Operations Management, 11e (Heizer/Render)
Chapter 11 Supply Chain Management
Section 1 The Supply Chain’s Strategic Importance
1) Even though a firm may have a low cost strategy, supply-chain strategy can select suppliers primarily
on response or differentiation.
2) The supply chain for a brewery would include raw ingredients such as hops and barley but not the
manufactured goods such as bottles and cans.
3) When using the low-cost strategy for supply chain management, a firm should use buffer stocks to
ensure speedy supply.
4) Savings in the supply chain exert more leverage as the firm’s net profit margin decreases.
5) A firm that employs a response strategy should minimize inventory throughout the supply chain.
6) Supply chain decisions are not generally strategic in nature, because purchasing is not a large expense
for most firms.
7) Because service firms do not acquire goods and services externally, their supply chain management
issues are insignificant.
8) Which of the following characteristics is NOT common to all four of Darden Restaurants’ supply
channels?
A) supplier qualification
B) product tracking
C) independent audits
D) refrigeration
E) just-in-time delivery
9) Which of the following would NOT typically be considered as part of a manufacturing firm’s supply
chain?
A) suppliers
B) distributors
C) wholesalers
D) retailers
E) landscaping contractors
10) In most manufacturing industries, which of the following would likely represent the largest cost to
the firm?
A) transportation
B) purchasing
C) insurance
D) financing
E) advertising
11) Among which of the following industries are purchasing costs the LOWEST percentage of sales?
A) automobiles
B) petroleum
C) restaurants
D) lumber
E) chemicals
12) Which of the following is a primary supplier selection criterion for a firm pursuing a differentiation
strategy?
A) product development skills
B) cost
C) capacity
D) speed
E) flexibility
13) For which corporate strategy(ies) should supply chain inventory be minimized?
A) low cost
B) response
C) differentiation
D) low cost and response
E) low cost and differentiation
14) Which of the following statements is true regarding the leverage of supply chain savings?
A) Supply chain leverage is about the same for all industries.
B) Supply chain savings exert more leverage as the firm’s purchases are a smaller percent of sales.
C) Supply chain savings exert more leverage as the firm’s net profit margin decreases.
D) Supply chain leverage depends only upon the percent of sales spent in the supply chain.
E) None of the above is true.
15) ________ describes the coordination of all supply chain activities, starting with raw materials and
ending with a satisfied customer.
16) As the corporate and operations management strategies vary from low cost to response to
differentiation, how does this impact the criteria used for selecting suppliers?
17) How does the pursuit of a response strategy impact the supply chain decisions of: (1) primary
supplier selection criteria, (2) supply chain inventory, (3) distribution network, and (4) product design
characteristics?
18) A grocery chain is interested in exploring the impact effective supply chain management would have.
Suppose that for every $1 of sales, 4% is profit, 50% is spent in the supply chain, and the remaining 46% is
evenly divided between fixed and production costs. If the chain can save $1 in the supply chain it would
take how many dollars of increased sales to have the same increase in profit? Assume that fixed costs are
fixed so that the portion of increased sales allocated to fixed costs is instead profit (27% profit margin
combined now).
19) A company is deciding where to assign its summer intern. The manager estimates that the intern can
save $10,000 in the supply chain or increase sales (revenue) by $25,000. If sales (revenue) is divided into
the three categories shown in the table, where should the manager assign the intern to maximize profits?
Supply Chain
Costs
Production
Costs
Profits
% of current
sales (revenue)
35
25
40
20) A company is deciding where to assign its summer intern. The manager estimates that the intern can
save the company $10,000 in supply chain costs. Given the table below, what increase in sales (revenue)
by the intern is required to show an equal profit?
Supply Chain
costs
Variable Costs
(materials)
Profits
% of current
sales (revenue)
35
25
40
Section 2 Sourcing Issues: Make-or-Buy vs. Outsourcing
1) Outsourcing refers to transferring a firm’s activities that have traditionally been internal to external
suppliers.
2) Outsourcing is a form of specialization that allows the outsourcing firm to focus on its key success
factors.
3) The objective of the make-or-buy decision is to help identify the products and services that can be
obtained externally.
4) Outsourcing:
A) transfers traditional internal activities to outside vendors.
B) utilizes the efficiency that comes with specialization.
C) allows the outsourcing firm to focus on its key success factors.
D) All of the above are true of outsourcing.
E) None of the above is true of outsourcing.
5) The transfer of some of what are traditional internal activities and resources of a firm to outside
vendors is:
A) a standard use of the make-or-buy decision.
B) not allowed by the ethics code of the Supply Management Institute.
C) offshoring.
D) outsourcing.
E) keiretsu.
6) The ________ decision involves choosing between producing a component or a service internally and
purchasing it externally.
7) Transferring to external vendors a firm’s activities that have traditionally been internal is known as
________.
Section 3 Six Sourcing Strategies
1) With the “many suppliers” sourcing strategy, the order usually goes to the supplier that offers the
highest quality.
2) Vertical integration, whether forward or backward, requires the firm to become more specialized.
3) A fast-food retailer that acquired a spice manufacturer would be practicing backward integration.
4) Keiretsu refers to a company coalition that is part collaboration, part purchasing from many suppliers,
and part vertical integration.
5) Which one of the following is NOT one of the six sourcing strategies?
A) negotiation with many suppliers
B) vertical integration
C) keiretsu
D) short-term relationships with few suppliers
E) virtual companies
6) A disadvantage of the “few suppliers” sourcing strategy is:
A) the risk of not being ready for technological change.
B) the lack of cost savings for customers and suppliers.
C) possible violations of the Sherman Antitrust Act.
D) the high cost of changing partners.
E) the suppliers are less likely to understand the broad objectives of the procuring firm and the end
customer.
7) Which sourcing strategy is particularly common when the products being sourced are commodities?
A) few suppliers
B) many suppliers
C) keiretsu
D) vertical integration
E) virtual companies
8) Which of the following is NOT an advantage of the “few suppliers” sourcing strategy?
A) suppliers have a learning curve that yields lower transaction and production costs
B) suppliers are more likely to understand the broad objectives of the end customer
C) less vulnerable trade secrets
D) creation of value by allowing suppliers to have economies of scale
E) suppliers’ willingness to provide technological expertise
9) Which of the following is NOT a condition that favors the success of vertical integration?
A) availability of capital
B) availability of managerial talent
C) sufficiently high demand
D) small market share
E) All of the above favor the success of vertical integration.
10) Which of the following best describes vertical integration?
A) sell products to a supplier or a distributor
B) develop the ability to produce products that complement the original product
C) produce goods or services previously purchased
D) develop the ability to produce the specified good more efficiently than before
E) build long-term partnerships with a few suppliers
11) A fried chicken fast-food chain that acquired feed mills and poultry farms has performed which of the
following?
A) horizontal integration
B) forward integration
C) backward integration
D) current transformation
E) job expansion
12) Vertical integration appears particularly advantageous when the organization has:
A) a very specialized product.
B) a large market share.
C) a very common, undifferentiated product.
D) little experience operating an acquired vendor.
E) purchases that are a relatively small percent of sales.
13) A rice mill in south Louisiana purchases the trucking firm that transports packaged rice to
distributors. This is an example of which of the following?
A) horizontal integration
B) forward integration
C) backward integration
D) current transformation
E) keiretsu
14) Japanese manufacturers often pursue a strategy that is part collaboration, part purchasing from a few
suppliers, and part vertical integration. What is this approach called?
A) kanban
B) keiretsu
C) samurai
D) poka-yoke
E) kaizen
15) The Japanese concept of a company coalition of suppliers is:
A) poka-yoke.
B) kaizen.
C) keiretsu.
D) dim sum.
E) illegal.
16) Which of the following is NOT an advantage of a virtual company?
A) speed
B) total control over every aspect of the organization
C) specialized management expertise
D) low capital investment
E) flexibility
17) When Daimler and BMW pooled resources to develop standardized auto components, the sourcing
strategy could best be described by which of the following?
A) keiretsu
B) virtual companies
C) joint venture
D) vertical integration
E) few suppliers
18) Which of the following best describes Vizio’s sourcing strategy?
A) few suppliers
B) keiretsu
C) joint venture
D) vertical integration
E) virtual company
19) ________ is developing the ability to produce goods or services previously purchased or actually
buying a supplier or a distributor.
20) ________ is a Japanese term that describes suppliers who become part of a company coalition.
21) ________ rely on a variety of supplier relationships to provide services on demand.
22) Virtual companies are also known as ________ .
23) Identify and describe briefly the six sourcing strategies.
24) Identify the advantages and disadvantages of using the “few suppliers” sourcing strategy.
25) What is a keiretsu?
26) How are outsourcing and vertical integration related? Can a single firm successfully do both?
Section 4 Supply Chain Risk
1) Use of a diversified supply base represents one of the most common supply chain risk reduction tactics
for several different supply chain risk categories.
2) The new model of a tight, fast, low-inventory supply chain, operating across political and cultural
boundaries, has reduced the overall level of supply chain risk.
3) Cross-sourcing describes the practice of having two suppliers provide every component.
4) Improvements in security, especially regarding the millions of shipping containers that enter the U.S.
each year, are being held back by the lack of technological advances.
5) Which of the following describes using one supplier for a component and a second supplier for another
component, where each supplier acts as a backup for the other?
A) outsourcing
B) dual-sourcing
C) cross-sourcing
D) backup-sourcing
E) parallel-sourcing
6) With cross-sourcing, how many suppliers provide each component on a regular basis (i.e., excluding
backup suppliers)?
A) 1
B) 2
C) 3
D) equal to the total number of components
E) equal to the number of countries to which the final product is sold
7) Which of the following is NOT one of the risk mitigation tactics for the supply chain risk category of
suppliers failing to deliver?
A) use multiple suppliers
B) effective contracts with penalties
C) subcontractors on retainer
D) require overnight delivery
E) pre-planning
8) Which of the following devices represents an opportunity for technology to improve security of
container shipments?
A) devices that identify truck and container location
B) devices that sense motion
C) devices that measure radiation or temperature
D) devices that can communicate the breaking of a container lock or seal
E) all of the above
9) ________ describes using one supplier for a component and a second supplier for another component,
where each supplier acts as a backup for the other.
10) Identify the nine major categories of supply chain risk.
11) Identify some technological advances that can serve to improve logistics management and also
improve shipping security.
Section 5 Managing the Integrated Supply Chain
1) The bullwhip effect refers to the increasing fluctuations in orders that often occur as orders move
through the supply chain.
2) Drop shipping results in time and shipping cost savings.
3) The supply chain management opportunity called postponement involves delaying deliveries to avoid
accumulation of inventory at the customer’s site.
4) A blanket order is a long-term purchase commitment to a supplier for items that are to be delivered
against short-term releases to ship.
5) What is the practice of keeping a product generic as long as possible before customizing?
A) postponement
B) keiretsu
C) vendor-managed inventory
D) forward integration
E) backward integration
6) Local optimization is a supply-chain complication best described as:
A) optimizing one’s local area without full knowledge of supply chain needs.
B) obtaining very high production efficiency in a decentralized supply chain.
C) the prerequisite of global optimization.
D) the result of supply chains built on suppliers with compatible corporate cultures.
E) the opposite of the bullwhip effect.
7) The bullwhip effect:
A) occurs as orders are relayed from retailers to distributors to wholesalers to manufacturers.
B) results in increasing fluctuations at each step of the sequence.
C) increases the costs associated with inventory in the supply chain.
D) occurs because of distortions in information in the supply chain.
E) All of the above are true.