supply
chain is easier to coordinate effectively?
1) The weeks of supply measure will improve if the weekly sales decrease.
2) Selling expenses, fixed expenses and depreciation are all considered operating expenses.
3) Increasing the percentage of on-time deliveries to customers actually reduces the total revenue of a
firm.
4) Henderson Corporation is a supplier of alloy ball bearings to auto manufacturers in Detroit. Because of
the specialized manufacturing process employed, considerable work–in-process and raw material
inventories are created. The average inventory levels are $1,152,000 and $2,725,000, respectively. In
addition, finished goods inventory is $3,225,000, and sales (at cost) for the current year are expected to be
about $24 million. The inventory turnover that Henderson Corporation is currently expecting is:
A) less than 2.0.
B) greater than 2.0 but less than 2.5.
C) greater than 2.5 but less than 3.0.
D) greater than 3.0.
5) The average inventory at Hamilton Industries, comprising raw materials, work–in-process, and
finished goods, was found to be $17.2 million last year. If the cost of goods sold per week averaged $1.32
million, what was the inventory turnover experienced by Hamilton Industries? Assume the company had
50 working weeks per year.
A) less than or equal to 3.50
B) greater than 3.50 but less than 3.75
C) greater than 3.75 but less than 4.00
D) greater than 4.00
6) Padco averages $15 million worth of inventory in all of its worldwide locations. They operate 51 weeks
a year and each week average $3 million in sales (at cost). Their inventory turnover is:
A) 1.13 turns.
B) 5 turns.
C) 10.2 turns.
D) 17 turns.
7) Weeks of inventory and inventory turns are reflected in:
A) working capital.
B) operating expenses.
C) cost of goods sold.
D) cash flow.
8) Some discount stores are able to sell items before they have to pay their suppliers, resulting in a
negative:
A) net profit.
B) return on assets.
C) number of inventory turns.
D) cash-to–cash measure.
9) Shipments of Product Q from a plant to a wholesaler are made in lots of 400. The wholesaler’s average
demand for Q is 150 units per week. Lead time from plant to wholesaler is 5 weeks. The wholesaler pays
for the shipments when they leave the plant. The plant has proposed several new lead time and lot size
options to the wholesaler (see table below). If the wholesaler’s goal is to minimize total cycle plus pipeline
inventories, which option should the wholesaler select?
OPTION
SHIPMENT
LOT SIZE
PLANT-TO– WHOLESALER
LEAD TIME
CURRENT
400
5
1
500
4
2
800
3
3
1,000
2
A) option #1
B) option #2
C) option #3
D) remain with the current option
10) ________ is an inventory measure obtained by dividing the average aggregate inventory value by
sales per week at cost.
11) ________, the annual sales at cost divided by the average aggregate inventory value, is the number of
times a year that a firm completely replenishes its inventory.
12) The clever wine shop owner held a tasting, accepted customer orders and payments, and then placed
an order with the vineyard. Since he paid the vineyard after he received the shipment (and well after he
charged his customers), his ________ time was negative.
13) What are some financial measures of supply chain performance? Which one is the most important
and why?
14) Last year, RJT Enterprises had average inventories (raw materials, work-in-process, and finished
goods) of $7.5 million. During this same year the cost of goods sold was $30 million. The company
operates 50 weeks per year.
a. What is their total inventory (measured as weeks of supply)?
b. What is their inventory turnover?
15) Rome Corporation is a supplier of ball bearings. Because of the specialized manufacturing process
employed, considerable work-in-process and raw material inventories are created. The current inventory
levels are $1,500,000 and $3,775,000, respectively. In addition, finished goods inventory is $3,500,000, and
sales (at cost) for the current year are expected to be about $28 million. Assume they operate 50 weeks per
year.
a. What is their total inventory (measured as weeks of supply)?
b. What is their inventory turnover?
16) A television manufacturer would like to reduce its inventory. To this end, you are asked by the
operations manager to assess its inventory level. You have the following information on average
inventories from last year’s financial statement:
Raw materials $1,500,000
Work-in-process $1,200,000
Finished goods $800,000
In addition, the cost of goods sold last year (50 weeks) was $20 million.
a. What is its total inventory (measured as weeks of supply)?
b. What is its inventory turnover?
17) Champion Cooling Company remanufactures window air conditioners during the off-season months
for sales during the scorching months of June, July, and August in the Oklahoma City area. Their average
inventory of air conditioners is shown in the following table. The company operates 50 weeks a year and
has average weekly sales of $3,750 and expects to sell $135,000 worth of product in a year.
Unit Type
Avg. Inventory
(at cost)
Value of Each
110 Volts
65
$250
18,000 BTU or smaller 220 Volts
90
$350
Larger than 18,000 BTU
50
$500
a. What is their average aggregate inventory value?
b. What is their total inventory (measured as weeks of supply)?
c. What is their inventory turnover?
12.4 Strategic Options for Supply Chain Design
1) Responsive supply chains work best when frequent product introduction exists.
2) Efficient supply chains work best when contribution margins are high.
3) Efficient supply chains use low capacity cushions.
4) Responsive supply chains work best when firms offer a low variety of services or products and
demand predictability is high.
5) An efficient supply chain should be preferred when:
A) product variety is high.
B) competitive priority is customization.
C) demand is highly predictable.
D) demand is unpredictable.