BUS/230 Purchasing and Material Management – Strayer – A+ Graded
Click on the Link Below to Purchase (Chapter 1 – 17)
CHAPTER 1 PURCHASING AND SUPPLY MANAGEMENT
1. The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer is called:
a. strategic sourcing.
b. value management.
c. customer relationship management.
d. supply chain management.
e. strategic process management.
2. As supply chains have become more global, the risk of supply disruptions has:
a. decreased because risk is spread among suppliers all over the world.
b. decreased because there are also more international laws and treaties.
c. stayed the same because the issues are similar wherever suppliers are located.
d. increased because other countries lack the business ethics of the U.S.
e. increased because of financial and exchange rate fluctuations.
3. Performance of the supply management function can be viewed in two contexts:
a. operational and trouble-avoidance.
b. operational and strategic.
c. operational and transactional.
d. strategic and opportunistic.
e. strategic and future-oriented.
4. The return on assets effect (ROA) quantifies and measures:
a. the indirect contribution of supply management to profitability.
b. any increase in sales that occurs at a greater rate than the cost of assets.
c. the impact of supply actions on inventory and the balance sheet.
d. reductions in the allocations to the operating budget of the supply department.
e. the effect on profitability of reduced spend compared to a sales increase.
5. Supply has the potential to contribute to:
a. cost management, profitability, return on assets, competitive position and corporate social policy.
b. cost management, profitability, return on assets and competitive position.
c. cost management, profitability and return on assets.
d. cost management and profitability.
e. cost management.
6. In manufacturing organizations, the dollars spent with suppliers fall into what range as a percent of revenues?
a. 65 to 75.
b. 50 to 80.
c. 45 to 75.
d. 30 to 60.
e. 25 to 35.
7. Supply management may indirectly contribute to the organization’s competitive advantage by:
a. the profit-leverage effect.
b. the return on assets effect.
c. reducing annual spend.
d. improving process efficiency.
e. all of the above.
8. Evidence of the growth and influence of supply management in an organization includes:
a. fewer activities under the management or control of supply.
b. more intense involvement in fewer supply chain activities.
c. involvement in strategic planning and mergers and acquisitions.
d. a clear delineation between supply and accounting.
e. merging of supply and accounts payable.
9. The profit-leverage effect of supply savings means that:
b. a reduction in money tied up in inventory improves profits.
c. a reduction in purchase spend increases profit more than an equal sales increase.
d. effective price negotiations with a supplier will lower the supplier’s profits.
e. the buyer gains leverage over suppliers when purchases are standardized.
f. efficient and effective supply management processes will increase profits.
10. The use of the concepts of purchasing, procurement, supply, and supply chain
management will vary from organization to organization depending on:
a. the organization’s stage of development and/or sophistication.
b. the industry in which they operate
c. the organization’s competitive position.
d. a and b.
e. a, b and c.
True and False
1. The true test of supply’s contribution is when the chief executive officer and the management team recognize the value of supply and suppliers in reducing prices paid for goods and services.
2. Sustainability initiatives include the effective and efficient capture and disposition of downstream products from customers and the reduction of the impact of the organization’s supply chains on the natural environment
3. Terms such as purchasing, procurement, supply, supply chain and logistics do not have standard definitions that are widely used across sectors and industries.
4. Reductions in inventory investment primarily come from getting users to reduce their demand for inventoried items.
5. Supply management has evolved from a transaction-based, tactical function to a process-oriented, strategic function.
6. One of the most important steps in achieving the potential of the supply function in a company is elevation of the chief supply officer to executive status.
7. The increase in outsourcing has resulted in an increase in the percentage of revenue paid out to suppliers.
8. Since labor and other costs greatly exceed outlays for purchased materials and services in most service organizations, supply is of little consequence in most service organizations.
9. Supply makes a limited contribution to organizational risk management since most supply decisions have few downside risks that might impact the organization’s strategy.
10. The total purchase sales ratio (the percentage of sales dollars paid out to suppliers) varies little from industry to industry.
11. An effective supply strategy primarily focuses on linking:
a. current needs to current markets.
b. future needs to future markets.
c. current needs to future markets.
d. future needs to current markets.
e. current and future needs to current and future markets.
12. Organizational objectives and supply objectives typically are expressed:
a. differently, making it difficult to translate organizational objectives into supply objectives.
b. differently, providing the supply manager multiple opportunities to tap into organizational resources.
c. the same (survival, growth, financial, and environmental), making it easy to translate organizational objectives into supply objectives.
d. the same factors (quality, quantity, price, delivery and service), but long-term at the organizational level and short-term at the supply level.
e. in ways that are very specific to the organization, making it difficult to convey objectives to suppliers.
13. Which one of the following is NOT one of the six major supply strategy areas:
a. competitive-edge strategies.
b. environmental-change strategies.
c. new-product design strategies.
d. risk-management strategies.
e. cost-reduction strategies.
14. When developing supply strategies related to “how to buy,” decisions must be made
i. systems and procedures
ii. goals and objectives.
iii. make or buy.
iv. large or small inventories.
v. none of the above.
15. The key question in strategic supply management is:
a. How can supply strategy be kept separate from and equal to organizational strategy?
b. How can first tier suppliers contribute to the buying organization’s objectives and strategy?
c. How can first, second, third- and subsequent tiers of suppliers contribute to the buying organization’s objectives and strategy?
d. How can the supply manager develop a network of suppliers that contribute to the buying organization’s strategies and goals?
e. How can supply and the supply chain contribute effectively to organizational objectives and strategy?
16. Three major challenges exist when setting supply objectives and strategies:
a. adopting efficient electronic transaction systems, designing effective strategic supply processes, and increasing internal compliance with both.
b. effectively interpreting corporate and supply objectives, selecting appropriate actions to achieve objectives, and integrating supply information into organizational strategies.
c. hiring professionals educated specifically in supply management, providing them with technical expertise, and developing leadership skills for the long-term.
d. emphasizing strategic cost management, involving key suppliers early in the process, and measuring the reduction in total cost of ownership.
e. identifying internal stakeholders, building consensus among these stakeholders, and selling top management on the results.
17. To effectively manage supply risks, the supply manager must:
a. inform the corporate risk officer of a potential risk, await instructions, and implement the directive.
b. seek input from senior executives in other functional areas, propose a risk mitigation plan, and await instructions from senior management.
c. identify and classify risks, assess the potential impact, and develop a risk mitigation strategy.
d. review the commodity strategy, revise it as needed, and implement the strategy revision.
e. confer with the organization’s management consultant, provide all requested data, and implement the consultant’s plan.
18. Linking supply strategy to corporate strategy is:
a. essential only in manufacturing, and most have the mechanisms to link them..
b. essential only in the service sector, and most lack the mechanisms to link them.
c. essential in all organizations, and most have the mechanisms to link them.
d. essential in all organizations, and many lack the mechanisms to link them.
e. non-essential in most types of organizations.
19. Strategic planning can be defined as:
a. how each functional area will achieve its specific goals and objectives.
b. a procedure for allocating resources to appropriate functions in the organization.
c. taking big risks to maximize current period benefits.
d. an action plan to achieve specific long-term goals and objectives.
e. an action plan to achieve specific operational and tactical goals.
20. Supply strategies that are based on changes in demand and supply are known as:
a. risk-management strategies.
b. assurance-of-supply strategies.
c. cost-reduction strategies.
d. environmental-change strategies.
e. supply chain support strategies.
True and False
1. The three levels of strategic planning are: function, unit, and corporate.
2. Environmental-change strategies are designed to anticipate and recognize shifts in the natural world that affect supply availability.
3. Even if a supply manager identifies and eliminates the causes of uncertainty and risk in the supply chain, the organization may still need to carry the same amount of inventory.
4. Risks in the supply chain can be classified into three main categories: (1) operational, (2) financial, and (3) strategic.
5. There is a growing emphasis on strategic supply management processes and less on purchase transactions.
6. A corporate risk management group headed by a chief risk officer has emerged in many organizations to assess total risk exposure and develop strategies to best manage all risks.
7. Assurance-of-supply strategies emphasize quality over all other considerations.
8. The most fundamental question facing an organization is whether to make or buy.
9. Supply managers may be able to provide information to identify risks to the organization and they can develop strategies to mitigate those risks.
10. Seldom do the actions of supply managers impact the organization’s reputation either positively or negatively.
21. Close to 70 percent of the value of any given requirement is established when needs are recognized and described. Therefore, the following functions should work together during need recognition and description:
a. the primary user and specifier.
b. the primary user and supply.
c. the primary user, design engineering and supply.
d. the primary user, design engineering, supply and accounting.
e. the primary user, design engineering, supply and all other relevant functional areas such as accounting/finance, marketing and operations.
22. A change in how supply is organized and structured is the result of:
a. the changing preference of the Chief Purchasing Officer.
b. an assessment of the best purchasing structure given the supply base.
c. a change in the overall corporate organizational structure.
d. a determination of the easiest change to manage internally.
e. a consensus among the supply management professionals in the company.
3. Which factors have a major influence on supply’s level in the organization:
a. the ratio of purchased material and services costs as a percentage of total costs or income.
b. the size of the supply base.
c. the nature of the products or services acquired.
d. the extent to which supply and suppliers can provide competitive advantage.
e. the credentials of the existing supply personnel.
a. a and b
b. c and d.
c. d and e
d. a, c and d.
e. a, d and e.
4. Organizations commit resources to cross-functional team development to:
a. give internal users ownership of tasks and problems.
b. achieve time, quality, or cost-reduction targets
c. promote diversity in the workplace.
d. give supply ownership of tasks and problems.
e. cross-train employees in case of downsizing.
5. Supply can provide an uninterrupted flow of materials, supplies and services by:
a. holding large inventories.
b. holding small inventories.
c. standardizing capital equipment, materials, MRO and services.
d. b and c.
e. a and c
6. A purchasing consortium:
a. speeds up the purchasing process, but does not usually result in price concessions from suppliers.
b. consists of two or more independent organizations that combine requirements for materials, services and capital goods to gain better pricing, service and technology from suppliers.
c. results in price concessions from suppliers, but usually does not speed up the purchasing process.
d. consists of two or more divisions of the same organization that combine requirements for materials, services and capital goods to gain better pricing, service and technology from suppliers.
e. is a form of collaborative purchasing used only by the public sector to deliver a wider range of services at a lower total cost.
7. Hybrid supply structures typically:
a. amplify the disadvantages of centralization.
b. amplify the advantages of decentralization.
c. capture the benefits of both centralized and decentralized structures.
d. are used in small to medium-sized organizations.
e. are used in service organizations of all sizes.
8. The organizational structure (centralized, decentralized, or hybrid) of the supply function:
a. has little influence on supply processes, internal cross-functional relationships, or the procedures and systems employed.
b. influences supply processes, internal cross-functional relationships, and the procedures and systems employed.
c. influences supply processes, but not internal cross-functional relationships, or the procedures and systems employed.
d. influences internal cross-functional relationships, and the procedures and systems employed, but not supply processes.
e. influences the procedures and systems employed, but not supply processes or internal cross-functional relationships.
9. Supply’s contribution to the organization’s competitive position depends on its ability to:
a. reduce costs.
b. enhance revenues.
c. manage assets.
d. a and c.
e. a, b and c.
10. Specialization within the supply function:
a. allows staff to develop expertise in particular areas.
b. is unnecessary because most tasks are transactional.
c. has no impact on talent management or organization within supply.
d. increases operating costs beyond the benefits of specialization.
e. is seldom required now that so many tasks are automated.
True and False
1. Eliminating process inefficiencies is the best way to accomplish supply objectives at the lowest total operating costs.
2. Decentralization refers to a supply organization that is physically located at corporate headquarters from which all organizational spending decisions are made.
3. There is an inherent conflict between supply’s objective to provide an uninterrupted flow of materials, supplies and services required to operate the organization and the objective to keep inventory investment and loss at a minimum.
4. Products, services and processes can be standardized and, if done effectively, will lower total cost of ownership.
5. The executive to whom the Chief Supply Officer reports has no relationship to the status of purchasing and the degree to which it is emphasized within the organization.
6. The supply process and structure for managing indirect spend is typically different than that for managing direct spend.
7. In a decentralized purchasing structure, those tasks which are more effectively handled at the business unit level include establishing policies, procedures, controls, and systems.
8. Some of the disadvantages of decentralization are narrow specialization and job boredom, lack of job flexibility, and a tendency to minimize legitimate differences in requirements.
9. Supply should obtain needed goods and services at the lowest total cost of ownership meaning that other cost factors—such as quality levels, after-sales service, warranties, inventory and spare parts requirements, and downtime—must be considered even though in the long term these factors seldom have a cost impact greater than the original purchase price.
10. The degree of centralization is reflected by the number of supply professionals working throughout all functional areas of the organization.
Supply Processes and Technology
23. The greatest opportunity to affect value in the purchasing process is when:
a. the supplier(s) is selected.
b. price and terms are determined.
c. potential suppliers are analyzed.
d. needs are recognized and described.
e. the buyer follows-up and expedites the order.
24. If the buyer does not have a clear and unambiguous description or specification and wants to find out which suppliers can deliver the best value when and where needed, he or she will typically issue a:
a. request for quotation (RFQ).
b. request for proposal (RFP).
c. request for information (RFI).
d. request for bid (RFB).
e. request for suggestions (RFS).
25. The benefit(s) of participation in an e-marketplace include:
a. the ability to aggregate spend
b. the advantages from economies of scale.
c. visibility up- and downstream in the supply chain.
d. the ability to automate and facilitate transactions.
e. all of the above.
26. One purpose of a requisition is:
a. to give users a way to authorize buyers to acquire goods and services.
b. to solicit price quotes for goods or services from suppliers.
c. to give finance a way to have the final say in any decision to spend money.
d. to clarify the description of need before communicating with potential suppliers.
e. to request or requisition supplies from external suppliers.
27. Radio frequency identification (RFID) will:
a. eliminate bar coding and manual counting.
b. eliminate further investment in information technology.
c. supplement bar coding to reduce theft.
d. be more cost effective to implement than bar coding.
e. improve data capture but slow down inventory picking
28. Efficient and effective supply processes are needed because of:
a. the need for an audit trail.
b. the large volume of items and dollar value.
c. severe consequences of poor performance.
d. the potential contribution to organizational objectives.
e. all of the above.
29. Online auctions have been most effective when:
a. the good or service is unique or highly customized.
b. technological, logistical, and commercial specifications are ambiguous.
c. the market conditions favor buyers.
d. the organization owns the technology to run the auction.
e. there are a limited number of suppliers available.
29. Electronic data interchange (EDI) provides:
a. secure transmission of large amounts of data, but with slow turnaround.
b. secure transmission, greater accuracy and shorter process cycle time for all data.
c. slow processing of large amounts of data, but with greater accuracy.
d. longer process cycle time, but with greater accuracy.
e. secure and rapid transmission of small amounts of data.
30. Application software for the procurement process is available:
a. only through an enterprise resource planning (ERP) system.
b. only from a systems developer.
c. only from an application software provider (ASP).
d. from an ERP system or systems developer, but not from an ASP.
e. from an ERP system, a systems developer, or an ASP.
31. Effectively and efficiently applying technology to the supply management process will result in:
a. increased clerical effort because there is more data entry than in a manual system.
b. damaged buyer-supplier relationships because of the impersonal nature of electronic communication.
c. an ability to reduce the total cost of doing business by enabling just-in-time systems, bar-coding applications, integrated manufacturing, and electronic funds transfers.
d. poorer negotiation planning and preparation because of the time spent accessing and analyzing data.
e. a decline in operating performance because of the volume of information to be analyzed and considered before making a decision.
True and False
1. A process is a set of activities that has a beginning and an end, occurs in a specific sequence, and has inputs and outputs.
2. Poor internal compliance with supply processes may indicate that internal customers do not trust the supply process or the suppliers to live up to promises.
3. A maverick buyer is a talented member of the supply department whose creativity and innovations have saved the organization large sums of money.
4. A bill of material (BOM) includes a list of potential suppliers for each item needed to make one month’s scheduled production.
5. The terms and conditions included in a purchase order vary depending on the nature of the purchase and may relate to price, quality, and service.
6. An online catalog is a digitized version of a supplier’s catalog that cannot be customized to include the specific items, prices, and other terms and conditions negotiated by the buyer and seller.
7. A reverse auction is an online, real time, increasing price auction between multiple pre-qualified suppliers and a buying organization.
8. Before embarking on an e-commerce path, the supply leadership should decide what should be acquired through e-commerce and what tools should be used.
9. It is relatively difficult to develop a global database to consolidate volumes and sourcing strategy because common technical standards and government regulations do not exist across countries.
10. Information flows into the supply group from (1) other internal functions and (2) external sources; and information flows out from supply to (1) other internal functions and (2) suppliers.
Make or Buy, Insourcing and Outsourcing
32. One of the most fundamental and critical decisions in any organization is, should we:
a. have a single source or multiple sources for a specific purchase?
b. order small quantities to avoid carrying costs or large quantities to get volume discounts?
c. switch suppliers because of a slight price discount from a potential supplier?
d. make or buy the needed good or service?
e. enter into a long- or short-term agreement with a supplier?
33. When a team has decided that a task or function currently performed by company employees is not a core competency, the team will probably recommend:
c. continuing to make.
d. continuing to buy.
34. Deciding what represents a core competency in an organization is:
a. a decision best left to the organization’s Board of Directors.
b. a decision best left to the Chief Executive Officer.
c. always the same for companies in the same industry.
d. a fairly easy decision once organizational goals and objectives are known.
e. often a fairly complex decision and a function of many factors.
35. Outsourcing of services is:
a. unrealistic because of the difficulty in measuring and evaluating the performance of service providers.
b. realistic if the internal users and the buyer can carefully define service requirements and quality expectations.
c. declining in popularity because of buyers’ dissatisfaction with most third party service providers.
d. realistic because of the ease in measuring and evaluating performance of service providers.
e. realistic because it is relatively easy to define service requirements and measure the quality of a service provider.
36. Currently, managements tend toward:
a. making rather than buying.
b. buying parts and assembling them onsite.
c. insourcing entire operations.
d. outsourcing entire operations.
e. making anything that is low risk.
a. is often chosen as a way for the organization to reduce or control operating costs, improve company focus, and gain access to world-class capabilities.
b. is a low risk venture because the firm can always revert back to performing the function in-house at low cost.
c. occurs primarily in large manufacturing firms in the private sector, but is rarely practiced in public purchasing.
d. usually results in increased hiring to attain expertise that the organization does not already possess.
e. decisions are based on financial factors that most organizations can easily access through their accounting system.
38. In the outsourcing decisions in many organizations, supply has had:
a. a leadership role.
b. extensive involvement.
c. relatively moderate involvement.
d. limited involvement
e. virtually no involvement.
39. Supply managers believe they can add the most value to the outsourcing decision by:
a. advising the outsourcing team on relevant contractual terms and conditions.
b. reviewing the analysis conducted by the outsourcing team.
c. providing a comprehensive, competitive process.
d. being available if the internal users want their assistance.
e. managing the contract once the decision has been implemented.
40. Supply management:
a. has been outsourced in many organizations because it is not a core competency.
b. has been outsourced in many organizations because of its tactical nature.
c. has not been outsourced because the chief purchasing officer makes outsourcing decisions.
d. and logistics have not been outsourced because both are considered core competencies in most organizations.
e. is seldom outsourced in its entirety, but activities such as inventory monitoring, order placement, and order receiving are outsourced.
41. Subcontracting refers to the practice of:
a. a prime contractor bidding out part of a job to another contractor.
b. an organization hiring a contractor to perform a task it has been doing in house.
c. an organization hiring substitute labor to cover for a supplier’s labor shortage.
d. a prime contractor bidding on another contractor’s incomplete jobs.
e. a prime contractor hiring substitute labor during a strike.
Loss of control is:
a. seldom a concern when considering outsourcing.
b. a concern of the supplier in an outsourcing situation.
c. a concern within the buying organization when considering outsourcing.
d. one of the advantages of outsourcing.
e. one reason few organizations outsource services.
True and False
1. Insourcing and outsourcing occur when a newly formed company first decides what to make inhouse and what to buy from suppliers.
2. Some of the concerns about outsourcing are centered around layoffs, exposure to supplier’s risks, and unexpected fees.
3. Some of the reasons an organization may decide to make rather than buy are: greater supply assurance, stringent quality requirements, and very small quantity requirements.
4. The gray zone in make or buy provides the opportunity to test and learn without fully committing to make or buy.
5. Some of the reasons an organization may decide to buy rather than make are: greater supply assurance, stringent quality requirements, and very small quantity requirements.
6. Supply managers typically recommend insourcing.
7. Outsourcing is prevalent in both the private and public sectors.
8. Growth in outsourcing in the logistics area can be attributed to growing deregulation of transportation companies.
9. Subcontracts are useful when the work is easy to define, has a short time horizon, and is relatively inexpensive.
10. The logistics function and tasks such as freight auditing, leasing, and maintenance and repair are often outsourced because they typically do not represent core competencies.
Need Identification and Specification
42. An advantage of buying by performance or function over other specification methods is that it provides:
a. evidence that the buyer has given thought and careful study to the need and the ways in which it may be satisfied.
b. the opportunity for the potential supplier to establish how to make the most suitable product.
c. the potential for equitable competition by ensuring that the suppliers are quoting for exactly the same material or service.
d. a standard for measuring and checking materials as supplied.
e. an opportunity to purchase identical requirements from a number of different sources of supply.
2. Supply’s growing involvement in the acquisition of services may be explained by:
a. declining technical knowledge of internal users of services.
b. the need for more of a personal relationship with the service supplier.
c. the fact that price and service-delivery requirements are complex.
d. the growing respect for supply managers as equals in the organization.
e. the high dollars spent on services and the opportunities to reduce costs.
3. Capital assets are long-term assets that:
a. are bought and sold in the regular course of business.
b. have an expected use of less than one year.
c. have an ongoing effect on the organization’s operations.
d. are generally expensed.
a. are acquired for fairly small sums of money.
4. When a specification is widely known, commonly recognized and readily available to every buyer, it is called a:
1. standard specification.
2. performance specification.
3. individual specification.
4. market grade specification.
5. customized specification.
5. Early supply involvement can be accomplished by:
a. staffing the engineering department with supply professionals.
b. using cross-functional teams on new product development.
c. encouraging internal customers to regularly interact with suppliers.
d. empowering internal customers to evaluate and select suppliers.
e. co-locating accounting staff in the purchasing/supply department.
6. Description by brand:
a. may be a preference of an internal user, but it is never a necessity.
b. is the least risky and lowest cost approach to attaining “best value.”
c. may be a necessity because the manufacturing process is secret.
d. should always be discouraged by the buyer.
e. indicates a supplier has unduly influenced someone in the buyer’s organization.
7. The purpose of identifying the function of an item to be required is:
a. to provide the mathematics for a suitable inspection program.
b. to assist in the determination of what represents acceptable value.
c. to avoid having to purchase a branded item.
d. to avoid substitution.
e. to avoid engineering-purchasing arguments.
8. A buyer may be compelled to purchase by specification when:
a. a high degree of supplier expertise or skill is required and difficult to define.
b. the internal user’s preferences are impossible to overcome.
c. a supplier holds a needed patent.
d. an opportunity exists to purchase identical requirements from several sources.
e. the buyer wants the supplier to decide how to make the most suitable product.
a. means agreement on definite sizes, design, and quality.
b. is essentially a marketing and sales concept.
c. is a reduction in the number of sizes and designs.
d. is a selective and commercial problem.
e. is an attempt to concentrate production on the most important sizes.
10. Supply chain risks include:
a. interruptions to the flow of goods or services.
b. actions that lower the company’s attractiveness to the investment community.
c. lack of regulatory compliance.
d. a and c
e. a, b, and c
True and False
1. Quality as a term covers both functionality: “Does it do the job we want
done?” and conformance to specification: “Does it fit the specification agreed to?”
2. MRO stands for Maintenance, Resale, and Operating Supplies.
3. Capital items can be depreciated, are often bought under a separate budgetary allocation, and may require special financing arrangements.
4. Equipment, real estate, and construction are examples of capital acquisitions, but information technology is not.
5. Assets may be tangible or intangible.
6. Packaging is an easy category to buy because it has few disposal, environmental, and transportation implications.
7. Buying capital equipment differs from other types of purchases because determination of final cost includes estimates over the life of the equipment.
8. New technology frequently permits an organization to gain competitive advantage on the bases of different products and services at significantly lower cost.
9. For non-repetitive requirements, a system or process of acquisition can be designed.
10. The price of a semiprocessed material—steel sheets instead of ingots, frozen pork bellies instead of hogs, cocoa butter instead of beans—tends to move in the opposite direction of the price of the basic raw material.
43. Determination of the “best buy” is based on:
a. technical considerations.
b. quality issues.
c. a balance between price and quality.
d. an individual buyer’s perceptions.
e. a balance of requirements of marketing, engineering, operations, and supply
2. ISO 9001:2008 provides a tested framework for a systematic approach to consistently delivering product that satisfies customers’ expectations by managing:
a. supplier relationships.
b. total cost of ownership.
c. process capability.
d. six sigma.
e. organizational processes.
3. A sampling technique that is based on the cumulative effect of information that every additional item in the sample adds as it is inspected is called:
a. random sampling.
b. sequential sampling.
c. 100 percent testing.
d. cumulative sampling.
e. additive testing.
4. A process is capable when:
1. the supplier can predict the future distributions about the mean.
2. common causes are eliminated through process change.
3. it averages a set number of standard deviations within the specifications.
4. it produces the same exact result each time the activity is performed.
5. random causes are detected by statistical process controls and eliminated.
5. The role and responsibilities of supply may contribute to the containment of the cost of poor quality by addressing:
a. prevention costs
b. appraisal costs
c. internal costs
d. external costs
e. all of the above.
6. A six sigma (6σ) approach to quality:
a. focuses on preventing defects by using customer feedback.
b. means there are no more than 6 defects per million opportunities.
c. was developed by Japanese companies in the 1950s..
d. is very close to zero defects.
e. has soft goals such as happier customers and employees.
7. Upper (UCL) and lower control limits (LCL):
a. are set by design engineers to a specific product specification.
b. are dependent on a specific process.
c. set by a machine operator based on the daily production requirements.
d. require operator action when the process is outside normal operating range.
e. are a critical factor in the success of a TQM program.
8. Quality control in services is:
a. relatively difficult compared to quality control of goods.
b. especially difficult if the service is highly tangible.
c. performed exactly the same as it is for goods.
d. impossible to quantify if the service is highly intangible.
e. is most easily done on the buyer’s premises.
9. A supplier certification program:
a. adds cost to the supplier, but provides few benefits to the supplier.
b. may enable the buyer and seller to lower costs and improve quality.
c. may improve quality, but at best will not raise costs.
d. always improves quality, but usually at a higher purchase price.
e. typically cost more to implement than the value of the quality improvement.
10. Deming’s 14 points stress the importance of:
a. minimizing total cost with a single source.
b. incoming inspection in quality assurance.
c. top management in quality control.
d. annual rating or merit systems.
e. specialized education for high potential employees
True and False
1. It is unreasonable to expect a supplier to both improve quality and lower costs.
2. Any output produced within a range between the upper and lower specification limit is considered within tolerance.
3. Reliability refers to the match between a commercially available material, good or service and the intended function.
4. External failure costs are incurred when poor-quality goods or services are passed on to the customer and include costs of returns, warranty costs, and management time handling customer complaints.
5. Kaizen is a Japanese term for process control.
6. Total quality management (TQM) is a philosophy and system of management focused on long-term success through customer satisfaction.
7. One type of formal service quality evaluation process measures the gap between service expectations along defined dimensions and the perceptions of actual service performance.
8. Suitability is the mathematical probability that a product will function for a stipulated period of time.
9. Statistical process control (SPC) is a technique for testing a random sample of output from a process in order to detect if nonrandom, assignable changes in the process are occurring.
10. A Six sigma (6s) approach to quality focuses on preventing defects by using customer feedback to reduce variation and waste.
Quantity and Inventory
1. Inventory use that is determined directly by customer orders is called:
a. derived demand.
b. dependent demand
c. anticipated demand.
d. independent demand.
a. scheduled demand.
2. “A” items in ABC analysis are:
a. reviewed infrequently.
b. particularly critical in financial terms.
c. normally carried in large quantities.
d. ordered infrequently.
a. commonly managed by carrying inventory.
3. When the carrying cost of inventory is expressed as a percentage:
a. it is usually the same as the borrowing cost of the organization.
b. the lower it is, the lower the economic order quantity.
c. it usually exceeds 57.5 percent per year.
d. it must exclude the insurance cost of inventory.
e. it is multiplied by the material unit cost to calculate the per unit carrying cost.
4. On an annual requirement of 100 items spread evenly throughout the year, any purchaser has an opportunity of buying all 100 units at a price of $100 each, or buying 10 units at a time at a price of $120. If the inventory carrying cost is 25 percent per year and assuming no ordering costs:
a. buying 100 at a time will save the company $2,500 per year.
b. buying 100 at a time will save the company $2,000 per year.
c. buying 100 at a time will save the company $1,100 a year.
d. buying 100 at a time will save the company $900 per year.
e. buying 100 at a time will save the company $200 a year.
5. Closed-loop MRP:
a. is a system which closes the loop between the supplier and the purchaser.
b. requires a feedback loop between purchasing and accounting.
c. provides a feedback loop between capacity and the master production schedule.
d. requires a check between the master production schedule and inventory.
e. allows a unit manager to sequence jobs done in that department.
6. A buffer inventory:
a. protects against uncertainties in supply and demand.
b. is accumulated for a well-defined future need.
c. is held in anticipation of future needs.
d. covers demand that is expected in the future.
e. is carried to soften the impact of a significant price increase.
7. Stockout costs:
a. are easy to assess in most organizations.
b. can vary depending on whether it is a seller’s or a buyer’s market.
c. are about equal to or less than the cost of carrying additional inventory.
d. do not include present and future lost contribution on lost sales and customer goodwill because these are difficult to quantify.
e. are higher when it is a seller’s market.
8. Which statement is most accurate when thinking about deciding how much to buy::
a. managers seldom make purchase decisions until they are absolutely sure of the volume required.
b. balancing price, volume, carrying cost, and the cost of stockouts is key to successfully determining how much to buy at any point in time.
c. forecasts of future demand, lead times, and prices are usually fairly accurate.
d. the costs of placing orders and holding inventory are so low they do not significantly affect the decision of how much to buy
e. the price premium to attain the desired quantity is usually less than the costs of not having materials available when needed.
9. When a retailer uses daily sales of each product to identify patterns and to forecast inventory requirements, this is an example of:
a. a deterministic model.
b. a causal model.
c. a time series forecasting technique.
d. a qualitative forecasting technique.
e. a repetitive pattern modeling tool.
10. The three main inputs of a material requirements planning (MRP) system are:
a. an accurate bill of material, a master production schedule, and the inventory record.
b. required human resources, required machine resources, and available resources.
c. required manufacturing resources, a master production schedule, and required human resources.
d. results from Pareto analysis, inventory records and a master production schedule.
e. inventory records, annual sales forecast, and a master production schedule.
True and False
1. In fixed period inventory models, orders are placed when the reorder point is reached.
2. MRP II systems link the organization’s planning processes with its financial system to produce “what if” scenarios to help achieve sales and profitability projections.
3. In Kanban systems large raw material inventories are unnecessary.
4. JIT requires infrequent deliveries of relatively large quantities in compliance with quality standards.
5. Service coverage is the ability of purchasing to meet the needs of its internal customers.
6. ABC analysis categorizes purchases or inventory into different groups, normally based on the value or impact on the profitability of the organization.
7. Dependent demand items are part of a larger component or product, and use is derived from the production schedule for the larger component.
8. For the supply management function, time-based strategies that impact competitive advantage relate to cycle time reductions and greater coordination of materials and information flows.
9. CPFR is a business practice in which multiple trading partners agree to exchange knowledge and share risks to generate the most accurate forecast possible and develop effective replenishment plans.
10. The basic elements of inventory carrying costs are capital costs, inventory service costs, storage space costs, and projected costs of lost sales..
44. One of the advantages of integrated carriers (truck-air) like UPS and Federal Express is that they:
a. utilize commercial airlines for air service.
b. outsource much of their air network..
c. own their own aircraft.
d. rely more on air than ground transportation.
e. outsource much of their ground network.
45. Outsourcing or using third party logistics services has:
a. remained flat due to increased challenges of international logistics.
b. become increasingly popular with small organizations, but not large ones.
c. declined in popularity due to declining service provider performance.
d. declined as transportation has been re-regulated.
e. increased as organizations focus on core competencies.
46. Organizations operating under a just-in-time system, require:
i. international coverage.
ii. heightened security.
iii. lowest price.
iv. on-time deliveries.
v. real-time package tracking.
47. When assessing the quality of a telecommunications provider, a key indicator of superior quality to a competitor is the ability to:
a. own and operate the largest network of land and sea cable.
b. compress more high resolution information on the same bandwidth.
c. have the leanest network of repeater stations.
d. have the most extensive intermodal operations.
e. own radio frequencies with greater range.
48.Fuel efficiency and energy consumption considerations:
a. have no impact on transportation strategy in most organizations.
b. are a factor in transportation strategy development in many organizations.
c. encourage shippers to focus on increasing LTL shipments.
d. lead to disintermediation in the supply chain.
e. result in lower use of third party logistics providers.
49. Over the past two decades, logistics costs as a percent of the U.S. gross domestic product (GDP) have:
a. been extremely volatile due to international events.
b. increased due to transportation deregulation and technology investments.
c. declined due to deregulation, technology investment, and e-commerce.
d. doubled due to growth in international sourcing.
e. remained constant due to a stagnant global economy.
50. When selecting freight carriers, buyers are most concerned with:
a. best overall value.
b. intermodal capabilities.
c. supply chain and delivery speed.
d. geographic coverage.
e. shipment security.
51. Transportation rates:
a. are established primarily through negotiation.
b. are established primarily by government regulation.
c. are lower for LTL than TL shipments.
d. typically decrease as delivery speed increases.
e. typically do not change when smaller shipments are consolidated.
52. Supply’s involvement in transportation decisions is:
a. insignificant and declining due to the growth of supply chain management.
b. growing due to the increase in the number of railroads and trucking companies throughout the world..
c. growing due to the deterioration of roads, bridges, and highways in North America.
d. declining due to the growth of outsourcing transportation decisions to third party logistics providers.
e. growing in terms of direct functional responsibility and cross-functional efforts to devise solutions with logistics services providers.
10. The selection of the FOB point is important to the purchaser, for it determines:
a. who pays the carrier.
b. when legal title to goods being shipped passes to the buyer.
c. who is responsible for preparing and pursuing loss or damage claims.
d. who routes the freight.
e. all of the above.
True and False
1. The bill of lading is the key document in the movement of goods.
2. One of the advantages of shipping by air carrier is that it is inexpensive compared to other modes of transportation.
3. One of the disadvantages of intermodal frieght services is higher damage rates due to more handling.
4. Transportation costs increase as distance, quantity, and speed increase.
5. Third-party logistics service providers are carriers that always own assets (trucks, airplanes, railcars) and act as intermediaries between trading partners, for example, shippers and carriers.
6. When contracting with logistics services providers, supply managers are limited by Federal regulations in their use of standard supply techniques such as negotiation, systems contracts, and supplier evalaution.
7. Carriers for RF waves are air, copper wire and fiberoptic cable.
8. Two effective cost reduction strategies are partnering agreements with logistics services provider and long-term contracts.
9. Radio frequency (RF) waves are a mode of transportation for information.
10. A mode of transportation is any means of conveyance (truck, auto, taxi, bus, railroad, ship, airplane) of people or property.
53. Identical prices received from various sources should:
1. be expected when the specification is highly customized.
2. always make the buyer suspicious of collusion.
3. only draw attention if the buyer is dissatisfied with the price quoted.
4. draw attention if the specification is complex or detailed.
5. result in the buyer taking legal action against all bidders.
54. Most direct costs are:
1. variable costs.
2. overhead costs.
3. general and administrative costs.
4. semivariable costs.
5. fixed costs.
55. If the buyer wants to motivate the seller to manage total costs, the best type of contract is:
a. firm-fixed-price (FFP).
b. cost-plus-incentive-fee (CPIF)
c. firm-fixed-price plus incentive fee (FFPIF).
d. cost-plus-fixed-fee (CPFF).
e. cost-no-fee (CNF).
56. The market approach to pricing:
1. means prices are set to cover direct costs, contribute to indirect, and attain a profit.
2. is the only defensible pricing mechanism for ethical companies to use.
3. implies that prices are set based on what the market will bear.
4. means that prices are adjusted regularly to ensure that the selling organization recoups all its market costs.
5. implies that market analysis is the only technique that should be employed to negotiate prices.
57. The prime function of an organized commodity exchange is to furnish an established marketplace where:
a. the forces of supply and demand operate freely.
b. commodity prices can be controlled.
c. sellers of the same commodity can come together to set prices.
d. products that are difficult to grade can be traded.
e. there are only a limited number of buyers and sellers.
58. Forward buying:
1. offsets transactions to protect against price and exchange risks
2. involves no risk for the buying organization.
3. involves purchasing for known or estimated near-term requirements.
4. is the same as speculation.
5. seeks to take advantage of price movements.
59. Items for which prices are comparatively low, and the cost of price reduction efforts may exceed any price savings realized, are called:
1. sensitive commodities.
2. raw materials.
3. special items.
4. standard production items.
5. MRO items.
60. A fair price:
a. is based on market conditions, and cost structure has no bearing on the determination of a fair price.
b. is the lowest price that ensures a continuous supply of the proper quality where and when needed and at which the supplier makes a reasonable profit.
c. is based on the cost to produce an item or service without consideration for the supplier’s profit margin.
d. is an amount arrived at through negotiations where the seller’s price is a starting point..
e. is when all sellers of equal goods or services receive the same per unit price.
61. A cash discount allows:
a. the seller to secure prompt payment, but has no benefits for the buyer.
b. the buyer to pay a lower price per unit, but has no benefits for the seller.
c. the seller to secure prompt payment, and the buyer to pay a lower price per unit.
d. the seller to demand payment in cash on demand (C.O.D.) upon receipt of goods.
1. the buyer to always calculate the discount based on the delivery date.
62. In the event the bidder does not make proper payment to its suppliers, the bond that protects the buyer against liens that might be granted to these suppliers, is called a:
a. performance bond.
b. surety bond.
c. bid bond
d. payment bond.
e. lien bond.
True and False
1. A cash discount of 2/10, N/30 (2 percent cash discount if payment is made in 10 days, with the gross amount due in 30 days) is the equivalent of approximately a 36 percent interest rate.
2. Governments play a role in establishing prices by establishing production and import quotas and by regulating the ways that buyers and sellers are allowed to behave in agreeing on prices.
3. To be fair, the basis and terms of cancellation should be agreed on in advance and made part of the terms and conditions of the purchase order.
4. Competitive bidding, in general, is the least efficient means of obtaining a fair price for items bought.
5. Online reverse auctions are useful means of price determination for special items.
6. For goods bought on a non-recurring basis, the contract may provide for a reduction in price should the buyer ever again purchase the item.
7. Canceling a contract for a technicality when market prices are falling is considered a perfectly acceptable and ethical practice.
8. An escalator clause provides for an increase, as well as a decrease, in price if costs change.
9. One justification for a quantity discount is that the buyer should not pay more than the actual cost of packing, crating, and transportation.
10. The Robinson-Patman and Sherman Antitrust Acts are primarily designed to prevent the stronger party from imposing too onerous conditions on the weaker one and preventing collusion so that competition will be maintained. .
63. Target pricing:
a. starts with the supplier’s price, and works to determine the selling price of the buying organization’s end product or service.
b. starts with the selling price of an organization’s end product minus the operating profit to establish the target cost.
c. starts with the selling price of an organization’s end product minus actual manufacturing, overhead, and materials costs to determine operating profit.
d. starts with the supplier’s price, and works to determine the supplier’s true cost structure.
e. starts with the buyer’s lowest reasonable price target, and works to a negotiated price agreed on by the buyer and the supplier.
64. Activity based costing attempts to:
a. correct the distortions built into product costing by the way that direct costs are allocated.
b. correct the distortions built into product costing by the way that the learning curve is applied to direct labor costs.
c. turn indirect costs into direct costs by tracking the cost drivers behind indirect costs.
d. turn direct costs into indirect costs by tracking the cost drivers behind direct costs.
e. introduce a new way to allocate direct costs that more accurately captures labor and material usage.
65. An externally focused process of analyzing costs in terms of the overall value chain is called:
a. strategic cost management.
b. supply chain management.
c. total cost management.
d. profit leverage effect.
e. activity based costing.
66. Target pricing may result in companywide cost reductions in:
i. design to cost.
ii. manufacture to cost.
iii. purchase to cost.
iv. a and b.
v. a, b, and c.
67. Sources of sustainable competitive advantage include:
a. product differentiation (where customers have low price sensitivity),
b. low cost (where customers have high price sensitivity),
c. a combination of product differentiation and cost-leadership.
d. a, b and c
i. none of the above
68. When developing a negotiation strategy, the negotiator should assess the positions of strength of both (all) parties to:
a. decide if negotiation makes sense.
b. establish negotiation points.
c. avoid setting unrealistic expectations.
d. b and c.
e. a, b, and c.
69. In portfolio analysis, the goal when purchasing strategic goods or services is to:
a. assure quality at expected levels.
b. assure continuous supply at lowest cost of ownership.
c. minimize acquisition time and cost.
d. minimize acquisition time and cost and price per unit.
e. reduce or eliminate customization.
70. In portfolio analysis, the goal when purchasing leverage items is:
a. minimize total cost of ownership.
b. minimize acquisition time and cost and price per unit..
c. reduce or eliminate customization.
d. assure continuous supply at lowest total cost of ownership.
e. assure quality at expected levels.
71. Although associated with a number of factors, the learning curve normally is most closely identified with the analysis of:
i. tooling costs.
ii. profit rates.
iii. overhead costs.
iv. direct labor costs.
v. direct material costs.
72. When estimating the costs of a manufacturing supplier:
a. prices of raw materials are not commonly accessible.
b. equipment depreciation is typically the largest single cost element in overhead.
c. material costs are difficult to estimate.
d. direct labor costs are the easiest costs to estimate.
e. labor rates are typically uniform across different plant locations.
True and False
10. Besides price determination, there are very few areas in supply management where negotiation is a useful and cost-effective tool.
11. Activity based costing primarily is an accounting process that has little practical value for buyers.
12. Value engineering (VE) and value analysis (VA) refer to the same process, but VE is applied to the design stage, and VA is applied to redesign.
13. When cost analysis is applied to a supplier’s price, the buyer focuses on identifying an overall cost reduction target with little insight into specific cost elements.
14. If the goal of negotiation is performance, then the process and tactics used during the negotiation are important because they have great impact on the intention to perform.
15. Educating suppliers about the buying organization’s operations is an example of a transaction cost in the total cost of ownership model.
16. In negotiation, a fact is any piece of information on which the buyer believes he or she can negotiate an agreement with the supplier.
17. Value methodology is a systematic approach to analyzing the functions of a product, part, service, or process to satisfy all needed quality and user requirements at optimum total cost of ownership.
18. A unique cost model is one that applies to a variety of common supply situations.
19. In planning for negotiation, a factor or item of information over which disagreement is expected is known as an issue.
73. Small suppliers:
a. are most suited for large dollar value “A” requirements.
b. usually represent very low risk to the purchaser.
c. tend to have a strong financial base.
d. often provide the greatest responsiveness and flexibility.
e. tend to have an extensive management structure.
74. Reverse marketing is:
a. encouraged by the rapid rate of technological change, growth in international trade, and the need to extract competitive advantage from supply chains.
b. when the buying organization has decided to stop making something inhouse and identifies a supplier from its existing supply base.
c. is an aggressive, marketing-initiated, approach to finding and developing world class suppliers.
d. requires that the marketing department in the buyer’s organization fully understand the needs of supply.
a. is most appropriate when the product is fairly standard and available from multiple local suppliers.
75. Decision trees:
a. may be useful in making effective supplier selection decisions the first-time a buying decision is made, but not on repetitive purchases.
b. may be useful in making effective supplier selection decisions when making repetitive purchases, but not special, one-time purchases.
c. may be useful in making effective supplier selection decisions if probabilities of success and failure are assessed for each option.
d. are of limited value because options can only be evaluated qualitatively, not quantitatively.
e. cannot reflect past decisions so they are useless as a decision tool when making repetitive purchases.
76. Portfolio or quadrant analysis:
a. may be used to develop longer-term strategies for moving categories of spend into a more desirable location on the spend map.
b. may be used to justify, clarify or revise existing commodity strategies.
c. is based on the Pareto curve.
d. a and b.
e. a, b and c.
77. To avoid risk, a buyer can:
a. hedge in a commodities market.
b. require bid or performance bonds.
c. decide not to do business in certain countries.
d. a and b.
e. a, b, and c.
78. Which of the following statements supports single sourcing:
a. there is a need to reduce supplier dependence on the buying organization.
b. there is a high probability of a devastating natural disaster.
c. there is a patent involved.
d. there is volatility in the supply market.
e. concerns exist about supplier capacity for future volume.
79. In the portfolio matrix, characteristics of goods and services in the leverage quadrant are:
a. competitive supply market, substitution is possible, price per unit is important.
b. competitive supply market, substitution is possible, and total cost is a primary focus.
c. few suppliers with adequate capability so substitution and switching are difficult.
d. item substitution is possible, switching is difficult, and many suppliers are available.
e. item substitution and supplier switching are possible, but few suppliers are capable.
80. Assessment of a potential supplier’s financial situation:
a. is usually unnecessary because it is highly unlikely that a supplier will go out of business, and, even if they do, it is relatively easy to replace a supplier.
b. may yield substantial opportunities for negotiating favorable terms for both buying and selling organizations.
c. is best left to the finance department which will alert supply to any issues that might adversely affect a pending deal.
d. is always necessary and follows a strict protocol no matter what type of purchase or dollar value.
e. seldom relies on financial information provided by the supplier..
81. Distributors, wholesalers, and retailers:
a. never add enough value to a buyer to make it worth doing business with them.
b. may be able to deliver at a lower cost than the manufacturer.
c. may provide valuable services such as prompt delivery and filling emergency orders, but they cannot offer a better price than the manufacturer.
d. have an indefensible value proposition in the typical modern supply chain.
e. typically carry a very limited supply in an effort to keep inventory costs low.
82. Supply management’s role in environmental considerations is:
a. expanding because purchasing has primary responsibility for specification writing.
b. limited because environmental issues have little impact on the acquisition cycle.
c. expanding because the goal of zero environmental impact affects the buying cycle.
d. limited by the product design developed by design engineers.
e. limited to compliance with government laws and regulations.
True and False
1. The preferred hierarchy of supply chain strategies is (1) source reduction—design or use less, (2) reuse—multiple use of same item such as a package or container, (3) recycle—reprocess into raw material, (4) incinerate—at least extract energy, but create CO2 pollution at a minimum, (5) landfill—require space and transportation to store with potential impact on land and water.
2. The question of how much of a premium should be paid to conform with political directives such as Buy Local or Buy American is the subject of much ongoing debate.
3. Although online searching is commonplace in many areas of business, it has not become a common tool for gathering information on potential suppliers
4. Supplier development initiatives may be focused on (1) persuading an existing supplier to expand into new areas that meet the needs of the buying organization, and (2) locating a new, untried/unknown company and identifying potential areas of business.
5. The buyer’s assessment of the risk associated with a supplier is influenced by whether it is a non-critical, leverage, bottleneck, or strategic purchase.
6. Site visits to suppliers are of little use to supply managers because of their subjective nature.
7. Buyers should always expect to receive samples free of charge from suppliers.
8. Loss exposure can be reduced by matching decisions about packaging, transportation, and security levels with the risk of loss.
9. Social problems should not be addressed through supply policy and practice.
10. In the context of supplier selection decisions, the term local is typically defined as suppliers within a 100 mile radius of the buying organization.
Supplier Evaluation and Supplier Relations
83. A weighted point evaluation system:
a. is seldom used because the costs usually outweigh the benefits.
b. includes evaluation criteria, an importance factor for each, and a rating system.
c. includes efficiency and effectiveness metrics weighted by users perceptions.
d. is the most commonly used process because of ease of design and use.
e. allows each rater to weight the criteria, but all raters user the same rating scales.
84. To select a potential supplier-partner, the buyer should consider:
a. both hard and soft factors with an eye toward long-term outcomes.
b. both hard and soft factors with an eye toward short-term outcomes.
c. soft factors such as congruence of management values and compatibility.
d. hard factors such as quality, quantity, cost, and technology.
e. the willingness of the supplier to quickly change processes for results.
85. A goal of supply chain management is to:
a. gain competitive advantage by acquiring confidential information from chain members.
b. drive down prices through competitive online bidding.
c. push inventory as far down the supply chain as possible.
d. reduce uncertainty and risks between and among members of the supply chain.
e. increase competition by increasing the number of suppliers in the supply chain.
86. Which of the following is a result of forming a buyer-supplier partnership:
a. the amount of time committed to the buyer-supplier relationship is greatly reduced.
b. buyer-supplier relationships are greatly improved at the expense of internal relationships.
c. the buying organization can enjoy the benefits of horizontal integration without the disadvantages.
d. the design process and the introduction of new designs is faster due to earlier supplier and supply involvement.
e. significant quality improvements occur and total cost typically increases.
87. One of the assumptions on which the purchasing-supplier satisfaction model is based is that:
a. the satisfaction level cannot be assessed well enough to draw definitive conclusions.
b. the purchaser and supplier always have the same perceptions of the same relationship.
c. attempts to move to a different position fall only in the win-lose and win-win categories.
d. there are few tools and techniques available to move positions or improve stability.
e. an unsatisfied party may use various tools to improve the relationship.
88. Reverse marketing is:
e. discouraged by the rapid rate of technological change and growth in international trade.
f. when the buying organization has decided to stop making something in house and identifies a supplier from its existing supply base.
g. is an aggressive, purchaser-initiated, approach to finding and developing world class suppliers.
h. requires that the marketer fully understand the needs of the buying organization now and in the future.
i. is most appropriate when the product is fairly standard and available from multiple local suppliers.
89. To enhance the chance for successful strategic alliances, the supply manager must:
a. ensure that price formulation and price escalator clauses are included in the contract terms and conditions.
b. clearly establish what is required from the supplier and the penalties for failure to perform.
c. reinforce the notion that the supply manager can easily switch to another alliance if the supplier fails to perform.
d. analyze the supplier’s capability for e-procurement and ensure that the supplier can effectively and efficiently manage online catalogs.
e. identify suppliers whose management views on quality and productivity match those of the buying organization and have both parties establish expectations.
90. Trends in supply management include:
a. switching suppliers frequently through online auctions to get price discounts.
b. limiting the number of suppliers and focusing on results from key suppliers.
c. increasing the number of suppliers and developing closer relationships.
d. negotiating shorter term contracts with fewer suppliers to increase leverage.
e. greater concentration of the supplier selection decision in procurement.
91. Early supply and supplier involvement (ESI):
a. pulls both the buyer and supplier into the need recognition and description stages of the acquisition process.
b. pulls the buyer into relationship management stage and pulls the supplier into need recognition and description.
c. pulls the buyer into the need recognition and description stages and pulls the supplier into the measurement stage.
d. pulls the buyer into the measurement stage and pulls the supplier into the need recognition and description stages.
e. pulls both the buyer and supplier into the process of measuring results and developing action plans for performance improvement.
92. Supply chain management effectiveness is driven primarily by the organization’s ability to manage the:
a. internal link between supply management and its internal customers.
b. internal link between supply management and senior management.
c. internal and external links of customers, the buying organization and suppliers.
d. external link between a buying organization and its key suppliers.
e. external link between a buying organization and its key customers.
True and False
11. Taking negative measures to shift the satisfaction level in the buyer-seller relationship will have little impact on short term objectives, but will positively affect the relationship in the long-term.
12. The perception of a buyer-seller relationship is based on both the results and the process used to attain them.
13. An unwillingness to single source and enter into a buyer-supplier partnership is indefensible in a progressive purchasing and supply management organization.
14. Buyer-supplier relationships fall somewhere on a continuum from traditional, adversarial relationships to fully integrated, seamless relationships.
15. Exceptional suppliers anticipate the operational and strategic needs of the purchaser, and are capable of meeting and exceeding them.
16. Supplier goodwill can be measured regularly through surveys conducted by third party research organizations.
17. Strategic supply management focuses on only those suppliers of high dollar or high value goods and services.
18. Adversarial negotiations and decisions based on total cost of ownership are hallmarks of a successful buyer-supplier partnership.
19. Early supplier involvement only extends to an organization’s first tier suppliers because it is the responsibility of these suppliers to manage subsequent tiers of suppliers.
20. Supply management is critical to effectively managing supply chains, but demand management is not.
Global Supply Management
93. When there is a large number of common requirements across facilities or
business units, and the supply base is dispersed geographically, an appropriate global sourcing structure is:
a. a global commodity management organization.
b. regional purchasing offices that manage the region’s spend for every commodity.
c. a centralized international purchasing office equidistant from key suppliers.
d. a centrally managed global sourcing office located in the corporate headquarters.
e. a decentralized structure where purchasing managers are at each facility.
94. A foreign trade zone (FTZ) in the U. S.:
1. facilitates rapid calculation of import duties.
2. facilitates rapid calculation and payment of import duties.
3. creates and maintains jobs in the United States that might have gone offshore.
4. is completely different in purpose from a maquiladora in Mexico.
a. must use only goods made in the U. S. according to the Buy America Act.
95. When sourcing internationally:
a. the buyer should learn about the culture, customs, norms, taboos, and history of the supplier’s country.
b. the need for personal space is generally the same in most regions of the world.
c. the global availability and use of email, fax, and phone has largely eliminated communication barriers.
d. differing cultural and social norms will have little impact since most businesspeople are accustomed to working with North Americans.
1. the buyer should immediately establish an informal first-name basis with the supplier’s representatives.
96. The United Nations Convention for the International Sale of Goods (CISG):
1. is automatically applied if both nations have adopted the CISG, unless another body of law is agreed upon in the contract.
2. is automatically applied if both nations have adopted the CISG, and there can be no exceptions.
3. replaces the UCC as the worldwide body of law governing international trade.
4. should always be the preference for a buyer from the United States.
5. always puts the United States buyer at an advantage.
97. Which of the following would encourage countertrade?
1. excess foreign exchange.
2. readily available credit.
3. a strong base of suppliers.
4. the need to develop export markets for new products.
5. a well-developed domestic economy.
98. In international buying, the entity that makes a contract with the buyer and then buys the product in its name from the foreign supplier, takes title, delivers to the place agreed on with the buyer, and then bills the buyer for the agreed-on price, is a(n):
a. import broker.
b. sales agent.
c. import merchant.
d. trading company.
e. foreign import agent.
99. The Foreign Corrupt Practices Act (FCPA):
a. allows payment to facilitate the performance of normal duties.
b. attempts to persuade other nations to adopt U.S. rules regarding payments to officials.
c. allows U.S. firms to prosecute foreign nationals on bribery charges.
d. allows U.S. firms to make payments to facilitate normal duties and to make payments to obtain special advantages.
e. allows foreign nationals to offer payments to U.S. government officials to expedite trade agreements.
100. When comparing the total cost of ownership from an international supplier to that of a domestic supplier, the international supplier’s:
a. lower labor costs are easily eroded by additional shipping and insurance costs.
b. price will be higher if the U.S. dollar is strengthening on the exchange rate.
c. lower labor costs offset the high cost of inefficient equipment and processes.
d. lower labor rates must be considered in the context of productivity and quality.
e. prices are carefully controlled by the U.S. government to prevent dumping.
101. The most-cited reason for international trade is:
1. better quality.
2. better overall value.
3. more advanced technology.
4. lower total costs.
5. lower price.
102. When dealing with an international supplier, a knowledgeable buyer:
a. normally will attempt to negotiate a cost-plus-incentive-fee contract.
b. will attempt to price in Euro Dollars.
c. will normally price in the currency of the seller’s country.
d. will always state the price in U.S. dollars.
e. may decide to deal in international currency options.
True and False
1. The NAFTA, the EU, ASEAN and the WTO are all examples of Free Trade Agreements which were designed to facilitate trade between and among member countries.
2. The governing convention on shipping terms and responsibilities involved in international transportation is called ITAPS (International Transport and Payment Specifications.)
3. Even though the economy of Mexico relies heavily on the jobs generated by maquiladoras, the government of Mexico has not set wage rates equal to those of India and China.
4. Countertrade historically has been very uncommon in the sale by U.S. firms of armaments to other nations, but very common in civilian procurement projects.
5. When one condition of the countertrade agreement is that government and/or military-related exports be purchased, this is a swap trade arrangement.
6. The primary reasons for using a foreign trade zone (FTZ) are (1) to avoid, postpone, or reduce duties on imported goods, and (2) to create economic benefits for the local community through job creation.
7. A temporary importation bond (TIB) allows certain classes of merchandise, to be imported into the U. S. with the net effect that no duty is paid on the merchandise,
provided it is reexported.
8. Three approaches to global sourcing are to establish (1) global purchasing offices, (2) International Commodity Organizations (ICOs), or (3) Regional Purchasing Offices (RPOs).
9. It is rare for international trade disputes to be settled through international arbitration partly because the costs of arbitration exceed the costs of litigation.
10. The growth in international trade has come from an increase in the international sale of services as well as goods.
Legal and Ethics
103. When it comes to product liability, supply management:
a. lowers risk by ensuring that suppliers deliver defect-free goods.
b. has little or no role since this is essentially a legal action.
c. has responsibility only to the internal customer, not the final customer.
d. is liable depending on the type of warranty agreed to in the contract.
e. is responsible for establishing the cost of the actual damage.
104. The authority that is necessary, usual, and proper to carry through to completion the express authority conferred, is called:
a. apparent authority.
b. implied authority.
c. express authority.
d. direct authority.
e. performance authority.
105. Which of the following is a factor in determining the validity of a contract?
a. incompetent parties.
b. offer and acceptance.
c. employment in the purchasing department.
d. amount over $500.
e. due process.
106. The Sarbanes-Oxley Act:
a. has no impact on the supply management process.
b. requires the Chief Purchasing Officer to sign off on every contract.
c. requires listing off-balance sheet items such as long-term purchase agreements.
d. requires supply management to report directly to the Chief Financial Officer.
e. affects internal accounting procedures of privately-held companies.
107. The legal authority of a salesperson normally is:
a. the same as that of a buyer.
b. to make legally-binding contracts for $500 or less.
c. to make legally binding contracts for sales over $5,000.
d. to solicit orders and get ratification and acceptance from his or her employer.
e. based on the length of time the salesperson has been employed.
108. When the goods fit the ordinary purpose for which goods of that description are used in the trade, there is a(n):
a. implied warranty of merchantability.
b. express warranty.
c. warranty of title.
d. implied warranty of fitness for a particular purpose.
e. implicit warranty.
109. Corporate social responsibility:
a. is another name for ethics.
b. is another name for supplier diversity programs.
c. requires sacrificing financial gain for the greater good of the community.
d. refers to individual, not corporate, decisions and actions.
e. extends beyond ethics to include community, environment, and human rights.
110. Commercial bribery:
a. usually involves only one company offering bribes.
b. may become an industry practice.
c. is outlawed in very few countries.
d. is outlawed throughout the West, but not in Asia.
e. legal rulings rest on the doctrine of promissory estoppel.
111. In a contractual dispute between buyer and seller, the process of elevating the discussion from buyer and sales representative up through the organization and out to an unbiased referee is called:
c. internal escalation.
112. If a termination for convenience clause is included in a services contract:
a. its validity depends on whether the contract is in the private or public sector.
b. it is easy to determine if it is exercised in bad faith or an abuse of discretion.
c. if exercised in bad faith, it may mean the termination is a breach of contract.
d. specifically identifies events that will trigger termination.
e. it defines what constitutes sufficient cause to terminate.
True and False
1. In many organizations, standards of conduct for purchasing personnel stress the need to avoid all appearances of impropriety.
2. Normally, if an offer to buy or sell is made, the contract is completed once the legal documents are in the hands of both parties.
3. If a supplier fails to deliver goods which meet the contract agreement, one of the buyer’s options is to reject the whole shipment.
4. Reciprocity, the practice of requiring a supplier to purchase a set amount from the buying firm, is legal domestically, but not internationally.
5. The Uniform Commercial Code (UCC) covers the purchase of goods and services, if the goods portion of the contract is more than 50 percent of the contract value.
6. Mediation and arbitration are examples of alternative legal means of settling disputes.
7. When an employee who is not a legal agent of the company agrees to buy something from a salesperson and the item is received and the company pays the invoice, the employee is exercising implied authority.
8. Payment made to a supplier does not automatically constitute an acceptance of the goods.
9. In the U. S., product liability is generally considered a strict liability offense which means that the defendant is liable when it is shown that the product was defective.
10. Under the Uniform Commercial Code, when the buyer has examined the goods as fully as he or she has desired, there is a warranty with regard to defects which an examination ought to have revealed to him or her.
Other Supply Responsibilities
113. Investment recovery is often assigned to:
a. supply managers because they have knowledge supply markets and price trends.
b. salespeople because they have contact with buyers who may use the material.
c. marketing managers because they have information on internal users.
d. engineers who can suggest possible uses of the material within the organization.
e. financial analysts because they set the target return on all investments.
114. Efforts to deal with hazardous waste include a focus on:
a. highly visible sources of pollution, e.g. smoke stacks.
b. less visible uncontrolled sites, e.g. buried waste.
d. substitution of non-hazardous materials for hazardous materials.
e. all of the above.
115. The potential benefits of having accounts payable report to the same executive as supply include:
a. familiarity with the supplier
b. familiarity with the order.
c. opportunities to reduce transaction costs and headcount.
d. the ability for supply to ensure that payments for suppliers are made on time.
e. all of the above.
116. Reducing the obsolescence and waste of maintenance, repair, and operating (MRO) supplies through better materials and inventory management will:
a. reduce the costs of disposing of MRO items that are obsolete or waste.
b. reduce carrying cost by lowering inventory levels, especially of obsolete items.
c. improve environmental performance by reducing waste that goes into landfills or incinerators.
d. simultaneously reduce costs and improve environmental performance.
e. have little impact because MRO is a small percentage of annual spend and the items usually have low environmental low-impact.
117. Warehousing and inventory storage:
a. can either be an internal function or outsourced to a third-party logistics firm.
b. typically has little communication with supply management.
c. may have direct responsibility for organizational purchasing decisions.
d. outsourcing decisions typically are made by the finance department.
e. is seldom outsourced.
118. One of the reasons why companies are paying more attention to the effective, efficient, and profitable recovery and disposal of scrap, surplus, obsolete, and waste materials is that:
a. consumers overwhelmingly demand environmental responsibility.
b. it is easy to administer and highly profitable.
c. most organizations generate little scrap, surplus, obsolete and waste materials.
d. disposal costs are rising and environmental legislation is strengthening.
e. disposal is a fairly simple problem that is easily resolved.
119. The role and importance of investment recovery in an organization is driven in large part by the:
a. CEO’s perspective on environmental issues.
b. Chief Purchasing Officer’s clout or leverage with other executives.
c. projected dollar value of the potential revenue recovery or cost reduction.
d. salespeople who encourage the inclusion of buy-back programs of key materials.
e. internal level of knowledge about disposal channels and suppliers.
120. Coordinating inbound and outbound transportation:
a. has little application in an effective and efficient supply organization.
b. is done by cross-functional teams in most organizations.
c. helps to reduce costs and improve utilization of related assets and resources.
d. provides the basic elements of a global supply network.
e. is used extensively in Europe, but has not migrated to the U.S.
121. Production planning:
a. focuses on long-term schedules to control inventory and production.
b. requires coordinating the delivery and storage of key raw materials.
c. cannot involve supply because of fears of undue influence from suppliers.
d. relies heavily on forecasts from purchasing and supply management.
e. is a discrete activity with little coordination with other functions.
122. Supply can contribute to the organization’s environmental management program by:
a. developing sourcing and usage alternatives for hazardous materials.
b. focusing on substitution of non-hazardous materials for hazardous materials.
c. encouraging and participating in designing products that do not use or generate hazardous waste.
d. a and b.
e. a, b and c.
True and False
1. Production planning relies heavily on forecasts from operations to anticipate demand for products and services..
2. To ensure maximum return for its investment, the process and procedures for selling scrap and surplus must cover a broad range of activities including segregation and storage, weighing and measuring, delivery, negotiation, supplier selection, and payment.
3. If material has been declared surplus, the only option is to sell it.
4. Obsolete is in the eyes of the beholder. Something that has been declared obsolete in one organization may be perfectly acceptable and useable in another.
5. It makes no sense to assign responsibility for disposal to the supply management function because the personnel usually have no selling experience.
6. The total cost of hazardous waste for a company does not include the costs of new plant and equipment to reduce waste and deal with contaminated plants.
7. Escalator clauses in contracts for scrap disposal are necessary because the prices of primary metals fluctuate.
8. An organization’s Enterprise Resource Planning (ERP) system may be used to develop a national or global database for company personnel at different locations to post and purchase spare parts, obsolete materials, and surplus.
9. Waste is created when a change in the production process occurs, or when a better material is substituted for the material originally used.
10. As more people come to believe that it makes economic sense to practice environmentally sound operations, business and government may be able to work together for common goals.
SUPPLY FUNCTION EVALUATION AND TRENDS
123. Research on the supply management process focuses on:
a. developing a strategy to reduce cost or ensure supply.
b. improving buyer-seller relationships.
c. deciding whether to single or multiple source.
d. conducting cost analysis to identify unnecessary costs.
e. increasing efficiency by automating where possible.
124. Purchasing performance benchmarking attempts to:
a. analyze a firm’s own internal trends.
b. provide industrywide standards for overall firm performance.
c. determine what results have been achieved by purchasing and supply activities.
d. determine how an organization achieves results in purchasing and supply.
e. provide baseline metrics to compare companies’ supply performance.
125. The budget which begins with an estimate of expected operations, based on sales forecasts and plans, is called the:
a. operating budget.
b. capital budget.
c. cash flow budget.
d. materials purchase budget.
e. organizational budget.
126. When cross-functional teams are used to conduct research, it is best if:
a. the team has strong leadership.
b. the team has total autonomy to decide objectives and set expectations.
c. team members are randomly selected from departments.
d. performance evaluation and reward systems foster individual contributions.
e. each team member develops time management skills to handle the assignment.
127. In terms of measuring and validating supply savings:
1. information systems easily capture savings.
2. static markets, technologies, and volumes facilitate the process.
3. in many cases there is an inability to convert savings into profit.
4. management usually recognizes cumulative savings.
5. there is a universal definition of supply savings.
128. Supply can play a leadership role in corporate social responsibility (CSR) by:
1. instituting third party workplace audits of suppliers in developing countries.
2. knowing the providence of products in the supply chain.
3. considering the organization’s carbon footprint in supply decisions.
4. designing closed loop supply chains.
5. all of the above.
129. The assessment of a supplier’s financial capacity:
1. enables the development of risk minimization strategies.
2. predicts the probability of the supplier encountering financial problems.
3. is done primarily to ensure the supplier has the cash to pay its bills.
4. usually is unnecessary if the supplier has been in business for more than 5 years.
5. is required before a contract can be ratified.
130. A comprehensive commodity study should result in a(n):
a. thorough analysis of sources used over time.
b. strategy to lower cost and assure supply.
c. review of past predictions and variances from actual prices paid.
d. assessment of the performance of the commodity manager.
e. trend analysis of volume requirements over time.
131. Trends in supply organization and leadership include:
a. more chief purchasing officers with extensive supply experience.
b. less emphasis on teams.
c. global projects requiring cross-cultural skills.
d. merging of strategic and tactical roles in supply.
e. emphasis on “hard skills” such as finance.
132. An efficiency-oriented performance metric:
a. evaluates the quality of supplier relationships.
b. measures end customer satisfaction.
c. measures direct contributions to profit.
d. calculates the average dollar cost of a purchase order.
e. measures number of defects caused by poor incoming quality.
True and False
1. The perceptions that non-supply managers have of supply are shaped by interactions with and observations of supply, tangible experiences with supply on a day-to-day basis, and the extent to which supply is seen as contributing to the firm’s mission.
2. Value engineering is done on purchased items used in the ongoing production process, while value analysis is done in the design stage where items are being specified.
3.Triple bottom line reporting refers to an organization’s social, environmental, and financial performance.
4. Effectiveness metrics which emphasize price may lead to behavior that drives up total cost of ownership.
5. The supply planning process is initiated by the supply manager’s assessment of the supply base.
6. Industry benchmarking allows an individual company to compare itself to its major competitor.
7. Financial efficiency is indicated by the asset and inventory turnover ratios.
8. Supplier performance management systems should be designed to capture and communicate the failures of suppliers so penalties can be assessed.
9. Supply management’s contribution may be measured along three dimensions: revenue enhancement, asset management, and cost management.
10. Internal validation of supply’s financial contribution increases joint ownership of goals and outcomes.