67) Which of the following statements is correct?
A) Benchmarking is the process of calculating carrying cost, EOQ and other inventory
management procedures and being able to compare it to others.
B) Benchmarking is the process of identifying world-class processes or procedures currently
being employed and building higher quality standards around these for your firm.
C) Benchmarking is the when a firm evaluates all its supply chain management for higher quality
and price.
D) All of the above
68) To give employees a sense of how the quality of their job fits into the big picture, many
TQM companies engage in:
A) paying more to their employees.
B) hiring more qualified employees with advanced degrees.
C) offering cross-training.
D) All of the above
69) ________ relies on data-driven statistical techniques to improve quality.
A) Six Sigma
B) Fishtake charts
C) EOQ
D) None of the above
70) Which of the following cost typically is included in obtaining materials and inventory?
A) Receiving and inspecting
B) Handling
C) PO processing
D) All of the above
71) Which of the following statements is correct?
A) Supply-chain management includes hiring the qualified HR Director.
B) Supply-chain management includes all the activities that produce goods and services and
delivers them to the customer.
C) Supply-chain management includes providing quality service.
D) All of the above
72) Most entrepreneurs can neglect the purchasing function because they buy so little from
vendors they don’t gain anything by spending time working on improving it.
73) The purchasing plan should identify a company’s quality requirements, its cost targets, and
the criteria for determining the supplier.
74) The purchasing plan is developed independently from other functional areas of a business.
75) Once the merchandise is received, it is not necessary for the buyer to verify its identity and
condition.
76) Proper control techniques in receiving merchandise prevent the small business owner from
paying for suppliers’ and shippers’ mistakes.
77) The business owner (called the consignor) may return any unsold merchandise to the supplier
without obligation.
78) The implementation of TQM is relatively simple in that other than training managers and
employees little else needs to be changed in the company.
79) Statistical process control is central to the success of Total Quality Management efforts.
80) Implementing TQM means a radical change in the management of information in that much
more information must be shared with workers.
81) Another process central to the successful implementation of TQM is identifying the
individual(s) responsible for any mistakes as part of fixing the immediate quality problems.
82) Successful Total Quality Management (TQM) requires leadership from the top.
83) In today’s competitive marketplace, an entrepreneur should not expect that every vendor be
able to demonstrate that they operate a continuous improvement process.
84) When implementing TQM, managers should remember that change and turmoil are essential
elements of the implementation.
85) The inventory investment is usually the largest single investment for a small firm.
86) It is better to maintain too little rather than too much inventory because there are significant
storage costs for excess inventory, but few if any costs associated with understocking inventory.
87) The cost of units is simply the typical costs involved in having units in storage.
88) Although there are many costs associated with carrying large levels of inventory, the
opportunity costs of large inventories are virtually nonexistent.
89) Depreciation costs of holding inventory represent the reduced value of inventory over time.
90) Spoilage, obsolescence, and pilferage are all part of the set-up costs of inventory.
91) When thinking about inventory holding costs, remember that the greater the quantity
ordered, the greater the inventory carrying costs.
92) Set-up costs are the expenses incurred in the actual ordering of materials and inventory, or in
setting up the manufacturing line.
93) In the basic EOQ model, the higher the economic order quantity, the greater the number of
orders placed.
94) The EOQ solution balances the ordering costs and the carrying costs of an inventory item so
that total costs are minimized.
95) The best way to minimize carrying costs is to order as many units as possible in each order.
96) To minimize ordering costs, the small business should place as few and as large orders as
possible.
97) The advantage of the EOQ with usage calculation is that it takes into consideration that the
inventory order does not arrive at the same time.
98) Total inventory cost is maximized when carrying cost and ordering costs are balanced.
99) The best purchase price is the lowest price at which one can obtain goods and services.
100) The best purchase price is the lowest price at which the owner can obtain goods and
services of the best quality.
101) For the typical small business owner, price is always a substantial factor when purchasing
inventory and supplies.
102) Selling terms are as important to the small business as the actual price of the goods and
services being purchased.
103) Trade discounts are offered within the distribution channel and are on a graduated scale.
104) A noncumulative quantity discount grants a discount if a large enough volume of
merchandise is purchased in a single order.
105) Cumulative quantity discounts are provided to members of the distribution channel in
recognition of the services they provide the manufacturer.
106) Cash discounts are offered to customers as an incentive to pay for merchandise promptly.
107) “3/10, EOM” means a 3% discount can be taken if the bill is paid by the tenth day of the
month after the purchase.
108) Generally, business owners should not be lured into taking cash discounts vendors offer;
that cash could be put to better use elsewhere.
109) As it is a good idea to take advantage of discounts from vendors, small business owners
ought to stretch accounts payable to at least the first notice of past due.
110) The advantages of developing close, cooperative relationships with a single supplier
outweigh the risks of sole sourcing in most cases.
111) Selling on consignment means that the small business owner does not purchase the
merchandise carried from the supplier (called the consignor).
112) If a vendor offers a firm 2/10, net 30, and the firm doesn’t take it, the firm is paying an
interest rate of over 36% on an annual basis.
113) The time gap between placing an order and receiving is called lead time.
114) The cushion owners build into their inventory to prevent stockouts is called demand stock.
115) The simple reorder technique assumes that the rate of usage is constant and that lead time is
constant.
116) Because of its assumptions, the simplest reorder model is no longer valid or useful to the
small business owner in today’s dynamic business environment.
117) The formula for calculating safety stock is: safety stock = SLF × SDL.
118) The appropriate service level factor in the safety stock calculation is called the Z score.
119) The vendor certification program is an effort by the SBA to protect small businesses from
unscrupulous vendors.
120) The purpose of a vendor certification program is to create a list of acceptable vendors that
the small business owner can spread his/her orders among to avoid stocking out due to delays in
shipments.
121) To add objectivity to the vendor selection process, many firms are establishing vendor
certification programs.
122) The small business owner should concentrate purchases at a single supplier.
123) “Identification” is the designation of goods as the subject matter of the sales contract.
124) Risk of loss always passes with title to the goods.
125) Under the Uniform Commercial Code, the party who has title to goods also has the risk of
loss if those goods are lost, damaged, or destroyed.
126) Seller and buyer can agree to the terms under which title and risk of loss shift in a business
transaction.
127) In an “F.O.B. seller” (shipment) contract, both title and risk of loss transfer to the buyer
when the seller delivers the goods to the carrier or shipper.
128) A sales contract designated F.O.B. buyer requires the seller to deliver the goods to the
buyer’s place of business (or some other designated location), and risk of loss does not pass to
the buyer until the goods are so delivered.
129) A buyer gets an insurable interest in goods once they are identified as the goods pertaining
to the contract.
130) Both a buyer and a seller cannot have an insurable interest in the same goods.
131) A consignment contract means that the supplier (i.e., the consignor) retains title and risk of
loss for the consigned merchandise.
132) Discuss the purchasing plan, briefly describing each of the five key elements of the plan.
133) Explain the philosophy of Total Quality Management, naming the ten things a small
business owner should do to successfully implement a TQM program.
134) Outline Deming’s 14 Points.
135) Discuss the concept of the economic order quantity. What is its value to the small business
owner and what are the three principal elements needed to calculate it?
136) How does the EOQ with usage differ from the standard EOQ? Why is this difference
important to the small business owner?
137) What should the role of price be as an element of the purchasing process?
138) Identify and briefly describe the types of discounts a small business might receive from a
manufacturer.
139) What does the small business owner give up if he/she doesn’t take advantage of a vendor’s
discount? Demonstrate by calculating the interest rate on a $12,000 invoice that is 3/10 net 30.
140) Timing is a critical element of the purchasing process. Explain the various elements of the
timing of purchases: usage rate, stockouts, safety stock, reorder points, and demand patterns.
141) Compute the reorder point for a small business owner using the following data.
∙ Lead time =7 days
∙ Usage rate=28 units/day
∙ Safety stock=56 units
∙ EOQ=740 units
142) What is a vendor certification program and why would a small business owner use it?
143) It is important to understand transfer of title and the risk of loss when discussing
purchasing. Discuss the three concepts that explain the concept of title, including the rules that
affect the passage of title and risk.