Chapter 11 - Supply Chain Management

Chapter 11
Supply Chain Management

True / False Questions

1. A company's supply chain involves the flow of materials and information from suppliers,
through production, to the end users.
TRUE

Difficulty: Easy
TLO: 1
Taxonomy: Knowledge

2. In supply chain organizations, functions must operate independently of each other.

FALSE

Difficulty: Easy
TLO: 14
Taxonomy: Knowledge

3. CPFR is the use of e-mail between vendors and purchasing to place orders.
FALSE

Difficulty: Easy
TLO: 7
Taxonomy: Knowledge

4. Distribution requirements planning (DRP) is an expanded concept of MRP which

incorporates multinational inventory management.
FALSE

Difficulty: Medium
TLO: 11
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

5. Every business organization is part of at least one supply chain.

TRUE

Difficulty: Medium
TLO: 1
Taxonomy: Knowledge

6. JIT delivery, i.e. frequent deliveries of small shipments, actually results in an increase in the
transportation cost per unit.
TRUE

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

7. The materials in the supply chain flow toward the end of the chain, while the information
and the dollars move toward the beginning of the chain.
FALSE

Difficulty: Medium
TLO: 3
Taxonomy: Knowledge

8. Supply chains are sometimes referred to as value chains because they reflect the concept
that value is added as goods and services progress through the chain.
TRUE

Difficulty: Medium
TLO: 1
Taxonomy: Knowledge

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9. The goal of supply chain management is to synchronize supply and demand of all of the
organizations that are part of the chain.
TRUE

Difficulty: Medium
TLO: 2
Taxonomy: Knowledge

10. The need for supply chain management increases as globalization increases.
TRUE

Difficulty: Medium
TLO: 5
Taxonomy: Knowledge

11. The design of the supply chain and establishing partnerships with vendors and distributors
are examples of operating issues in a supply chain.
FALSE

Difficulty: Medium
TLO: 6
Taxonomy: Knowledge

12. Traffic management refers to truck movement within our parking areas.
FALSE

Difficulty: Hard
TLO: 11
Taxonomy: Knowledge

13. One of the major reasons for a company to adopt third party logistics is to concentrate on
one's core business.
TRUE

Difficulty: Medium
TLO: 11
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

14. E-commerce refers to the use of electronic technology to facilitate business transactions.
TRUE

AACSB: IT
Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

15. E-commerce involves business-to-business (B2B) interaction only.

FALSE

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

16. Disintermediation refers to the phenomenon that the traditional retailer or service provider
is reduced or eliminated in a supply chain.
TRUE

Difficulty: Medium
TLO: 14
Taxonomy: Knowledge

17. Most people working for a business organization are somehow involved with the supply
chain of that business.
TRUE

Difficulty: Easy
TLO: 1
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

18. Strategic partnering is encouraged when two or more business organizations have
complementary products or services that would benefit the others.
TRUE

Difficulty: Easy
TLO: 9
Taxonomy: Knowledge

19. Forming strategic partnerships is beneficial for two or more business organizations that
have the same products or services.
FALSE

Difficulty: Medium
TLO: 9
Taxonomy: Knowledge

20. Inventory velocity refers to the average speed (in miles/hour) of material handling
equipment in a warehouse.
FALSE

Difficulty: Easy
TLO: 10
Taxonomy: Knowledge

21. Global supply chains make purchasing easier because of more options.
FALSE

Difficulty: Hard
TLO: 4
Taxonomy: Knowledge

22. Centralized or decentralized purchasing is directly related to the size of an organization.

FALSE

Difficulty: Hard
TLO: 7
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

23. The optimization of the supply chain uses a mathematical model to determine the optimal
number of business organizations to be included in the chain.
FALSE

Difficulty: Medium
TLO: 3
Taxonomy: Knowledge

24. Information technology is the key to success of global supply chains.

TRUE

Difficulty: Easy
TLO: 5
Taxonomy: Knowledge

25. Bullwhip effect refers to a phenomenon that demand variations that exist at the customer
end of the supply chain are magnified as orders are generated back through the supply chain.
TRUE

Difficulty: Medium
TLO: 2
Taxonomy: Knowledge

26. Starting with the final customer and moving backward through the supply chain, batch
sizes and the level of safety stock tend to decrease.
FALSE

Difficulty: Medium
TLO: 2
Taxonomy: Knowledge

27. Scheduling and maintaining equipment are operational decisions.

TRUE

Difficulty: Easy
TLO: 6
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

28. To prevent temporary storage in a warehouse, cross docking can be used.

TRUE

Difficulty: Medium
TLO: 11
Taxonomy: Knowledge

29. Delayed differentiation is a means of increasing product variety without building the
customized product from scratch or keeping large inventories of custom products.
TRUE

Difficulty: Hard
TLO: 4
Taxonomy: Knowledge

30. Returned goods are part of reverse logistics.

TRUE

Difficulty: Medium
TLO: 12
Taxonomy: Knowledge

31. A 30% reduction in product and service variety won't really affect the efficiency of a
supply chain.
FALSE

Difficulty: Medium
TLO: 14
Taxonomy: Knowledge

32. The service function of purchasing interfaces with many area including legal, accounting,
and engineering functions.
TRUE

Difficulty: Easy
TLO: 6
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

33. Gate keeping manages the cost of shipping returned goods.

FALSE

Difficulty: Hard
TLO: 12
Taxonomy: Knowledge

34. Outsourcing logistics gives a company less flexibility because it forces them to focus
more on core businesses.
FALSE

Difficulty: Medium
TLO: 12
Taxonomy: Knowledge

35. Vendor analysis examines the function of purchased parts and materials with a view
towards improvement or cost reduction.
FALSE

Difficulty: Easy
TLO: 7
Taxonomy: Knowledge

36. Using third party fulfillment means losing control of fulfillment.

TRUE

Difficulty: Medium
TLO: 11
Taxonomy: Knowledge

37. Price is the primary determining factor in choosing a vendor since most products are
essentially the same.
FALSE

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

38. RFID eliminates the need for counting and bar-code scanning.
TRUE

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

39. The importance of purchasing relates only to the cost of parts and materials purchased,
which is often 60% or more of the cost of finished goods.
FALSE

Difficulty: Easy
TLO: 7
Taxonomy: Knowledge

40. The importance of purchasing is the cost of goods purchased, the quality of goods and
services, and the timing of deliveries of goods or services.
TRUE

Difficulty: Easy
TLO: 7
Taxonomy: Knowledge

41. Vendor analysis is the process that evaluates the source of supply in terms of price,
quality, reputation, and service.
TRUE

Difficulty: Easy
TLO: 7
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

42. In e-commerce, the front-end design is significantly more important than the back-end
design.
FALSE

AACSB: IT
Difficulty: Medium
TLO: 8
Taxonomy: Knowledge

43. One disadvantage to RFID's is that they require a line of sight' for reading.
FALSE

Difficulty: Hard
TLO: 4
Taxonomy: Knowledge

44. Decentralized purchasing can usually offer quicker response than centralized purchasing.
TRUE

Difficulty: Easy
TLO: 7
Taxonomy: Knowledge

45. Some firms have structured their procurement function to include both centralized and
decentralized purchasing.
TRUE

Difficulty: Easy
TLO: 4
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

46. Creating an effective supply chain requires linking the marketing, distribution, and
supplier channels.
TRUE

Difficulty: Medium
TLO: 13
Taxonomy: Knowledge

47. An advantage of decentralized purchasing is the attention given to local needs.

TRUE

Difficulty: Medium
TLO: 7
Taxonomy: Knowledge

48. Event management is the advanced planning required for major performances such as
concerts or conferences.
FALSE

Difficulty: Medium
TLO: 6
Taxonomy: Knowledge

49. Supplier certification is the first step required in a supplier audit program.
FALSE

Difficulty: Medium
TLO: 9
Taxonomy: Knowledge

50. Design and purchasing people should work closely because changes in design,
specifications, or materials can impact future purchase requirements.
TRUE

Difficulty: Medium
TLO: 6
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

51. The purchasing cycle ends when the purchasing department is notified that the supplier
has shipped the items.
FALSE

Difficulty: Hard
TLO: 6
Taxonomy: Knowledge

52. Producing and shipping in large lots may reduce costs but increase lead times.
TRUE

Difficulty: Medium
TLO: 14
Taxonomy: Knowledge

53. Variations create uncertainty, thereby causing inefficiencies in a supply chain.

TRUE

Difficulty: Medium
TLO: 14
Taxonomy: Knowledge

54. Disintermediation is the refusal of one party to use mediators for price negotiation.
FALSE

Difficulty: Medium
TLO: 14
Taxonomy: Knowledge

Multiple Choice Questions

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Chapter 11 - Supply Chain Management

55. Which of the following is not a goal of supply chain management?

A. fewer suppliers and long-term relationship
B. small lot sizes
C. on time deliveries
D. lowest possible transportation costs
E. delivery often to the place of use

Difficulty: Easy
TLO: 2
Taxonomy: Knowledge

56. Logistics includes all of these except:

A. the movement of materials within a production facility
B. incoming shipments of goods or materials
C. outgoing shipments of goods or materials
D. customer selection
E. returned goods processing

Difficulty: Medium
TLO: 11
Taxonomy: Knowledge

57. Small changes in consumer demand can result in large variations in orders placed because
of the
A. Supply chain
B. Safety stock requirement
C. Lead time effect
D. Bullwhip effect
E. FCFS scheduling

Difficulty: Medium
TLO: 14
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

58. RFID chips:

(I) are used to track goods in distribution
(II) are used to track job progress in production
(III) may provide special instructions to operators
(IV) can be used in inventory record keeping
A. II and III only
B. I and II only
C. II, III, and IV
D. I, II, and IV
E. IV only

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

59. Which of the following is not a benefit of RFID?

A. increased productivity
B. elimination of paper work
C. frequent deliveries of smaller shipments
D. reduction in clerical labor
E. increased accuracy

Difficulty: Hard
TLO: 4
Taxonomy: Knowledge

60. A factor that makes it desirable for business organizations to actively manage their supply
chains is:
A. more potential vendors
B. increasing globalization
C. downsizing
D. the internet
E. RFID's

Difficulty: Hard
TLO: 4
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

61. Which of the following is not a benefit of effective supply chain management?
A. lower inventory costs
B. higher productivity
C. shorter lead times
D. greater customer loyalty
E. larger number of suppliers

Difficulty: Medium
TLO: 2
Taxonomy: Knowledge

62. Which of the following is not a measure of the reliability of the supply chain?
A. supply chain response time
B. on-time delivery
C. fill rate
D. lead time variability
E. improving e-fulfillment statistics

Difficulty: Hard
TLO: 13
Taxonomy: Knowledge

63. The automatic identification of material is part of:

A. holding costs
B. RFID
C. working capital reduction
D. net present value calculations
E. vendor analysis

Difficulty: Medium
TLO: 4
Taxonomy: Knowledge

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64. Which of the following is not an application of E-business?

A. internet buying and selling
B. e-mail
C. order and shipment tracking
D. electronic data interchange (EDI)
E. universal product codes

Difficulty: Medium
TLO: 8
Taxonomy: Knowledge

65. Which of the following is an advantage of e-business?

(I) reduction of transaction costs
(II) shortened supply chain response time
(III) greater customer loyalty
A. I
B. II
C. I and II
D. II and III
E. I, II, and III

Difficulty: Medium
TLO: 8
Taxonomy: Knowledge

66. Which of the following is a barrier to integration of separate organizations in the supply
chain?
(I) conflicting objectives of the companies in the chain.
(II) different level of capacity of the companies in the chain.
(III) reluctance of the organizations in the chain to allow other organizations access to their
data.
A. I only
B. I and II
C. II and III
D. I and III
E. I, II and III

Difficulty: Hard
TLO: 14
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

67. _________ has helped business concentrate on their core business.

A. Supply Chains
B. Scheduling
C. Outsourcing
D. ERP
E. Lean Production

Difficulty: Hard
TLO: 4
Taxonomy: Knowledge

68. Outsourcing followed by __________ is not simple.

A. Integration
B. Unionization
C. Backsourcing
D. Computerization
E. Just-in-time

Difficulty: Hard
TLO: 5
Taxonomy: Knowledge

69. The interface between the firm and its suppliers is:
A. purchasing
B. production
C. distribution
D. engineering
E. accounting

Difficulty: Easy
TLO: 7
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

70. The two types of decisions that are relevant to supply chain management are:
A. Short, long term
B. Domestic, international
C. Location, layout
D. In-source, out-source
E. Strategic, operational

Difficulty: Hard
TLO: 6
Taxonomy: Knowledge

71. One important objective of purchasing is to:

A. set quality standards for purchased items
B. be knowledgeable about new products
C. maintain numerous sources of supply
D. obtain the lowest prices on all purchased items
E. determine the processes that should be used

Difficulty: Hard
TLO: 6
Taxonomy: Knowledge

72. The purchasing cycle begins with:

A. selecting a supplier
B. placing an order
C. evaluating potential vendors
D. conducting a value analysis
E. receiving a requisition

Difficulty: Easy
TLO: 6
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

73. Examination of the sources of supply for purchased parts or materials in order to improve
performance is called:
A. vendor analysis
B. value analysis
C. negotiated purchasing
D. reverse engineering
E. disintegration

Difficulty: Medium
TLO: 6
Taxonomy: Knowledge

74. Vendor analysis has the greatest potential for savings for items which have:
A. low cost per unit
B. low annual cost-volume
C. high cost per unit
D. high annual usage
E. high annual cost-volume

Difficulty: Hard
TLO: 6
Taxonomy: Knowledge

75. Which of the following is not true of vendor analysis?

A. It involves an examination of the function of purchased parts or raw materials.
B. Its purpose is to reduce costs and/or improve performance of purchased goods or services.
C. It is usually performed only periodically.
D. Representatives from design and operations may work with purchasing.
E. If improvements are identified, purchasing implements those that purchasing agrees are
justified.

Difficulty: Hard
TLO: 6
Taxonomy: Knowledge

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76. Which of the following is not a performance driver?

A. Quality
B. Cost
C. Stability
D. Velocity
E. Flexibility

Difficulty: Hard
TLO: 13
Taxonomy: Knowledge

77. Which of the following would not usually be a main factor in selecting a vendor?
A. location
B. price
C. quality
D. inventory turnover
E. vendor services

Difficulty: Medium
TLO: 6
Taxonomy: Knowledge

78. Which of the following is part of the purchasing cycle?

(I) Purchasing selects a supplier.
(II) Orders from vendors are received.
(III) Purchasing receives a requisition.
A. II and III
B. I, II, and III
C. I only
D. I and II
E. I and III

Difficulty: Medium
TLO: 6
Taxonomy: Knowledge

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79. Which of the following is not a key consideration when a company chooses a supplier?
A. lead time and on-time delivery
B. reputation and financial stability
C. value analysis
D. quality and Quality assurance
E. flexibility of design change

Difficulty: Hard
TLO: 7
Taxonomy: Knowledge

80. Which of the following is not a benefit of centralized purchasing?

A. potential for quantity discounts
B. better service from suppliers
C. quick response to local needs
D. potential for use of purchasing specialists
E. supplier research

Difficulty: Medium
TLO: 7
Taxonomy: Knowledge

81. The purchasing perspective of the supplier as a partner is characterized by:

A. an emphasis on low prices
B. one or a few suppliers
C. low flexibility
D. 100% inspection for quality
E. low volume

Difficulty: Medium
TLO: 7
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

82. Vendor Analysis is the examination of the _________ of purchased materials.

A. Function
B. Source
C. Quality
D. Cycle
E. Quantity.

Difficulty: Hard
TLO: 6
Taxonomy: Knowledge

83. A system for inventory management involving multi-echelon warehouses is called:

A. MRP
B. EOQ
C. CRP
D. JIT
E. DRP

Difficulty: Medium
TLO: 10
Taxonomy: Knowledge

84. Which of the following is a principle required for ethical behavior in purchasing?
A. loyalty to employer.
B. justice to those you deal with.
C. faith in your profession.
D. all of the above.
E. none of the above.

AACSB: EU
Difficulty: Easy
TLO: 6
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

85. The activity which begins with a request from within the organization is:
A. Outsourcing search
B. Purchasing cycle
C. Supplier selection
D. Order receipt
E. Supply chain management

Difficulty: Medium
TLO: 6
Taxonomy: Knowledge

86. Our organization can obtain visibility to potential trading partners on the internet by
using:
A. C2C
B. B2C
C. B2B
D. C2B
E. None of the above

AACSB: IT
Difficulty: Medium
TLO: 9
Taxonomy: Knowledge

87. Real time information about product movement on store shelves could benefit from the
use of:
A. batch processing
B. economic order quantities
C. statistical process control
D. radio frequency identification tags
E. infrared remote scanners

Difficulty: Medium
TLO: 8
Taxonomy: Knowledge

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Chapter 11 - Supply Chain Management

88. The website and order fulfillment are essential features of:
A. delayed differentiation
B. e-commerce
C. internet service providers
D. inventory balancing
E. market segmentation

Difficulty: Medium
TLO: 8
Taxonomy: Knowledge

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