Operations Management, 11e (Heizer/Render)
Supplement 11 Supply Chain Management Analytics
Section 1 Techniques for Evaluating Supply Chains
1) Unfortunately, not many supply chain metrics exist that can be effectively used to evaluate
performance within a company and for its supply chain partners.
2) The Great East Japan Earthquake of 2011 was centered off of the Pacific coast of which region of Japan?
A) Kanto
B) Chubu
C) Tohoku
D) Kansai
E) Chugoku
3) Which of the following statements is TRUE regarding the 2011 Tohoku earthquake and tsunami?
A) It devastated eastern sections of Japan.
B) Some manufacturers around the globe had been relying exclusively on suppliers located in the affected
zones.
C) Japanese-built vehicle outputs for Toyota and Honda were down more than 60% in the month
following the disaster.
D) Manufacturers in several industries worldwide took 6 months or longer before they saw their supply
chains working normally again.
E) All of the above are true.
Section 2 Evaluating Disaster Risk in the Supply Chain
1) Firms often use multiple suppliers for important components to mitigate the risks of total supply
disruption.
2) In the disaster risk model, as the probability of a super-event (S) increases, the advantage of utilizing
multiple suppliers increases.
3) What technique does the text use to determine the best number of suppliers to manage disaster risk?
A) linear programming
B) factor weighting technique
C) transportation model
D) decision tree
E) simulation
4) Which of the following is NOT an element of the disaster risk decision tree model?
A) the buyer’s financial loss incurred in a supply cycle if supplier i were disrupted
B) the marginal cost of managing a supplier
C) the buyer’s financial loss incurred in a supply cycle if all suppliers were disrupted
D) the probability of a “super-event” that would disrupt all suppliers simultaneously
E) the probability of a “unique-event” that would disrupt only one supplier
5) Consider the disaster risk decision tree model. Using the notation from the model, what is the expected
monetary value (cost) of choosing two suppliers?
A) 2C
B) [1-P(2)] × 2C + P(2) × (L + 2C)
C) 2C + SL
D) P(2) × 2C + [1-P(2)] × (L + 2C)
E) 2C + (S+U2)L
6) Under the disaster risk decision tree model, which of the following conditions would create the
HIGHEST incentive to use MORE suppliers?
A) lower S, lower U
B) lower S, higher U
C) higher S, lower U
D) higher S, higher U
E) higher S, higher U, higher C
7) Under the disaster risk decision tree model, which of the following conditions would create the
HIGHEST incentive to use FEWER suppliers?
A) lower L, lower C
B) lower L, higher C
C) higher L, lower C
D) higher L, higher C
E) lower L, higher C, lower S
8) Suppose that the manager of a company has estimated the probability of a super-event sometime
during the next five years that will disrupt all suppliers as 0.23%. In addition, the firm currently uses
three suppliers for its main component, and the manager estimates the probability of a unique-event that
would disrupt one of them sometime during the next five years to be 1.4%. What is the probability that all
three suppliers will be disrupted at the same time at some point during the next five years?
A) 4.4203%
B) 0.2300%
C) 4.4300%
D) 0.2297%
E) 0.2303%
9) Suppose that the manager of a company has estimated the probability of a super-event sometime
during the next three years that will disrupt all suppliers as 2%. In addition, the firm currently uses four
suppliers for its main component, and the manager estimates the probability of a unique-event that
would disrupt one of them sometime during the next three years to be 20%. Supplier management costs
during this period are $50,000 per supplier. The financial cost incurred if all four suppliers are disrupted
at the same time is estimated to be $10,000,000. What is the expected monetary value (cost) of the current
supplier diversification arrangement?
A) $412,800
B) $415,680
C) $10,200,000
D) $215,680
E) $8,240,000
10) In the disaster risk decision tree model, a(n) ________ disrupts all suppliers simultaneously.
11) For the disaster risk decision tree model, explain why an increase in S and an increase in U have the
opposite impact on the choice of how many suppliers to use. What is the implication of these two
phenomena taken together?
12) Walsh Construction is considering two options for its supplier portfolio. Option 1 uses two local
suppliers. Each has a “unique-event” risk of 8%, and the probability of a “super-even” that would disable
both at the same time is estimated to be 2.5%. Option 2 uses two suppliers located in different countries.
Each has a “unique-event” risk of 18%, and the probability of a “super-event” that would disable both at
the same time is estimated to be 1.2%.
(a) What is the probability that both suppliers will be disrupted using option 1?
(b) What is the probability that both suppliers will be disrupted using option 2?
(c) Which option would provide the lowest risk of a total shutdown?
13) Consider the disaster risk decision tree model.
(a) Derive a formula to represent the amount that the probability of all suppliers being disrupted
simultaneously, P(n), will increase if the super-event probability S is doubled.
(b) Test your formula by computing the amount of increase if the original S equals 1% and there are two
suppliers, each with U = 4%.
14) Suzy Jones is trying to decide whether to use one or two suppliers for the motors than go into the
chain saws that her company produces. She wants to use local suppliers because her firm runs a JIT
operation. Her factory is located in a coastal town that is prone to hurricanes. She estimates that the
probability in any year of a “super-event” that might shut down all suppliers at the same time for at least
two weeks is 5%. Such a total shutdown would cost the company approximately $100,000. She estimates
the “unique-event” risk for any of the suppliers to be 10%. Assuming that the marginal cost of managing
an additional supplier is $12,000 per year, should Suzy use one or two suppliers?
Section 3 Managing the Bullwhip Effect
1) The bullwhip effect describes the tendency for larger order size fluctuations in the supply chain as
orders move from suppliers toward retailers.
2) The bullwhip effect can occur when orders decrease as well as when they increase.
3) The overarching solution to the bullwhip effect is simply for supply chain members to share
information and work together.
4) A bullwhip measure value greater than zero indicates that the bullwhip effect exists.
5) Which of the following is NOT a potential cause of the bullwhip effect?
A) shortage gaming
B) channel coordination
C) order batching
D) demand forecast errors
E) price fluctuations
6) Which of the following is NOT a remedy for the bullwhip effect?
A) share demand information
B) channel coordination
C) order batching
D) price stabilization
E) allocate orders based on past demand
7) Which of the following is the prescribed remedy when the bullwhip effect is caused by shortage
gaming?
A) share demand information
B) channel coordination
C) increase capacity
D) price stabilization
E) allocate orders based on past demand
8) What is the formula for the bullwhip measure?
A) variance of orders / variance of demand
B) variance of orders – variance of demand
C) variance of demand / variance of orders
D) variance of orders2 / variance of demand2
E) variance of demand – variance of orders
9) What value of the bullwhip measure would indicate that the bullwhip effect exists?
A) greater than 1
B) greater than 0
C) less than 0
D) less than 1
E) 1
10) What value of the bullwhip measure would indicate that a dampening scenario exists?
A) greater than 1
B) greater than 0
C) less than 0
D) less than 1
E) 0
11) What is the value of the bullwhip measure for a company with a standard deviation of demand equal
to 20, and a variance of orders equal to 450?
A) 0.889
B) 22.5
C) 1.125
D) 0.044
E) 50
12) If the variance of orders of a manufacturer equals 800, and the variance of orders of its supplier equals
750, what is happening at this part of the supply chain?
A) The bullwhip effect is present.
B) The supplier is providing a dampening (anti-bullwhip) effect.
C) The bullwhip measure for the supplier equals 1.067
D) Neither amplification nor smoothing is present.
E) Both amplification and smoothing are present.
13) Suppose that in month 1, both the retailer and the wholesaler in a supply chain ordered 20,000 units.
Then in month 2, the retailer decreases its order size by 1000 units. If the wholesaler then decreases its
order size in month 2 by 700 units, which of the following is TRUE?
A) The wholesaler is contributing to the bullwhip effect.
B) The wholesaler is providing a dampening (anti-bullwhip) effect.
C) The bullwhip measure for the wholesaler equals 0.70.
D) Neither amplification nor smoothing is present.
E) The wholesaler is providing both amplification and smoothing.
14) The U.S. ________ program, designed to stimulate the economy and improve fuel efficiency,
produced an unintended bullwhip effect in the automobile industry.
15) Identify the four primary causes of the bullwhip effect and the remedy for each.
16) Describe how the U.S. Cash for Clunkers program unintentionally contributed to the bullwhip effect
in the automobile industry.
17) Suppose that a firm incurs a demand variance of 400 units per week, and the variance of orders that it
places equals 750 per week. What is the value of the bullwhip measure for this company?
18) Consider a supply chain where a manufacturer sells to a distributor who sells to a wholesaler who
sells to a retailer. Last year, the retailer’s weekly variance of demand was 4000 units. The weekly variance
of orders was 5000; 8000; 12,000; and 17,000 units for the retailer, wholesaler, distributor, and
manufacturer, respectively. (Note that the variance of orders equals the variance of demand for that
firm’s supplier.)
(a) Calculate the bullwhip measure for the retailer.
(b) Calculate the bullwhip measure for the wholesaler.
(c) Calculate the bullwhip measure for the distributor.
(d) Calculate the bullwhip measure for the manufacturer.
(e) Which firm appears to be contributing the most to the bullwhip effect in this supply chain?
19) Over the past six months, Wholesale Foods of Fresno has experienced a standard deviation of
demand of 600 units. Standard deviation of its orders during that period was 800 units.
(a) What is the bullwhip measure for Wholesale Foods of Fresno?
(b) If Wholesale Foods of Fresno had made a perfect forecast of demand over the past 6 months and had
decided to order 1/6 of that demand each month, what would its bullwhip measure have been?
Section 4 Supplier Selection Analysis
1) When using the factor weighting approach, most companies will use the same list of criteria and the
same criteria weights.
2) The factor weighting model is an attempt to add subjectivity to decision making when selecting among
suppliers.
3) Choosing suppliers simply based on the lowest bid has become a somewhat rare approach.
4) A grocery store is trying to find a new supplier for carrots. Its three most important supplier criteria
are freshness, lot size, and cost, with factor weights of 0.6, 0.1, and 0.3, respectively. What would a
supplier with ratings of 6, 8, and 10 in the three respective categories score as a weighted total?
A) 24
B) 1
C) 7.4
D) 9.8
E) 8
5) An industrial producer is searching for a supplier for ball bearings. Its three most important supplier
criteria are price, quality, and delivery reliability. The firm has decided that quality and delivery
reliability should carry the same weight, and that each of them are twice as important as price. If the
weights sum to 100%, what would a supplier with ratings of 40, 90, and 75 in the three respective
categories score as a weighted total?
A) 37
B) 370
C) 49
D) 205
E) 74
6) Which of the following is NOT REQUIRED information to obtain to conduct the factor weighting
technique in supplier selection analysis?
A) a set of supplier criteria
B) a weight for each supplier criterion
C) a score for each potential supplier on each criterion
D) a qualitative scale on which to rate suppliers
E) a numerical scale on which to rate suppliers
7) Which of the following elements of the factor weighting technique in supplier selection analysis does
NOT contain a certain degree of subjectivity?
A) the formula used to calculate the total weighted score for each supplier
B) the weights applied to each supplier criterion
C) the scores for each potential supplier on each criterion
D) the set of supplier criteria
E) the numerical scale used to rate suppliers
8) The ________ model adds objectivity to decision making when selecting suppliers.
9) Briefly describe how to conduct the factor weighting approach to supplier evaluation.
10) A company is about to select a vendor for the outsourcing of all of its engineering, environmental, and
CAD requirements. It has identified four criteria critical to the selection. These criteria, and their
importance weights, appear below. Three firms, A, C, and E, have indicated that they are interested in
this position. The company has scored each of the three candidates on these criteria, using a 1-10 scale,
where 10 is best. Candidate A scored 7, 7, 7, and 5, respectively, on the four criteria. Candidate C scored
9, 4, 8, and 6. Candidate E scored 5, 10, 10, and 7. Which vendor has the highest composite score?
Criterion
Weight
Engineering expertise
.40
Financial and managerial strength
.20
Integrity
.15
Staff experience and qualifications
.25
11) Tommy’s Family Furniture is looking for a new supplier for its armchairs. Tommy is primarily
interested in only two criterion: price and name brand value. He considers the value of the name brand to
be three times more important than price. Tommy has narrowed his choices to two suppliers. On a 10–
point scale, he has assigned Amy’s Armchairs a score of 8 on price and 5 on name brand value. He has
assigned Annie’s Armchairs a score of 3 on price and 6 on name brand value. Apply the factor weighting
technique to help Tommy choose a new armchair supplier.
Section 5 Transportation Mode Analysis
1) The primary trade-off in transportation mode analysis involves evaluating holding cost against the cost
of shipping.
2) Typically, a more expensive shipping option is:
A) slower with a lower holding cost.
B) slower with a higher holding cost.
C) faster with a lower holding cost.
D) faster with a higher holding cost.
E) faster, but holding cost is unaffected by delivery speed.
3) Which of the following would NOT be considered (in addition to delivery speed) when choosing a
mode of transportation?
A) on-time delivery
B) coordinating shipments to maintain a schedule
C) getting new products to market
D) keeping a customer happy
E) All of the above may be considered.
4) Suppose that a product’s value is $1000. The manufacturer experiences a holding cost of 2.5% per
month. The firm ships the product across country by truck, and it arrives six days later. The shipping cost
is $80 per unit. What is the holding cost on each unit shipped? (Assume 30 days per month.)
A) $0.83
B) $5.00
C) $0.07
D) $0.40
E) $150.00
5) The primary trade-off in transportation mode analysis involves evaluating ________ against the cost of
shipping.
6) Identify at least four factors in addition to delivery speed (and its impact on holding cost) that may
need to be considered when choosing the best mode of shipment.
7) A shipment of parts valued at $75,000 needs to be shipped from Tampa, FL, to Chicago, IL. They could
be shipped by rail, taking 15 days at a cost of $1,575, or by truck, taking 4 days at a cost of $2,640. The
annual holding cost rate for this type of item has been estimated at 22%. What option is more economical?
8) A container of ball-bearings valued at $25,000, currently located in Houston, TX, needs to be delivered
to the Morton, IL, plant. The standard shipment method takes two days. However, for an additional
charge of $500, the container can be sent overnight to arrive one day later. The annual holding cost rate
for this type of item has been estimated at 28%. Which option is more economical?