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the larger group, then they leave established an extended enterprise characterized by virtual
integration.
Answer: True
22. Strategic sourcing is about understanding the markets you're purchasing from inside and out and
learning from your own organization and your suppliers' organizational processes, working as a
mediator between suppliers and your organization, and capturing information and using it to
improve relationships.
Answer: True
23. Strategic sourcing requires two-way continuous improvement process work from each
organization.
Answer: True
24. Maintenance is an issue that should be considered after equipment has been purchased.
Answer: False
25. Supply management does not have much of an impact on the bottom line.
Answer: False
26. SM does not require change driven by upper management.
Answer: False
27. World-class supply managers need not improve supply processes before the processes have been
implemented.
Answer: False
28. When a group or network of firms collaborates in a partnership (alliance) fashion; the
collaboration is sometimes referred to as a tactical network.
Answer: False
29. When the group of firms view each other as partners and collaborate effectively for the good of
the larger group, then they leave established a transactional relationship.
Answer: False
30. Strategic sourcing is about dominating the markets you're purchasing from through force and
intimidation, never letting the supplier forget that you are the boss.
Answer: False
31. Strategic sourcing requires one-way improvement efforts where the buying firm tells the
supplying firm what is best.
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
Answer: False
Multiple Choice Questions
32.
33.
The term supply management is broader than the purchasing function because it::
A) includes marketing
B) includes operations/production
C) includes managing relationships with suppliers
D) includes negotiating enforceable contracts
E) includes measuring the total cost of ownership
Answer: C
34.
Strategic sourcing differs from tactical purchasing in that this activity periodically:
A) analyzes the organizations spend
B) analyzes the supply market
C) develops sourcing strategy and plans
D) outsources basic business services such as security
E) A, B &C
Answer: E
35.
Supply managements impact on the bottom line includes the ability to increase sales by:
A) reducing the development time of new products by using cross functional teams including
suppliers
B) obtaining the lowest possible prices
C) finding suppliers with the fastest delivery times
D) all of the above
E) none of the above
Answer: A
36.
Lean Thinking can help reduce total cost of ownership (TCO), this means the supply team in
the entire chain must work to:
A) lower conversion cost
B) reduce cycle time cost
C) reduce risk cost
D) reduce non-value costs
E) reduce processing costs
Answer: D
37.
The major reason supply management can greatly improve a firms return on investment (ROI)
is:
A) the reduction of post ownership costs
B) the reduction of downtime costs
C) the reduction of quality costs
D) the reduction of acquisition cost
E) every dollar saved in purchasing is = to a new dollar of profit
Answer: E
38.
39.
The term value chain means we include the supply chain in our analysis and management with:
A) end consumer
B) the downstream portion of the chain and distribution, such as marketing
C) channels of distribution
D) financial impact studies
E) opportunity cost
Answer: B
40.
When we add the term networks to the supply and value chains, we are emphasizing the need to
focus on and interactively communicate with:
A) suppliers
B) distributors
C) final consumers
D) tiers of suppliers
E) all support organizations
Answer: C
41.
42.
In Appendix A, The Mechanics of Supply Management, the typical purchasing cycle for
materials starts with:
A)
B)
C)
D)
E)
Answer: C
43.
Answer: D
48. Which bullet is not true of the mechanical stage of SM?
A) Engage in eCommerce II
B) Transactional focus
C) React to requisitions
D) Not involved in key source selections
E) Emphasis: purchase price
Answer: A
49. Which bullet is not true of the mechanical stage of SM?
A) Relationships: transactional and adversarial
B) Bottom line impact: revenue neutral
C) Active in source selection
D) Reporting: low level
E) Data: used to expedite
Answer: C
50. Which bullet is not true of the proactive stage of SM?
A) Coordinate procurement system
B) Develop suppliers
C) Long-term contracts
D) Involved in development of requirements
E) Not involved in key source selections
Answer: E
51. Which bullet is not true of the proactive stage of SM?
A) Involved in development of requirements
B) Short-term contracts
C) Plan for recurring requirements
D) Procurement adds value
E) Active in source selection
Answer: B
52. Which bullet is not true of the proactive stage of SM?
A) Near defect free materials and services
B) Emphasis: cost, quality and timeliness
C) Reporting: low level
D) Relationships: transactional and collaborative
E) Bottom line impact: profit contributor
Answer: C
53. Which bullet is not true of the proactive stage of SM?
A) Reporting: upper management
B) Data: facilitates sourcing and pricing
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
59. Which of the following is generally not true about supply management and the bottom line?
A) Purchased items account for a large percentage of the cost of goods sold. Hence, a reduction
in cost of purchased goods has a major impact on the bottom line
B) A Euro increase in sales is equivalent to a Euro decrease in materials cost in impacting the
bottom line
C) Outsourcing allows firms to focus on their core competencies, which reduced potential for
waste, which then can improve the bottom line
D) A dollar saved in materials cost is usually considered a dollar increase in profit, which
directly translates into bottom line savings
E) Supply management can work collaboratively with suppliers to discover opportunities to
lower costs, which ultimately improves the bottom line
Answer: B
60. Which of the following is not one of The Four Phases of Supply Management?
A) Generation of Requirements
B) Sourcing
C) Pricing
D) Profit Sharing
E) Post Award Activities
Answer: D
61. Which of the following bullets is not true about supply management systems?
A) Supply management systems require software optimization models to run effectively
B) Virtually all firms have supply management systems
C) A cross-functional approach to supply management systems enables the lowest total cost
D) Carefully selected suppliers should also join in-house cross-functional teams in developing
supply management systems
E) Supply management systems that include reverse auctions, exchanges, and real-time
electronic transmissions only increase the importance of supply management
Answer: A
62. Which of the following is not a strategic supply management activity?
A) Activity Based Costing
B) Environment Monitoring
C) Integrated Supply Strategy
D) Commodity Strategies
E) Data Management
Answer: A
63. Which of the following is not a strategic supply management activity?
A) Corporate Strategic Plans
B) Simulation Modeling
C) Strategic Sourcing
D) Strategic Supply Alliances
E) Supply Chain / Supply Networks
Answer: B
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
Answer: True
25. Consolidation provides the opportunity to standardize, simplify and leverage material purchases.
Answer: True
26. Hybrid organizational structures often use cross functional teams to achieve the best of both
centralized and decentralized decision making.
Answer: True
27. E-commerce has strengthened the case for decentralization of purchasing.
Answer: False
28. The materials management organization structure is now obsolete.
Answer: False
29. Supply chain management expanded the materials management structure functions to include all
the stake holders and total demand management.
Answer: True
30. Cross function teams are often the key step in a firms evolution to supply chain management.
Answer: True
31. Aside from the benefits of synergy, cross functional teams provides input from all affected
functions.
Answer: True
32. One of the big challenges and problems with cross functional teams is the lack of time for the
team member participation and role conflict.
Answer: True
17. Cross functional teams operate best when they use the brainstorming approach to innovative
thinking.
Answer: False
18. The key first step in establishing cross functional teams is obtaining executive sponsorship.
Answer: True
19. Its best to let a cross functional team train itself as they learn how to communicate with one
another.
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
Answer: False
20. One of the key skills for any leader is to be an effective listener.
Answer: True
Multiple Choice Questions
21. The importance of supply management in any specific firm is determined by the following
factors:
A) availability of materials and services
B) absolute dollar volume of purchases
C) percentage of product cost represented by materials and services
D) types of materials and services purchased
F) All of the above
Answer: E
22. Of the purchasing/supply responsibilities and activities, ______ becomes more important as the
function becomes responsible for supply and value network chains:
:
A) buying supply management
B) executive management
C) strategic planning and research work
D) contract and relationship management
E) Supplier liaison work
Answer: C
23. Managing supplier relationships, contracts, placement of purchase orders and other transaction
focused activities are _____ responsibilities:
:
A) strategic
B) short term
C) long term
D
D) operational
E E) action
F
Answer: D
24. Aside from reducing potential duplication of efforts, the major advantage of centralized
purchasing is:
:
A) improved inventory control
B) leveraged volume purchasing
C) consolidation
G
D) transportation savings
H E) lower administrative costs
I
Answer: B
:
25. When a firms major activity is research and development, the firm will most likely use:
A) centralized purchasing
B) headquarter purchasing
C) decentralized purchasing
D) hybrid purchasing structure
K E) a specialized purchasing staff at headquarters
L
Answer: C
27. The materials management organization structure paved the way for _____ structure:
A) value network chain structures
B) supply chain management structure
C) procurement management structure
P
D) purchasing centralization
Q E) purchasing decentralization
R
Answer: B
:
28. The most significant advantage of the supply chain management structure is:
A) it facilitated a total systems approach to stimulate integration
B) it uses the internet to extract key information
C) it increases the visibility of the purchasing department
S
D) it focuses management attention on quality
T E) it reveals that inventory costs are often understated
U
Answer: A
:
9. The failure to develop and manage institutional trust is the principle reason that so many supply
alliances fail.
Answer: True
10. Power is a topic that makes people uncomfortable.
Answer: True
11. Power is at the heart of all business relationships.
Answer: True
12. A captive buyer is held hostage by a supplier free to switch to another customer.
Answer: True
13. A captive supplier makes investments in order to secure a portion of the buyer's business, with no
assurance of sufficient business to recoup the investment.
Answer: True
14. Successful supply chain management requires the effective and efficient management of a
portfolio of relationships.
Answer: True
15. One of the advantages of transactional relationships is that relatively less purchasing time and
effort are required to establish price.
Answer: True
16. One of the advantages of transactional relationships is that lower skill levels of procurement
personnel are required.
Answer: True
17. "Collaboration is the new imperative," declares Michael Dell.
Answer: True
18. Collaborative and alliance relationships tend to result in lower total costs and improve
performance of the supply chain.
Answer: True
19. A firm can evolve to SM without any relationships that are built on institutional trust.
Answer: False
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
20. The transformation from reactive and mechanical purchasing to proactive procurement and on to
SM can be done without top management commitment.
Answer: False
21. Prior to the 1980s, most purchasing relationships were proactive.
Answer: False
22. Since it has become a well-known term and is established in the legal system, the authors of the
textbook support the use of the term partner
Answer: False
23. Collaborative relationships are typically used for the procurement of commodity items.
Answer: False
24. A transactional relationship frequently is an appropriate first step on the road to a strategic
alliance.
Answer: False
25. The fundamental difference between collaborative relationships and supply alliances is the
presence of cost measurement and information technology in alliances.
Answer: False
26. Institutional trust does not require much management.
Answer: False
27. A captive buyer is buyer that uses single sourcing.
Answer: False
28. A captive supplier makes investments in order to secure a portion of the buyer's business, but it is
given assurance of sufficient business to recoup the investment through legal contracts.
Answer: False
29. Successful supply chain management requires that all relationships with suppliers be either
collaborative or alliances.
Answer: False
30. One of the advantages of collaborative relationships is that relatively less purchasing time and
effort are required to establish price than in transactional relationships.
Answer: False
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
31. One of the advantages of collaborative relationships is that lower skill levels of procurement
personnel are required.
Answer: False
32. "Greater price competition through the Internet is the new imperative," declares Michael Dell.
Answer: False
33. Collaborative and alliance relationships tend to result in higher total costs for non-commodity
products than conducting the same business using transactional relationships.
Answer: False
Multiple Choice Questions
34. Which of the following is not one of the three types of buyer supplier relationships presented in
the textbook?
A) Transactional
B) Transcendental
C) Collaborative
D) Alliance
Answer: B
35. Which of the following is not a transactional relationship characteristic?
A) Long-term contract
B) An absence of concern
C) One of a series of independent deals
D) Costs, data and forecasts are not shared
E) Price is the focus of the relationship
Answer: A
36. Which of the following is not a transactional relationship characteristic?
A) One of a series of independent deals
B) Costs, data and forecasts are not shared
C) A minimum of purchasing time and energy is required to establish prices
D) Transactional purchases lend themselves to e-procurement
E) Parties work together to develop designs
Answer: E
37. Which of the following is not a disadvantage of transactional relationships?
A) Lowest Total Cost of Ownership is usually forced out of suppliers
B) Suppliers provide the minimum service required
C) Less effective performance by suppliers
D) Customers are subject to more supply disruptions
E) Supplier is not motivated to invest time and energy development of buyer's products
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
Answer: A
38. Which of the following is not a disadvantage of transactional relationships?
A) Potential for communication difficulties
B) Expediting and monitoring of incoming quality
C) Inflexible when flexibility may be required
D) No inspection needed due to low prices
E) Tend to result in more delivery problems
Answer: D
39. Researchers Stanley and Pearson found that there are three most important factors in a successful
buyer-supplier relationship. Which of the following is not one of the factors?
A) Two-way communication
B) Paying a fair and reasonable price
C) The supplier's responsiveness to supply management's needs
D) Clear product specifications
Answer: B
40. Which of the following is not one of the outcomes that collaborative relationships tend to foster?
A) Longer term contracts
B) Reduction of risk for suppliers
C) Reducing total costs
D) A focus on price
E) Improvement of processes
Answer: D
41. Which of the following is not one of the outcomes that collaborative relationships tend to foster?
A) Decreased information sharing
B) Increased investment in R & D
C) Increased investment in training
D) Increased investment in equipment
E) Better focus on customer needs
Answer: A
42. Which of the following is not one of the benefits of supply alliances?
A) Lower total costs
B) Reduced time to market
C) Increased inspection levels
D) Improved technology flow from suppliers
E) Improved continuity of supply
Answer: C
43. Which of the following is not an attribute of alliances?
A) Continuous improvement
B) Contracts that are difficult to interpret
C) Interdependence and commitment
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
D) Atmosphere of cooperation
E) Informal interpersonal connections
Answer: B
44. Which of the following is not an attribute of alliances?
A) Internal infrastructures to enhance learning
B) Openness in all areas of the relationship
C) Negotiations result in one winner
D) A living system
E) A shared vision of the future
Answer: C
45. Which of the following is not an attribute of alliances?
A) Ethics take precedence over expediency
B) Adaptable in the face of change
C) Penalties are used to guide performance
D) Win-win negotiations
E) Executive level commitment
Answer: C
46. Which of the following is not one of the issues that affect a supplier's assessment of a buying
firm?
A) Cash Flow
B) Openness and Approachability
C) Availability
D) Professionalism
E) Gifts and gratuities
Answer: E
47. Which of the following is a situation wherein an alliance may be appropriate?
A) Price Volatility
B) Synergistic collaborative design opportunities exist
C) Demand Volatility
D) High Switching Likelihood with High Switching Costs
E) No Partnership/Alliance-Capable Supplier for the Item
Answer: B
48. Which of the following is a situation wherein an alliance may be appropriate?
A) Demand is Stable
B) No Partnership/Alliance-Capable Supplier for the Item
C) No Partnership/Alliance-Capable Supplier in the Geographic Area
D) Rapid Technological Change
E) Mismatch of Clock Speed
Answer: A
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
60. Which of the following is not an action to develop and manage trust?
A) Senior leaders at both firms act as champions
B) A communication system is developed
C) Base negotiations on the zero-sum game
D) Actions to develop and measure trust are created
E) Risks and rewards are addressed openly
Answer: C
61. Which of the following is not an action to develop and manage trust?
A) Hold back critical information from the alliance partner, just in case
B) Negotiation is used as a trust-building opportunity
C) Both firms work together on technology plans
D) Technical personnel from both firms visit the other
E) Contractual relations are designed to enhance trust
Answer: A
62. Which of the following is not an action to develop and manage trust?
A) Contract relations focus on continuous improvement
B) Team and relationship skills are developed early
C) A contracting philosophy and a legal infrastructure are designed to the relationship
D) Develop multiple backup suppliers to assure continuity of supply
E) Institutional trust is measured and managed
Answer: D
63. The Quaker Oats case history demonstrates that in addition to having the trust required to form
an alliance:
A) Both parties must have mutual respect
B) Volume quantities must be fixed
C) There is still a need for a comprehensive contract, including such questions and answers as
what if?
D) It is not necessary to have open book accounting
E) Legal provisions are still necessary
Answer: C
3. The procurement of services is one of supply management's most interesting and challenging
assignments.
Answer: True
4. Supply Management frequently must assume a far more active role in all phases of services
procurement than when purchasing materials.
Answer: True
5. The four formats for statements of work given in the textbook are: performance, functional,
design and level-of-effort.
Answer: True
6. In planning the statement of work, all of the following should be considered: performance
measurements, deliverables, delivery schedule, performance schedule and service levels.
Answer: True
7. In writing an effective S.O.W. as given in the textbook, the S.O.W. should explain the
interrelationship between tasks, identify all constraints and limitations and be clear about phase
requirements.
Answer: True
8. In writing an effective S.O.W. as given in the textbook, the S.O.W. should: limit abbreviations to
those in common usage, include procedures and eliminate extraneous statements.
Answer: True
9. The conventional method and the owner as a contractor are alternative methods of purchasing
construction services as presented in the textbook.
Answer: True
10. The ideal services supplier focus on cost reduction ahead of customer satisfaction.
Answer: False
11. Satisfaction is cannot be built into service products but must be added as an afterthought.
Answer: False
12. The procurement of services is a relatively simple assignment in supply management that usually
results in lower pay for the supply manager.
Answer: False
13. Supply management frequently must assume a less active role in services procurement than
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
25. Which of the following is not one of the tips on writing an effective S.O.W. given in the
textbook?
A) Be clear
B) Use active, not passive tenses
C) Utilize legalese to hide negative issues
D) Be precise
E) Spell out the buyer's obligations carefully
Answer: C
26. Which of the following is not one of the tips on writing an effective S.O.W. given in the
textbook?
A) Limit abbreviations to those in common usage
B) Include procedures
C) Do not over specify or overstate
D) Always integrate escape clauses
E) Eliminate extraneous statements
Answer: D
27. Which of the following is not a tip given in the textbook for selecting service contractors?
A) Partner with users
B) Engage in reciprocity
C) Learn from the past
D) Update specifications
E) Minimize assumptions
Answer: B
28. Which of the following is not a tip given in the textbook for selecting service contractors?
A) Minimize assumptions
B) Encourage questions
C) Facilitate comparison
D) Play hardball
E) Plan evaluation
Answer: D
29. Which of the following is not an alternative method of purchasing construction services
presented in the textbook?
A) Conventional Method
B) Cost Plus Discretionary Expenses
C) Design and Build, Agreed Price Method
D) Design and Build, Cost-Reimbursable Method
E) The Owner as a Contractor
Answer: B
Chapter 10 Outsourcing
True/False Questions
1. Outsourcing has become a way to increase an organization's flexibility to meet rapidly changing
market conditions, focus on core competencies and develop competitive advantage. As a result,
the need for SM has intensified and positioned supply managers as agents of strategic change
critical to supply chain success.
Answer: True
2. Outsourcing all non-critical activities is a trend where the idea is to achieve significant cost
leverage.
Answer: True
3. To identify non-critical activities, the firm's core competencies must be defined.
Answer: True
4. Many companies are not readily staffed to keep a company competitive in e-business. As a
result, companies are outsourcing infrastructure development and maintenance to Netsourcers.
Answer: True
5. Firms are becoming more aware of the strategic dimension of the make-or-buy decision.
Answer: True
6. As technology has advanced most manufacturing firms have become much more specialized.
Answer: True
7. Cost of materials has continued to increase in many industries, which means that the make or
buy outsourcing decision must be reinvestigated from time to time for even stable demand
products.
Answer: True
8. Outsourcing decreases an organization's flexibility to meet rapidly changing market conditions,
but it can usually reduce total costs in the long-term.
Answer: False
9. Outsourcing all critical activities is a trend where the idea is to achieve significant cost leverage.
Answer: False
10. Netsourcers are internal supply management specialists that keep a company competitive in ebusiness.
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
Answer: False
11. As technology has advanced, most manufacturing firms have become much more generalized.
Answer: False
Multiple Choice Questions
12. Which of the following is not true about outsourcing?
A) Outsourcing is increasing rapidly in not just materials, many business functions are being
outsourced
B) Outsourcing should be used for all materials when suppliers are available
C) Outsourcing can enable leveraging of the supplier's expertise and increases in innovation
D) Outsourcing can result in lower staffing levels
E) Outsourcing can result in reduced costs and more flexibility
Answer: B
13. Which of the following is not a strategic issue in making the outsourcing decision?
A) The Issue of Short-term Vulnerabilities
B) Core Competencies
C) Supplier Dominance
D) The Creation of Strategic Vulnerabilities
E) The Dangers of Vertical Integration
Answer: A
14. From a strategic level, which of the following items is the most logical to outsource?
A) An item that can be bought and sold in a commodity exchange
B) An item that is critical to the success of the product
C) An item that requires specialized design, manufacturing skills or equipment
D) An item that fits well within the firm's core competencies
Answer: A
15. Which of the following is not a reason to investigate the make or buy decision at the tactical
level?
A) If you currently outsource and the supplier suddenly has poor performance
B) Changing sales demand in the short term
C) Restricted manufacturing capability due to a breakdown
D) Increased manufacturing capability exists due to reduced sales of other items
E) If the part under consideration is still in the design stage
Answer: E
16. Which of the following is a consideration that favors buying a product?
A) Cost considerations make in-house production less costly
B) Desire to integrate plant operations
C) Stable work force is desired in a period of rising sales
D) Use of excess plant capacity
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition
B)
C)
D)
E)
Answer: A
23. Which one of the following points is not a reason that Netsourcing has become popular?
A) Netsourcing enables a quick e-business presence
B) Netsourcing provides supply managers that flexibility to make changes
C) Netsourcing can help create a sustained performance
D) Netsourcing can provide support without the need to train or hire specialized personnel
E) Netsourcing can completely replace supply management using intelligent agents
Answer: E
24. Which one of the following points is not a reason that the Make-or-Buy Decision is often a
volatile decision?
A) Rigid formulas and rules of thumb are often used, which are often a poor choice to apply
B) The make-or-buy question is influenced by a multitude of diverse factors that are constantly
changing
C) Companies do not support promotions based on cost savings
D) The relevant factors for the decision often vary immensely from one firm to another
E) Companies often do not periodically evaluate the effectiveness of their past decisions to
generate information helpful in guiding future decisions
Answer: C
25. Which of the following points is not considered a danger of outsourcing?
A) Loss of control
B) Loss of client focus
C) Loss of centralization
D) Loss of clarity
E) Loss of cost control
Answer: C
26. Which of the following points is not considered a danger of outsourcing?
A) Loss of cost control
B) Ineffective management
C) Loss of confidentiality
D) Double outsourcing
E) Lack of responsibility
Answer: E
27. Which of the following activities or steps was not included in the typical framework for
outsourcing provided in the textbook?
A) Development of a strategic roadmap
B) Development of a decision flowchart
C) Development of a tactical roadmap
Burt, Petcavage and Pinkerton Supply Mangement, 8th edition