60.
Which of the following products will most likely have high value-to-weight
ratios?
A.
Pharmaceuticals
B.
Refined sugar
C.
Bulk chemicals
D.
Petroleum products
Many electronic components and pharmaceuticals have high value-to–
weight ratios. They are expensive and they do not weigh very much. Thus,
even if they are shipped halfway around the world, their transportation
costs account for a very small percentage of total costs.
61.
When a company’s product has a low value-to-weight ratio, the company
should _____.
A.
produce the product from two or three optimal locations and ship
products from there
B.
manufacture products from a centralized location
C.
ignore transportation costs as they would only be a minor part
D.
produce the product in multiple locations close to major markets
Products with low value-to-weight ratios are relatively inexpensive products
that weigh a lot. Accordingly, when they are shipped long distances,
transportation costs account for a large percentage of total costs. Thus,
other things being equal, there is great pressure to make these products in
multiple locations close to major markets to reduce transportation costs.
62.
Which of the following products will have low value-to-weight ratios?
A.
Pharmaceuticals
B.
Refined sugar
C.
Microprocessor
D.
Electronic items
Refined sugar, certain bulk chemicals, paint, and petroleum products all
have low value-to-weight ratios; they are relatively inexpensive products
that weigh a lot. Accordingly, when they are shipped long distances,
transportation costs account for a large percentage of total costs.
63.
Concentration of production is appropriate when _____.
A.
the product serves universal needs
B.
the product does not serve universal needs
C.
the product’s value-to-weight ratio is low
D.
volatility in important exchange rates is expected
Concentration of production makes most sense when the product serves
universal needs.
64.
Decentralization of production is appropriate when _____.
A.
a product’s value-to-weight ratio is high
B.
the product serves universal needs
C.
barriers to trade are low
D.
volatility in key exchange rates is expected
Decentralization of production is appropriate when volatility in important
exchange rates is expected.
65.
Which of the following is a hidden cost associated with basing production in
a foreign location?
A.
Cost of labor within the location
B.
High employee turnover
C.
Transportation costs
D.
Differences in the value of currency
There may be some “hidden costs” to basing production in a foreign
location. High employee turnover, shoddy workmanship, poor product
quality, and low productivity are such hidden costs in some outsourcing
locations.
66.
Which of the following is a major source of the improvement in the
capabilities of a foreign site?
A.
Increasing abundance of advanced factors of production in the nation
where the factory is located
B.
Changes in the labor costs associated with the foreign site
C.
Fluctuations in the quality of the product coming out of the foreign site
D.
Sudden changes in the currency exchanges rates with the nation in
which the factory is located
Upward migration in the strategic role of foreign production sites arises
because many foreign sites upgrade their own capabilities. A second source
of this improvement in the capabilities of a foreign site can be the
increasing abundance of advanced factors of production in the nation in
which the factory is located.
67.
RSA is a bicycle manufacturing company. Which of the following is a make-
or-buy decision that the company will have to make?
A.
Should the company increase its responsiveness toward the retailers?
B.
What are the products that the company should manufacture?
C.
Should the company outsource production to a low-cost vendor?
D.
What should be the pricing strategy of the company’s product?
International businesses frequently face make-or-buy decisions, decisions
about whether they should perform a certain value creation activity
themselves or outsource it to another entity. Deciding whether or not to
outsource is one such decision.
68.
Make-or-buy decisions are decisions about _____.
A.
the components to be used in manufacturing process
B.
procuring raw materials for a production process
C.
procuring the capital equipments for production
D.
whether or not to outsource value creation activities
International businesses frequently face make-or-buy decisions, decisions
about whether they should perform a certain value creation activity
themselves or outsource it to another entity. Deciding whether or not to
outsource is one such decision.
69.
Vertical integration refers to _____.
A.
outsourcing production to a low-cost based company
B.
making all or part of a product in-house
C.
using multiple suppliers to procure raw materials
D.
procuring raw materials or products from a single supplier
Making all or part of a product in-house refers to vertical integration. In-
house production may be associated with lower costs, facilitate investments
in highly specialized assets, protect proprietary product technology, enable
the firm to accumulate valuable skills and capabilities, and ease the
scheduling of adjacent processes.
70.
A _____ is an asset whose value is contingent upon a particular relationship
persisting.
A.
specialized asset
B.
balanced asset
C.
universal asset
D.
supplementary asset
A specialized asset is an asset whose value is contingent upon a particular
relationship persisting.
71.
An advantage of engaging in in-house production of products and
components is that _____.
A.
the firm will have fewer subunits to control by making products in-house
B.
it will help the firm capture more orders from other countries
C.
it enables a firm to protect the proprietary technologies that it has
D.
firms can make better use of the location advantages of certain countries
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.
72.
Dynamic capabilities describe skills that _____.
A.
are used to perform the day-to-day activities in a firm
B.
refer to extrinsic capabilities of an employee
C.
become more valuable over time through learning
D.
are used by managers to make transactional decisions
The term dynamic capabilities is used to describe skills that become more
valuable over time through learning.
73.
An advantage of buying component parts, or even an entire product, from
independent suppliers is that _____.
A.
it can make planning, coordination, and scheduling of adjacent processes
easier for the firm
B.
the firm can maintain its flexibility by switching orders according to
circumstances
C.
the firm will be able to maintain strict control over its proprietary
technology
D.
the firm will have access to superior quality raw materials and will deliver
high quality products
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.
74.
The benefits of making all or part of a product in-house seem to be greatest
when the firm _____.
A.
wants to accumulate dynamic capabilities
B.
has highly specialized assets
C.
lacks efficiency in some processes
D.
faces the risk of strategic inflexibility
The benefits of making all or part of a product in-house seem to be greatest
when highly specialized assets are involved, when in-house production is
necessary for protecting proprietary technology, when the firm may build
valuable capabilities over time if it continues to perform an activity in-
house, or when the firm is simply more efficient than external suppliers at
performing a particular activity.
75.
How has the adoption of just-in-time inventory systems, computer-aided
design, and computer-aided manufacturing impact firms’ associations with
suppliers?
A.
The bargaining power of the firms over their suppliers has increased
enormously.
B.
It has reduced the level of data sharing between firms and their
suppliers.
C.
Firms are capable of switching suppliers often due to such technologies.
D.
It has increased pressures to establish long-term relationships with
suppliers.
The adoption of just-in-time inventory systems (JIT), computer-aided
design (CAD), and computer-aided manufacturing (CAM) over the past two
decades to have increased pressures for firms to establish long-term
relationships with their suppliers. JIT, CAD, and CAM systems all rely on
close links between firms and their suppliers supported by substantial
specialized investment in equipment and information systems hardware.
76.
The major cost saving associated with JIT systems comes from _____.
A.
early delivery of raw materials to production
B.
decentralization of manufacturing
C.
speeding up inventory turnover
D.
reduced spending on CRM activities
The major cost saving comes from speeding up inventory turnover. This
reduces inventory holding costs, such as warehousing and storage costs.
77.
Just-in-time inventory systems _____.
A.
are used when procurement is not organized
B.
require large warehouses for storage
C.
economize on inventory holding costs
D.
maintain large buffer for inventory
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.
78.
Which of the following is a drawback of a just-in–time system?
A.
Transport costs are high when using a just-in-time system.
B.
It leaves a firm without a buffer stock of inventory.
C.
It increases the warranty costs associated with products.
D.
It leaves a firm with high scrap costs associated with defective products.
The drawback of a JIT system is that it leaves a firm without a buffer stock
of inventory. Although buffer stocks are expensive to store, they can help a
firm respond quickly to increases in demand and tide a firm over shortages
brought about by disruption among suppliers.
79.
With a(n)_____ system, suppliers, shippers, and the purchasing firm can
communicate with each other with no time delay.
A.
CAD
B.
JIT
C.
CAM
D.
EDI
Firms now typically use electronic data interchange (EDI) via the Internet to
coordinate the flow of materials into manufacturing, through manufacturing,
and out to customers.
80.
Which of the following statements is true of Web-based EDI systems?
A.
Web-based EDI systems are more expensive than proprietary solutions.
B.
Small firms will not be able to make use of Web-based EDI systems
C.
Web-based systems are much easier to install compared to proprietary
solutions.
D.
Most Web-based systems are implemented to support proprietary
solutions.
Web-based systems have transformed the management of globally
dispersed supply chains, allowing even small firms to achieve a much better
balance between supply and demand, thereby reducing the inventory in
their systems and reaping the associated economic benefits.
Essay Questions
81.
What is logistics? Discuss the relationship between production and
logistics.
Logistics is the activity that controls the transmission of physical materials
through the value chain, from procurement through production and into
distribution. Production and logistics are closely linked since a firm’s ability
to perform its production activities efficiently depends on a timely supply of
high-quality material inputs, for which logistics is responsible.