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Chapter 9—Supply Chain Design
Multiple Choice
1. _____ are warehouses that act as intermediaries between factories and customers, shipping
directly to customers or to retail stores where products are made available to customers.
a. Distribution centers
b. Inventories
c. Databases
d. Retail shops
2. Which one of the following is NOT directly related to a supply chain?
a.
Distribution center
b.
Inventory
c.
Promotion
d.
Supplier
3. Which of the following is NOT a basic function of the Supply Chain Operations Reference
(SCOR) model?
a.
Source
b.
Make
c.
Deliver
d.
Control
4. The basic purpose of a(n) _____ is to coordinate the flow of materials, services, and
information among its elements to maximize customer value.
a.
product layout
b.
servicescape
c.
supply chain
d.
assembly line
5. The function of Supply Chain Operations Reference (SCOR) model function that entails all
order management activities from processing customer orders to routing shipments, managing
goods at distribution centers, and invoicing the customer is called _____.
a.
return
b.
source
c.
make
d.
deliver
6. The function of Supply Chain Operations Reference (SCOR) model function that entails
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procuring goods and services to meet planned or actual demand is called _____.
a.
plan
b.
source
c.
make
d.
deliver
7. Which one of the following statements is FALSE?
a.
Historically, General Motors used the push system to get vehicles to their dealers.
b.
Walmart is a good example of a company that runs a highly efficient supply chain.
c.
Apple and Nordstrom companies are examples of having push supply chains.
d.
Zappos is a good example of using third-party logistics (3PL) providers for customer
deliveries and returns.
8. Which one of the following statements is FALSE?
a.
Boeing’s new 787 Dreamliner airplane has encountered many startup and supply chain
coordination problems.
b.
General Motors pushes finished goods from its dealers to the customers.
c.
Zappos uses third-party logistics for customer deliveries, return, and inbound shipping.
d.
Federal Express has over one million pickup and delivery sites and therefore, is a good
example of multisite management.
9. The point in the supply chain that separates the push system from the pull system is called the
_____.
a.
point of separation
b.
push-pull boundary
c.
postponement site
d.
center of push-pull system
10. Where in its supply chain does Dell Inc. begin to use a pull system?
a.
Supplier
b.
Factory
c.
Distribution center
d.
Customer
11. A firm that specializes in certain types of goods-producing activities, such as customized
design, manufacturing, assembly, and packaging, and works for end users is called a _____.
a.
third-party logistics provider
b.
contract manufacturer
c.
distribution center
d.
vendor-managed inventory supplier
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12. A(n) _____ produces goods in advance of customer demand using a forecast of sales and
moves them to points of sale where they are stored as finished goods inventory.
a.
responsive supply chain
b.
efficient supply chain
c.
push system
d.
pull system
13. A(n) _____ produces only what is needed at upstream stages in the supply chain in response
to customer demand signals.
a.
responsive supply chain
b.
efficient supply chain
c.
push system
d.
pull system
14. A(n) _____ seeks to balance capacity and demand, might use only a few large distribution
centers, and minimize costs of routing products from factories to retail stores and customers.
a.
responsive supply chain
b.
efficient supply chain
c.
push system
d.
pull system
15. Which of the following is TRUE regarding a responsive supply chain?
a.
Demand is stable and predictable.
b.
Product life cycles are short and change often because of innovation.
c.
Customers require standardization.
d.
Contribution margins are low.
16. A push system _____.
a.
works best when there are a large number of distribution centers
b.
is more appropriate for make-to–order items
c.
can reduce transportation costs by using full-truckload shipments
d.
works best with variable sales patterns
17. A pull system _____.
a.
requires high levels of finished goods inventory
b.
relies heavily on accurate sales forecasts
c.
waits for customer orders
d.
produces goods in advance of demand
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18. For General Motors’ supply chain, the _____ is the push-pull boundary.
a.
supplier
b.
logistic provider
c.
dealer
d.
customer
19. A contract manufacturer can offer significant competitive advantages. Which one of the
following is NOT an advantage of using a contract manufacturer?
a.
Access to advanced manufacturing technologies
b.
Faster product time to market
c.
Lower costs from economies of scale
d.
Standardized goods in regional markets
20. Managing the flow of goods and materials from the customers toward either suppliers,
distributers, or manufacturers for the purpose of reuse, resale, or disposal through the supply
chain is called the _____.
a.
reverse logistics
b.
pull system
c.
push system
d.
response management
21. _____ is the process of delaying product customization until the product is closer to the
customer at the end of a supply chain.
a.
Postponement
b.
Sourcing
c.
Deferral
d.
Multisite management
22. A reverse logistics is used to:
a. send unused parts back to the suppliers.
b. ship products from suppliers to customers.
c. collect and send unusable or discarded products back from the customer to the producer or
suppliers.
d. provide flow of information from customers to the producer.
23. _____ is a manufactured good recovery option in which a physical good is disassembled
and the parts or the scrap materials are sold to other suppliers.
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a.
Refurbishing
b.
Repairing
c.
Recycling
d.
Cannibalizing
24. Which one of the following statements is FALSE?
Postponement is a form of remanufacturing.
Reverse logistics combined with forward supply chain is called a closed loop
system.
Selecting suppliers that support sustainability is a part of supply chain
management.
Reverse logistics includes remarketing and selling the recovered good for reuse or
resale to wholesalers and retailers.
25. Which one of the following statements about sustainable supply chains is FALSE?
a. Cannibalization of parts for use and repair of other equipment is part of a reverse logistics
supply chain.
b. Reverse logistics includes using raw materials and parts to assemble new finished goods.
c. A green sustainable supply chain process develops outputs that can be reclaimed and reused at
the end of their life-cycle.
d. For products that are of high enough value, it is normally more cost-effective to remanufacture
or refurbish the product.
26. Which one of the following statements is FALSE?
a. Cannibalization of parts for use and repair of other equipment is part of a reverse logistics
supply chain.
b. Social sustainability includes a commitment from an organization to improve the quality of life
through industry–community partnerships.
c. Increasing revenues by converting wastes to byproducts is an environmental activity to enhance
supply chain management.
d. Efficiencies associated with manufactured goods recovery can yield increases in customer
loyalty and improve the new customer’s uptime.
27. Use the following information about vehicle traffic to and from a proposed sports stadium
(not built yet) to find the best location for the stadium that minimizes total distance travelled
using the center-of-gravity method.
Zip Code
Location
LOCATION COORDINATES
X, Y
Vehicles per
Stadium Event
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Options
1
4, 6
3,500
2
12, 15
1,100
3
10, 10
4,900
4
7, 20
2,200
Which one of the following statements is TRUE for this set of center-of-gravity data?
a. Cx is less than 10.00 and Cy is more than 10.00.
b. Cx is more than 10.00 and Cy is less than 10.00.
c. Cx is less than 10.00 and Cy is less than 10.00.
d. Cx is more than 10.00 and Cy is more than 10.00.
28. Using the following information about material volume shipped from a factory to four retail
outlets, find the best location for the factory using the center-of-gravity method.
RETAIL
OUTLET
LOCATION COORDINATES
X, Y
MATERIAL
MOVEMENT
1
18, 6
1,500
2
12, 15
2,100
3
7, 10
1,900
4
7, 20
1,200
Which one of the following statements is TRUE for this set of center-of-gravity data?
a. Cx is less than 10.00 and Cy is more than 10.00.
b. Cx is more than 10.00 and Cy is less than 10.00.
c. Cx is less than 10.00 and Cy is less than 10.00.
d. Cx is more than 10.00 and Cy is more than 10.00.
29. Being an entrepreneur, Steve decides to open his own custom flower shop in an area and
began to look for possible locations for his store. He just can’t play the corporate career game and
wants to “just-do-it–yourself.” He researches the zip codes in his area and finds the following
information:
Market Segment Location Coordinates Potential Number of Customers
X Y
A 4 8 80,000
B 6 3 90,000
C 10 7 120,000
Identify the TRUE statement about the best preliminary location (i.e., the center of gravity) for
the possible store location.
a. The x-axis and the y-axis are less than 5.0.
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b. The x-axis is less than 7.0, and the y-axis is more than 7.0.
c. The x-axis is more than 7.0, and the y-axis is less than 7.0.
d. The x-axis and the y-axis are more than 7.0.
30. The “weights (Wi)” typically used in the numerator and denominator of the center-of-gravity
computational method is:
a. based on service quality standards.
b. based on distances.
c. based on volumes.
d. based on times.
31. The As-You-Like-It Hamburger Shop is considering adding a new location. The investment at
each of the four potential sites is the same. The price they can charge for hamburgers is set by the
competition in the area.
Given the information below, which site is expected to be the most profitable (i.e., net profit)?
Factor
Site A
Site B
Site C
Site D
Fixed Cost
$10,000
$8,000
$6,000
$11,000
Variable Cost per Unit
$0.70
$0.70
$0.85
$0.65
Price per Unit
$1.30
$1.20
$1.25
$1.10
Forecast Volume (Units)
20,000
22,000
18,000
24,000
a. Site A
b. Site B
c. Site C
d. Site D
32. Given the retail location coordinates and the value of material movement in the following
chart, find the best supply point location using the center-of-gravity method.
Retail Outlet
Location Coordinates X, Y
Material Movement
1
25, 05
1,500
2
17, 20
3,000
3
12, 12
1,000
4
06, 09
2,200
Which of the following is a TRUE statement about the best preliminary location (i.e., the center
of gravity) for the possible store location?
a. The x-axis and the y-axis are less than 10.0.
b. The x-axis is less than 10.0, and the y-axis is more than 10.0.
c. The x-axis is more than 10.0, and the y-axis is less than 10.0.
d. The x-axis and the y-axis are more than 10.0.
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33. Using the following information about material volume shipped from a plant to four retail
outlets, which of the following is a TRUE statement about the center of gravity for the best
location of the plant?
Retail Outlet
Location Coordinates X, Y
Material Movement
1
18, 6
1,500
2
12, 15
2,100
3
7, 10
1,900
4
7, 20
1,200
a. The x-axis and the y-axis are less than 10.0.
b. The x-axis is less than 10.0, and the y-axis is more than 10.0.
c. The x-axis is more than 10.0, and the y-axis is less than 10.0.
d. The x-axis and the y-axis are more than 10.0.
34. A major grocery chain desires to build a facility in a city with three distinct market
demographic segments. The number of possible customers in each segment and the central
location coordinates of the segments are given below. Using the center-of-gravity method for the
best location, identify the TRUE statement.
Market Segment
Location Coordinates X, Y
Number of Customers
1
15, 18
2,500
2
2, 13
3,200
3
8, 10
3,900
a. The x-axis and the y-axis are less than 10.0.
b. The x-axis is less than 10.0, and the y-axis is more than 10.0.
c. The x-axis is more than 10.0, and the y-axis is less than 10.0.
d. The x-axis and the y-axis are more than 10.0.
35. A manufacturer is considering some expansion alternatives. One is to increase the capacity at
their current location. A second set of alternatives is to build a new plant at one of two possible
locations. The projected operating costs have been estimated as follows:
Expand at Current
Cost Category
Location
Location A
Location B
Fixed
$125,000
$225,000
$175,000
Direct labor per unit
$32.5
$30
$33
Direct material per unit
$16
$17
$15.50
Overhead cost per unit
$2.90
2.40
$2.50
Transportation cost per 100 units
$125
$100
$110
If the forecast of additional demand for the next year is 25,000 units, which alternative should be
selected to minimize costs?
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a. Expand at current location
b. Location A
c. Location B
d. None of the above
36. Supreme Redeem, Inc. plans to open a large manufacturer’s rebate processing center. Supreme
has narrowed the potential sites to three locations. Data for each location are provided in the
following table. (A score of 1 is least favorable and 5 is most favorable.)
Location
Factors
Weight
Phoenix
Miami
Detroit
Cost to process rebate
0.45
3
3
4
Cost of living
0.20
3
4
5
Transportation
0.15
4
5
3
Union activities
0.05
5
3
2
Recreation
0.15
4
4
3
Which location should be chosen, based on total weighted score?
a. Phoenix
b. Miami
c. Detroit
d. None of the above
37. The center-of-gravity method takes all the following into account EXCEPT the:
a.
location of facilities and markets.
b.
demand.
c.
transportation costs.
d.
production costs.
38. The “Xi and Yi” used in the center-of-gravity method are the:
a.
transportation costs.
b.
x and y coordinates of location i.
c.
volume of goods moved to or from location i.
d.
x and y coordinates of the center of gravity.
39. Perfect order fulfillment is a metric that is used to measure _____.
a.
delivery reliability
b.
responsiveness
c.
supply chain efficiency
d.
supply chain financial performance
40. _____ is measured by order fulfillment lead time or perfect delivery fulfillment.
a.
Responsiveness
b.
Delivery reliability
c.
Supply chain efficiency
d.
Financial measure
41. All of the following are considered noneconomic factors in location decisions EXCEPT:
a.
the availability of labor.
b.
operating costs
c.
transportation services.
d.
the quality of life.
42. Which level of the facility location hierarchy is most closely related to factors such as
managers’ preferences, services and taxes, available transportation systems, banking services, and
environmental impacts?
a.
Global (National) location
b.
Regional location
c.
Community location
d.
Local site selection
43. The _____ method takes into account the location of facilities and markets, demand, and
transportation costs in arriving at the best location for a single facility.
a.
global sourcing
b.
inventory management
c.
multisite management
d.
center-of-gravity
44. _____ is the process of managing geographically dispersed service-providing facilities.
a.
Center-of-gravity method
b.
Reverse logistics
c.
Multisite management
d.
Postponement
45. Which one of the following statements is TRUE about vendor-managed inventory (VMI)?
a.
VMI is a form of outsourcing.
b.
VMI accounts for substitutable products.
c.
VMI results in lower customer inventories.
d.
VMI is identical to pull systems.
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True/False Questions
1. A supply chain is broader in scope than the value chain, and encompasses all pre- and post-
production activity.
2. Supply chains must be redesigned when a firm’s product lines and markets change or expand.
3. The basic purpose of a supply chain is to coordinate communication among employees and
customers in order to maximize customer satisfaction.
4. Distribution centers are warehouses that act as intermediaries between suppliers and factories.
5. Orders are passed upstream in a supply chain, while materials and finished goods are sent
downstream in a supply chain.
6. In the supply chain operations reference (SCOR) model, the “make” step involves managing
orders, transportation, and distribution to provide goods and services.
7. In the supply chain operations reference (SCOR) model, the “plan” step involves identifying
and selecting suppliers.
8. Contract manufacturers can provide the benefit of reducing the total costs resulting from
economies of scale.
9. In designing an efficient supply chain, an organization would need high levels of inventory
stored in many small distribution centers.
10. Walmart uses a push supply chain.
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11. A supply chain cannot be a combination of push and pull systems.
12. Accurate forecasts are more critical to a pull system.
13. For Dell Inc., the push-pull boundary is very early in the supply chain, where suppliers store
inventory for frequent deliveries to Dell factories.
14. An automobile company that installs satellite radio at the dealership instead of at the factory
is applying a postponement strategy.
15. If a multisite organization has a stable product line and highly predictable design, then a
responsive supply chain is the best design.
16. Delivery reliability is measured by perfect order fulfillment.
17. Responsiveness is measured by order fulfillment lead time or by perfect delivery fulfillment.
18. Inventory turnover value tells managers how much of the firm’s assets are tied up in
inventory.
19. The facility location decision must attempt to minimize the combined cost of producing the
good or service and delivering them to customers.
20. A great servicescape and facility layout can usually overcome a poor location decision.
21. Both economic and noneconomic factors should play an important role in location decisions
in supply and value chains.
22. The center-of-gravity method determines the best X and Y coordinates (location) for multiple
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facilities by finding a central location and then assigning the facilities around the periphery of that
location.
23. The center-of-gravity model minimizes the weighted distance between the facility to be
located and its supply and demand points.
24. Pipelines have limited use and accessibility and are used primarily for products like oil and
natural gas.
25. With vendor-managed inventory (VMI), a manufacturer monitors and managers inventory for
a customer.
26. One disadvantage of VMI is that it does not account for substitutable products from competing
manufacturers and often results in higher customer inventories than necessary.
27. Radio-frequency identification (RFID) tags are used to streamline information flow between
global customers and suppliers and increase the velocity of supply chains.
Case Study Questions (To reward students who attend class, listen and learn, and take good
class notes on the case discussion and/or student team presentation.)
1. Which of the following statements in the Boston Red Sox (BRS) case study is TRUE?
a. Break-even analysis is the dominant method used in the case analysis to evaluate the four
potential stadium locations.
b. The location with zero land cost is the best site to locate the stadium.
c. Qualitative criteria are not important in this case study.
d. None of the above is true.
Problems for Manual Grading, Take-Home Exams and Partial Credit (Also, review the OM
Instructor’s Manual for end-of-chapter questions/problems)
1. Explain about a supply chain.
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Supply chains are all about speed and efficiency; poor supply chain performance can undermine
the objectives of the firm and can easily result in loss of customers, either individual consumers
or major retailers. As a firm’s product lines and markets change or expand, the design or redesign
of supply chains becomes a critical issue.
2. What are the key functions of a supply chain?
3. Explain the typical structure of a supply chain.
4. Summarize the supply chain operations reference (SCOR) model.
5. Explain the difference between an efficient and a responsive supply chain, and the business
context for which each works best.
6. Differentiate between a push system and a pull system. Include the advantages of each.
7. Explain the concept of postponement and provide an example of it.
8. Describe some common supply chain metrics used to evaluate performance.
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9. Describe how supply chains should be designed for multisite management situations.
10. Explain how the center of gravity is determined.
11. Discuss some of the key economic and noneconomic factors that are evaluated in making a
facility location decision.
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12. Call Centers, Ltd. has decided to use the weighted scoring model approach to aid the
company in finding new locations for major call centers. Given below is information regarding
four potential locations. (A score of 1 is least favorable and 5 is most favorable.)
Location
Factors
Weight
A
B
C
D
Labor cost/hour
0.50
3
5
4
3
Labor availability
0.25
5
4
3
4
Government regulations
0.15
5
2
4
5
Transportation
0.10
4
3
5
4
a.
What is the total weighted score for each of the three locations?
b.
Which location should be chosen, based on total weighted score?
a.
Location A:
Total score: 0.50(3) +0 .25(5) +0 .15 (5) + 0.10(4) = 3.90
Location B:
Total score: 0.50(5) + 0.25(4) + 0.15 (2) + 0.10(3) = 4.10
Location C:
Total score: 0.50(4) +0 .25(3) + 0.15(4) + 0.10(5) = 3.85
Location D:
Total Score: 0.50(3) +0 .25(4) + 0.15(5) + 0.10(4) = 3.65
b.
Location B, with the largest weighted score, should be chosen.
13. William Green, vice president of manufacturing for Computer Products Corporation (CPC),
and his staff are studying three midwestern alternative locations for a new production facility for
producing high-resolution scanners. His staff analysts predict that the scanners will be a growing
market over the next ten years, and the analysis group shares marketing’s enthusiasm for planning
facilities for producing this new product line. The analysts have developed these estimates for the
three locations:
Annual Fixed Costs
Variable Cost
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Location Alternative
(Millions of Dollars)
per Scanner
Cleveland, Ohio
$3.9
$3,400
South Bend, Indiana
3.6
3,700
Grand Rapids, Michigan
3.1
4,000
The marketing department at CPC estimates sales for the scanners will be 1,000 scanners in the
first year, 2,000 in the second year, and 4,000 in the third year.
a.
In what range of production capacity would each of the locations be preferred?
b.
Use break-even analysis to determine which location would be preferred in Years 1, 2, and
3. Which single location should be chosen, and in what year will CPC break even?
a.
3,900,000 + 3,400(X) = 3,600,000 + 3,700(X)
300,000 = 300(X)
X = 1,000.00
3,900,000 + 3,400(X) = 3,100,000 + 4,000(X)
800,000 = 600(X)
X = 1,333.33
3,600,000 + 3,700(X) = 3,100,000 + 4,000(X)
500,000 = 300(X)
X = 1,666.67
Location
Cleveland
South Bend
Grand Rapids
production.
break even during the second year.
14. Define the concept of vendor-managed inventory (VMI). How does VMI improve supply
chain performance?