Krajewski pom Tif 09

Chapter 9

PAGE Chapter 9 ( Supply Chain Design

Chapter

9

Designing Effective Supply Chains

TRUE/FALSE1. The purpose of supply chain management is to synchronize a firms processes with those of its suppliers and customers.

Answer: True

Reference: Supply Chains for Services and Manufacturing

Difficulty: EasyKeywords: supply chain management2. Supply chain management tries to match the flow of materials, services and information with demand.Answer: True


Difficulty: EasyKeywords: supply chain management3. The purpose of supply chain design is to shape a firms supply chain to meet the competitive priorities of its operations strategies. Answer: True


Difficulty: Moderate

Keywords: supply chain design4. Supply chain design for a service provider is driven primarily by the need to control the materials it consumes as it delivers its various services. Answer: False



Keywords: supply chain design5. The fundamental purpose of supply chain design for a manufacturer is to control inventories by managing the flow of materials.

Answer: True



Keywords: supply chain design

6. While it is important to manufacturing firms, little can be done to improve supply chain strategy in most service organizations.

Answer: False



Keywords: supply chain strategy

7. The finished goods of one firm may actually be the raw materials for another firm.

Answer: True



Keywords: finished good, raw material8. The primary reason for keeping inventories low is that inventory represents a temporary monetary investment in goods on which a firm must pay interest.

Answer: True

Reference: Inventory and Supply ChainsDifficulty: Easy

Keywords: inventory, investment

9. One component of the holding cost of inventory is interest.

Answer: True

Reference: Inventory and Supply ChainsDifficulty: Moderate

Keywords: holding cost, inventory, interest

10. One component of the ordering cost of inventory is shrinkage.

Answer: False


Keywords: ordering cost, shrinkage

11. A stockout occurs when an item that is typically stocked is not available to satisfy a demand the moment it occurs.

Answer: True


Keyword: stockout

12. A backorder occurs when a customer order cannot be filled when it is placed, but is instead filled later.

Answer: True


Keywords: backorder, fill

13. Setup cost is independent of order size.

Answer: True


Keywords: setup cost

14. Reducing setup costs will increase the pressure to keep larger inventories.Answer: FalseReference: Inventory and Supply ChainsDifficulty: Moderate

Keywords: setup cost

15. Increasing inventory levels can sometimes help a firm reduce both its inbound and outbound transportation costs.

Answer: True


Keywords: pressure for large inventories

16. A quantity discount is attractive because there is a drop in the price per unit when the order is sufficiently large.

Answer: True


Keywords: quantity discount

17. Repeatability is an undesirable feature of some orders because they must be repeated until the order is filled correctly.

Answer: False


Keyword: repeatability

18. The primary lever to reduce anticipation inventory is to place orders closer to the time when they must be received.

Answer: False


Keywords: anticipation inventory, safety stock

19. Forward placement is a reduction in inventory and safety stock because of the merging of variable demands from customers.

Answer: False

Reference: Inventory and Supply Chains


Keywords: forward placement, inventory

20. Inventory turnover is obtained by dividing the average aggregate inventory value by sales per week at cost.

Answer: FalseReference: Measures of Supply Chain PerformanceDifficulty: ModerateKeywords: inventory, turnover21. Increasing the percentage of on-time deliveries to customers actually reduces the total revenue of a firm.

Answer: FalseReference: Measures of Supply Chain PerformanceDifficulty: Moderate

Keywords: on-time delivery, revenue

22. Channel assembly is the process of using members of the distribution channel as if they were assembly stations in the factory.

Answer: TrueReference: Mass CustomizationDifficulty: ModerateKeywords: channel assembly, distribution, mass customization23. Responsive supply chains work best when frequent product introduction exists.

Answer: True

Reference: Strategic ImplicationsDifficulty: ModerateKeywords: responsive supply chains, product introduction24. Efficient supply chains work best when contribution margins are high.

Answer: False

Reference: Strategic ImplicationsDifficulty: ModerateKeywords: efficient supply chains, contribution margin25. Efficient supply chains use low capacity cushions.

Answer: True

Reference: Strategic ImplicationsDifficulty: ModerateKeywords: efficient supply chains, capacity cushion26. Responsive supply chains work best when firms offer a low variety of services or products and demand predictability is high.

Answer: False

Reference: Strategic ImplicationsDifficulty: Moderate

Keywords: responsive supply chains, variety, predictability

MULTIPLE CHOICE27. Which one of the following is TRUE for supply chain management?

a. Supply chain applies to both manufacturing and service organizations.

b. Supply chain applies only to manufacturing because it deals with flow of materials.

c. Supply chain is about suppliers and does not include distributors or customers.

d. Supply chain includes any operation that deals with materials.

Answer: a

Reference: Supply Chain Design Across the OrganizationDifficulty: Easy

Keywords: supply chain, service, manufacturing

28. Which of the following generates pressure to increase inventories?a. inventory holding costsb. ordering costsc. storage and handling costsd. taxes and insuranceAnswer: bReference: Inventory and Supply Chains

Difficulty: Easy

Keywords: pressures for small / large inventories29. Which of the following generates pressure to decrease inventories?

a. inventory shrinkage costs

b. backorders and stockouts

c. transportation costs

d. quantity discounts

Answer: a


Difficulty: Easy

Keywords: pressures for small / large inventories

30. Which of the following DOES NOT generate pressure to decrease inventories?

a. taxes and insurance

b. inventory holding costs

c. storage and handling costs

d. ordering costs

Answer: d




31. Which of the following DOES NOT generate pressure to increase inventories?

a. transportation costs

b. backorders and stockouts

c. inventory shrinkage costs

d. quantity discounts

Answer: a




32. Inventories needed for the production of services and goods (inputs to a firms transformation processes) are called:a. quarantined materialsb. work-in-processc. raw materialsd. finished goodsAnswer: cReference: Inventory and Supply Chains

Difficulty: EasyKeywords: types of inventories

33. Items, such as components or assemblies, needed to manufacture a final product are called:

a. quarantined materials

b. work-in-process

c. raw materials

d. finished goods

Answer: bReference: Inventory and Supply Chains

Difficulty: Easy

Keywords: types of inventories

34. Items sold to a firms customers are called:

a. quarantined materials

b. work-in-process

c. raw materials

d. finished goods

Answer: dReference: Inventory and Supply Chains

Difficulty: Easy

Keywords: types of inventories

Use the following to answer questions 35 37:

Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailers average demand for A is 75 units per week. Lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350.

35. With the change in purchased quantities, the average cycle inventory will: a. Decrease by 75 units.b. Increase by 50 units.c. Decrease by 25 units.d. Increase by 25 units.

Answer: d



Keywords: types of inventories, cycle inventory, pipeline inventory36. With the change in lead times, the pipeline inventory will:a. Decrease by 75 units. b. Increase by 50 units.c. Decrease by 25 units.d. Increase by 25 units.

Answer: a



Keywords: types of inventories, cycle inventory, pipeline inventory37. The net impact on the retailer will be:a. No net change in average cycle and pipeline inventories.b. A net average increase in cycle and pipeline inventories of 50 units.c. A net average decrease in cycle and pipeline inventories of 75 units.d. A net average decrease in cycle and pipeline inventories of 50 units.

Answer: d



Keywords: types of inventories, cycle inventory, pipeline inventoryUse the following to answer questions 38 42:

Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesalers average demand for X is 100 units per week. Lead time from plant to wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.

38. What is the total of the wholesalers current cycle plus pipeline inventories? a. 300 unitsb. 100 unitsc. 700 unitsd. 400 units

Answer: cReference: Inventory and Supply Chains


Keywords: types of inventories, cycle inventory, pipeline inventory39. If the plant reduces its lead time from 4 to 2 weeks and keeps its 600 unit lot size, what is the wholesalers new total cycle plus pipeline inventories? a. 300 unitsb. 500 unitsc. 700 unitsd. 200 units

Answer: bReference: Inventory and Supply Chains


Keywords: types of inventories, cycle inventory, pipeline inventory40. If the plant reduces its shipment lot size from 600 to 400 units and keeps its 4 week lead time, what is the wholesalers new total cycle plus pipeline inventories? a. 600 unitsb. 300 unitsc. 500 unitsd. 400 units

Answer: aReference: Inventory and Supply Chains


Keywords: types of inventories, cycle inventory, pipeline inventory41. Which of the following situations results in the wholesalers total cycle plus pipeline inventories amounting to 550 units? a. plant shipment lot size of 400 and plant-to-wholesaler lead time of 2 weeks b. plant shipment lot size of 500 and plant-to-wholesaler lead time of 3 weeks c. plant shipment lot size of 400 and plant-to-wholesaler lead time of 3 weeks d. plant shipment lot size of 600 and plant-to-wholesaler lead time of 4 weeks Answer: bReference: Inventory and Supply Chains


Keywords: types of inventories, cycle inventory, pipeline inventory42. Which of the following situations results in the wholesalers total cycle plus pipeline inventories amounting to 400 units?

a. plant shipment lot size of 500 and plant-to-wholesaler lead time of 3 weeks

b. plant shipment lot size of 400 and plant-to-wholesaler lead time of 3 weeks

c. plant shipment lot size of 600 and plant-to-wholesaler lead time of 4 weeks

d. plant shipment lot size of 400 and plant-to-wholesaler lead time of 2 weeks

Answer: dReference: Inventory and Supply Chains


Keywords: types of inventories, cycle inventory, pipeline inventory43. Shipments of Product Q from a plant to a wholesaler are made in lots of 400. The wholesalers average demand for Q is 150 units per week. Lead time from plant to wholesaler is 5 weeks. The wholesaler pays for the shipments when they leave the plant. The plant has proposed several new lead time and lot size options to the wholesaler (see table below). If the wholesalers goal is to minimize total cycle plus pipeline inventories, which option should the wholesaler select? OPTIONSHIPMENT LOT SIZEPLANT-TO- WHOLESALER LEAD TIME

CURRENT4005

15004

28003

31,0002

a. option #1

b. option #2

c. option #3

d. remain with the current option

Answer: c



Keywords: types of inventories, cycle inventory, pipeline inventory

44. Which of the following is not a lever for reducing cycle inventories?

a. place purchased item orders at fixed intervals

b. reduce lot sizes for items moving in the supply chain

c. streamline methods for placing orders and making machine set ups

d. increase repeatability to eliminate the need for changeovers

Answer: a



Keywords: inventory, types of inventories, inventory reduction, tactics

45. Which of the following does not increase repeatability?

a. parts standardization

b. customization c. group technology

d. flexible automation

Answer: b



Keywords: inventory, types of inventories, inventory reduction, tactics

46. One of the secondary levers for reducing pipeline inventory is to:

a. offer seasonal pricing plans.

b. increase capacity cushions.

c. accept only large orders.

d. select more responsive suppliers.

Answer: d


Keywords: pipeline inventory, lever

47. Which one of the following statements on inventory placement of finished goods is best?

a. Forward placement might help reduce transportation cost.

b. Forward placement is consistent with a competitive priority that calls for customization.

c. Inventory pooling should be avoided when demand in various regions fluctuates month to month.

d. Backward placement is consistent with a competitive priority that calls for fast delivery times.

Answer: a


Keywords: inventory, forward placement48. Which location shift would qualify as forward placement?

a. From the manufacturer to a distribution center

b. From the retailer to the wholesaler

c. From the wholesaler to the manufacturer

d. From the retailer to the manufacturer

Answer: a


Keywords: inventory, forward placement

49. Padco averages $15 million worth of inventory in all of its worldwide locations. They operate 51 weeks a year and each week average $3 million in sales (at cost). Their inventory turnover is:

a. 1.13 turns.

b. 5 turns.

c. 10.2 turns.

d. 17 turns.

Answer: c

Reference: Measures of Supply Chain PerformanceDifficulty: ModerateKeywords: inventory, turnover

50. Which one of the following statements about the relation between financial and supply-chain performance measures is TRUE?

a. Longer delivery times require higher levels of working capital.

b. Shorter new product development time decreases revenue.

c. Higher inventory turns call for higher working capital requirements.

d. Lower aggregate inventory value means higher current assets.

Answer: a

Reference: Measures of Supply Chain PerformanceDifficulty: ModerateKeywords: financial measures, supply chain, working capital

51. Henderson Corporation is a supplier of alloy ball bearings to auto manufacturers in Detroit. Because of the specialized manufacturing process employed, considerable work-in-process and raw material inventories are created. The average inventory levels are $1,152,000 and $2,725,000, respectively. In addition, finished goods inventory is $3,225,000, and sales (at cost) for the current year are expected to be about $24 million. The inventory turnover that Henderson Corporation is currently expecting is:

a. less than 2.0.

b. greater than 2.0 but less than 2.5.

c. greater than 2.5 but less than 3.0.

d. greater than 3.0.

Answer: d

Reference: Measures of Supply Chain PerformanceDifficulty: Moderate

Keywords: inventory, turnover

52. Maple Leaf, Inc., a television manufacturer, would like to reduce its inventory. To this end, you are asked by the operations manager to assess its inventory level. You have the following information on average inventories from last years financial statement:

Raw materials

$2,500,000

Work-in-process

$1,000,000

Finished goods

$ 800,000

In addition, the cost of goods sold last year (50 weeks) was $15 million. What was the inventory turnover?

a. Less than or equal to two

b. Greater than two but less than three

c. Greater than three but less than four

d. Greater than four

Answer: c



53. The average inventory at Hamilton Industries, comprising raw materials, work-in-process, and finished goods, was found to be $17.2 million last year. If the cost of goods sold per week averaged $1.32 million, what was the inventory turnover experienced by Hamilton Industries? Assume the company had 50 working weeks per year.

a. Less than or equal to 3.50

b. Greater than 3.50 but less than 3.75

c. Greater than 3.75 but less than 4.00

d. Greater than 4.00

Answer: c



54. A firm may choose to use members of the distribution channel as if they were assembly stations in the factory. Such an approach is known as:

a. backward integration.

b. postponement.

c. channel assembly.

d. deferred delay.

Answer: c

Reference: Mass Customization

Difficulty: Easy

Keywords: channel assembly

55. Which of the following is not identified in the text as a competitive advantage of a mass customization strategy?

a. improvement of the quality of parts produced

b. management of customer relationships

c. elimination of finished goods inventoryd. an increase in perceived value of services or productsAnswer: aReference: Mass CustomizationDifficulty: EasyKeywords: mass customization, competitive advantages 56. __________ uses a firms flexible processes to generate a wide variety of personalized services or products at reasonably low costs.

a. Mass customization.

b. Channel assembly

c. Postponement

d. Forward integration

Answer: a



Keywords: mass customization

57. A somewhat successful computer manufacturer makes a generic computer in five exciting colors. Once orders are received, the computer guts are encased in the customers choice of colored case at the factory. This approach to production is known as:

a. channel assembly.

b. postponement.

c. strategic sourcing.

d. strategic production.

Answer: b



Keywords: postponement, delayed differentiation

58. A producer of medical devices makes a single model that can be customized to talk in and display any of 47 different languages. This customization is performed in one of their five regional distribution centers as firm orders are received, providing an elegant example of:

a. backward integration.

b. forward integration

c. channel assembly.

d. offshoring.

Answer: c



Keywords: channel assembly

59. The supply chain management department of a major manufacturer pondered a particularly weighty make or buy decision for weeks, ultimately deciding to make, rather than buy. This decision resulted in increased:a. outsourcing.b. offshoring.c. postponement.d. backward integration.

Answer: d

Reference: Outsourcing Processes

Difficulty: Easy

Keywords: make-or-buy decisions, integration

Use the following to answer questions 60 62.

A company must decide if it will make or buy an item it needs. The company can make the item for $10 / unit, but must spend $15,000 per year in tooling to do so. An outside firm has quoted a total price of $12 / unit to supply the quantity required.

60. What is the break-even point in this situation?

a. 6,500 units

b. 7,250 units

c. 7,500 units

d. 8,000 units

Answer: cReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisions61. Which alternative should be selected if annual requirements are 5,000 units?

a. Make

b. Buy

c. Either Make or Buy; costs are the same for either option at 5,000 units

d. Cant be determined with information given

Answer: bReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisions62. What does the company save for the year by selecting this low-cost option (for annual requirements of 5,000 units)?a. $5,000 b. $15,000c. $65,000d. Cant be determined with information given

Answer: aReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisionsUse the following to answer questions 63 65.A company is considering making versus buying a part needed for manufacturing. Particulars are as follows:

Make: Fixed Costs = $9,000 / year

Variable Cost / Unit = $2

Buy:

Fixed Costs = $3,000 / year

Variable Cost / Unit = $5

63. What is the annual break-even quantity for choosing between making and buying in this situation?a. 1,000 units b. 2,000 units c. 6,000 unitsd. 3,000 units

Answer: bReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisions64. For an annual volume of 3,000 units, which supplier should be chosen?a. Make b. Buy c. Either Make or Buy; costs are the same for either option at 3,000 unitsd. Cant be determined with information given

Answer: aReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisions65. What does the company save for the year by selecting this low-cost option (for annual requirements of 3,000 units)?a. $5,000b. $1,000c. $3,000 d. Cant be determined with information given

Answer: cReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisionsUse the following information to answer questions 66 71.

You currently make a part on old equipment at a cost of $50,000 per year and a variable cost of $20 / unit. You have found an outside supplier who will make the part for $15 / unit if you will pay their annual fixed costs of $200,000 / year. The following table summarizes the details of this make versus buy decision.

ALTERNATIVEFIXED COSTVARIABLE COST

Buy$200,000 per year$15 per unit

Make$50,000 per year$20 per unit

66. What is the break even quantity between buying and making?a. 30,000 units per year b. 40,000 units per year c. 50,000 units per yeard. 60,000 units per year

Answer: aReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisions67. What are total costs to buy an annual quantity of 40,000 units?a. $400,000b. $500,000c. $800,000 d. $850,000

Answer: cReference: Outsourcing processesDifficulty: EasyKeywords: outsourcing, make-or-buy decisions68. What are total costs to make a quantity of 40,000 units per year?a. $400,000b. $450,000c. $800,000d. $850,000

Answer: dReference: Outsourcing processesDifficulty: EasyKeywords: outsourcing, make-or-buy decisions69. For what range of output would you prefer to buy?a. 0 - 30,000 units per yearb. 30,000 or more units per year c. 40,000 or more units per year d. 0 40,000 units per year

Answer: bReference: Outsourcing processesDifficulty: EasyKeywords: outsourcing, make-or-buy decisions70. For what range of output would you prefer to make?a. 40,000 or more units per yearb. 0 40,000 units per yearc. 30,000 or more units per yeard. 0 30,000 units per year

Answer: dReference: Outsourcing processesDifficulty: EasyKeywords: outsourcing, make-or-buy decisions71. What does the company save for the year by selecting the low-cost option at an annual requirement of 40,000 units?a. $150,000b. $300,000c. $50,000 d. $40,000

Answer: cReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisions72. Which of the following is not a benefit of outsourcing?a. comparative labor costs b. lower logistics costsc. reduction of transaction costs through use of the Internet d. technology transfer to another country or companyAnswer: dReference: Outsourcing processesDifficulty: ModerateKeywords: outsourcing, make-or-buy decisions73. A U.S. company faced with spiraling costs in their customer care center recreated that service in Luxembourg at a fraction of the cost. This is an example of:a. offshoring.b. forward integration.c. backward integration.d. postponement.

Answer: a


Difficulty: Easy

Keywords: offshoring, outsourcing

74. An efficient supply chain should be preferred when: a. product variety is high.b. competitive priority is customization. c. demand is highly predictable.d. demand is unpredictable.

Answer: c

Reference: Strategic Implications

Difficulty: ModerateKeywords: efficient supply chain75. An efficient supply chain typically has:a. a high capacity cushion.b. high inventory turns.c. supply chain partners that emphasize fast delivery time.d. supply chain partners that emphasize volume flexibility.

Answer: b


Difficulty: ModerateKeywords: efficient supply chain69. A responsive supply chain typically has:

a. a low capacity cushion.

b. high inventory turns.

c. supply chain partners that emphasize low prices.

d. supply chain partners that emphasize volume flexibility.

Answer: d


Difficulty: ModerateKeywords: responsive supply chain70. Responsive supply chains should be preferred when:

a. product variety is low.

b. demand is predictable.

c. contribution margins are low.

d. product variety is high.

Answer: d



Keywords: responsive supply chain 71. The type of goods for which a responsive supply chain is appropriate are:

a. fashion goods.

b. products with a long shelf life.

c. expensive products.

d. those with infrequent design changes.

Answer: a


Difficulty: HardKeywords: responsive supply chain

72. It is desirable for a firm in a responsive supply chain to have:

a. low-capacity cushions.

b. delivery by railroad.

c. high-capacity utilization consistent with high-volume delivery.

d. inventory investments as needed to enable fast delivery times.

Answer: d


Difficulty: ModerateKeywords: responsive supply chain

73. The objective of a firm in a responsive supply chain is likely to be realized if it has a:

a. standardized product.

b. short lead time.

c. low-capacity cushion.

d. line-flow process.

Answer: b



Keywords: responsive supply chain

FILL In THE BLANK74. ____________ is the synchronization of a firms process with those of its suppliers and customers to match flow of materials, services and information with demand.

Answer: Supply chain managementReference: Supply Chain Design Across the OrganizationDifficulty: Easy

Keywords: supply chain management, supply chain design

75. ____________ seeks to develop a firms supply chain to meet the competitive priorities of the firms operations strategy. Answer: Supply chain designReference: Supply Chain Design Across the OrganizationDifficulty: Easy

Keywords: supply chain management, supply chain design

76. ____________ are inventories needed for the production of goods and services; they are considered the inputs to the transformation process.

Answer: Raw materials


Difficulty: ModerateKeywords: inventory types, raw materials

77. ____________ consists of items such as components or assemblies needed for a final product in manufacturing.

Answer: Work-in-process (WIP)Reference: Supply Chains for Services and Manufacturing


Keywords: inventory types, WIP, work-in-process inventory

78. A ____________ is an incentive to order larger quantities, where the price per unit is decreased when the order is sufficiently large.

Answer: quantity discount Reference: Inventory and Supply Chains


Keywords: inventory, pressure for large inventories, payments to suppliers

79. ____________ is the opportunity cost of investing in an asset relative to the expected return on assets of similar risk.

Answer: Cost of capitalReference: Inventory and Supply ChainsDifficulty: Moderate

Keywords: cost of capital, opportunity, return on assets80. Inventory ____________ cost is the variable cost of keeping items on hand, including interest, storage and handling, taxes, insurance, and shrinkage.

Answer: holdingReference: Inventory and Supply ChainsDifficulty: ModerateKeywords: holding cost, interest, storage, handling, tax81. ____________ occurs when inventory is stolen by employees and customers or when the inventory cannot be sold at full value owing to model changes or low demand.

Answer: Shrinkage

Reference: Inventory and Supply ChainsDifficulty: ModerateKeywords: shrinkage, pilferage, obsolescence82. A(n) ____________ is an order that cannot be satisfied, resulting in the loss of a sale.

Answer: stockout Reference: Inventory and Supply Chains


Keywords: inventory, pressure for large inventories, customer service

83. A(n) ____________ occurs when a customer order cannot be filled as promised or demanded but is filled later.

Answer: backorderReference: Inventory and Supply ChainsDifficulty: Moderate

Keywords: backorder, order84. ____________ is the cost of preparing a purchase order for a supplier or a production order for the shop.

Answer: Ordering costReference: Inventory and Supply ChainsDifficulty: ModerateKeywords: ordering cost85. ____________ inventory is the portion of total inventory that varies directly with lot size.

Answer: CycleReference: Inventory and Supply ChainsDifficulty: Moderate

Keywords: cycle, lot size86. The ____________ determines the frequency and quantity to order.

Answer: lot sizeReference: Inventory and Supply ChainsDifficulty: Moderate

Keywords: lot size87. ____________ inventory is the surplus inventory that a company holds to protect against uncertainties in demand, lead-time, and supply.

Answer: Safety stockReference: Inventory and Supply ChainsDifficulty: Moderate

Keywords: safety stock88. As safety stock increases, the holding cost of that inventory item ____________.

Answer: increases

Reference: Inventory and Supply ChainsDifficulty: ModerateKeywords: safety stock, holding cost89. ____________ inventory is the inventory moving from point to point in the materials flow system.

Answer: Pipeline


Keywords: pipeline, point flow90. ____________ is the degree to which the same work can be done again and again.

Answer: Repeatability


Keywords: repeatability

91. ____________ are the basics tactics for reducing inventories in supply chains.

Answer: Levers


Keywords: inventory reduction tactics

92. A ____________ lever is one that must be activated if inventory is to be reduced.

Answer: primary


Keywords: inventory reduction tactics

93. Cornelius Controlfreak insisted that his manufacturing plant also be the sole location for all finished goods inventory. If any customer placed an order, they knew it would come from the only place on Earth that had a ready supply, Cornelius plant warehouse. ____________ was alive and well thanks to this approach.

Answer: centralized placement

Reference: Inventory and Supply ChainsDifficulty: EasyKeywords: centralized placement

94. ____________ is a reduction in inventory and safety stock because of the merging of variable demands from customers.

Answer: Inventory pooling

Reference: Inventory and Supply ChainsDifficulty: ModerateKeywords: inventory pooling, merging

95. ____________ involves locating the stock closer to customers at a warehouse, distribution center, or retailer.

Answer: Forward placement


Keywords: forward placement

96. ____________ is an inventory measure obtained by dividing the average aggregate inventory value by sales per week at cost.

Answer: Weeks of supply


Keywords: weeks of supply measure

97. ____________, the annual sales at cost divided by the average aggregate inventory value, is the number of times a year that a firm completely replenishes its inventory.

Answer: Inventory turnover (turns)


Keywords: turnover, sales, inventory

98. ____________ is the money used to finance ongoing operations.

Answer: Working capital


Keywords: working capital

99. The clever wine shop owner held a tasting, accepted customer orders and payments, and then placed an order with the vineyard. Since he paid the vineyard after he received the shipment (and well after he charged his customers), his ____________ time was negative.

Answer: cash-to-cash


Keywords: cash-to-cash, cash flow

100. ____________ is a concept whereby some of the final activities in the provision of a service or product are delayed until the orders are received.

Answer: Postponement


Difficulty: ModerateKeywords: postponement

101. One way to gain control over suppliers in a chain is to buy a controlling interest in them, known as ____________.

Answer: backward integration



Keywords: backward integration

102. When a company uses ____________ , it does not perform some processes itself, but instead pays suppliers or distributors to perform those processes and provide needed services and materials.

Answer: outsourcing

Reference: Outsourcing ProcessesDifficulty: EasyKeywords: outsourcing103. When a company uses ____________ , it is moving upstream in the supply chain toward the source of raw materials.

Answer: backward integration

Reference: Outsourcing ProcessesDifficulty: Easy

Keywords: vertical integration, backward integration104. When a company acquires more channels of distribution, such as its own distribution centers and retail stores, it is using ____________ .

Answer: forward integration

Reference: Outsourcing ProcessesDifficulty: Easy

Keywords: vertical integration, forward integration

105. ____________ is the process of using members of the distribution channel as if they were assembly stations in the factory.

Answer: Channel assembly


Difficulty: ModerateKeywords: channel assembly

SHORT ANSWERS106. Discuss the major differences between supply chains for services and manufacturing. Which supply chain is easier to coordinate effectively?Answer: Supply chain design for a service provider is driven by the need to provide support for the essential elements of the various service packages it delivers. Manufacturers try to control inventory by managing the flow of materials. Since a good is very rarely a pure service or a pure manufactured product, most companies will experience both issues. Ease of coordination answers will vary but may depend on the dynamic nature of the item, of the market, and other factors outside the control of the operations manager.Reference: Supply Chains for Services and ManufacturingDifficulty: ModerateKeywords: manufacturing, service, inventory, service package, supply chain

107. Discuss the trade-offs with locating the inventory at the factory versus locating it closer to the customer at a warehouse, distribution center, wholesaler, or retailers.

Answer: Locating inventory at a companys factory or warehouse constitutes centralized placement, thereby allowing a firm to take advantage of inventory pooling. Inventory pooling permits the producer to reduce the total inventory in the system, yet retain high service levels since one customers high demand may be offset by another customers low demand. The disadvantage of holding inventory in one location is the additional expense and time required to get product in the hands of the customer. Another approach to inventory location is forward placement. Forward placement reduces delivery times and puts the inventory closer to the customer so that in some cases (when it is located at a retailer), it can be seen and might trigger a purchase. The disadvantages of forward placement run counter to the advantages of pooling.Reference: Inventory and Supply ChainsDifficulty: Moderate

Keywords: centralized placement, inventory pooling, service levels, forward placement 108. What are the components of holding cost?

Answer: The components of holding cost include cost of capital, storage and handling cost, taxes, insurance, and shrinkage.

Reference: Inventory and Supply ChainsDifficulty: ModerateKeywords: holding cost109. What are the secondary levers for cycle inventory?

Answer: The secondary levers for cycle inventory are streamlining methods for placing orders and making setups, and increasing repeatability to eliminate the need for changeovers.

Reference: Inventory and Supply ChainsDifficulty: ModerateKeywords: cycle inventory, lever110. What are the secondary levers for safety stock inventory?

Answer: The secondary levers for safety stock inventory are improved demand forecasts, cutting lead-time of purchased or produced items, reducing supply uncertainties, and relying more on equipment and labor buffers.

Reference: Inventory and Supply ChainsDifficulty: ModerateKeywords: safety stock inventory, lever

111. What are the secondary levers for pipeline inventory?

Answer: The secondary levers for pipeline inventory are finding more responsive suppliers and introducing new computer systems to overcome information delays and decreasing Q where lead-time depends on lot size.


Keywords: pipeline inventory, lever112. Compare and contrast efficient versus responsive supply chains.

Answer: The purpose of efficient supply chains is to coordinate the flow of materials and services to minimize inventories and maximize the efficiency of the manufacturers and service providers in the chain. Responsive supply chains are designed to react quickly to market demands by positioning inventory and capacities to hedge against uncertainties in demand. Efficient supply chains work best where demand is predictable with low forecast errors; competitive priorities are low cost, consistent quality, and delivered on time; new-product introduction is low; and profit margins are low. Responsive supply chains work best when demand is unpredictable with high forecast errors. Competitive priorities are development speed, fast delivery times, customization, high-performance design quality; new product-introduction is frequent; contribution margins are high; and product variety is high. Efficient supply chains should use a make-to-stock or standardized services operations strategy, low-capacity cushion, and low inventory investment. They should shorten lead time without increasing costs and emphasize fast delivery time, customization, volume flexibility, and high-performance design quality. Responsive supply chains should use assemble-to-order, make-to-order, or customized services emphasizing product or service variety; high-capacity cushions; and inventory levels set to enable fast delivery time. They should aggressively shorten lead time and emphasize fast delivery time, customization, volume flexibility, and high-performance design quality.

Reference: Strategic ImplicationsDifficulty: HardKeywords: efficient supply chain, responsive supply chain

PROBLEMS113. Last year, RJT Enterprises had average inventories (raw materials, work-in-process, and finished goods) of $7.5 million. During this same year the cost of goods sold was $30 million. The company operates 50 weeks per year.

a. What is their total inventory (measured as weeks of supply)?

b. What is their inventory turnover?

Answer:

Weeks of supply = average aggregate inventory value/weekly sales at cost =

7.5 million/(30 million/50) = 12.5 weeks

Inventory turnover = annual sales (at cost)/average aggregate inventory value =

30 million/7.5 million = 4Reference: Measures of Supply Chain PerformanceDifficulty: Moderate

Keywords: turnover, weeks of supply, inventory value121. Rome Corporation is a supplier of ball bearings. Because of the specialized manufacturing process employed, considerable work-in-process and raw material inventories are created. The current inventory levels are $1,500,000 and $3,775,000, respectively. In addition, finished goods inventory is $3,500,000, and sales (at cost) for the current year are expected to be about $28 million. Assume they operate 50 weeks per year.

a. What is their total inventory (measured as weeks of supply)?

b. What is their inventory turnover?

Answer:

a. Weeks of supply = average aggregate inventory value/weekly sales at cost =

(1,500,000 + 3,775,000 + 3,500,000)/(28,000,000/50) = 15.7 weeks

b. Inventory turnover = annual sales (at cost)/average aggregate inventory value =

28 million/8.775 million = 3.19Reference: Measures of Supply Chain PerformanceDifficulty: Moderate

Keywords: turnover, weeks of supply, inventory value122. A television manufacturer would like to reduce its inventory. To this end, you are asked by the operations manager to assess its inventory level. You have the following information on average inventories from last years financial statement:

Raw materials

$1,500,000

Work-in-process

$1,200,000

Finished goods

$ 800,000

In addition, the cost of goods sold last year (50 weeks) was $20 million.

a. What is its total inventory (measured as weeks of supply)?

b. What is its inventory turnover?

Answer:

Weeks of supply = average aggregate inventory value/weekly sales at cost =

(1,500,000 + 1,200,000 + 800,000)/(20,000,000/50) = 8.75 weeks

Inventory turnover = annual sales (at cost)/average aggregate inventory value =

20 million/3.5 million = 5.71Reference: Measures of Supply Chain PerformanceDifficulty: ModerateKeywords: turnover, weeks of supply, aggregate inventory value 123. Champion Cooling Company remanufactures window air conditioners during the off-season months for sales during the scorching months of June, July, and August in the Oklahoma City area. Their average inventory of air conditioners is shown in the following table. The company operates 50 weeks a year and has average weekly sales of $3,750 and expects to sell $135,000 worth of product in a year.

Unit TypeAvg. Inventory (at cost)Value of Each

110 Volts65$250

18,000 BTU or smaller 220 Volts90$350

Larger than 18,000 BTU50$500

a. What is their average aggregate inventory value?

b. What is their total inventory (measured as weeks of supply)?

c. What is their inventory turnover?

Answer:

a.

b.

Weekly Sales (at cost)

19.4 weeks Annual Sales (at cost)

c.


Keywords: turnover, weeks of supply, aggregate inventory value

3058422 Copyright 2010 Pearson Education

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