Chapter 17 Global Production, Outsourcing, and Logistics
True / False Questions
1.
Lowering the costs is one of the objectives of the production and logistics
function of an international firm.
TRUE
The production and logistics functions of an international firm have a
number of important strategic objectives. One is to lower costs.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-01 Explain why production and logistics decisions are of central importance to many multinational
businesses.
Topic: Strategy, Production, and Logistics
2.
The firm that improves its quality control will also reduce its costs of value
creation.
TRUE
Improved quality control reduces costs by: (1) Increasing productivity
because time is not wasted producing poor-quality products that cannot be
sold, leading to a direct reduction in unit costs. (2) Lowering rework and
scrap costs associated with defective products. (3) Reducing the warranty
costs and time associated with fixing defective products.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-01 Explain why production and logistics decisions are of central importance to many multinational
businesses.
Topic: Strategy, Production, and Logistics
3.
Deming, the proponent of total quality management, suggested that
management shouldn’t attempt to train employees in new skills.
FALSE
Deming argued that management has the responsibility to train employees
in new skills to keep pace with changes in the workplace.
4.
A production process would create just 1 defect per six thousand products
at Six Sigma.
FALSE
At Six Sigma, a production process would be 99.99966 percent accurate,
creating just 3.4 defects per million units.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-01 Explain why production and logistics decisions are of central importance to many multinational
businesses.
Topic: Strategy, Production, and Logistics
5.
Other things being equal, a firm should locate its various manufacturing
activities where the relative factor costs are conducive to the performance
of those activities.
TRUE
Other things being equal, a firm should locate its various manufacturing
activities where the economic, political, and cultural conditions, including
relative factor costs, are conducive to the performance of those activities.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
6.
The level of output at which most plant-level scale economies are
exhausted is referred to as the minimum efficient scale of output.
TRUE
The level of output at which most plant-level scale economies are
exhausted is referred to as the minimum efficient scale of output.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
7.
The argument for centralizing production will be greater if the minimum
efficient scale of a plant relative to total global demand is low.
FALSE
The larger the minimum efficient scale of a plant relative to total global
demand, the greater the argument for centralizing production in a single
location or a limited number of locations.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
8.
Maintaining high minimum efficient scale allows a firm to hedge against
currency risks.
FALSE
The advantages of a low minimum efficient scale include allowing the firm
to accommodate demands for local responsiveness or to hedge against
currency risk by manufacturing the same product in several locations.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
9.
Lean production covers a range of manufacturing technologies designed to
reduce setup times for complex equipment.
TRUE
The term flexible manufacturing technology or lean production covers a
range of manufacturing technologies designed to (1) reduce setup times for
complex equipment, (2) increase the utilization of individual machines
through better scheduling, and (3) improve quality control at all stages of
the manufacturing process.
choice of where to locate production activities.
Topic: Where to Produce
10.
Mass customization facilitates product customization at low costs.
TRUE
The term mass customization has been coined to describe the ability of
companies to use flexible manufacturing technology to reconcile two goals
that were once thought to be incompatible—low cost and product
customization.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
11.
A flexible machine cell is used to perform a standardized operation.
FALSE
A flexible machine cell is a grouping of various types of machinery, a
common materials handler, and a centralized cell controller.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
12.
Flexible manufacturing technologies enable companies to customize
products to the demands of small consumer groups.
TRUE
Besides improving efficiency and lowering costs, flexible manufacturing
technologies also enable companies to customize products to the demands
of small consumer groups—at a cost that at one time could be achieved
only by mass-producing a standardized output.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
13.
The minimum efficient scale of production is high when fixed costs are low.
FALSE
When fixed costs are low, the minimum efficient scale of production is low.
The arguments for concentrating production at one or a few locations are
not as compelling under this circumstance.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
14.
Products such as electronic components and pharmaceuticals have low
value-to-weight ratios.
FALSE
Many electronic components and pharmaceuticals have high value-to–
weight ratios. They are expensive and they do not weigh very much.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
15.
Organizations are under pressure to produce products in the optimal
location and to serve the world market from there if their products have low
value-to-weight ratios.
FALSE
Products that have high value-to-weight ratios are expensive and they do
not weigh very much. Their transportation costs account for a very small
percentage of total costs. Given this, other things being equal, there is great
pressure to produce these products in the optimal location and to serve the
world market from there.
choice of where to locate production activities.
Topic: Where to Produce
16.
Products such as refined sugar, certain bulk chemicals, paint, and
petroleum products have low value-to-weight ratios.
TRUE
Products such as refined sugar, certain bulk chemicals, paint, and
petroleum products have low value-to-weight ratios. They are relatively
inexpensive products that weigh a lot.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
17.
Modern consumer products such as personal computers serve universal
needs.
TRUE
Many industrial products such as industrial electronics, steel, bulk
chemicals and modern consumer products such as handheld calculators,
personal computers, and video game serve universal needs.
AACSB: Analytic
Blooms: Understand
choice of where to locate production activities.
Topic: Where to Produce
18.
Decentralized production is favored if differences between countries in
factor costs have a substantial impact on the costs of manufacturing in
various countries.
FALSE
Concentration of production makes most sense when differences between
countries in factor costs, political economy, and culture have a substantial
impact on the costs of manufacturing in various countries.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
19.
Concentration of production is not favored when important exchange rates
are expected to remain relatively stable.
FALSE
Concentration of production is favored when important exchange rates are
expected to remain relatively stable.
AACSB: Analytic
Blooms: Understand
choice of where to locate production activities.
Topic: Where to Produce
20.
Decentralization of production is appropriate when location externalities are
important.
FALSE
Decentralization of production is appropriate when location externalities are
not important.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
21.
Decentralization of production is appropriate when the product does not
serve universal needs.
TRUE
Decentralization of production is appropriate when the product does not
serve universal needs.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
22.
Poor product quality and low productivity are hidden costs associated with
basing production in a foreign location.
TRUE
There may be some “hidden costs” to basing production in a foreign
location. Numerous anecdotes suggest that high employee turnover, shoddy
workmanship, poor product quality, and low productivity are significant
issues in some outsourcing locations.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-02 Explain how country differences; production technology; and product features all affect the
choice of where to locate production activities.
Topic: Where to Produce
23.
Upward migration in the strategic role of foreign production sites arises
when they upgrade their own capabilities.
TRUE
Upward migration in the strategic role of foreign production sites arises
because many foreign sites upgrade their own capabilities.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
24.
Global learning refers to the idea that valuable knowledge does not reside
just in a firm’s domestic operations.
TRUE
Global learning refers to the idea that valuable knowledge does not reside
just in a firm’s domestic operations. It may also be found in its foreign
subsidiaries.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-03 Recognize how the role of foreign subsidiaries in production can be enhanced over time as they
accumulate knowledge.
Topic: The Strategic Role of a Foreign Production Site
25.
Make-or-buy decisions are decisions that concern the components to be
used in a production process.
FALSE
Make-or-buy decisions are decisions about whether companies should
perform a certain value creation activity themselves or outsource it to
another entity.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
26.
A specialized asset is an asset that is used to perform day-to-day activities.
FALSE
A specialized asset is an asset whose value is contingent upon a particular
relationship persisting.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
27.
Firms would prefer buying component parts, or an entire product, from
independent suppliers to protect proprietary product technologies.
FALSE
Proprietary product technology is unique to a firm. If the firm outsources the
production of entire products or components containing proprietary
technology, it runs the risk that those suppliers will expropriate the
technology for their own use or that they will sell it to the firm’s
competitors. Thus, to maintain control over its technology, the firm might
prefer to make such products or component parts in-house.
28.
Dynamic capabilities describe skills that become more valuable over time
through learning.
TRUE
The term dynamic capabilities is used to describe skills that become more
valuable over time through learning.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
29.
Firms can increase flexibility by producing all parts of a product in-house.
FALSE
The great advantage of buying component parts, or even an entire product,
from independent suppliers is that the firm can maintain its flexibility,
switching orders between suppliers as circumstances dictate.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
30.
The firm that sources from independent suppliers has fewer subunits to
control.
TRUE
The firm that sources from independent suppliers has fewer subunits to
control.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
31.
Outsourcing some manufacturing to independent suppliers based in other
countries would help firms capture more orders from that country.
TRUE
One reason for outsourcing some manufacturing to independent suppliers
based in other countries is that it may help the firm capture more orders
from that country.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
32.
The benefits of making all or part of a product in-house is minimal when
highly specialized assets are involved.
FALSE
The benefits of making all or part of a product in-house seem to be greatest
when highly specialized assets are involved.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
33.
Buying a product from external vendors is highly appropriate when a firm
intends to protect proprietary technology.
FALSE
Making a product in-house is more appropriate when a firm intends to
protect proprietary technology.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
34.
Making all or part of a product in-house is beneficial when the firm intends
to build valuable capabilities over time.
TRUE
The benefits of making all or part of a product in-house seem to be greatest
when the firm may build valuable capabilities over time if it continues to
perform an activity in-house.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
35.
Strategic alliances build trust between the firm and its suppliers.
TRUE
Strategic alliances build trust between the firm and its suppliers. Trust is
built when a firm makes a credible commitment to continue purchasing
from a supplier on reasonable terms.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
36.
Use of technologies such as just-in-time inventory systems and computer-
aided design has reduced pressures for firms to establish long-term
relationships with their suppliers.
FALSE
The adoption of just-in-time inventory systems (JIT), computer-aided
design (CAD), and computer-aided manufacturing (CAM) over the past two
decades seems to have increased pressures for firms to establish long-term
relationships with their suppliers.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-04 Identify the factors that influence a firm’s decision of whether to source supplies from within the
company or from foreign suppliers.
Topic: Outsourcing Production: Make-or-Buy Decisions
37.
The objectives of logistics are to manage a firm’s global supply chain at the
lowest possible cost and in a way that best serves customer needs.
TRUE
The twin objectives of logistics are to manage a firm’s global supply chain
at the lowest possible cost and in a way that best serves customer needs,
thereby lowering the costs of value creation and helping the firm establish a
competitive advantage through superior customer service.
Learning Objective: 17-05 Describe what is required to efficiently coordinate a globally dispersed production system.
Topic: Managing a Global Supply Chain
38.
Just-in-time systems are used to economize on inventory holding costs by
having materials arrive at a manufacturing plant just in time to enter the
production process and not before.
TRUE
The basic philosophy behind just-in–time (JIT) systems is to economize on
inventory holding costs by having materials arrive at a manufacturing plant
just in time to enter the production process and not before.
AACSB: Analytic
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 17-05 Describe what is required to efficiently coordinate a globally dispersed production system.
Topic: Managing a Global Supply Chain
39.
Just-in-time systems reduce product quality although it brings about huge
cost savings.
FALSE
In addition to the cost benefits, just-in–time systems can also help firms
improve product quality.
AACSB: Analytic
Blooms: Understand
Difficulty: 2 Medium