Supply Chain Management, 5e (Chopra/Meindl)
Chapter 1 Understanding the Supply Chain
1.1 True/False Questions
1) A supply chain includes only the organizations directly involved in supplying components
needed for manufacturing.
Answer: FALSE
Diff: 2
Topic: 1.2 The Objective of a Supply Chain
2) A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer
request.
Answer: TRUE
Diff: 2
Topic: 1.2 The Objective of a Supply Chain
3) A supply chain could be more accurately described as a supply network or supply web.
Answer: TRUE
Diff: 2
Topic: 1.1 What Is a Supply Chain?
4) The objective of every supply chain is to maximize the overall value generated.
Answer: TRUE
Diff: 1
Topic: 1.2 The Objective of a Supply Chain
5) The objective of every supply chain is to maximize the value generated for the manufacturing
component of the supply chain.
Answer: FALSE
Diff: 2
Topic: 1.2 The Objective of a Supply Chain
6) Every supply chain must include all 5 stages.
Answer: FALSE
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
7) The cycle view of a supply chain holds that the processes in a supply chain are divided into a
series of activities performed at the interface between successive stages.
Answer: TRUE
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
1-1
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8) The cycle view of a supply chain holds that the processes in a supply chain are divided into 2
categories depending on whether they are initiated in response to or in anticipation of customer
orders.
Answer: FALSE
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
9) The push/pull view of a supply chain holds that the processes in a supply chain are divided
into 2 categories depending on whether they are initiated in response to or in anticipation of
customer orders.
Answer: TRUE
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
10) The push/pull view of a supply chain holds that the processes in a supply chain are divided
into a series of activities performed at the interface between successive stages.
Answer: FALSE
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
11) The objective of the customer arrival process is to maximize the conversion of customer
arrivals to customer orders.
Answer: TRUE
Diff: 2
Topic: 1.2 The Objective of a Supply Chain
12) The objective of the customer arrival process is to ensure that orders are quickly and
accurately entered and communicated to other affected supply chain processes.
Answer: FALSE
Diff: 2
Topic: 1.2 The Objective of a Supply Chain
AACSB: Analytic Skills
13) The objective of customer order entry is to ensure that orders are quickly and accurately
entered and communicated to other affected supply chain processes.
Answer: TRUE
Diff: 2
Topic: 1.2 The Objective of a Supply Chain
AACSB: Analytic Skills
14) The objective of customer order entry is to maintain a record of product receipt and complete
payment.
Answer: FALSE
Diff: 3
Topic: 1.2 The Objective of a Supply Chain
AACSB: Analytic Skills
1-2
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15) The replenishment cycle occurs at the retailer/distributor interface.
Answer: TRUE
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
16) The replenishment cycle occurs at the distributor/manufacturer interface.
Answer: FALSE
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
17) The replenishment cycle is initiated when a supermarket runs out of stock of a particular
item.
Answer: TRUE
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
18) The replenishment cycle is initiated when customers load items intended for purchase into
their carts.
Answer: FALSE
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
19) The manufacturing cycle occurs at the distributor/manufacturer interface.
Answer: TRUE
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
20) The manufacturing cycle occurs at the manufacturer/supplier interface.
Answer: FALSE
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
21) The production scheduling process in the manufacturing cycle is similar to the order entry
process in the replenishment cycle.
Answer: TRUE
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
1-3
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22) The production scheduling process in the manufacturing cycle is similar to the order
fulfillment process in the replenishment cycle.
Answer: FALSE
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
23) The procurement cycle occurs at the manufacturer/supplier interface.
Answer: TRUE
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
24) The cycle view of the supply chain is useful when considering operational decisions, because
it specifies the roles and responsibilities of each member of the supply chain.
Answer: TRUE
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
25) The cycle view of the supply chain is useful when considering operational decisions, because
it categorizes processes based on whether they are initiated in response to or in anticipation of
customer orders.
Answer: FALSE
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
26) The push/pull view of the supply chain is useful when considering strategic decisions
relating to supply chain design, because it specifies the roles and responsibilities of each member
of the supply chain.
Answer: FALSE
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
27) Pull processes may also be referred to as speculative processes.
Answer: FALSE
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
28) Push processes may also be referred to as speculative processes.
Answer: TRUE
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
1-4
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29) All supply chain activities within a firm belong to one of three macro processes — CRM,
ISCM and SRM.
Answer: TRUE
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
30) There is a close connection between the design and management of supply chain flows and
the success of a supply chain.
Answer: TRUE
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
31) All stages of an enterprise are involved, either directly or indirectly, in fulfilling a customer
request.
Answer: TRUE
Diff: 2
Topic: 1.1 What Is a Supply Chain?
32) A supply chain involves the constant flow of information, product, and funds between
different stages and is typically static.
Answer: FALSE
Diff: 3
Topic: 1.1 What Is a Supply Chain?
33) The difference between the value of the product and its price remains with the customer as
consumer surplus.
Answer: TRUE
Diff: 1
Topic: 1.2 The Objective of a Supply Chain
1-5
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1.2 Multiple Choice Questions
1) Which of the following is not a stage within a typical supply chain?
A) Customers
B) Retailers
C) Wholesalers/Distributors
D) Manufacturers
E) All of the above are stages within a typical supply chain.
Answer: E
Diff: 1
Topic: 1.1 What Is a Supply Chain?
2) Which of the following is not a stage within a typical supply chain?
A) Customers
B) Retailers
C) Wholesalers/Distributors
D) Merchandisers
E) Component/Raw material suppliers
Answer: D
Diff: 1
Topic: 1.1 What Is a Supply Chain?
3) Supply chain profitability is
A) not correlated to the value generated by the various stages of the supply chain.
B) the total profit to be shared across all supply chain stages.
C) the difference between the revenue generated from the customer and the overall cost across
the supply chain.
D) the total revenue generated by the distributor stage of the supply chain.
E) B and C only
Answer: E
Diff: 3
Topic: 1.2 The Objective of a Supply Chain
AACSB: Analytic Skills
4) Successful supply chain management requires which of the following decision phases?
A) Supply chain strategy/design
B) Supply chain planning
C) Supply chain operation
D) all of the above
E) A and B only
Answer: D
Diff: 2
Topic: 1.2 The Objective of a Supply Chain
1-6
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5) The decision phases in a supply chain include
A) production scheduling.
B) customer relationship management.
C) supply chain operation.
D) supply chain orientation.
E) all of the above
Answer: C
Diff: 2
Topic: 1.4 Decision Phases in a Supply Chain
6) The cycle view of a supply chain holds that
A) the processes in a supply chain are divided into 2 categories.
B) the processes in a supply chain are divided into a series of activities performed at the interface
between successive stages.
C) all processes in a supply chain are initiated in response to a customer order.
D) all processes in a supply chain are performed in anticipation of customer orders.
E) None of the above are true.
Answer: B
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
7) The push/pull view of a supply chain holds that
A) the processes in a supply chain are divided into a series of activities performed at the interface
between successive stages.
B) all processes in a supply chain are initiated in response to a customer order.
C) all responses in a supply chain are performed in anticipation of customer orders.
D) the processes in a supply chain are divided into 2 categories depending on whether they are
initiated in response to or in anticipation of customer orders.
E) None of the above are true.
Answer: D
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
8) Which of the following is not a cycle in the supply chain cycle view?
A) Analysis cycle
B) Customer order cycle
C) Replenishment cycle
D) Manufacturing cycle
E) Procurement cycle
Answer: A
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
1-7
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9) Which of the following is not a cycle in the supply chain cycle view?
A) Customer order cycle
B) Replenishment cycle
C) Manufacturing cycle
D) Procurement cycle
E) All of the above are part of the supply chain cycle view.
Answer: E
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
10) The customer order cycle occurs at the
A) customer/retailer interface.
B) retailer/distributor interface.
C) distributor/manufacturer interface.
D) manufacturer/supplier interface.
E) none of the above
Answer: A
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
11) Which of the following is not a process in the customer order cycle?
A) Customer arrival
B) Customer order entry
C) Customer order fulfillment
D) Customer order receiving
E) All are processes in the customer order cycle.
Answer: E
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
12) Customer arrival refers to
A) the point in time when the customer has access to choices and makes a decision regarding a
purchase.
B) the customer informing the retailer of what they want to purchase and the retailer allocating
product to the customer.
C) the process where product is prepared and sent to the customer.
D) the process where the customer receives the product and takes ownership.
E) none of the above
Answer: A
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
1-8
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13) The objective of the customer arrival process is to
A) get the correct orders to customers by the promised due date at the lowest possible cost.
B) maintain a record of product receipt and complete payment.
C) maximize the conversion of customer arrivals to customer orders.
D) ensure that orders are quickly and accurately entered and communicated to other affected
supply chain processes.
E) none of the above
Answer: C
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
14) Customer order entry is
A) the point in time when the customer has access to choices and makes a decision regarding a
purchase.
B) the customer informing the retailer of what they want to purchase and the retailer allocating
product to the customer.
C) the process where product is prepared and sent to the customer.
D) the process where the customer receives the product and takes ownership.
E) none of the above
Answer: B
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
15) The objective of customer order entry is to
A) get the correct orders to customers by the promised due date at the lowest possible cost.
B) maintain a record of product receipt and complete payment.
C) maximize the conversion of customer arrivals to customer orders.
D) ensure that orders are quickly and accurately entered and communicated to other affected
supply chain processes.
E) none of the above
Answer: D
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
16) Customer order fulfillment refers to
A) the point in time when the customer has access to choices and makes a decision regarding a
purchase.
B) the customer informing the retailer of what they want to purchase and the retailer allocating
product to the customer.
C) the process where product is prepared and sent to the customer.
D) the process where the customer receives the product and takes ownership.
E) none of the above
Answer: C
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
1-9
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17) The objective of customer order fulfillment is to
A) get the correct orders to customers by the promised due date at the lowest possible cost.
B) maintain a record of product receipt and complete payment.
C) maximize the conversion of customer arrivals to customer orders.
D) ensure that orders are quickly and accurately entered and communicated to other affected
supply chain processes.
E) none of the above
Answer: A
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
18) Customer order receiving is
A) the point in time when the customer has access to choices and makes a decision regarding a
purchase.
B) the customer informing the retailer of what they want to purchase and the retailer allocates
product to the customer.
C) the process where product is prepared and sent to the customer.
D) the process where the customer receives the product and takes ownership.
E) none of the above
Answer: D
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
19) The replenishment cycle occurs at the
A) customer/retailer interface.
B) retailer/distributor interface.
C) distributor/manufacturer interface.
D) manufacturer/supplier interface.
E) none of the above
Answer: B
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
20) The processes involved in the replenishment cycle include
A) retail order receiving.
B) retail order entry.
C) retail order trigger.
D) retail order fulfillment.
E) all of the above
Answer: E
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
1-10
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21) The processes included in the replenishment cycle include all of the following except
A) retail order receiving.
B) retail order entry.
C) retail order trigger.
D) retail order fulfillment.
E) none of the above
Answer: E
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
22) The processes included in the replenishment cycle include
A) order arrival.
B) production scheduling.
C) retail trigger.
D) manufacturing.
E) receiving.
Answer: C
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
23) The replenishment cycle is initiated when
A) the customer walks into the supermarket.
B) the customer calls a mail order telemarketing center.
C) customers load items intended for purchase into their carts.
D) a product is received into stock at a store.
E) none of the above
Answer: E
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
24) The manufacturing cycle occurs at the
A) customer/retailer interface.
B) retailer/distributor interface.
C) distributor/manufacturer interface.
D) manufacturer/supplier interface.
E) none of the above
Answer: C
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
1-11
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25) The processes involved in the manufacturing cycle include
A) receiving.
B) manufacturing and shipping.
C) production scheduling.
D) order arrival.
E) all of the above
Answer: E
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
26) The processes involved in the manufacturing cycle include
A) order trigger.
B) production scheduling.
C) order fulfillment.
D) order entry.
E) manufacturing order analysis.
Answer: B
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
27) The production scheduling process in the manufacturing cycle is similar to the
A) order receiving process in the replenishment cycle.
B) order fulfillment process in the replenishment cycle.
C) order entry process in the replenishment cycle.
D) order trigger process in the replenishment cycle.
E) none of the above
Answer: C
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
28) The manufacturing and shipping process in the manufacturing cycle is equivalent to the
A) order receiving process in the replenishment cycle.
B) order fulfillment process in the replenishment cycle.
C) order entry process in the replenishment cycle.
D) order trigger process in the replenishment cycle.
E) none of the above
Answer: B
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
1-12
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
29) The procurement cycle occurs at the
A) customer/retailer interface.
B) retailer/distributor interface.
C) distributor/manufacturer interface.
D) manufacturer/supplier interface.
E) none of the above
Answer: D
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
30) The relationship between the manufacturer and supplier during the procurement cycle is very
similar to the relationship between
A) customer and retailer.
B) retailer and distributor.
C) distributor and manufacturer.
D) manufacturer and customer.
Answer: C
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
31) The cycle view of the supply chain is useful when considering operational decisions, because
A) it categorizes processes based on whether they are initiated in response to or in anticipation of
customer orders.
B) it specifies the roles and responsibilities of each member of the supply chain.
C) processes are identified as either reactive or speculative.
D) it focuses on processes that are external to the firm.
E) it focuses on processes that are internal to the firm.
Answer: B
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
32) The push/pull view of the supply chain is useful when considering strategic decisions
relating to supply chain design, because
A) it categorizes processes based on whether they are initiated in response to or in anticipation of
customer orders.
B) it specifies the roles and responsibilities of each member of the supply chain.
C) it clearly defines the processes involved and the owners of each process.
D) it focuses on processes that are external to the firm.
E) it focuses on processes that are internal to the firm.
Answer: A
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
1-13
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33) Which of the following statements about pull processes is accurate?
A) May also be referred to as speculative processes.
B) Execution is initiated in anticipation of customer orders.
C) At the time of execution, demand must be forecast.
D) May also be referred to as reactive processes.
E) None of the above are accurate.
Answer: D
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
34) Which of the following is not an accurate statement about pull processes?
A) May also be referred to as speculative processes.
B) Execution is initiated in response to a customer order.
C) At the time of execution, demand is known with certainty.
D) May also be referred to as reactive processes.
E) All of the above are accurate.
Answer: A
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
35) Which of the following statements about push processes is accurate?
A) May also be referred to as speculative processes.
B) Execution is initiated in response to customer orders.
C) At the time of execution, demand is known with certainty.
D) May also be referred to as reactive processes.
E) None of the above are accurate.
Answer: A
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
36) Which of the following is not an accurate statement about push processes?
A) May also be referred to as speculative processes.
B) Execution is initiated in anticipation of customer orders.
C) At the time of execution, demand must be forecast.
D) May also be referred to as reactive processes.
E) All of the above are accurate.
Answer: D
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
1-14
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37) Supply chain macro processes include which of the following?
A) Customer Relationship Management (CRM)
B) Internal Supply Chain Management (ISCM)
C) Supplier Relationship Management (SRM)
D) all of the above
E) none of the above
Answer: D
Diff: 1
Topic: 1.5 Process Views of a Supply Chain
38) Supply chain macro processes include which of the following?
A) Internal Relationship Management (IRM)
B) Customer Relationship Management (CRM)
C) External Relationship Management (ERM)
D) Supply Chain Relationship Management (SCRM)
E) none of the above
Answer: B
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
39) Supply chain macro processes include which of the following?
A) Internal Relationship Management (IRM)
B) External Relationship Management (ERM)
C) Supplier Relationship Management (SRM)
D) Supply Chain Relationship Management (SCRM)
E) none of the above
Answer: C
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
40) Activities involved in the Customer Relationship Management (CRM) macro process include
A) planning of internal production and storage.
B) order fulfillment.
C) marketing.
D) supply planning.
E) demand planning.
Answer: C
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
1-15
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41) Activities involved in the Customer Relationship Management (CRM) macro process include
all of the following except
A) marketing.
B) sales.
C) order management.
D) call center management.
E) All of the above are activities of CRM.
Answer: E
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
AACSB: Analytic Skills
42) Activities involved in the Internal Supply Chain Management (ISCM) macro process include
A) marketing.
B) order fulfillment.
C) sales.
D) order management.
E) call center management.
Answer: B
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
43) Activities involved in the Internal Supply Chain Management (ISCM) macro process include
all of the following except
A) planning of internal production and storage.
B) order fulfillment.
C) supply planning.
D) order management.
Answer: D
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
44) Activities involved in the Supplier Relationship Management (SRM) macro process include
A) planning of internal production and storage.
B) order fulfillment.
C) supplier evaluation and selection.
D) order management.
Answer: C
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
1-16
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
45) Activities involved in the Supplier Relationship Management (SRM) macro process include
all of the following except
A) negotiation of supply terms.
B) design collaboration.
C) demand planning.
D) supplier evaluation and selection.
E) supply collaboration.
Answer: C
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
46) The phenomenal success of 7-Eleven Japan is attributed to
A) being in the right place at the right time.
B) its supply chain design and management ability.
C) having 9000 locations.
D) serving fresh food.
E) none of the above
Answer: B
Diff: 2
Topic: 1.3 The Importance of Supply Chain Decisions
47) A key issue facing Toyota is
A) developing an internet marketing system.
B) whether to specialize in a particular market.
C) design of its global production and distribution network.
D) how to implement model changes.
E) all of the above
Answer: C
Diff: 3
Topic: 1.3 The Importance of Supply Chain Decisions
48) When a customer purchases a book online from a company such as Amazon, which of the
following is NOT part of the typical supply chain operations?
A) The customer
B) Amazon's web site
C) Amazon's book supplier
D) Amazon's accounting department
Answer: D
Diff: 1
Topic: 1.1 What Is a Supply Chain?
AACSB: Analytic Skills
1-17
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
49) A supply chain has many stages. It would NOT typically involve this stage.
A) Customer's trip to retailer
B) Retailers
C) Manufacturers
D) Raw materials suppliers
Answer: A
Diff: 3
Topic: 1.1 What Is a Supply Chain?
AACSB: Analytic Skills
50) Each stage in a supply chain is connected through the flow of products, information, and
funds. These flows often occur in both directions and is usually managed by
A) pricing department.
B) one of the stages.
C) upper management.
D) engineering department.
Answer: B
Diff: 2
Topic: 1.1 What Is a Supply Chain?
51) Supply chain surplus involves what two parts?
A) Manufacturing cost and selling price
B) Customer value and supply chain cost
C) Customer value and high quality products
D) Reliable transportation and supply chain cost
Answer: B
Diff: 3
Topic: 1.2 The Objective of a Supply Chain
52) For any supply chain, the source of revenue is generated by
A) efficient operations.
B) information flows.
C) the customer.
D) product flows.
Answer: C
Diff: 3
Topic: 1.2 The Objective of a Supply Chain
AACSB: Analytic Skills
1-18
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
53) Webvan designed a supply chain with large warehouses in several major cities in the United
States, from which groceries were delivered to customer homes. They failed partly because of
A) low demand for their service.
B) slow inventory turnover compared to industry averages.
C) higher labor costs for picking orders.
D) poor quality products.
Answer: C
Diff: 2
Topic: 1.3 The Importance of Supply Chain Decisions
AACSB: Analytic Skills
54) Successful supply chain management requires many decisions relating to the flow of
information, product, and funds. These decisions fall into three categories or phases. Which of
the following is NOT one of these categories?
A) Supply Chain Operation
B) Supply Chain Planning
C) Supply Chain Strategy and Design
D) Supply Chain Alliances
Answer: D
Diff: 1
Topic: 1.4 Decision Phases in a Supply Chain
1-19
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1.3 Essay Questions
1) Explain the 3 decision phases (categories) that must be made in a successful supply chain.
Answer: The 3 decision phases that occur within a supply chain are supply chain strategy (or
design), supply chain planning and supply chain operation. Decisions relate to the flow of
information, product and funds. The difference between categories depends upon the frequency
of each decision and the time frame over which it has an impact. During the supply chain
strategy phase, a company determines what the chain’s configurations will be, how resources
will be allocated, and what processes each stage will perform. This will establish the structure of
the supply chain for several years. Supply chain planning deals with decisions with a time frame
from 3 months up to a year. The planning phase must work within the constraints established in
the strategy phase. Planning decisions include which markets to supply from which locations,
subcontracting of manufacturing, inventory policies and timing and size of marketing
promotions. The supply chain operation phase operates on a weekly or daily time horizon and
deals with decisions concerning individual customer orders.
Diff: 3
Topic: 1.4 Decision Phases in a Supply Chain
2) Describe the cycle view of the processes within a supply chain.
Answer: The cycle view divides the supply chain into a series of 4 cycles between the 5
different stages of a supply chain. The cycles are the customer order cycle, replenishment cycle,
manufacturing cycle and procurement cycle. The customer order cycle occurs at the
customer/retailer interface and includes all processes directly involved in receiving and filling
the customer. The replenishment cycle occurs at the retailer/distributor interface and includes all
processes involved in replenishing retailer inventory. The manufacturing cycle typically occurs
at the distributor/manufacturer (or retailer/manufacturer) interface and includes all processes
involved in replenishing distributor (or retailer) inventory. The procurement cycle occurs at the
manufacturer/supplier interface and includes all processes necessary to ensure that the materials
are available for manufacturing according to schedule.
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
3) Explain the push/pull view of the processes within a supply chain.
Answer: The push/pull view of the supply chain divides supply chain processes into two
categories based on whether they are executed in response to a customer order or in anticipation
of customer orders. Pull processes are initiated in response to a customer order. Push processes
are initiated and performed in anticipation of customer orders. The push/pull boundary separates
push processes from pull processes. This view is very useful when considering strategic
decisions relating to supply chain design, because it forces a more global consideration of supply
chain processes as they relate to the customer.
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
1-20
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4) Explain the three macro processes within a supply chain.
Answer: All processes within a supply chain can be classified into three macro processes which
are Customer Relationship Management (CRM), Internal Supply Chain Management (ISCM),
and Supplier Relationship Management (SRM). Customer Relationship Management (CRM)
includes all processes that focus on the interface between the firm and its customers such as
marketing, sales, call center management and order management. Internal Supply Chain
Management (ISCM) includes all processes that are internal to the firm such as finalization of
demand and supply plans, preparation of inventory management policies, order fulfillment and
planning of capacity. Supplier Relationship Management (SRM) includes all processes that focus
on the interface between a firm and its suppliers such as evaluation and selection of suppliers,
negotiation of supply terms and communication regarding new products and orders.
Diff: 2
Topic: 1.5 Process Views of a Supply Chain
5) Explain why supply chain flows are important.
Answer: Supply chain flows are important, because there is a close connection between the
design and management of supply chain flows (product, information, and cash) and the success
of a supply chain. The success of many companies can be directly traced to the design and
management of an appropriate supply chain. The failure of many businesses can be linked
directly to their inability to effectively design and manage supply chain flows.
Diff: 2
Topic: 1.3 The Importance of Supply Chain Decisions
6) Discuss the differences of push and pull supply chain processes.
Answer: Processes in a supply chain fall into one of two categories depending on the timing of
their execution relative to end customer demand. With pull processes, execution is initiated in
response to a customer order. With push processes, execution is initiated in anticipation of
customer orders based on a forecast. Pull processes may also be referred to as reactive processes
because they react to customer demand. Push processes may also be referred to as speculative
processes because they respond to speculated (or forecasted) rather than actual demand. The
push/pull boundary in a supply chain separates push processes from pull processes . Push
processes operate in an uncertain environment because customer demand is not yet known. Pull
processes operate in an environment in which customer demand is known. They are, however,
often constrained by inventory and capacity decisions that were made in the push phase.
Diff: 3
Topic: 1.5 Process Views of a Supply Chain
AACSB: Reflective Thinking Skills
1-21
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Supply Chain Management, 5e (Chopra/Meindl)
Chapter 2 Supply Chain Performance: Achieving Strategic Fit and Scope
2.1 True/False Questions
1) A company's competitive strategy defines the set of customer needs that it seeks to satisfy
through its products and services.
Answer: TRUE
Diff: 1
Topic: 2.1 Competitive and Supply Chain Strategies
AACSB: Analytic Skills
2) The value chain emphasizes the close relationship between all the functional strategies within
a company.
Answer: TRUE
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
3) A company's product development strategy defines the set of customer needs that it seeks to
satisfy through its products and services.
Answer: FALSE
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
4) A company's product development strategy specifies the portfolio of new products that it will
try to develop.
Answer: TRUE
Diff: 1
Topic: 2.1 Competitive and Supply Chain Strategies
5) A company's supply chain strategy determines the nature of procurement and transportation of
materials as well as the manufacture and distribution of the product.
Answer: TRUE
Diff: 1
Topic: 2.1 Competitive and Supply Chain Strategies
6) The degree of supply chain responsiveness should be consistent with the implied uncertainty.
Answer: TRUE
Diff: 1
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
7) The degree of supply chain responsiveness does not need to be consistent with the implied
uncertainty.
Answer: FALSE
Diff: 2
Topic: 2.2 Achieving Strategic Fit
1-22
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
8) To achieve complete strategic fit, a firm must ensure that all functions in the value chain have
consistent strategies that support the competitive strategy.
Answer: TRUE
Diff: 2
Topic: 2.2 Achieving Strategic Fit
9) To achieve complete strategic fit, a firm must ensure that all functions in the value chain have
diverse strategies that support functional goals.
Answer: FALSE
Diff: 2
Topic: 2.2 Achieving Strategic Fit
10) Because demand and supply characteristics change, the supply chain strategy must change
over the product life cycle if a company is to continue achieving strategic fit.
Answer: TRUE
Diff: 1
Topic: 2.2 Achieving Strategic Fit
11) To retain strategic fit, supply chain strategy must be adjusted over the life cycle of a product
and as the competitive landscape changes.
Answer: TRUE
Diff: 2
Topic: 2.2 Achieving Strategic Fit
12) The intercompany scope of strategic fit is no longer relevant today because the competitive
playing field has shifted from company versus company to supply chain versus supply chain.
Answer: FALSE
Diff: 1
Topic: 2.2 Achieving Strategic Fit
13) A company will fail if there is a lack of strategic fit or because its overall supply chain
design, processes, and resources do not provide the capabilities to support the maximum strategic
fit.
Answer: FALSE
Diff: 3
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
14) The following situation would likely work well. A situation in which marketing is
publicizing a company's ability to provide a large variety of products very quickly;
simultaneously, distribution is targeting the lowest cost means of transportation.
Answer: FALSE
Diff: 1
Topic: 2.2 Achieving Strategic Fit
AACSB: Reflective Thinking Skills
1-23
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
15) Supply chain strategy specifies what the operations, distribution, and service functions,
whether performed in-house or outsourced, should do particularly well.
Answer: TRUE
Diff: 1
Topic: 2.1 Competitive and Supply Chain Strategies
AACSB: Analytic Skills
2.2 Multiple Choice Questions
1) A company's competitive strategy
A) defines the set of customer needs that it seeks to satisfy through its products and services.
B) specifies the portfolio of new products that it will try to develop.
C) specifies how the market will be segmented and how the product will be positioned, priced,
and promoted.
D) determines the nature of procurement and transportation of materials as well as manufacture
and distribution of the product.
E) determines how it will obtain and maintain the appropriate set of skills and abilities to meet
customer needs.
Answer: A
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
AACSB: Reflective Thinking Skills
2) A company's product development strategy
A) defines the set of customer needs that it seeks to satisfy through its products and services.
B) specifies the portfolio of new products that it will try to develop.
C) specifies how the market will be segmented and how the product will be positioned, priced,
and promoted.
D) determines the nature of procurement and transportation of materials as well as manufacture
and distribution of the product.
E) determines how it will obtain and maintain the appropriate set of skills and abilities to meet
customer needs.
Answer: B
Diff: 1
Topic: 2.1 Competitive and Supply Chain Strategies
1-24
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
3) A company's marketing and sales strategy
A) defines the set of customer needs that it seeks to satisfy through its products and services.
B) specifies the portfolio of new products that it will try to develop.
C) specifies how the market will be segmented and how the product will be positioned, priced,
and promoted.
D) determines the nature of procurement and transportation of materials as well as manufacture
and distribution of the product.
E) determines how it will obtain and maintain the appropriate set of skills and abilities to meet
customer needs.
Answer: C
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
4) A company's supply chain strategy
A) defines the set of customer needs that it seeks to satisfy through its products and services.
B) specifies the portfolio of new products that it will try to develop.
C) specifies how the market will be segmented and how the product will be positioned, priced,
and promoted.
D) determines the nature of procurement and transportation of materials as well as manufacture
and distribution of the product.
E) determines how it will obtain and maintain the appropriate set of skills and abilities to meet
customer needs.
Answer: D
Diff: 1
Topic: 2.1 Competitive and Supply Chain Strategies
5) Which of the following determines the nature of procurement of raw materials, transportation
of materials to and from the company, manufacture of the product or operation to provide the
service, and distribution of the product to the customer along with follow-up service?
A) Competitive strategy
B) Product development strategy
C) Marketing and sales strategy
D) Supply chain strategy
E) none of the above
Answer: D
Diff: 1
Topic: 2.1 Competitive and Supply Chain Strategies
1-25
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
6) Which of the following defines the set of customer needs that a company seeks to satisfy
through its products and services?
A) Competitive strategy
B) Product development strategy
C) Marketing and sales strategy
D) Supply chain strategy
E) none of the above
Answer: A
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
7) Which of the following specifies the portfolio of new products that a company will try to
develop?
A) Competitive strategy
B) Product development strategy
C) Marketing and sales strategy
D) Supply chain strategy
E) all of the above
Answer: B
Diff: 1
Topic: 2.1 Competitive and Supply Chain Strategies
8) A supply chain strategy involves decisions regarding
A) inventory.
B) transportation.
C) operating facilities.
D) information flows.
E) all of the above
Answer: E
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
9) A supply chain strategy involves decisions regarding all of the following except
A) inventory.
B) transportation.
C) new product development.
D) operating facilities.
E) information flows.
Answer: C
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
1-26
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
10) Which of the following is not a key to the success or failure of a company?
A) The competitive strategy and all functional strategies must fit together to form a coordinated
overall strategy.
B) The competitive strategy and all functional strategies operate independently of each other.
C) The different functions in a company must appropriately structure their processes and
resources to be able to execute strategies successfully.
D) Each functional strategy must support other functional strategies and help a firm reach its
competitive strategy goal.
E) All of the above are keys to success.
Answer: B
Diff: 2
Topic: 2.2 Achieving Strategic Fit
11) Which of the following are basic steps to achieving strategic fit?
A) Understanding the customer and supply uncertainty.
B) Understanding the supply chain capabilities.
C) Achieving strategic fit.
D) All of the above are basic steps to achieving strategic fit.
E) None of the above are a basic step to achieving strategic fit.
Answer: D
Diff: 2
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
12) The uncertainty of customer demand for a product is the
A) rate of strategic uncertainty.
B) demand uncertainty.
C) implied demand uncertainty.
D) average forecast error.
E) none of the above
Answer: B
Diff: 2
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
13) The uncertainty that exists due to the portion of demand that the supply chain is required to
meet is the
A) rate of strategic uncertainty.
B) demand uncertainty.
C) implied demand uncertainty.
D) average forecast error.
E) none of the above
Answer: C
Diff: 2
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
1-27
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
14) Which of the following customer needs will cause implied uncertainty of demand to
decrease?
A) Range of quantity required increases
B) Lead time decreases
C) Variety of products required increases
D) Required service level increases
E) none of the above
Answer: E
Diff: 2
Topic: 2.2 Achieving Strategic Fit
15) Which of the following customer needs will cause implied uncertainty of demand to
increase?
A) Product margin
B) Lead time decreases
C) Average stockout rate
D) Average forced season end markdown
E) none of the above
Answer: B
Diff: 2
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
16) Which of the following is not a characteristic of customer demand correlated with implied
uncertainty?
A) Product margin
B) Unpredictable and low yields
C) Average stockout rate
D) Average forced season end markdown
E) None of the above are correlated with implied uncertainty.
Answer: B
Diff: 2
Topic: 2.2 Achieving Strategic Fit
17) Which of the following is not a supply chain capability that will impact supply uncertainty?
A) Evolving production process
B) Inflexible supply capacity
C) Limited supply capacity
D) Product margin
E) Unpredictable and low yields
Answer: D
Diff: 2
Topic: 2.2 Achieving Strategic Fit
1-28
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
18) The first step in achieving strategic fit between competitive and supply chain strategies is to
A) understand the supply chain and map it on the responsiveness spectrum.
B) understand customers and supply chain uncertainty.
C) match supply chain responsiveness with the implied uncertainty of demand.
D) ensure that all functional strategies within the supply chain support the supply chain's level of
responsiveness.
E) none of the above
Answer: B
Diff: 3
Topic: 2.2 Achieving Strategic Fit
19) The second step in achieving strategic fit between competitive and supply chain strategies is
to
A) understand the supply chain and map it on the responsiveness spectrum.
B) understand customers and supply chain uncertainty.
C) match supply chain responsiveness with the implied uncertainty of demand.
D) ensure that all functional strategies within the supply chain support the supply chain's level of
responsiveness.
E) none of the above
Answer: A
Diff: 3
Topic: 2.2 Achieving Strategic Fit
20) The final step in achieving strategic fit between competitive and supply chain strategies is to
A) understand the supply chain and map it on the responsiveness spectrum.
B) understand customers and supply chain uncertainty.
C) match supply chain responsiveness with the implied uncertainty of demand.
D) combine customer and supply chain uncertainty and map it on the implied uncertainty
spectrum.
E) all of the above
Answer: C
Diff: 2
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
21) Supply chain responsiveness includes the ability to do which of the following?
A) Handle supply uncertainty
B) Understand customers and supply chain uncertainty
C) Match supply chain responsiveness with the implied uncertainty of demand
D) Ensure that all functional strategies within the supply chain support the supply chain's level of
responsiveness
E) none of the above
Answer: A
Diff: 2
Topic: 2.2 Achieving Strategic Fit
1-29
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
22) Supply chain responsiveness includes the ability to do which of the following?
A) Understand customers and supply chain
B) Meet a very high service level
C) Match supply chain responsiveness with the implied uncertainty of demand
D) Ensure that all functional strategies within the supply chain support the supply chain's level of
responsiveness
E) none of the above
Answer: B
Diff: 2
Topic: 2.2 Achieving Strategic Fit
23) Supply chain responsiveness includes the ability to do which of the following?
A) Understand customers and supply chain
B) Match supply chain responsiveness with the implied uncertainty of demand
C) Meet short lead times
D) Ensure that all functional strategies within the supply chain support the supply chain's level of
responsiveness
E) all of the above
Answer: C
Diff: 2
Topic: 2.2 Achieving Strategic Fit
24) The cost of making and delivering a product to the customer is referred to as
A) supply chain responsiveness.
B) supply chain efficiency.
C) cost-responsiveness efficient frontier.
D) implied uncertainty.
E) none of the above
Answer: B
Diff: 1
Topic: 2.2 Achieving Strategic Fit
25) The curve that shows the lowest possible cost for a given level of responsiveness is referred
to as the
A) supply chain responsiveness curve.
B) supply chain efficiency curve.
C) cost-responsiveness efficient frontier.
D) responsiveness spectrum.
E) none of the above
Answer: C
Diff: 2
Topic: 2.2 Achieving Strategic Fit
1-30
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
26) A firm that is not on the cost-responsiveness efficient frontier can improve
A) both responsiveness and cost performance.
B) only responsiveness.
C) only cost performance.
D) responsiveness, but not cost performance.
E) neither responsiveness nor cost performance.
Answer: A
Diff: 1
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
27) A graph with two axes with implied uncertainty along the horizontal axis and responsiveness
along the vertical axis is referred to as the
A) implied uncertainty spectrum.
B) responsiveness spectrum.
C) uncertainty/responsiveness map.
D) zone of strategic fit.
E) none of the above
Answer: C
Diff: 2
Topic: 2.2 Achieving Strategic Fit
28) The relationship where increasing implied uncertainty from customers and supply sources is
best served by increasing responsiveness from the supply chain is known as the
A) implied uncertainty spectrum.
B) responsiveness spectrum.
C) uncertainty/responsiveness map.
D) zone of strategic fit.
E) none of the above
Answer: D
Diff: 2
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
29) The drive for strategic fit should come from
A) the supply chain manager.
B) the strategic planning department.
C) the highest levels of the organization, such as the CEO.
D) middle management.
E) sales and marketing.
Answer: C
Diff: 3
Topic: 2.2 Achieving Strategic Fit
1-31
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
30) The important points to remember about achieving strategic fit are
A) there is one best supply chain strategy for all competitive strategies.
B) there is no right supply chain strategy independent of the competitive strategy.
C) there is a right supply chain strategy for a given competitive strategy.
D) all of the above
E) B and C only
Answer: E
Diff: 3
Topic: 2.2 Achieving Strategic Fit
31) The preferable supply chain strategy for a firm that sells multiple products and serves
customer segments with very different needs is to
A) set up independent supply chains for each different product or customer segment.
B) set up a supply chain that meets the needs of the highest volume product or customer
segment.
C) tailor the supply chain to best meet the needs of each product's demand.
D) set up a supply chain that meets the needs of the customer segment with the highest implied
uncertainty.
E) set up a supply chain that meets the needs of product with the highest implied uncertainty.
Answer: C
Diff: 3
Topic: 2.2 Achieving Strategic Fit
32) Which of the following would not be a demand and supply characteristic toward the
beginning stages of a product's life cycle?
A) Demand is very uncertain and supply may be unpredictable.
B) Demand has become more certain and supply is predictable.
C) Margins are often high and time is crucial to gaining sales.
D) Product availability is crucial to capturing the market.
E) Cost is often of secondary consideration.
Answer: B
Diff: 2
Topic: 2.2 Achieving Strategic Fit
33) Which of the following would be a demand and supply characteristic toward the beginning
stages of a product's life cycle?
A) Demand has become more certain and supply is predictable.
B) Margins are lower due to an increase in competitive pressure.
C) Product availability is crucial to capturing the market.
D) Price becomes a significant factor in customer choice.
E) none of the above
Answer: C
Diff: 2
Topic: 2.2 Achieving Strategic Fit
1-32
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
34) Which of the following would not be a demand and supply characteristic in the later stages
of a product's life cycle?
A) Demand has become more certain and supply is predictable.
B) Margins are lower due to an increase in competitive pressure.
C) Product availability is crucial to capturing the market.
D) Price becomes a significant factor in customer choice.
E) All of the above are characteristics of the later stages.
Answer: C
Diff: 2
Topic: 2.2 Achieving Strategic Fit
35) The functions and stages that devise an integrated strategy with a shared objective are
referred to as
A) competitive strategy.
B) supply chain strategy.
C) scope of strategic fit.
D) scope of marketing strategy.
E) scope of product development strategy.
Answer: C
Diff: 2
Topic: 2.3 Expanding Strategic Scope
36) The value chain consists of direct and indirect activities. Which of the following is an
indirect activity for an enterprise?
A) Marketing
B) Distribution
C) Human Resources
D) Service
Answer: C
Diff: 3
Topic: 2.1 Competitive and Supply Chain Strategies
37) A ________ strategy specifies the portfolio of new products that a company will try to
develop.
A) Product Development
B) Marketing and Sales
C) Supply Chain
D) Finance
Answer: A
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
1-33
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
38) A ________ strategy specifies how the market will be segmented and how the product will
be positioned, priced, and promoted.
A) Product Development
B) Marketing and Sales
C) Supply Chain
D) Finance
Answer: B
Diff: 2
Topic: 2.1 Competitive and Supply Chain Strategies
39) Between 1993 and 2006, Dell's competitive strategy was to provide a large variety of
customizable products at a reasonable price. Given the focus on customization, Dell's supply
chain was designed to
A) be responsive.
B) provide a different product.
C) operate on a low-cost basis.
D) provide sustainable products.
Answer: A
Diff: 3
Topic: 2.2 Achieving Strategic Fit
AACSB: Reflective Thinking Skills
40) For a company to achieve strategic fit, it must accomplish the following keys:
A) All functional strategies must fit together to form a coordinated overall strategy.
B) The different functions in a company must appropriately structure their processes and
resources to be able to execute these strategies successfully
C) The overall supply chain must operate at the lowest cost possible to achieve success.
D) The design of the overall supply chain and the role of each stage must be aligned to support
the supply chain strategy.
Answer: C
Diff: 2
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
41) Efficient supply chains
A) respond quickly to demand.
B) have higher margins because price is not a prime customer driver.
C) maintain buffer inventory to deal with demand/supply uncertainty.
D) maximize performance at a minimum cost.
Answer: D
Diff: 2
Topic: 2.2 Achieving Strategic Fit
AACSB: Analytic Skills
1-34
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
42) With the ________ view firms attempt to align all operations within a function. In this view
all supply chain functions including sourcing, manufacturing, warehousing, and transportation
must align their strategy to minimize total functional cost.
A) Intrafunctional scope
B) Intraoperation scope
C) Interfunctional scope
D) Intercompany scope
Answer: B
Diff: 3
Topic: 2.3 Expanding Strategic Scope
43) The key weakness of the ________ view is that different functions within a firm may have
conflicting objectives.
A) Intrafunctional scope
B) Intraoperation scope
C) Interfunctional scope
D) Intercompany scope
Answer: A
Diff: 3
Topic: 2.3 Expanding Strategic Scope
44) Which of the following is NOT a challenge that makes it increasingly difficult for supply
chains to achieve strategic fit?
A) Globalization
B) Changing Technology
C) Shorter Life Cycles
D) Decreasing Product Variety
Answer: D
Diff: 2
Topic: 2.4 Challenges to Achieving and Maintaining Strategic Fit
AACSB: Analytic Skills
1-35
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
2.3 Essay Questions
1) Discuss the two keys to the success or failure of a company.
Answer: A company's success or failure is thus closely linked to the following keys:
1. The competitive strategy and all functional strategies must fit together to form a coordinated
overall strategy. Each functional strategy must support other functional strategies and help a firm
reach its competitive strategy goal.
2. The different functions in a company must appropriately structure their processes and
resources to be able to execute these strategies successfully.
Diff: 3
Topic: 2.2 Achieving Strategic Fit
2) List and explain the three basic steps to achieving strategic fit.
Answer: There are three basic steps to achieving strategic fit:
1. Understanding the customer and supply chain uncertainty. First a company must understand
the customer needs for each targeted segment and the uncertainty the supply chain faces in
satisfying these needs. These needs help the company define the desired cost and service
requirements. The supply chain uncertainty helps the company identify the extent of disruption
and delay the supply chain must be prepared for.
2. Understanding the supply chain capabilities. There are many types of supply chains, each of
which is designed to perform different tasks well. A company must understand what its supply
chain is designed to do well.
3. Achieving strategic fit. If a mismatch exists between what the supply chain does particularly
well and the desired customer needs, the company will either need to restructure the supply chain
to support the competitive strategy or alter its strategy.
Diff: 2
Topic: 2.2 Achieving Strategic Fit
3) List the attributes along which customer demand from different segments can vary.
Answer: In general, customer demand from different segments may vary along several attributes
as follows:
∙ The quantity of the product needed in each lot
∙ The response time that customers are willing to tolerate
∙ The variety of products needed
∙ The service level required
∙ The price of the product
∙ The desired rate of innovation in the product
Diff: 2
Topic: 2.2 Achieving Strategic Fit
1-36
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
4) List the abilities included in supply chain responsiveness.
Answer: Supply chain responsiveness includes a supply chain's ability to do the following:
∙ Respond to wide ranges of quantities demanded
∙ Meet short lead times
∙ Handle a large variety of products
∙ Build highly innovative products
∙ Meet a very high service level
∙ Handle supply uncertainty
Diff: 2
Topic: 2.2 Achieving Strategic Fit
5) Discuss the impact of the product life cycle on strategic fit between implied demand
uncertainty and supply chain responsiveness.
Answer: As products go through their life cycle, the demand characteristics and the needs of the
customer segments being served change. Supply characteristics also change as the product and
production technologies mature. High-tech products are particularly prone to these life cycle
swings over a very compressed time span. A product goes through life cycle phases from the
introductory phase, when only the leading edge of customers is interested in it and supply is
uncertain, all the way to the point at which the product becomes a commodity, the market is
saturated, and supply is predictable. Thus, if a company is to maintain strategic fit, its supply
chain strategy must evolve as its products enter different phases. As products mature, the
corresponding supply chain strategy should, in general, move from being responsive to being
efficient. The key point here is that demand and supply characteristics change over a product's
life cycle. Because demand and supply characteristics change, the supply chain strategy must
also change over the product life cycle if a company is to continue achieving strategic fit.
Diff: 2
Topic: 2.2 Achieving Strategic Fit
6) Explain scope of strategic fit.
Answer: Scope of strategic fit refers to the functions and stages that devise an integrated strategy
with a shared objective. It is a key issue relating to strategic fit in terms of supply chain stages,
across which the strategic fit applies. At one extreme, every operation within each functional
area devises its own independent strategy with the objective of optimizing its individual
performance. In this case, the scope of strategic fit is restricted to an operation in a functional
area within a stage of the supply chain. At the opposite extreme, all functional areas within all
stages of the supply chain devise strategy jointly with a common objective of maximizing supply
chain profit. In this case, the scope of strategic fit extends to the entire supply chain. Expanding
the scope of strategic fit improves supply chain performance. The scope of strategic fit can be
represented on a two-dimensional grid. Horizontally, the scope of strategic fit is considered
across different supply chain stages, starting from suppliers and moving all the way along the
chain to the customer. Vertically, the scope is applied to the fit achieved across different
functional strategies, competitive, product development, supply chain, and marketing.
Diff: 2
Topic: 2.3 Expanding Strategic Scope
1-37
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Supply Chain Management, 5e (Chopra/Meindl)
Chapter 3 Supply Chain Drivers and Metrics
3.1 True/False Questions
1) The major drivers of supply chain performance are customers, facilities, inventory,
transportation, and information.
Answer: FALSE
Diff: 2
Topic: 3.2 Drivers of Supply Chain Performance
2) The two major types of facilities are production sites and storage sites.
Answer: TRUE
Diff: 2
Topic: 3.2 Drivers of Supply Chain Performance
3) Inventory is an important supply chain driver because changing inventory policies can
dramatically alter the supply chain's efficiency and responsiveness.
Answer: TRUE
Diff: 2
Topic: 3.2 Drivers of Supply Chain Performance
AACSB: Analytic Skills
4) Information is potentially the biggest driver of performance in the supply chain as it directly
affects each of the other drivers.
Answer: TRUE
Diff: 1
Topic: 3.2 Drivers of Supply Chain Performance
5) A facility with little excess capacity will likely be no more or less efficient per unit of product
it produces than one with a lot of unused capacity.
Answer: FALSE
Diff: 1
Topic: 3.4 Facilities
6) The high utilization facility will have difficulty responding to demand fluctuations.
Answer: TRUE
Diff: 1
Topic: 3.4 Facilities
AACSB: Analytic Skills
7) Stock keeping unit (SKU) storage is the warehousing methodology that uses a traditional
warehouse to store all of one type of product together.
Answer: TRUE
Diff: 2
Topic: 3.4 Facilities
1-38
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
8) Warehouse unit storage is the warehousing methodology that uses a traditional warehouse to
store all of one type of product together.
Answer: FALSE
Diff: 2
Topic: 3.4 Facilities
9) The components of inventory decisions include capacity, cycle inventory, safety inventory,
seasonal inventory, and sourcing.
Answer: FALSE
Diff: 1
Topic: 3.5 Inventory
10) Cycle inventory is inventory that is built up to counter predictable variability in demand.
Answer: FALSE
Diff: 1
Topic: 3.5 Inventory
11) Seasonal inventory is inventory that is built up to counter predictable variability in demand.
Answer: TRUE
Diff: 2
Topic: 3.5 Inventory
12) Companies using seasonal inventory will build up inventory in periods of low demand and
store it for periods of high demand when they will not have the capacity to produce all that is
demanded.
Answer: TRUE
Diff: 2
Topic: 3.5 Inventory
13) Companies using seasonal inventory will maintain a level inventory increase rate of
production for periods of high demand.
Answer: FALSE
Diff: 1
Topic: 3.5 Inventory
14) A company's ability to find a balance between responsiveness and efficiency that best
matches the needs of the customer it is targeting is the key to achieving strategic fit.
Answer: TRUE
Diff: 2
Topic: 3.5 Inventory
AACSB: Analytic Skills
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3.2 Multiple Choice Questions
1) Which of the following is not a major driver of supply chain performance?
A) Facilities
B) Inventory
C) Transportation
D) Information
E) All of the above are major drivers of supply chain performance.
Answer: E
Diff: 1
Topic: 3.2 Drivers of Supply Chain Performance
2) Which of the following is not a major driver of supply chain performance?
A) Customers
B) Facilities
C) Inventory
D) Transportation
E) Information
Answer: A
Diff: 2
Topic: 3.2 Drivers of Supply Chain Performance
3) The places in the supply chain network where product is stored, assembled, or fabricated are
known as
A) facilities.
B) inventory.
C) transportation.
D) information.
E) customers.
Answer: A
Diff: 1
Topic: 3.2 Drivers of Supply Chain Performance
4) All raw materials, work in process, and finished goods within a supply chain are known as
A) facilities.
B) inventory.
C) transportation.
D) information.
E) customers.
Answer: B
Diff: 1
Topic: 3.2 Drivers of Supply Chain Performance
1-40
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
5) Moving inventory from point to point in the supply is known as
A) facilities.
B) inventory.
C) transportation.
D) information.
E) customers.
Answer: C
Diff: 1
Topic: 3.2 Drivers of Supply Chain Performance
6) The data and analysis concerning facilities, inventory, transportation, and customers
throughout the supply chain is known as
A) facilities.
B) inventory.
C) transportation.
D) information.
E) customers.
Answer: D
Diff: 1
Topic: 3.2 Drivers of Supply Chain Performance
AACSB: Analytic Skills
7) The two major types of facilities are
A) distribution sites and storage sites.
B) production sites and distribution sites.
C) production sites and storage sites.
D) retail sites and distribution sites.
E) distribution sites and inventory sites.
Answer: C
Diff: 2
Topic: 3.4 Facilities
8) Which component of the supply chain decision-making framework would be established first?
A) Customer strategy
B) Supply chain strategy
C) Supply chain structure
D) Competitive strategy
E) Replenishment strategy
Answer: D
Diff: 2
Topic: 3.4 Facilities
AACSB: Analytic Skills
1-41
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
9) Which component of the supply chain decision-making framework would be established
second?
A) Customer strategy
B) Supply chain strategy
C) Supply chain structure
D) Competitive strategy
E) Replenishment strategy
Answer: B
Diff: 2
Topic: 3.4 Facilities
AACSB: Analytic Skills
10) Which component of the supply chain decision-making framework would be used to reach
the performance level dictated by the supply chain strategy?
A) Customer strategy
B) Supply chain strategy
C) Supply chain structure
D) Competitive strategy
E) Replenishment strategy
Answer: C
Diff: 1
Topic: 3.4 Facilities
AACSB: Analytic Skills
11) Which of the following is not a component of facilities decisions?
A) Warehousing methodology
B) Forecasting methodology
C) Operations methodology
D) Capacity
E) Location
Answer: B
Diff: 2
Topic: 3.4 Facilities
AACSB: Analytic Skills
1-42
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
12) Which of the following statements concerning decisions regarding location of facilities is
false?
A) Deciding where a company will locate its facilities constitutes a large part of the design of a
supply chain.
B) A basic trade-off here is whether to centralize to gain economies of scale or decentralize to
become more responsive by being closer to the customer.
C) Companies must also consider a host of issues related to the various characteristics of the
local area in which the facility may be situated.
D) All of these statements are true.
E) None of these statements are true.
Answer: D
Diff: 2
Topic: 3.4 Facilities
13) Which of the following is not an issue companies need to consider in facility location
decisions?
A) Quality of workers
B) Product development
C) Proximity to customers and the rest of the network
D) Cost of facility
E) Tax effects
Answer: B
Diff: 2
Topic: 3.4 Facilities
AACSB: Analytic Skills
14) Which of the following is not an issue companies need to consider in facility location
decisions?
A) Quality of workers
B) Availability of infrastructure
C) Proximity to customers and the rest of the network
D) Cost of facility
E) All of the above are issues companies need to consider in facility location decisions.
Answer: E
Diff: 2
Topic: 3.4 Facilities
15) Excess capacity
A) allows a facility to be very flexible and to respond to wide swings in the demands placed on
it.
B) costs money and therefore can decrease efficiency.
C) requires proximity to customers and the rest of the network.
D) both A and B
E) all of the above
Answer: D
Diff: 2
Topic: 3.4 Facilities
1-43
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16) Which of the following is a characteristic of a facility with excess capacity?
A) Will likely be more efficient per unit of product it produces than one with a lot of unused
capacity
B) Would be very flexible and respond to wide swings in the demands placed on it
C) Would be considered a high utilization facility
D) Will have difficulty responding to demand fluctuations
E) none of the above
Answer: A
Diff: 1
Topic: 3.4 Facilities
17) A facility with little excess capacity
A) will likely be more efficient per unit of product it produces than one with a lot of unused
capacity.
B) would be considered a high utilization facility.
C) will have difficulty responding to demand fluctuations.
D) All of the above are true.
E) None of the above are true.
Answer: D
Diff: 2
Topic: 3.4 Facilities
18) Which of the following would be a characteristic of a facility with little excess capacity?
A) Allows a facility to be very flexible and to respond to wide swings in the demands placed on
it
B) Costs money and therefore can decrease efficiency
C) Requires proximity to customers and the rest of the network
D) Will likely be more efficient per unit of product it produces
E) none of the above
Answer: D
Diff: 2
Topic: 3.4 Facilities
AACSB: Analytic Skills
19) Which of the following is not a warehousing methodology?
A) Warehouse unit storage
B) Stock keeping unit (SKU) storage
C) Job lot storage
D) Cross-docking
E) All of the above are warehousing methodologies.
Answer: A
Diff: 2
Topic: 3.4 Facilities
1-44
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20) The warehousing methodology that uses a traditional warehouse to store all of one type of
product together is
A) warehouse unit storage.
B) stock keeping unit (SKU) storage.
C) job lot storage.
D) cross-docking.
E) none of the above
Answer: B
Diff: 2
Topic: 3.4 Facilities
21) The warehousing methodology in which all the different types of products needed to perform
a particular job or satisfy a particular type of customer are stored together is
A) warehouse unit storage.
B) stock keeping unit (SKU) storage.
C) job lot storage.
D) cross-docking.
E) none of the above
Answer: C
Diff: 2
Topic: 3.4 Facilities
22) The following warehousing methodology is one in which goods are not actually warehoused
in a facility. Instead, trucks from suppliers, each carrying a different type of product, deliver
goods to a facility. There the inventory is broken into smaller lots and quickly loaded onto storebound trucks that carry a variety of products, some from each of the supplier trucks.
A) Warehouse unit storage
B) Stock keeping unit (SKU) storage
C) Job lot storage
D) Cross-docking
E) none of the above
Answer: D
Diff: 2
Topic: 3.4 Facilities
23) All of the following are components of inventory decisions except
A) cycle inventory.
B) safety inventory.
C) seasonal inventory.
D) sourcing.
E) All of the above are components of inventory decisions.
Answer: E
Diff: 1
Topic: 3.5 Inventory
1-45
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24) All of the following are components of inventory decisions except
A) capacity.
B) cycle inventory.
C) safety inventory.
D) seasonal inventory.
E) sourcing.
Answer: A
Diff: 1
Topic: 3.5 Inventory
25) The average amount of inventory used to satisfy demand between receipt of supplier
shipments is referred to as
A) cycle inventory.
B) safety inventory.
C) seasonal inventory.
D) sourcing.
E) none of the above
Answer: A
Diff: 2
Topic: 3.5 Inventory
26) The inventory that is built up to counter predictable variability in demand is called
A) cycle inventory.
B) safety inventory.
C) seasonal inventory.
D) sourcing.
E) none of the above
Answer: C
Diff: 2
Topic: 3.5 Inventory
27) The inventory held in case demand exceeds expectation in order to counter uncertainty is
called
A) cycle inventory.
B) safety inventory.
C) seasonal inventory.
D) sourcing.
E) none of the above
Answer: B
Diff: 2
Topic: 3.5 Inventory
1-46
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28) The set of business processes required to purchase goods and services is known as
A) cycle inventory.
B) safety inventory.
C) seasonal inventory.
D) sourcing.
E) none of the above
Answer: D
Diff: 1
Topic: 3.5 Inventory
29) Cycle inventory is used because
A) the world is perfectly predictable.
B) demand is uncertain and may exceed expectations.
C) it involves making a trade-off between the costs of having too much inventory and the costs
of losing sales due to not having enough inventory.
D) it focuses on processes that are external to the firm.
E) it focuses on processes that are internal to the firm.
Answer: B
Diff: 2
Topic: 3.5 Inventory
30) Seasonal inventory should be used when
A) a company can rapidly change the rate of its production system at a very low cost.
B) changing the rate of production is expensive (e.g., when workers must be hired or fired).
C) adjusting to a period of low demand without incurring large costs.
D) the world is perfectly predictable.
E) production rate is flexible.
Answer: A
Diff: 3
Topic: 3.5 Inventory
AACSB: Analytic Skills
31) Sourcing involves
A) deciding the tasks that will be outsourced and those that will be performed within the firm.
B) deciding whether to source from a single supplier or a portfolio of suppliers.
C) identifying the set of criterion that will be used to select suppliers and measure their
performance.
D) selecting suppliers and negotiating contracts with them.
E) all of the above
Answer: E
Diff: 1
Topic: 3.5 Inventory
Learning Outcome: Compare and contrast different sourcing strategies including outsourcing
and insourcing
1-47
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32) Which of the following are key components of transportation decisions when designing and
operating a supply chain?
A) Mode of transportation
B) Route and network selection
C) In-house or outsource
D) all of the above
E) none of the above
Answer: D
Diff: 2
Topic: 3.6 Transportation
33) Which of the following are key components of transportation decisions when designing and
operating a supply chain?
A) Software selection
B) Mode of transportation
C) Source selection
D) Warehouse selection
E) none of the above
Answer: B
Diff: 1
Topic: 3.6 Transportation
34) Which of the following are key components of information that must be analyzed to increase
efficiency and improve effectiveness in a supply chain?
A) Software selection
B) Source selection
C) Warehouse selection
D) Forecasting and aggregate planning
E) none of the above
Answer: D
Diff: 2
Topic: 3.7 Information
AACSB: Analytic Skills
35) When all the different stages of a supply chain work toward the objective of maximizing
total supply chain profitability, rather than each stage devoting itself to its own profitability
without considering total supply chain profit, it is known as
A) supply chain coordination.
B) forecasting.
C) aggregate planning.
D) revenue management.
E) pricing.
Answer: A
Diff: 1
Topic: 3.7 Information
1-48
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36) The art and science of making projections about what future demand and conditions will be
is
A) supply chain coordination.
B) forecasting.
C) aggregate planning.
D) revenue management.
E) pricing.
Answer: B
Diff: 1
Topic: 3.7 Information
37) Transforming forecasts into plans of activity to satisfy the projected demand is known as
A) supply chain coordination.
B) forecasting.
C) aggregate planning.
D) revenue management.
E) pricing.
Answer: C
Diff: 1
Topic: 3.7 Information
38) The process by which a firm decides how much to charge customers for its goods and
services is
A) supply chain coordination.
B) forecasting.
C) aggregate planning.
D) revenue management.
E) pricing.
Answer: E
Diff: 1
Topic: 3.7 Information
39) The use of differential pricing over time or customer segments to maximize profits from a
limited set of supply chain assets is
A) supply chain coordination.
B) forecasting.
C) aggregate planning.
D) revenue management.
E) pricing.
Answer: D
Diff: 2
Topic: 3.7 Information
AACSB: Analytic Skills
1-49
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40) Which of the following are technologies that share and analyze information in the supply
chain?
A) Electronic Data Interchange (EDI)
B) Internet
C) Enterprise Resource Planning (ERP)
D) Supply Chain Management (SCM) software
E) all of the above
Answer: E
Diff: 1
Topic: 3.7 Information
41) Which of the following are technologies that share and analyze information in the supply
chain?
A) Internet
B) Enterprise Data Planning (EDP)
C) Electronic Resource Interchange (ERI)
D) Chain Management (CM) software
E) none of the above
Answer: A
Diff: 2
Topic: 3.7 Information
42) The ________ strategy results in a peak during the discount week, often followed by a steep
drop in demand during the following weeks.
A) Everyday low pricing
B) High-low pricing
C) Fixed price
D) Menu pricing
Answer: B
Diff: 3
Topic: 3.9 Pricing
43) Pricing directly affects revenues but can also affect production costs and inventories
depending upon its impact on consumer demand. Which of the following is not listed as a metric
a manager should track?
A) Inventory turnover
B) Profit margin
C) Days sales outstanding
D) Average sales price
Answer: A
Diff: 1
Topic: 3.9 Pricing
AACSB: Analytic Skills
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44) ________ measures the incremental costs that are independent of the size of the order.
A) Average sale price
B) Incremental variable cost per unit
C) Incremental fixed cost per order
D) Incremental indirect cost per order
Answer: C
Diff: 1
Topic: 3.9 Pricing
45) Amazon uses different prices for the products that are purchased from the company — often
for the speed of the shipping. What is the name of this pricing scheme?
A) Everyday low pricing
B) High-low pricing
C) Fixed price
D) Menu pricing
Answer: D
Diff: 2
Topic: 3.9 Pricing
46) Sourcing decisions directly impact the cost of goods sold and accounts payable. Which of the
following is NOT listed as a source-related metric that a manager should track?
A) Average selling price
B) Range of purchase price
C) Days payable outstanding
D) Average purchase quantity
Answer: A
Diff: 1
Topic: 3.8 Sourcing
AACSB: Analytic Skills
47) ________ measures the average time between when an order is placed and the product
arrives.
A) Supplier reliability
B) Supply lead time
C) Fraction of on-time deliveries
D) Supply quality
Answer: B
Diff: 1
Topic: 3.8 Sourcing
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48) ________ is NOT a key sourcing decision that is made within a firm?
A) Outsource
B) Procurement
C) Supplier selection
D) Produce high quality products
Answer: D
Diff: 1
Topic: 3.8 Sourcing
49) Cisco has outsourced almost all of its manufacturing. It does, however, have a sourcing
strategy that varies by product type. For low-end products such as routers for home networks,
Cisco aims for efficiency. These routers are produced and packed in what country that supports
this strategy?
A) Italy
B) China
C) United States
D) Canada
Answer: B
Diff: 1
Topic: 3.8 Sourcing
AACSB: Multicultural & Diversity Understanding
Learning Outcome: Compare and contrast different sourcing strategies including outsourcing
and insourcing
50) ________ identifies the difference between the planned production/inventories and the actual
values.
A) Supplier reliability
B) Forecast error
C) Variance from plan
D) Supply quality
Answer: C
Diff: 2
Topic: 3.7 Information
51) In the textbook, it mentions that Wal-Mart has mandated the use of a specific technology by
its top 100 suppliers at the level of product cases. What is the technology?
A) RFID
B) ERP
C) SCM
D) EDI
Answer: A
Diff: 3
Topic: 3.7 Information
AACSB: Use of Information Technology
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52) ________ typically measures the cost of bringing product into a facility as a percentage of
sales or cost of goods sold (COGS).
A) Average outbound transportation cost
B) Average inbound transportation cost
C) Average incoming shipment size
D) Average inbound transportation cost per shipment
Answer: B
Diff: 3
Topic: 3.7 Information
53) Blue Nile is an online retailer of diamonds that has used responsive transportation to ship
diamonds to customers in the United States, Canada, and several countries in Europe and Asia.
Which is the mode of transportation used with this strategy?
A) Sea
B) Rail
C) Internet
D) Air
Answer: D
Diff: 1
Topic: 3.6 Transportation
AACSB: Use of Information Technology
3.3 Essay Questions
1) List and define the four major drivers of supply chain performance.
Answer: Facilities are the places in the supply chain network where product is stored,
assembled, or fabricated. The two major types of facilities are production sites and storage sites.
Inventory is all raw materials, work in process, and finished goods within a supply chain.
Inventory is an important supply chain driver because changing inventory policies can
dramatically alter the supply chain's efficiency and responsiveness.
Transportation entails moving inventory from point to point in the supply chain. Transportation
can take the form of many combinations of modes and routes.
Information consists of data and analysis concerning facilities, inventory, transportation, and
customers throughout the supply chain. Information is potentially the biggest driver of
performance in the supply chain as it directly affects each of the other drivers.
Diff: 2
Topic: 3.2 Drivers of Supply Chain Performance
1-53
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2) Explain the supply chain decision-making framework and the role of the four major drivers.
Answer: The goal of a supply chain strategy is to strike the balance between responsiveness and
efficiency, resulting in a strategic fit with the competitive strategy. To reach this goal, a company
uses the four supply chain drivers discussed earlier. For each of the individual drivers, supply
chain managers must make a trade-off between efficiency and responsiveness. The combined
impact of these four drivers then determines the responsiveness and efficiency of the entire
supply chain.
Most companies begin with a competitive strategy and then decide what their supply chain
strategy ought to be. The supply chain strategy determines how the supply chain should perform
with respect to efficiency and responsiveness. The supply chain must then use the supply chain
drivers to reach the performance level the supply chain strategy dictates.
Diff: 2
Topic: 3.2 Drivers of Supply Chain Performance
3) Explain the basic trade-off between responsiveness and efficiency for each of the major
drivers of supply chain performance.
Answer: The fundamental trade-off when making facilities decisions is between the cost of the
number, location, and type of facilities (efficiency) and the level of responsiveness that these
facilities provide the company's customers.
The fundamental trade-off when making inventory decisions is between responsiveness and
efficiency. Increasing inventory will generally make the supply chain more responsive to the
customer. This choice, however, comes at a cost as the added inventory decreases efficiency.
Therefore, a supply chain manager can use inventory as one of the drivers for reaching the level
of responsiveness and efficiency the competitive strategy targets.
The fundamental trade-off for transportation is between the cost of transporting a given product
(efficiency) and the speed with which that product is transported (responsiveness). The
transportation choice influences other drivers such as inventory and facilities. When supply chain
managers think about making transportation decisions, they frame the decision in terms of this
trade-off.
Good information systems can help a firm improve both its responsiveness and efficiency. The
information driver is used to improve the performance of other drivers and the use of information
is based on the strategic position the other drivers support. Accurate information can help a firm
improve efficiency by decreasing inventory and transportation costs. Accurate information can
improve responsiveness by helping a supply chain better match supply and demand.
Diff: 2
Topic: 3.2 Drivers of Supply Chain Performance
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4) Explain the role of each of the major drivers of supply chain performance.
Answer: Facilities are the where of the supply chain if we think of inventory as what is being
passed along the supply chain and transportation as how it is passed along. They are the locations
to or from which the inventory is transported. Within a facility, inventory is either processed or
transformed into another state (manufacturing) or it is stored before being shipped to the next
stage (warehousing).
Inventory exists in the supply chain because of a mismatch between supply and demand. An
important role that inventory plays in the supply chain is to increase the amount of demand that
can be satisfied by having product ready and available when the customer wants it. Another
significant role inventory plays is to reduce cost by exploiting any economies of scale that may
exist during both production and distribution. Inventory is spread throughout the supply chain
from raw materials to work in process to finished goods that suppliers, manufacturers,
distributors, and retailers hold. Inventory is a major source of cost in a supply chain and it has a
huge impact on responsiveness. The location and quantity of inventory can move the supply
chain from one end of the responsiveness spectrum to the other. Inventory also has a significant
impact on the material flow time in a supply chain. Another important area where inventory has
a significant impact is throughput. Inventory and flow time are synonymous in a supply chain.
Managers should use actions that lower the amount of inventory needed without increasing cost
or reducing responsiveness, because reduced flow time can be a significant advantage in a supply
chain.
Transportation moves product between different stages in a supply chain. Like the other supply
chain drivers, transportation has a large impact on both responsiveness and efficiency. Faster
transportation, whether in the form of different modes of transportation or different amounts
being transported, allows a supply chain to be more responsive but reduces its efficiency. The
type of transportation a company uses also affects the inventory and facility locations in the
supply chain.
Information could be overlooked as a major supply chain driver because it does not have a
physical presence. Information, however, deeply affects every part of the supply chain. Its
impact is easy to underestimate as information affects a supply chain in many different ways.
Information serves as the connection between the supply chain's various stages, allowing them to
coordinate and bring about many of the benefits of maximizing total supply chain profitability.
Information is also crucial to the daily operations of each stage in a supply chain. For instance, a
production scheduling system uses information on demand to create a schedule that allows a
factory to produce the right products in an efficient manner. A warehouse management system
uses information to create visibility of the warehouse's inventory. The company can then use this
information to determine whether new orders can be filled.
Diff: 3
Topic: 3.2 Drivers of Supply Chain Performance
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5) Explain the role of each of the major drivers of supply chain performance in the competitive
strategy.
Answer: Facilities and their corresponding capacities to perform their functions are a key driver
of supply chain performance in terms of responsiveness and efficiency. For example, companies
can gain economies of scale when a product is manufactured or stored in only one location; this
centralization increases efficiency. The cost reduction, however, comes at the expense of
responsiveness, as many of a company's customers may be located far from the production
facility. The opposite is also true. Locating facilities close to customers increases the number of
facilities needed and consequently reduces efficiency. If the customer demands and is willing to
pay for the responsiveness that having numerous facilities adds, however, then this facilities
decision helps meet the company's competitive strategy goals.
Inventory plays a significant role in a supply chain's ability to support a firm's competitive
strategy. If a firm's competitive strategy requires a very high level of responsiveness, a company
can use inventory to achieve this responsiveness by locating large amounts of inventory close to
the customer. Conversely, a company can also use inventory to make itself more efficient by
reducing inventory through centralized stocking. The latter strategy would support a competitive
strategy of being a low-cost producer. The trade-off implicit in the inventory driver is between
the responsiveness that results from more inventory and the efficiency that results from less
inventory.
The role of transportation in a company's competitive strategy figures prominently when the
company is considering the target customer's needs. If a firm's competitive strategy targets a
customer that demands a very high level of responsiveness, and that customer is willing to pay
for this responsiveness, then a firm can use transportation as one driver for making the supply
chain more responsive. The opposite is true as well. If a company's competitive strategy targets
customers whose main decision criterion is price, then the company can use transportation to
lower the cost of the product at the expense of responsiveness. As a company may use both
inventory and transportation to increase responsiveness or efficiency, the optimal decision for the
company often means finding the right balance between the two.
Information is a driver whose importance has grown as companies have used it to become both
more efficient and more responsive. The tremendous growth of the importance of information
technology is a testimony to the impact information can have on improving a company. Like all
the other drivers, however, even with information, companies reach a point when they must
make the trade-off between efficiency and responsiveness.
Diff: 3
Topic: 3.2 Drivers of Supply Chain Performance
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Supply Chain Management, 5e (Chopra/Meindl)
Chapter 4 Designing Distribution Networks and Applications to e-Business
4.1 True/False Questions
1) Distribution occurs between every pair of stages in the supply chain.
Answer: TRUE
Diff: 2
Topic: 4.1 The Role of Distribution in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
2) Companies in the same industry often select very different distribution networks, because the
choice of the distribution network can be used to achieve a variety of supply chain objectives
ranging from low cost to high responsiveness.
Answer: TRUE
Diff: 2
Topic: 4.1 The Role of Distribution in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
3) Companies in the same industry should always select similar distribution networks, because
their objectives will be similar.
Answer: FALSE
Diff: 2
Topic: 4.1 The Role of Distribution in the Supply Chain
4) A customer does not necessarily want the highest level of performance along all dimensions
of customer service, including response time, product variety, product availability, customer
experience, order visibility, and returnability.
Answer: TRUE
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
Learning Outcome: Compare common approaches to supply chain design
5) Outbound transportation costs per unit tend to be lower than inbound costs, because inbound
lot sizes are typically larger.
Answer: FALSE
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
Learning Outcome: Compare common approaches to supply chain design
6) Transportation costs are high with drop-shipping because the average outbound distance to the
end consumer is large and package carriers are used to shipping the product.
Answer: TRUE
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
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7) The main advantage of in-transit merge over drop-shipping is the somewhat lower
transportation cost and improved customer experience.
Answer: TRUE
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
8) The main advantage of a distribution network with local storage is that it can lower the
delivery cost and provide a faster response than other networks.
Answer: TRUE
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
9) The main advantage of a distribution network with local storage is that it can lower the
inventory and facility costs.
Answer: FALSE
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
10) The major disadvantage of a distribution network with local storage is the increased
inventory and facility costs.
Answer: TRUE
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
11) A distribution network designer needs to consider product characteristics as well as network
requirements when deciding on the appropriate delivery network.
Answer: TRUE
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
12) Only niche companies will end up using a single distribution network.
Answer: TRUE
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
13) Distributors add value to a supply chain between a supply stage and a customer stage if there
are many small players at the customer stage, each requiring a small amount of the product at a
time.
Answer: TRUE
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
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Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
14) As long as inbound transportation economies of scale are maintained, increasing the number
of facilities decreases total transportation cost.
Answer: TRUE
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
15) Customers always want the highest level of performance along all the dimensions response
time, product variety and returnability.
Answer: FALSE
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
16) Firms that target customers who can tolerate a long response time require only a few
locations that may be far from the customer.
Answer: TRUE
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
Learning Outcome: Compare common approaches to supply chain design
17) A decrease in the response time customers desire increases the number of facilities required
in the network.
Answer: TRUE
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
Learning Outcome: Compare common approaches to supply chain design
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4.2 Multiple Choice Questions
1) The steps taken to move and store a product from the supplier stage to a customer stage in the
supply chain is referred to as
A) transportation.
B) retailing.
C) wholesaling.
D) distribution.
E) manufacturing.
Answer: D
Diff: 1
Topic: 4.1 The Role of Distribution in the Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
2) Distribution is a key driver of the overall profitability of a firm because
A) the addition of distributors only adds cost to the supply chain.
B) it directly impacts both the supply chain cost and the customer experience.
C) it slows down the responsiveness of the supply chain.
D) it cannot be developed as a part of supply chain strategy.
E) Distribution is not a key driver of profitability.
Answer: B
Diff: 2
Topic: 4.1 The Role of Distribution in the Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
3) The choice of the distribution network can be used to achieve supply chain objectives such as
A) low cost.
B) high responsiveness.
C) high cost.
D) high responsibility.
E) A and B only
Answer: E
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
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4) Companies in the same industry often select very different distribution networks because
A) some companies are poorly run.
B) different companies try to avoid using the same approach.
C) different companies have different objectives for their supply chain.
D) all of the above
E) none of the above
Answer: C
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
5) A poor/inappropriate distribution network can
A) lead to high profitability.
B) hurt the level of service customers receive while increasing cost.
C) have a significant negative impact on the profitability of a firm.
D) all of the above
E) B and C only
Answer: D
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
6) Which of the following would not be the result of a poor/inappropriate distribution network?
A) High profitability
B) Low level of customer service
C) High cost
D) Poor profitability
E) None of the above are true.
Answer: A
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
7) On which dimensions should the performance of a distribution network be evaluated at the
highest level?
A) Profitability of individual supply chain components
B) Efficiency of overall supply chain network
C) Customer needs that are met
D) Cost of meeting customer needs
E) C and D only
Answer: E
Diff: 3
Topic: 4.2 Factors Influencing Distribution Network Design
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8) Which of the following are measures of customer service that are influenced by the structure
of the distribution network?
A) Response time
B) Product variety
C) Product availability
D) Customer experience
E) all of the above
Answer: E
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
9) Which of the following are measures of customer service that are influenced by the structure
of the distribution network?
A) Returnability
B) Order visibility
C) Customer experience
D) Product availability
E) all of the above
Answer: E
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
10) Which of the following is not a measure of customer service that is influenced by the
structure of the distribution network?
A) Returnability
B) Customer experience
C) Customer maturity
D) Product availability
E) All of the above are measures of customer service.
Answer: C
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
11) The number of different products/configurations that a customer desires from the distribution
network is
A) response time.
B) product variety.
C) product availability.
D) customer experience.
E) order visibility.
Answer: B
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
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12) The probability of having a product in stock when a customer order arrives is
A) response time.
B) product variety.
C) product availability.
D) customer experience.
E) order visibility.
Answer: C
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
13) The ease with which the customer can place and receive their order as well as other aspects
of value that the sales staff provides is
A) customer experience.
B) order visibility.
C) product availability.
D) response time.
E) returnability.
Answer: A
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
14) The ability of the customer to track their order from placement to delivery is
A) customer experience.
B) order visibility.
C) product availability.
D) response time.
E) returnability.
Answer: B
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
15) The costs incurred in bringing material into a facility are
A) sourcing transportation costs.
B) outbound transportation costs.
C) crossbound transportation costs.
D) inbound transportation costs.
E) none of the above
Answer: D
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
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16) The costs incurred in sending material out of a facility are
A) sourcing transportation costs.
B) outbound transportation costs.
C) crossbound transportation costs.
D) inbound transportation costs.
E) none of the above
Answer: B
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
17) Outbound transportation costs per unit tend to be
A) about the same as inbound costs.
B) higher than inbound costs.
C) lower than inbound costs.
D) neither higher or lower than inbound costs.
E) none of the above
Answer: B
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
18) As the number of facilities in a supply chain increases
A) the inventory and resulting inventory costs also increase.
B) the inventory and resulting inventory costs decrease.
C) the inventory increases and resulting inventory costs decrease.
D) the inventory decreases and resulting inventory costs increase.
E) the inventory and resulting inventory costs remain the same.
Answer: A
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
19) As the response time desired by the customer decreases, the required number of facilities in
the distribution network
A) decreases.
B) remains the same.
C) increases.
D) increases and then decreases.
E) none of the above
Answer: C
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
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20) As the number of facilities in a supply chain increases, total transportation cost
A) decreases.
B) remains the same.
C) increases.
D) increases to a point and then decreases.
E) decreases to a point and then increases.
Answer: E
Diff: 3
Topic: 4.2 Factors Influencing Distribution Network Design
21) As the number of facilities in a supply chain increases, total facility costs
A) decrease.
B) remain the same.
C) increase.
D) increase to a point and then decrease.
E) decrease to a point and then increase.
Answer: C
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
22) Total logistics costs for a supply chain network are a sum of
A) inventory and facility costs.
B) inventory, facility, and distributor costs.
C) facility, transportation, and distributor costs.
D) inventory, transportation, and facility costs.
E) none of the above
Answer: D
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
23) As the number of facilities in a supply chain network increases, total logistics costs will
A) decrease.
B) decrease at first and then increase.
C) increase.
D) increase at first and then decrease.
E) neither increase or decrease.
Answer: B
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
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24) Which of the following are key decisions in the design of a distribution network?
A) Will product be delivered to the customer location or picked up from a pre-ordained site?
B) Will product flow through a production facility?
C) Will product flow through an intermediary (or intermediate location)?
D) all of the above
E) A and C only
Answer: E
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
25) Which of the following is not a distinct distribution network design that may be used to
move products from factory to customer?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with distributor pickup
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
E) Manufacturer/distributor storage with customer pickup
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
26) Which of the following is not a distinct distribution network design that may be used to
move products from factory to customer?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with manufacturer pickup
E) Retail storage with customer pickup
Answer: D
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
27) In which distribution network design is product shipped directly from the manufacturer to the
end customer, bypassing the retailer (who takes the order and initiates the delivery request)?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
E) Manufacturer/distributor storage with customer pickup
Answer: A
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
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28) Which distribution network is also referred to as drop-shipping with product delivered
directly from the manufacturer to the customer location?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
E) Manufacturer/distributor storage with customer pickup
Answer: A
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
29) Which of the following is an advantage of manufacturer storage with direct shipping?
A) Transportation costs are low because the average outbound distance to the end consumer is
small and package carriers are used to shipping the product.
B) Supply chains save on the fixed cost of facilities, because the need for other warehousing
space in the supply chain has been eliminated.
C) Response times tend to be small because the order has to be transmitted from the retailer to
the manufacturer.
D) Order tracking is easy to implement because of the complete integration of information
systems at both the retailer and the manufacturer.
E) The handling of returns is likely to be simple and inexpensive, improving customer
satisfaction.
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
30) Which of the following would be a disadvantage of manufacturer storage with direct
shipping?
A) The ability to reduce cost of inventory by centralizing inventories at the manufacturer.
B) The manufacturer has to postpone customization until after the customer order has been
placed.
C) Supply chains have to eliminate other warehousing space to save on the fixed cost of
facilities.
D) Response times tend to be large because the order has to be transmitted from the retailer to
the manufacturer and shipping distances are on average longer from the manufacturer's
centralized site.
E) Provides a good customer experience when a single order containing products from several
manufacturers is delivered in partial shipments.
Answer: D
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
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31) Which distribution network design is similar to pure drop-shipping, except that pieces of the
order coming from different locations are combined so that the customer gets a single delivery?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with manufacturer pickup
E) Retail storage with customer pickup
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
32) The main advantage of in-transit merge over drop-shipping is
A) the ability to reduce cost of inventory by centralizing inventories at the manufacturer.
B) supply chains save on the fixed cost of facilities, because the need for other warehousing
space in the supply chain has been eliminated.
C) somewhat lower transportation cost and improved customer experience.
D) order tracking is easy to implement because of the complete integration of information
systems at both the retailer and the manufacturer.
E) the handling of returns is likely to be simple and inexpensive, improving customer
satisfaction.
Answer: C
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
33) The major disadvantage of in-transit merge compared to drop-shipping is
A) transportation costs are high because the average outbound distance to the end consumer is
large and package carriers are used to shipping the product.
B) response times tend to be large because the order has to be transmitted from the retailer to the
manufacturer and shipping distances are on average longer from the manufacturer's centralized
site.
C) order tracking becomes harder to implement because it requires complete integration of
information systems at both the retailer and the manufacturer.
D) the additional effort during the merge itself.
E) the handling of returns is likely to be difficult and more expensive, hurting customer
satisfaction.
Answer: D
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
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34) Which distribution network design is being used when inventory is not held by
manufacturers at the factories, but is held by distributors/retailers in intermediate warehouses and
package carriers are used to transport products from the intermediate location to the final
customer?
A) Manufacturer storage with direct shipping
B) Manufacturer storage with direct shipping and in-transit merge
C) Distributor storage with package carrier delivery
D) Distributor storage with manufacturer pickup
E) Retail storage with customer pickup
Answer: C
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
35) Which of the following is an advantage of distributor storage with carrier delivery?
A) Inventory cost is higher than with manufacturer storage.
B) Product variety is lower than with manufacturer storage.
C) Order visibility for the customer is easier than with manufacturer storage.
D) Higher cost to provide the same level of product availability as manufacturer storage.
E) Cost of facilities and handling is somewhat higher than manufacturer storage.
Answer: C
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
36) Which of the following is a disadvantage of distributor storage with carrier delivery?
A) Information infrastructure is simpler than manufacturer storage.
B) Response time is faster than with manufacturer storage.
C) Returnability is easier than with manufacturer storage.
D) Product variety is lower than with manufacturer storage.
E) Transportation cost is lower than with manufacturer storage.
Answer: D
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
37) Which distribution network design is being used when the distributor/retailer delivers the
product to the customer's home instead of using a package carrier?
A) Manufacturer storage with direct shipping
B) Manufacturer/distributor storage with customer pickup
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
E) Retail storage with customer pickup
Answer: D
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
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38) Which of the following is an advantage of distributor storage with last mile delivery?
A) More expensive to provide product availability than any other option except retail stores.
B) Inventory cost is higher than distributor storage with package carrier delivery.
C) Response time is very quick ranging from same day to next day delivery.
D) Transportation cost is higher than any other distribution option.
E) Returnability is harder and more expensive than a retail network.
Answer: C
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
39) Which of the following is a disadvantage of distributor storage with last mile delivery?
A) Transportation cost is higher than any other distribution option.
B) Information cost is similar to distributor storage with package carrier delivery.
C) Customer experience is very good, particularly for bulky items.
D) Returnability is easier to implement than other options.
E) Order traceability is less of an issue and easier to implement than manufacturer storage or
distributor storage with package carrier delivery.
Answer: A
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
40) Which distribution network design is being used when inventory is stored at the
manufacturer or distributor warehouse but customers place their orders online or on the phone
and then come to designated pickup points to collect their orders?
A) Manufacturer storage with direct shipping
B) Manufacturer/distributor storage with customer pickup
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
E) Retail storage with customer pickup
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
41) Which of the following is an advantage of manufacturer/distributor storage with customer
pickup?
A) Facility costs can be very high if new facilities have to be built.
B) Transportation cost is lower than the use of package carriers, especially if using an existing
delivery network.
C) Order visibility is difficult but essential.
D) Product variety is similar to other manufacturer or distributor storage options.
E) Significant investment in information infrastructure required.
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
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42) Which of the following is a disadvantage of manufacturer/distributor storage with customer
pickup?
A) Customer experience is lower than other options because of the lack of home delivery.
B) Response time is similar to package carrier delivery with manufacturer or distributor storage.
C) Returnability is somewhat easier given that pickup location can handle returns.
D) Product availability is similar to other manufacturer or distributor storage options.
E) Facilities costs are lower if existing facilities are used.
Answer: A
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
43) Which distribution network design is being used when inventory is stored locally at retail
stores and customers walk into the retail store or place an order online or on the phone and pick
it up at the retail store?
A) Manufacturer storage with direct shipping
B) Manufacturer/distributor storage with customer pickup
C) Distributor storage with package carrier delivery
D) Distributor storage with last mile delivery
E) Retail storage with customer pickup
Answer: E
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
44) Which of the following is an advantage of retail storage with customer pickup?
A) Inventory cost is higher than all other options.
B) Transportation cost is lower than all other options.
C) Facilities and handling costs are higher than other options.
D) Product variety is lower than all other options.
E) Product availability is more expensive to provide than all other options.
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
45) Which of the following is a disadvantage of retail storage with customer pickup?
A) Returnability is easier than other options given that pickup location can handle returns.
B) Inventory cost is higher than all other options.
C) Transportation cost is lower than all other options.
D) Facilities and handling costs are lower than other options.
E) Product variety is higher than all other options.
Answer: B
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
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46) Distributors add value to a supply chain between a supply stage and a customer stage
A) if there is a small number of customers requiring a large amount of product.
B) if there is a large number of customers requiring a large amount of product.
C) if there are many small players at the customer stage, each requiring a small amount of the
product at a time.
D) if there are a few large players at the customer stage, each requiring a large amount of the
product at a time.
E) Distributors do not add value to a supply chain.
Answer: C
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
47) Improvement in supply chain performance at the result of distributors occurs for which of the
following reasons?
A) Reduction in transportation cost because of LTL shipments from manufacturers to distributor.
B) Reduction in outbound transportation cost because the distributor combines products from
many customers into a single outbound shipment.
C) Reduction in inventory costs because distributor disaggregates safety inventory rather than
aggregating at each retailer.
D) A more stable order stream from distributor to manufacturer (compared to erratic orders from
each retailer) allows manufacturers to lower cost by planning production more effectively.
E) By carrying inventory closer to the point of sale, manufacturers are able to provide a better
response time than distributors can.
Answer: D
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
48) Which of the following statements about distribution networks is true?
A) The ownership structure of the distribution network can have as big an impact as the type of
distribution network.
B) The choice of a distribution network has very long-term consequences.
C) The choice of an exclusive distribution strategy may be advantageous.
D) All of the above are true.
E) None of the above are true.
Answer: D
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
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49) ________ is a cost factor performance characteristic of Retail Storage at Consumer Pickup
Sites that is higher than all other options.
A) Transportation
B) Inventory
C) Information
D) Facilities and Handling
Answer: B
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
50) ________ is a service factor performance characteristic of Retail Storage at Consumer
Pickup Sites that is lower than all other options.
A) Response time
B) Product variety
C) Product availability
D) Time to market
Answer: B
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
51) ________ is a service factor performance characteristic of Manufacturer or Distributor
Storage with Customer Pickup that is lower than other options because of the lack of home
delivery. Experience is very sensitive to capability of pickup location.
A) Response time
B) Product variety
C) Customer experience
D) Time to market
Answer: C
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
52) ________ is a cost factor performance characteristic of Manufacturer or Distributor Storage
with Customer Pickup that is lower than the use of package carriers, especially if using an
existing delivery network.
A) Transportation
B) Inventory
C) Information
D) Facilities and Handling
Answer: A
Diff: 1
Topic: 4.3 Design Options for a Distribution Network
Learning Outcome: Compare common approaches to supply chain design
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53) ________ is the amount of time it takes for a customer to receive an order.
A) Time to market
B) Product Availability
C) Returnability
D) Response Time
Answer: D
Diff: 1
Topic: 4.2 Factors Influencing Distribution Network Design
Learning Outcome: Compare common approaches to supply chain design
54) Changing the distribution network design DOES NOT affect the following supply chain
costs
A) transportation.
B) inventories.
C) information.
D) sourcing.
Answer: D
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
55) Facility costs decrease as the number of facilities is reduced. Which company employs a
network design like this?
A) Barnes and Noble
B) Books-A-Million
C) Starbucks
D) Amazon
Answer: D
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
56) Which is NOT considered a primary part of Total Logistics Costs for a supply chain
network?
A) Inventory
B) Manufacturing
C) Transportation
D) Facility cost
Answer: D
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
Learning Outcome: Compare common approaches to supply chain design
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4.3 Essay Questions
1) Explain the measures of customer service that are influenced by the structure of the
distribution network.
Answer: Response time is the time between when a customer places an order and receives
delivery.
Product variety is the number of different products/configurations that a customer desires from
the distribution network.
Availability is the probability of having a product in stock when a customer order arrives.
Customer experience includes the ease with which the customer can place and receive their
order. It also includes purely experiential aspects, such as the possibility of getting a cup of
coffee and the value that the sales staff provides.
Order visibility is the ability of the customer to track their order from placement to delivery.
Returnability is the ease with which a customer can return unsatisfactory merchandise and the
ability of the network to handle such returns.
Diff: 2
Topic: 4.2 Factors Influencing Distribution Network Design
2) Explain how the design of the distribution network affects the cost of the four supply chain
drivers.
Answer: As the number of facilities in a supply chain increases, the inventory and resulting
inventory costs also increase. To decrease inventory costs, firms try to consolidate and limit the
number of facilities in their supply chain network.
Outbound transportation costs per unit tend to be higher than inbound costs because inbound lot
sizes are typically larger. Increasing the number of warehouse locations decreases the average
outbound distance to a customer and makes outbound transportation distance a smaller fraction
of total distance traveled by the product. Thus, as long as inbound transportation economies of
scale are maintained, increasing the number of facilities decreases total transportation cost.
Facility costs decrease as the number of facilities is reduced, because a consolidation of facilities
allows a firm to exploit economies of scale. As the number of facilities increases, total logistics
costs first decrease and then increase. Each firm should have at least the number of facilities that
minimize total logistics costs.
As a firm wants to further reduce the response time to its customers, it may have to increase the
number of facilities beyond the point that minimizes logistics costs. A firm should add facilities
beyond the cost-minimizing point only if managers are confident that the increase in revenues
because of better responsiveness is greater than the increase in costs because of the additional
facilities. In general, no distribution network will outperform others along all dimensions. Thus,
it is important to ensure that the strengths of the distribution network fit with the strategic
position of the firm.
Diff: 3
Topic: 4.2 Factors Influencing Distribution Network Design
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3) Explain the six distinct distribution network designs that may be used to move products from
factory to customer.
Answer: In manufacturer storage with direct shipping, product is shipped directly from the
manufacturer to the end customer, bypassing the retailer (who takes the order and initiates the
delivery request). This option is also referred to as drop-shipping with product delivered directly
from the manufacturer to the customer location.
Manufacturer storage with direct shipping and in-transit merge is similar to pure drop-shipping,
except that pieces of the order coming from different locations are combined so that the customer
gets a single delivery.
Distributor storage with package carrier delivery is being used when inventory is not held by
manufacturers at the factories, but is held by distributors/retailers in intermediate warehouses,
and package carriers are used to transport products from the intermediate location to the final
customer.
Distributor storage with last mile delivery is being used when the distributor/retailer delivers the
product to the customer's home instead of using a package carrier.
Manufacturer/distributor storage with customer pickup is being used when inventory is stored at
the manufacturer or distributor warehouse but customers place their orders online or on the
phone and then come to designated pickup points to collect their orders.
Retail storage with customer pickup is being used when inventory is stored locally at retail stores
and customers walk into the retail store or place an order online or on the phone and pick it up at
the retail store.
Diff: 2
Topic: 4.3 Design Options for a Distribution Network
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4) Explain how distributors add value to a supply chain and improve its performance.
Answer: Distributors add value to a supply chain between a supply stage and a customer stage if
there are many small players at the customer stage, each requiring a small amount of the product
at a time. The value added increases if distributors carry products from many manufacturers.
Improvement in supply chain performance occurs for the following reasons:
∙ Reduction in inbound transportation cost because of TL shipments from manufacturers to
distributor.
∙ Reduction in outbound transportation cost because the distributor combines products from
many manufacturers into a single outbound shipment.
∙ Reduction in inventory costs because distributor aggregates safety inventory rather than
disaggregating at each retailer.
∙ A more stable order stream from distributor to manufacturer (compared to erratic orders from
each retailer) allows manufacturers to lower cost by planning production more effectively.
∙ By carrying inventory closer to the point of sale, distributors are able to provide a better
response time than manufacturers can.
∙ Distributors are able to offer one-stop shopping with products from several manufacturers.
Diff: 3
Topic: 4.3 Design Options for a Distribution Network
5) Total logistics costs are the sum of inventory, transportation, and facility costs for a supply
chain network. What occurs as the number of facilities increases?
Answer: Total logistics costs first decrease and then increase as the number of facilities
increases. Each firm should have at least the number of facilities that minimize total logistics
costs. For example, Amazon has more than one warehouse primarily to reduce its logistics costs
(and improve response time). If a firm wants to reduce the response time to its customers further,
it may have to increase the number of facilities beyond the point that minimizes logistics costs. A
firm should add facilities beyond the cost-minimizing point only if managers are confident that
the increase in revenues because of better responsiveness is greater than the increase in costs
because of the additional facilities.
Diff: 3
Topic: 4.2 Factors Influencing Distribution Network Design
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
1-77
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Supply Chain Management, 5e (Chopra/Meindl)
Chapter 5 Network Design in the Supply Chain
5.1 True/False Questions
1) Supply chain network design decisions include the location of manufacturing, storage, or
transportation-related facilities and the allocation of capacity and roles to each facility.
Answer: TRUE
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
2) Decisions concerning the role of each facility are significant because they determine the
amount of rigidity the supply chain has in changing the way it meets demand.
Answer: FALSE
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
3) Facility location decisions have a long-term impact on a supply chain's performance because it
is cost effective to shut down a facility or move it to a different location.
Answer: FALSE
Diff: 1
Topic: 5.1 The Role of Network Design in the Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
4) Capacity allocation decisions have a significant impact on supply chain performance because
they tend to stay in place for several years.
Answer: TRUE
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
5) The allocation of supply sources and markets to facilities has a significant impact on
performance because it affects total production, inventory, and transportation costs incurred by
the supply chain to satisfy customer demand.
Answer: TRUE
Diff: 1
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
1-78
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6) The allocation of supply sources and markets to facilities does not need to be reconsidered on
a regular basis so that the allocation can be changed as market conditions or plant capacities
change.
Answer: TRUE
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
7) Network design decisions have a significant impact on performance because they determine
the supply chain configuration and set constraints within which inventory, transportation, and
information can be used to either decrease supply chain cost or increase responsiveness.
Answer: TRUE
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
8) Firms focusing on cost leadership tend to find the lowest cost location for their manufacturing
facilities, but only if that means locating very far from the markets they serve.
Answer: FALSE
Diff: 1
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
9) If production technology displays significant economies of scale, many local locations are the
most effective.
Answer: FALSE
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
10) If facilities have lower fixed costs, many local facilities are preferred because this helps
lower transportation costs.
Answer: TRUE
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
11) If the production technology is very inflexible and product requirements vary from one
country to another, a firm has to set up local facilities to serve the market in each country.
Answer: TRUE
Diff: 3
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
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12) If the technology is flexible, it becomes more difficult to consolidate manufacturing in a few
large facilities.
Answer: FALSE
Diff: 3
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
13) Tariffs have a minor influence on location decisions within a supply chain.
Answer: FALSE
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
14) High tariffs lead to more production locations within a supply chain network, with each
location having a lower allocated capacity.
Answer: TRUE
Diff: 3
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
15) When designing supply chain networks, companies must build appropriate flexibility to help
counter fluctuations in exchange rates and demand across different countries.
Answer: TRUE
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
16) Inventory and facility costs increase as the number of facilities in a supply chain increase.
Answer: TRUE
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
17) Transportation costs increase as the number of facilities is increased.
Answer: FALSE
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
18) A firm may increase the number of facilities beyond the point that minimizes total logistics
cost to improve the response time to its customers.
Answer: TRUE
Diff: 1
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
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19) When faced with a network design decision, the goal of a manager is to design a network
that minimizes the firm's costs while satisfying customer needs in terms of demand and
responsiveness.
Answer: FALSE
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
20) The supply chain network is designed to maximize total profits, taking into account the
expected margin and demand in each market, various logistics and facility costs, and the taxes
and tariffs at each location.
Answer: TRUE
Diff: 1
Topic: 5.3 Framework for Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
21) Decisions concerning the role of each facility are significant because they determine the
amount of flexibility the supply chain has in changing the way it meets demand.
Answer: TRUE
Diff: 1
Topic: 5.1 The Role of Network Design in the Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
22) Network design decisions have a significant impact on performance because they determine
the supply chain configuration and set constraints within which the other supply chain drivers
can be used either to decrease supply chain cost or to increase responsiveness.
Answer: TRUE
Diff: 1
Topic: 5.1 The Role of Network Design in the Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
23) If facilities have higher fixed costs, many local facilities are preferred because this helps
lower transportation costs.
Answer: FALSE
Diff: 1
Topic: 5.2 Factors Influencing Network Design Decisions
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
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5.2 Multiple Choice Questions
1) Supply chain network design decisions include
A) only the location of manufacturing, storage, or transportation-related facilities.
B) only the allocation of capacity and roles to each facility.
C) both the location of manufacturing, storage, or transportation-related facilities and the
allocation of capacity and roles to each facility.
D) neither the location of manufacturing, storage, or transportation-related facilities nor the
allocation of capacity and roles to each facility.
E) none of the above
Answer: C
Diff: 1
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
2) Supply chain network design decisions classified as facility role are concerned with
A) what processes are performed at each facility.
B) where facilities should be located.
C) how much capacity should be allocated to each facility.
D) what markets each facility should serve and which supply sources should feed each facility.
E) none of the above
Answer: A
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
3) Supply chain network design decisions classified as facility location are concerned with
A) what processes are performed at each facility.
B) where facilities should be located.
C) how much capacity should be allocated to each facility.
D) what markets each facility should serve and which supply sources should feed each facility.
E) none of the above
Answer: B
Diff: 1
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
4) Supply chain network design decisions classified as capacity allocation are concerned with
A) what processes are performed at each facility.
B) where facilities should be located.
C) how much capacity should be allocated to each facility.
D) what markets each facility should serve and which supply sources should feed each facility.
E) none of the above
Answer: C
Diff: 1
Topic: 5.1 The Role of Network Design in the Supply Chain
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5) Supply chain network design decisions classified as market and supply allocation are
concerned with
A) what processes are performed at each facility.
B) where facilities should be located.
C) how much capacity should be allocated to each facility.
D) what markets each facility should serve and which supply sources should feed each facility.
E) none of the above
Answer: D
Diff: 1
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
6) Decisions concerning the role of each facility are significant because
A) they determine the amount of flexibility the supply chain has in demanding change.
B) they determine the amount of flexibility the supply chain has in changing the way it meets
demand.
C) they determine the amount of capacity the supply chain has in changing the way it meets
demand.
D) they determine the amount of inventory the supply chain has in demanding change.
E) None of the above are true.
Answer: B
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
7) Facility location decisions have a long-term impact on a supply chain's performance because
A) it is very expensive to shut down a facility or move it to a different location.
B) it is not expensive to shut down a facility or move it to a different location.
C) it is advisable to shut down a facility or move it to a different location.
D) it is cost effective to shut down a facility or move it to a different location.
E) none of the above
Answer: A
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
8) Capacity allocation decisions have a significant impact on supply chain performance because
A) capacity decisions tend to be permanent.
B) capacity decisions tend to be changed frequently.
C) capacity decisions do not tend to stay in place for several years.
D) capacity decisions tend to stay in place for several years.
E) none of the above
Answer: D
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
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9) Allocating too much capacity to a location results in
A) permanent damage.
B) poor utilization, and as a result, higher costs.
C) high utilization, and as a result, higher costs.
D) poor utilization, and as a result, lower costs.
E) high utilization, and as a result, lower costs.
Answer: B
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
10) Allocating too little capacity results in
A) temporary damage.
B) good responsiveness if demand is not satisfied or low cost if demand is filled from a distant
facility.
C) good responsiveness if demand is not satisfied or high cost if demand is filled from a distant
facility.
D) poor responsiveness if demand is not satisfied or low cost if demand is filled from a distant
facility.
E) poor responsiveness if demand is not satisfied or high cost if demand is filled from a distant
facility.
Answer: E
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
11) The allocation of supply sources and markets to facilities has a significant impact on
performance because
A) it cannot affect total production, inventory, and transportation costs incurred by the supply
chain to satisfy customer demand.
B) it cannot affect customer demand.
C) it affects total production, inventory, and transportation costs incurred by the supply chain to
satisfy customer demand.
D) it cannot satisfy customer demand.
E) none of the above
Answer: C
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
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12) The allocation of supply sources and markets to facilities should be reconsidered on a regular
basis so that
A) the allocation can be held constant as market conditions or plant capacities expand.
B) the allocation can be changed as market conditions or plant capacities stagnate.
C) the allocation can be held constant as market conditions or plant capacities change.
D) the allocation can be changed as market conditions or plant capacities change.
E) none of the above
Answer: D
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
13) Network design decisions have a significant impact on performance because they
A) determine the supply chain configuration.
B) determine the supply chain conflagration.
C) set constraints within which inventory, transportation, and information can be used to either
decrease supply chain cost or increase responsiveness.
D) set constraints within which inventory, transportation, and information can be used to either
increase supply chain cost or decrease responsiveness.
E) A and C only
Answer: E
Diff: 3
Topic: 5.1 The Role of Network Design in the Supply Chain
14) Customer order entry is
A) the point in time when the customer has access to choices and makes a decision regarding a
purchase.
B) the customer informing the retailer of what they want to purchase and the retailer allocating
product to the customer.
C) the process where product is prepared and sent to the customer.
D) the process where the customer receives the product and takes ownership.
E) none of the above
Answer: B
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
15) Which of the following is not a factor influencing network design decisions in supply
chains?
A) Strategic factors
B) Tactical factors
C) Macroeconomic factors
D) Political factors
E) Infrastructure factors
Answer: B
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
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16) Firms focusing on cost leadership tend to
A) locate facilities close to the market they serve.
B) locate facilities very far from the market they serve.
C) find the lowest cost location for their manufacturing facilities.
D) select a high-cost location to be able to react quickly.
E) none of the above
Answer: C
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
17) Firms focusing on responsiveness tend to
A) locate facilities close to the market they serve.
B) locate facilities very far from the market they serve.
C) find the lowest cost location for their manufacturing facilities.
D) select a high-cost location to be able to react slowly.
E) none of the above
Answer: A
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
18) Which of the following is not one of Kasra Ferdows' classifications of possible strategic
roles for various facilities in a global supply chain network?
A) Offpost facility
B) Source facility
C) Server facility
D) Contributor facility
E) Outpost facility
Answer: A
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
19) A facility that serves the role of being a low-cost supply source for markets located outside
the country where the facility is located is
A) an offshore facility.
B) a source facility.
C) a server facility.
D) a contributor facility.
E) an outpost facility.
Answer: A
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
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20) A facility that also has low cost as its primary objective, but its strategic role is broader than
that of an offshore facility is
A) an offshore facility.
B) a source facility.
C) a server facility.
D) a contributor facility.
E) an outpost facility.
Answer: B
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
21) A facility built because of tax incentives, local content requirement, tariff barriers, or high
logistics cost to supply the region from elsewhere with the objective to supply the market where
it is located is
A) an offshore facility.
B) a source facility.
C) a server facility.
D) a contributor facility.
E) an outpost facility.
Answer: C
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
22) A facility located primarily to obtain access to knowledge or skills that may exist within a
certain region is
A) an offshore facility.
B) a source facility.
C) a server facility.
D) a contributor facility.
E) an outpost facility.
Answer: E
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
23) A facility that serves the market where it is located but also assumes responsibility for
product customization, process improvements, product modifications, or product development is
A) an offshore facility.
B) a source facility.
C) a server facility.
D) a contributor facility.
E) an outpost facility.
Answer: D
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
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24) A facility that creates new products, processes, and technologies for the entire network is
A) an offshore facility.
B) a source facility.
C) a server facility.
D) a lead facility.
E) an outpost facility.
Answer: D
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
25) Production technology displays significant economies of scale,
A) many high-capacity locations are the most effective.
B) few high-capacity locations are the most effective.
C) few high-capacity locations are the least effective.
D) few low-capacity locations are the most effective.
E) few low-capacity locations are the least effective.
Answer: B
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
26) If facilities have lower fixed costs,
A) a few high-capacity facilities are preferred because this helps lower transportation costs.
B) a few local facilities are preferred because this helps lower transportation costs.
C) many high-capacity facilities are preferred because this helps lower transportation costs.
D) many local facilities are preferred because this helps lower transportation costs.
E) one central facility is preferred because this helps lower transportation costs.
Answer: D
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
27) If the production technology is very inflexible and product requirements vary from one
country to another, a firm has to set up
A) local facilities to serve the market in each country.
B) a few high-capacity facilities to serve the market in each country.
C) many local facilities because this helps lower transportation costs.
D) a few high-capacity facilities because this helps lower transportation costs.
E) many high-capacity facilities because this helps lower transportation costs.
Answer: A
Diff: 3
Topic: 5.2 Factors Influencing Network Design Decisions
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28) If the technology is flexible,
A) it becomes more difficult to consolidate manufacturing in a few large facilities.
B) it becomes more difficult to distribute manufacturing in many local facilities.
C) it becomes easier to consolidate manufacturing in a few large facilities.
D) it becomes easier to consolidate manufacturing in many local facilities.
E) the firm should have one central facility.
Answer: C
Diff: 3
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
29) Duties that must be paid when products and/or equipment are moved across international,
state, or city boundaries are referred to as
A) taxes.
B) tax incentives.
C) tariffs.
D) incentives.
E) none of the above
Answer: C
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
30) If a country has very high tariffs,
A) companies either do not serve the local market or set up manufacturing plants within the
country to save on duties.
B) companies do not serve the local market.
C) companies set up manufacturing plants within the country to save on duties.
D) companies will not serve the local market or set up manufacturing plants within the country to
save on duties.
E) companies will serve the local market by setting up regional manufacturing plants.
Answer: A
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
31) Developing countries often create free trade zones where
A) duties and tariffs are imposed as long as production is used primarily for export.
B) duties and tariffs are imposed as long as production is used primarily for import.
C) duties and tariffs are relaxed as long as production is used primarily for export.
D) duties and tariffs are relaxed as long as production is used primarily for import.
E) duties and tariffs are increased as long as production is used primarily for export.
Answer: C
Diff: 1
Topic: 5.2 Factors Influencing Network Design Decisions
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32) Building some over-capacity in the supply chain network and making the capacity flexible
allows a firm to alter production flows within the supply chain to
A) produce less in facilities that have a lower cost based on current exchange rates.
B) produce more in facilities that have a lower cost based on current exchange rates.
C) produce more in facilities that have a higher cost based on current exchange rates.
D) produce less in facilities that have the same cost based on current exchange rates.
E) None of the above are accurate.
Answer: B
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
33) Total logistics costs are a sum of the
A) inventory and facility costs.
B) transportation and facility costs.
C) inventory and transportation costs.
D) inventory, transportation, and facility costs.
E) inventory, transportation, and faculty costs.
Answer: D
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
34) The facilities in a supply chain network must
A) at least maximize total logistics cost.
B) at least equal the number that maximizes total logistics cost.
C) at least equal the number that minimizes total logistics cost.
D) at least minimize total logistics cost.
E) none of the above
Answer: C
Diff: 1
Topic: 5.2 Factors Influencing Network Design Decisions
35) When faced with a network design decision, the goal of a manager is to design a network
that
A) maximizes the firm's profits.
B) minimizes the firm's costs.
C) satisfies customer needs in terms of demand and responsiveness.
D) maximizes the firm's profits while satisfying customer needs in terms of demand and
responsiveness.
E) none of the above
Answer: D
Diff: 2
Topic: 5.3 Framework for Network Design Decisions
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36) Which of the following is not a phase in the design of a global supply chain network?
A) Define a supply chain strategy
B) Define the regional facility configuration
C) Select desirable sites
D) Location choices
E) Implement supply chain strategy
Answer: E
Diff: 2
Topic: 5.3 Framework for Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
37) Which of the following is the first phase in the design of a global supply chain network?
A) Define a supply chain strategy
B) Define the regional facility configuration
C) Select desirable sites
D) Location choices
E) Implement supply chain strategy
Answer: A
Diff: 2
Topic: 5.3 Framework for Network Design Decisions
38) The objective of the first phase of network design is to
A) maximize total profits, taking into account the expected margin and demand in each market.
B) select a precise location and capacity allocation for each facility.
C) select a set of desirable sites within each region where facilities are to be located.
D) identify regions where facilities will be located, their potential roles, and their approximate
capacity.
E) specify what capabilities the supply chain network must have to support a firm's competitive
strategy.
Answer: E
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
39) The objective of the second phase of network design is to
A) maximize total profits, taking into account the expected margin and demand in each market.
B) select a precise location and capacity allocation for each facility.
C) select a set of desirable sites within each region where facilities are to be located.
D) identify regions where facilities will be located, their potential roles, and their approximate
capacity.
E) specify what capabilities the supply chain network must have to support a firm's competitive
strategy.
Answer: D
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
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40) The objective of the third phase of network design is to
A) maximize total profits, taking into account the expected margin and demand in each market.
B) select a precise location and capacity allocation for each facility.
C) select a set of desirable sites within each region where facilities are to be located.
D) identify regions where facilities will be located, their potential roles, and their approximate
capacity.
E) specify what capabilities the supply chain network must have to support a firm's competitive
strategy.
Answer: C
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
41) It is very important that long-term consequences be thought through when making facility
decisions, because
A) network designers can use this fact to influence the role of the new facility and the focus of
people working there.
B) facilities last a long time and have an enduring impact on a firm's performance.
C) it is astounding how often tax incentives drive the choice of location.
D) the location of a facility has a significant impact on the extent and form of communication
that develops in the supply chain network.
E) the quality of life at selected facility locations has a significant impact on performance.
Answer: B
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
42) The implications of culture should not be glossed over because
A) tariffs and tax incentives should be carefully considered.
B) facilities last a long time and have an enduring impact on a firm's performance.
C) it is astounding how often tax incentives drive the choice of location.
D) the location of a facility has a significant impact on the extent and form of communication
that develops in the supply chain network.
E) the quality of life at selected facility locations has a significant impact on performance.
Answer: A
Diff: 3
Topic: 5.5 Making Network Design Decisions in Practice
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43) The quality of life at selected facility locations has a significant impact on performance
because
A) network designers can use this fact to influence the role of the new facility and the focus of
people working there.
B) facilities last a long time and have an enduring impact on a firm's performance.
C) it is astounding how often tax incentives drive the choice of location.
D) the location of a facility has a significant impact on the extent and form of communication
that develops in the supply chain network.
E) it influences the work force available and their morale.
Answer: E
Diff: 3
Topic: 5.5 Making Network Design Decisions in Practice
Learning Outcome: Compare common approaches to supply chain design
44) Managers making facility location decisions should carefully consider tariffs and tax
incentives, because
A) network designers can use this fact to influence the role of the new facility and the focus of
people working there.
B) facilities last a long time and have an enduring impact on a firm's performance.
C) it is astounding how often tax incentives drive the choice of location.
D) the location of a facility has a significant impact on the extent and form of communication
that develops in the supply chain network.
E) it influences the work force available and their morale.
Answer: C
Diff: 2
Topic: 5.5 Making Network Design Decisions in Practice
45) Which of the following is NOT a classification for Supply Chain Network Design
Decisions?
A) Facility role
B) Inventory allocation
C) Facility location
D) Market and supply allocation
Answer: B
Diff: 3
Topic: 5.1 The Role of Network Design in the Supply Chain
Learning Outcome: Compare common approaches to supply chain design
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46) Firms that focus on cost leadership tend to find the lowest-cost location might
A) locate far from their customers.
B) locate in a higher cost area to provide faster response.
C) have many facilities to take advantage of economies of scale.
D) increase inventory levels to reduce stockouts.
Answer: A
Diff: 1
Topic: 5.2 Factors Influencing Network Design Decisions
AACSB: Dynamics of the Global Economy
Learning Outcome: Compare common approaches to supply chain design
47) Macroeconomic factors influencing network design decisions would typically NOT include
A) tarriffs.
B) exchange rates.
C) shipping costs.
D) available production technologies.
Answer: D
Diff: 2
Topic: 5.2 Factors Influencing Network Design Decisions
AACSB: Dynamics of the Global Economy
Learning Outcome: Compare common approaches to supply chain design
48) ________ costs increase as the number of facilities in a supply chain increases.
A) Inventory
B) Transportation
C) Retail operation
D) Information
Answer: A
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
Learning Outcome: Compare common approaches to supply chain design
49) Capital, growth strategy, existing networks and global competition mostly affect which of
the four Global Network Design Decisions?
A) Phase I - Supply Chain Strategy
B) Phase II - Regional Facility Configuration
C) Phase III - Desirable Sites
D) Phase IV - Location Choices
Answer: A
Diff: 2
Topic: 5.3 Framework for Network Design Decisions
AACSB: Dynamics of the Global Economy
Learning Outcome: Compare common approaches to supply chain design
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50) The availability of suppliers, transportation services, communication, utilities, and
warehousing infrastructure mostly affect which of the four Global Network Design Decisions?
A) Phase I - Supply Chain Strategy
B) Phase II - Regional Facility Configuration
C) Phase III - Desirable Sites
D) Phase IV - Location Choices
Answer: C
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
AACSB: Multicultural & Diversity Understanding
Learning Outcome: Compare common approaches to supply chain design
51) Tariffs, economies of scale and aggregate factor costs mostly affect which of the four Global
Network Design Decisions?
A) Phase I - Supply Chain Strategy
B) Phase II - Regional Facility Configuration
C) Phase III - Desirable Sites
D) Phase IV - Location Choices
Answer: B
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
52) Available infrastructure, skill needs and response time mostly affect which of the four Global
Network Design Decisions?
A) Phase I - Supply Chain Strategy
B) Phase II - Regional Facility Configuration
C) Phase III - Desirable Sites
D) Phase IV - Location Choices
Answer: C
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
AACSB: Dynamics of the Global Economy
Learning Outcome: Compare common approaches to supply chain design
53) Managers should keep certain issues in mind when making network design decisions for a
supply chain. Which of these would NOT be on that list?
A) Quality of life
B) Tarriffs and tax incentives
C) Cultural implications
D) The life span of most facilities is getting shorter and shorter.
Answer: D
Diff: 1
Topic: 5.5 Making Network Design Decisions in Practice
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5.3 Essay Questions
1) Explain how supply chain network design decisions are classified.
Answer: Supply chain network design decisions include the location of manufacturing, storage,
or transportation-related facilities and the allocation of capacity and roles to each facility. Supply
chain network design decisions are classified as follows:
1. Facility role: What role should each facility play? What processes are performed at each
facility?
2. Facility location: Where should facilities be located?
3. Capacity allocation: How much capacity should be allocated to each facility?
4. Market and supply allocation: What markets should each facility serve? Which supply sources
should feed each facility?
Diff: 2
Topic: 5.1 The Role of Network Design in the Supply Chain
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2) Describe the factors that influence supply chain network design decisions.
Answer:
Strategic Factors. Firms focusing on cost leadership tend to find the lowest cost location for
their manufacturing facilities, even if that means locating very far from the markets they serve.
Firms focusing on responsiveness tend to locate facilities closer to the market and may select a
high-cost location if this choice allows the firm to quickly react to changing market needs.
Technological Factors. If production technology displays significant economies of scale, a few
high-capacity locations are the most effective. In contrast, if facilities have lower fixed costs,
many local facilities are preferred because this helps lower transportation costs. If the production
technology is very inflexible and product requirements vary from one country to another, a firm
has to set up local facilities to serve the market in each country. Conversely, if the technology is
flexible, it becomes easier to consolidate manufacturing in a few large facilities.
Macroeconomic Factors. Macroeconomic factors include taxes, tariffs, exchange rates, and
other economic factors that are not internal to an individual firm. If a country has very high
tariffs, companies either do not serve the local market or set up manufacturing plants within the
country to save on duties. High tariffs lead to more production locations within a supply chain
network, with each location having a lower allocated capacity. Tax incentives are a reduction in
tariffs or taxes that countries, states, and cities often provide to encourage firms to locate their
facilities in specific areas. Many countries vary incentives from city to city to encourage
investments in areas with lower economic development. Developing countries often create free
trade zones where duties and tariffs are relaxed as long as production is used primarily for
export. This creates a strong incentive for global firms to set up a plant in these countries to be
able to exploit their low labor costs. Many countries also place minimum requirements on local
content and limits on imports. Such policies lead companies to set up many facilities and source
from local suppliers. Exchange rate risks may be handled using financial instruments that limit,
or hedge against, the loss due to fluctuations. Suitably designed supply chain networks, however,
offer the opportunity to take advantage of exchange rate fluctuations and increase profits. An
effective way to do this is to build some over-capacity in the network and make the capacity
flexible so that it can be used to supply different markets. This flexibility allows the firm to alter
production flows within the supply chain to produce more in facilities that have a lower cost
based on current exchange rates. When designing supply chain networks, companies must build
appropriate flexibility to help counter fluctuations in exchange rates and demand across different
countries.
Political Factors. Companies prefer to locate facilities in politically stable countries where the
rules of commerce are well defined. Countries with independent and clear legal systems allow
firms to feel that they have recourse in the courts should they need it. This makes it easier for
companies to invest in facilities in these countries. Political stability is hard to quantify, so a firm
makes an essentially subjective evaluation when designing its supply chain network.
Infrastructure Factors. The availability of good infrastructure is an important prerequisite to
locating a facility in a given area. Poor infrastructure adds to the cost of doing business from a
given location. Key infrastructure elements to be considered during network design include
availability of sites, labor availability, proximity to transportation terminals, rail service,
proximity to airports and seaports, highway access, congestion, and local utilities.
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Competitive Factors. Companies must consider competitors’ strategy, size, and location when
designing their supply chain networks. A fundamental decision firms make is whether to locate
their facilities close to competitors or far from them. How the firms compete and whether
external factors such as raw material or labor availability force them to locate close to each other
influence this decision. Positive externalities lead to competitors locating close to each other.
When there are no positive externalities, firms locate to be able to capture the largest possible
share of the market.
Customer Response Time and Local Presence. Firms that target customers who value a short
response time must locate close to them. If a firm is delivering its product to customers, use of a
rapid means of transportation allows it to build fewer facilities and still provide a short response
time. This option, however, increases transportation costs. Moreover, there are many situations
where the presence of a facility close to a customer is important.
Logistics and Facility Costs. Logistics and facility costs incurred within a supply chain change
as the number of facilities, their location, and capacity allocation is changed. Companies must
consider inventory, transportation, and facility costs when designing their supply chain networks.
Inventory and facility costs increase as the number of facilities in a supply chain increase.
Transportation costs decrease as the number of facilities is increased. Increasing the number of
facilities to a point where inbound economies of scale are lost increases transportation cost. The
supply chain network design is also influenced by the transformation occurring at each facility.
When there is a significant reduction in material weight or volume as a result of processing, it
may be better to locate facilities closer to the supply source rather than the customer. Total
logistics costs are a sum of the inventory, transportation, and facility costs. The facilities in a
supply chain network must at least equal the number that minimizes total logistics costs. A firm
may increase the number of facilities beyond this point to improve the response time to its
customers. This decision is justified if the revenue increase from improved response outweighs
the increased cost from additional facilities.
Diff: 3
Topic: 5.2 Factors Influencing Network Design Decisions
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3) Describe the four phases in the framework for network design decisions.
Answer:
Phase I: Define a Supply Chain Strategy
The objective of the first phase of network design is to define a firm's supply chain strategy. The
supply chain strategy specifies what capabilities the supply chain network must have to support a
firm's competitive strategy. Phase I starts with a clear definition of the firm's competitive strategy
as the set of customer needs that the supply chain aims to satisfy. Next, managers must forecast
the likely evolution of global competition and whether competitors in each market will be local
or global players. Managers must also identify constraints on available capital and whether
growth will be accomplished by acquiring existing facilities, building new facilities, or
partnering. Based on the competitive strategy of the firm, an analysis of the competition, any
economies of scale or scope, and any constraints, managers must determine the supply chain
strategy for the firm.
Phase II: Define the Regional Facility Configuration
The objective of the second phase of network design is to identify regions where facilities will be
located, their potential roles, and their approximate capacity. An analysis of Phase II is started
with a forecast of the demand by country. Such a forecast must include a measure of the size of
the demand as well as a determination of whether the customer requirements are homogenous or
variable across different countries. The next step is for managers to identify whether economies
of scale or scope can play a significant role in reducing costs given available production
technologies. Next, managers must identify demand risk, exchange rate risk, and political risk
associated with different regional markets. They must also identify regional tariffs, any
requirements for local production, tax incentives, and any export or import restrictions for each
market. The tax and tariff information is used to identify the best location to extract a major
share of the profits. In general, it is best to obtain the major share of profits at the location with
the lowest tax rate. Managers must identify competitors in each region and make a case for
whether a facility needs to be located close to or far from a competitor's facility. The desired
response time for each market must also be identified. Managers must also identify the factor and
logistics costs at an aggregate level in each region. Based on all this information, managers will
identify the regional facility configuration for the supply chain network using network design
models discussed in the next section. The regional configuration defines the approximate number
of facilities in the network, regions where facilities will be set up, and whether a facility will
produce all products for a given market or a few products for all markets in the network.
Phase III: Select Desirable Sites
The objective of Phase III is to select a set of desirable sites within each region where facilities
are to be located. The set of desirable sites should be larger than the desired number of facilities
to be set up so that a precise selection may be made in Phase IV. Sites should be selected based
on an analysis of infrastructure availability to support the desired production methodologies.
Hard infrastructure requirements include the availability of suppliers, transportation services,
communication, utilities, and warehousing infrastructure. Soft infrastructure requirements
include the availability of skilled workforce, workforce turnover, and the community's
receptivity to business and industry.
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Phase IV: Location Choices
The objective of this phase is to select a precise location and capacity allocation for each facility.
Attention is restricted to the desirable sites selected in Phase III. The network is designed to
maximize total profits, taking into account the expected margin and demand in each market,
various logistics and facility costs, and the taxes and tariffs at each location.
Diff: 3
Topic: 5.3 Framework for Network Design Decisions
4) Explain the two situations in which managers use network design models.
Answer: Managers use network design models in two different situations. First, these models are
used to decide on locations where facilities will be established and the capacity to be assigned to
each facility. Managers must make this decision considering a time horizon over which locations
and capacities will not be altered (typically in years). Second, these models are used to assign
current demand to the available facilities and identify lanes along which product will be
transported. Managers must consider this decision at least on an annual basis as demand, prices,
and tariffs change. In both cases, the goal is to maximize the profit while satisfying customer
needs.
Diff: 2
Topic: 5.4 Models for Facility Location and Capacity Allocation
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Supply Chain Management, 5e (Chopra/Meindl)
Chapter 6 Designing Global Supply Chain Networks
6.1 True/False Questions
1) Decisions made during the supply chain design phase regarding significant investments in the
supply chain, such as the number and size of plants to build, the number of trucks to purchase or
lease, and whether to build or lease warehouse space, cannot be altered in the short term.
Answer: TRUE
Diff: 2
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
Learning Outcome: Compare common approaches to supply chain design
2) Decisions made during the supply chain design phase regarding significant investments in the
supply chain, such as the number and size of plants to build, the number of trucks to purchase or
lease, and whether to build or lease warehouse space, rarely remain in place for several years.
Answer: FALSE
Diff: 2
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
Learning Outcome: Compare common approaches to supply chain design
3) Long-term contracts for both warehousing and transportation requirements will be more
effective if the demand and price of warehousing do not change in the future or if the price of
warehousing goes up.
Answer: TRUE
Diff: 1
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
4) The degree of demand and price uncertainty has a significant influence on the appropriate
portfolio of long- and short-term warehousing space that a firm should carry.
Answer: TRUE
Diff: 1
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
Learning Outcome: Compare common approaches to supply chain design
5) If price and demand vary over time in a global network, flexible production capacity can be
reconfigured to maximize profits in the new environment.
Answer: TRUE
Diff: 2
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
Learning Outcome: Compare common approaches to supply chain design
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6) A firm may choose to build a flexible global supply chain even in the presence of little
demand or supply uncertainty if certainty exists in exchange rates or prices.
Answer: FALSE
Diff: 2
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
7) The present value of a stream of cash flows is what that stream is worth in today's dollars.
Answer: TRUE
Diff: 1
Topic: 6.4 Discounted Cash Flows
8) The present value of future cash flows is found by using a discount factor.
Answer: TRUE
Diff: 2
Topic: 6.4 Discounted Cash Flows
9) The rate of return k is also referred to as the present value of capital.
Answer: FALSE
Diff: 1
Topic: 6.4 Discounted Cash Flows
10) A negative NPV for an option indicates that the option will lose money for the supply chain.
Answer: TRUE
Diff: 2
Topic: 6.4 Discounted Cash Flows
11) The decision with the lowest NPV will provide a supply chain with the highest financial
return.
Answer: FALSE
Diff: 2
Topic: 6.4 Discounted Cash Flows
12) In reality, demand and prices are highly uncertain and are likely to fluctuate during the life of
any supply chain decision.
Answer: TRUE
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
13) For a global supply chain, exchange rates and inflation are unlikely to vary over time in
different locations.
Answer: FALSE
Diff: 1
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
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14) The multiplicative binomial cannot take on negative values and can be used for factors like
demand, price, and exchange rates that cannot become negative.
Answer: TRUE
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
15) A logical objection to both the multiplicative and additive binomial is the fact that the
underlying factor takes on two values at the end of each period.
Answer: FALSE
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
16) If uncertainty is ignored, a manager will always sign long-term contracts because they are
typically cheaper and avoid all flexible capacity because it is more expensive.
Answer: TRUE
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
17) During network design, managers need a methodology that allows them to estimate the
certainty in their forecast of demand and price and then incorporate this certainty into the
decision-making process.
Answer: FALSE
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
18) Decision trees with DCFs can be used to evaluate supply chain design decisions given
uncertainty in prices, demand, exchange rates, and inflation.
Answer: TRUE
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
19) Uncertainty in demand and economic factors should not be included in the financial
evaluation of supply chain design decisions.
Answer: FALSE
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
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20) In a complex decision tree, there are thousands of possible paths that may result from the
first period to the last.
Answer: TRUE
Diff: 1
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
21) Simulation methods are very good at evaluating a decision where the path itself is decision
dependent.
Answer: FALSE
Diff: 3
Topic: 6.6 To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under
Uncertainty
Learning Outcome: Compare common approaches to supply chain design
22) Simulation models require a higher setup cost to start and operate compared to decision tree
tools.
Answer: TRUE
Diff: 1
Topic: 6.6 To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under
Uncertainty
Learning Outcome: Compare common approaches to supply chain design
23) The main advantage of simulation models is that they can provide low-cost evaluations of
complex situations.
Answer: FALSE
Diff: 2
Topic: 6.6 To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under
Uncertainty
Learning Outcome: Compare common approaches to supply chain design
24) Strategic planning and financial planning should be combined during supply chain network
design.
Answer: TRUE
Diff: 2
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
Learning Outcome: Compare common approaches to supply chain design
25) The evaluation of supply chain networks should not use multiple metrics.
Answer: FALSE
Diff: 2
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
Learning Outcome: Compare common approaches to supply chain design
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26) Financial analysis should be used as an input to decision making, not as the decision-making
process.
Answer: TRUE
Diff: 2
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
Learning Outcome: Compare common approaches to supply chain design
27) One of the best ways to speed up the process of financial analysis and arrive at a good
decision is to use estimates, except when it appears that finding a very accurate input would take
an inordinate amount of time.
Answer: FALSE
Diff: 1
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
Learning Outcome: Compare common approaches to supply chain design
28) Globalization has offered tremendous opportunity as well as decreased risk in the
development of supply chains due to improved information flow.
Answer: FALSE
Diff: 2
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
AACSB: Dynamics of the Global Economy
Learning Outcome: Compare common approaches to supply chain design
29) Appropriate flexibility is an effective approach for a global supply chain to deal with a
variety of risks and uncertainties. Extra flexibility is always worth the cost.
Answer: FALSE
Diff: 1
Topic: 6.3 Risk Management in Global Supply Chains
AACSB: Dynamics of the Global Economy
Learning Outcome: Compare common approaches to supply chain design
30) Discounted cash flow (DCF) analysis evaluates the present value of any stream of future cash
flows and allows management to compare two streams of cash flows in terms of their financial
value.
Answer: TRUE
Diff: 1
Topic: 6.4 Discounted Cash Flows
31) When faced with uncertain conditions it is always best to sign long-term contracts (because
they are typically cheaper) and avoid all flexible capacity (because it is more expensive).
Answer: FALSE
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
AACSB: Analytic Skills
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32) The value of flexibility increases with an increase in uncertainty.
Answer: TRUE
Diff: 1
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
33) The inclusion of uncertainty typically increases the value of rigidity and decreases the value
of flexibility.
Answer: FALSE
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
34) Offshoring typically lowers labor, working capital and fixed costs but increases risk and
freight costs.
Answer: FALSE
Diff: 3
Topic: 6.3 Risk Management in Global Supply Chains
AACSB: Dynamics of the Global Economy
Learning Outcome: Compare common approaches to supply chain design
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6.2 Multiple Choice Questions
1) Decisions made during the supply chain design phase regarding significant investments in the
supply chain, such as the number and size of plants to build, the number of trucks to purchase or
lease, and whether to build or lease warehouse space,
A) can be altered in the short term.
B) cannot be altered in the short term.
C) cannot be altered in the long term.
D) can only be altered in the short term.
E) all of the above
Answer: B
Diff: 1
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
Learning Outcome: Compare common approaches to supply chain design
2) Decisions made during the supply chain design phase regarding significant investments in the
supply chain, such as the number and size of plants to build, the number of trucks to purchase or
lease, and whether to build or lease warehouse space,
A) are realigned every few weeks.
B) only remain in place for several years.
C) rarely remain in place for several years.
D) only remain in place for a few weeks.
E) often remain in place for several years.
Answer: E
Diff: 3
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
Learning Outcome: Compare common approaches to supply chain design
3) Decisions made during the supply chain design phase regarding significant investments in the
supply chain, such as the number and size of plants to build, the number of trucks to purchase or
lease, and whether to build or lease warehouse space,
A) define the boundaries within which the supply chain must compete.
B) have little impact on how the supply chain must compete.
C) are irrelevant regarding how the supply chain will compete.
D) are the only consideration regarding how the supply chain will compete.
E) none of the above
Answer: A
Diff: 2
Topic: 6.1 The Impact of Globalization on Supply Chain Networks
Learning Outcome: Compare common approaches to supply chain design
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4) Long-term contracts for both warehousing and transportation requirements will be more
effective if
A) the demand and price of warehousing do not change in the future.
B) the price of warehousing goes up in the future.
C) demand drops in the future.
D) the price of warehousing drops in the future.
E) A and B only
Answer: E
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
5) Short-term contracts for both warehousing and transportation requirements will be more
effective
A) if the demand and price of warehousing do not change in the future.
B) if the price of warehousing goes up in the future.
C) if either demand or the price of warehousing drops in the future.
D) only if demand drops in the future.
E) only if the price of warehousing drops in the future.
Answer: C
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
6) The degree of demand and price uncertainty has
A) no effect on the appropriate portfolio of long- and short-term warehousing space that a firm
should carry.
B) a limited influence on the appropriate portfolio of long- and short-term warehousing space
that a firm should carry.
C) a minor influence on the appropriate portfolio of long- and short-term warehousing space that
a firm should carry.
D) a significant influence on the appropriate portfolio of long- and short-term warehousing space
that a firm should carry.
E) None of the above are true.
Answer: D
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
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7) Uncertainty of demand and price
A) drives the value of building flexible production capacity at a plant.
B) eliminates the value of building flexible production capacity at a plant.
C) facilitates the value of building flexible production capacity at a plant.
D) has no effect on the value of building flexible production capacity at a plant.
E) None of the above are true.
Answer: A
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
8) If price and demand do vary over time in a global network,
A) flexible production capacity should not be used in the new environment.
B) flexible production capacity will be ineffective in the new environment.
C) flexible production capacity can be reconfigured to minimize profits in the new environment.
D) flexible production capacity can be reconfigured to maximize profits in the new environment.
E) flexible production capacity should never be used in an uncertain environment.
Answer: D
Diff: 2
Topic: 6.6 To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under
Uncertainty
9) A firm may choose to build a flexible global supply chain even in the presence of little
demand or supply uncertainty if
A) certainty exists in both exchange rates and prices.
B) certainty exists in exchange rates or prices.
C) uncertainty exists in both exchange rates and prices.
D) uncertainty exists in exchange rates or prices.
E) uncertainty exists only in exchange rates.
Answer: D
Diff: 2
Topic: 6.6 To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under
Uncertainty
10) The present value of a future stream of cash flows is what that stream
A) was worth in yesterday's dollars.
B) is worth in today's dollars.
C) will be worth in future dollars.
D) might be worth in future dollars.
E) none of the above
Answer: B
Diff: 1
Topic: 6.4 Discounted Cash Flows
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11) The process of evaluating the present value of any stream of future cash flows so that
management can compare two streams of cash flows in terms of their financial value is
A) annual cash flow (ACF) analysis.
B) discretionary cash flow (DCF) analysis.
C) discounted cash flow (DCF) analysis.
D) future cash flow (FCF) analysis.
E) none of the above
Answer: C
Diff: 2
Topic: 6.4 Discounted Cash Flows
12) The present value of future cash flow is found by
A) locating the correct factor on a z-table.
B) using a discount factor.
C) plotting the function on a graph.
D) adding the total of all future cash flows.
E) none of the above
Answer: B
Diff: 2
Topic: 6.4 Discounted Cash Flows
13) The discount factor used to obtain the present value of money in the next period where k
represents the rate of return is
A) k.
B) 1+k.
C) 1/(1+k).
D) k /(1+k).
E) none of the above
Answer: C
Diff: 2
Topic: 6.4 Discounted Cash Flows
14) The rate of return k is also referred to as the
A) discount rate.
B) hurdle rate.
C) opportunity cost of capital.
D) all of the above
E) none of the above
Answer: D
Diff: 1
Topic: 6.4 Discounted Cash Flows
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15) What is the present value of a $27 revenue that will be received in one year where the rate of
return is 8% (.08)?
A) $2.50
B) $15.00
C) $25.00
D) $30.00
E) none of the above
Answer: C
Diff: 1
Topic: 6.4 Discounted Cash Flows
16) The net present value (NPV) of a stream of cash flows is equal to
A) the sum of all cash flows for all periods being considered.
B) the sum of all cash flows for all periods being considered divided by the number of periods.
C) the average of all cash flows for all periods being considered.
D) the average of all cash flows for all periods being considered multiplied by the number of
periods.
E) the sum of all cash flows for all periods being considered discounted by the rate of return for
each period.
Answer: E
Diff: 3
Topic: 6.4 Discounted Cash Flows
17) A negative NPV (net present value) for an option indicates that the option will
A) gain money for the supply chain.
B) lose money for the supply chain.
C) maximize profit for the supply chain.
D) minimize profit for the supply chain.
E) none of the above
Answer: B
Diff: 2
Topic: 6.4 Discounted Cash Flows
18) The decision with the highest NPV (net present value) will provide a supply chain with
A) the highest financial return.
B) the lowest financial return.
C) a reasonable financial return.
D) the least desirable financial return.
E) none of the above
Answer: A
Diff: 2
Topic: 6.4 Discounted Cash Flows
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19) The NPV (net present value) of a cash stream that is equal to $100 per period for 5 periods
with a rate of return of 10% (.10) per period would be
A) 379.08.
B) 416.98.
C) 500.00.
D) 610.51.
E) 671.56.
Answer: B
Diff: 2
Topic: 6.4 Discounted Cash Flows
20) The NPV (net present value) of a cash stream that is equal to $75 per period for 5 periods
with a rate of return of 10% (.10) per period would be
A) 221.37.
B) 284.30.
C) 312.74.
D) 375.00.
E) none of the above
Answer: C
Diff: 2
Topic: 6.4 Discounted Cash Flows
21) In reality, demand and prices are
A) highly certain and not likely to fluctuate during the life of any supply chain decision.
B) highly certain and likely to fluctuate during the life of any supply chain decision.
C) highly uncertain and not likely to fluctuate during the life of any supply chain decision.
D) highly uncertain and likely to fluctuate during the life of any supply chain decision.
E) none of the above
Answer: D
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
22) For a global supply chain, exchange rates and inflation are
A) likely to vary over time in different locations.
B) not likely to vary over time in different locations.
C) not likely to vary over time in any locations.
D) likely to be stable over time in all locations.
E) none of the above
Answer: A
Diff: 1
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
1-112
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
23) The binomial representation of uncertainty is based on the assumption that when moving
from one period to the next, the value of the underlying factor (such as demand or price)
A) has only one possible outcome.
B) has only two possible outcomes - up or down.
C) has many possible outcomes.
D) cannot be accurately determined.
E) none of the above
Answer: B
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
24) In the commonly used multiplicative binomial, it is assumed that the underlying factor
A) moves up by a factor u > 1 with probability p.
B) moves down by a factor u > 1 with probability p.
C) moves down by a factor d < 1 with probability 1 - p.
D) either A or B
E) either A or C
Answer: E
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
25) The multiplicative binomial can be used for factors like demand, price, and exchange rates
that cannot become negative because it
A) can take on negative values.
B) cannot take on negative values.
C) can take on positive values.
D) cannot take on positive values.
E) all of the above
Answer: B
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
26) A logical objection to both the multiplicative and additive binomial is the fact that the
underlying factor
A) takes on only one of two possible values at the end of each period.
B) takes on two values at the end of each period.
C) takes on one of many possible values at the end of each period.
D) takes on several of many possible values at the end of each period.
E) none of the above
Answer: A
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
1-113
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
27) A decision tree is
A) a graphic device used to evaluate decisions under certainty.
B) a graphic device used to evaluate decisions under uncertainty.
C) a tabular device used to evaluate decisions under certainty.
D) a tabular device used to evaluate decisions under uncertainty.
E) none of the above
Answer: B
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
28) Decision tree analysis is based on Bellman's principle, which states that for any choice of
strategy in a given state,
A) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the
first period.
B) the optimal strategy is the one that is selected if the entire analysis is assumed to begin in the
last period.
C) the optimal strategy in the next period is the one that is selected if the entire analysis is
assumed to begin in the last period.
D) the optimal strategy in the next period is the one that is selected if the entire analysis is
assumed to begin in the next period.
E) none of the above
Answer: D
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
29) The first step in decision tree analysis methodology is to
A) identify factors such as demand, price, and exchange rate, whose fluctuation will be
considered over the next T periods.
B) identify the periodic discount rate k for each period.
C) start at period T, work back to Period 0 identifying the optimal decision and the expected cash
flows at each step. Expected cash flows at each step in a given period should be discounted back
when included in the previous period.
D) identify the duration of each period (month, quarter, etc.) and the number of periods T over
which the decision is to be evaluated.
E) identify representations of uncertainty for each factor; that is, determine what distribution to
use to model the uncertainty.
Answer: D
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
1-114
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
30) The last step in decision tree analysis methodology is to
A) identify factors such as demand, price, and exchange rate, whose fluctuation will be
considered over the next T periods.
B) identify the periodic discount rate k for each period.
C) start at period T, work back to Period 0, identifying the optimal decision and the expected
cash flows at each step. Expected cash flows at each step in a given period should be discounted
back when included in the previous period.
D) identify the duration of each period (month, quarter, etc.) and the number of periods T over
which the decision is to be evaluated.
E) identify representations of uncertainty for each factor; that is, determine what distribution to
use to model the uncertainty.
Answer: C
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
31) Uncertainty in demand and economic factors should be included in the financial evaluation
of supply chain design decisions, because
A) the exclusion of certainty may have a significant impact on this evaluation.
B) the exclusion of uncertainty may have a significant impact on this evaluation.
C) the inclusion of certainty may have a significant impact on this evaluation.
D) the inclusion of uncertainty may have a significant impact on this evaluation.
E) none of the above
Answer: D
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
32) Flexibility should be valued by taking into account uncertainty in demand and economic
factors. In general, flexibility will tend to
A) decrease in value with a decrease in certainty.
B) increase in value with an increase in uncertainty.
C) decrease in value with an increase in uncertainty.
D) increase in value with an increase in certainty.
E) None of the above are accurate.
Answer: B
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
1-115
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
33) A major factor that makes the decision tree methodology quite powerful is
A) the choice of certainty.
B) the choice of discount rate.
C) the choice of uncertainty level.
D) the choice of additive factor.
E) all of the above
Answer: B
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
34) The appropriate discount rate used in decision tree methodology
A) should be risk-adjusted and risk may vary by period and decision node.
B) should be risk-adjusted and risk may not vary by period and decision node.
C) should not be risk-adjusted and risk may vary by period and decision node.
D) should not be risk-adjusted and risk may not vary by period and decision node.
E) None of the above are accurate.
Answer: A
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
35) Firms should use simulation for evaluating decisions when
A) underlying decision trees are simple and explicit solutions for the underlying decision tree are
difficult to obtain.
B) underlying decision trees are very complex and explicit solutions for the underlying decision
tree are difficult to obtain.
C) underlying decision trees are simple and explicit solutions for the underlying decision tree are
easy to obtain.
D) underlying decision trees are very complex and explicit solutions for the underlying decision
tree are easy to obtain.
E) none of the above
Answer: B
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
36) In a complex decision tree there are
A) only a few possible paths that may result from the first period to the last.
B) less than thirty possible paths that may result from the first period to the last.
C) thousands of possible paths that may result from the first period to the last.
D) an infinite number of possible paths that may result from the first period to the last.
E) none of the above
Answer: C
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
Learning Outcome: Compare common approaches to supply chain design
1-116
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
37) Simulation models
A) require a higher setup cost to start and operate compared to decision tree tools.
B) require a lower setup cost to start and operate compared to decision tree tools.
C) require a higher setup cost to start but less to operate compared to decision tree tools.
D) require a lower setup cost to start but more to operate compared to decision tree tools.
E) none of the above
Answer: A
Diff: 3
Topic: 6.6 To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under
Uncertainty
Learning Outcome: Compare common approaches to supply chain design
38) Strategic planning and financial planning
A) should be performed independently during supply chain network design.
B) should be performed sequentially during supply chain network design.
C) should be performed hierarchically during supply chain network design.
D) should be performed concurrently during supply chain network design.
E) should be combined during supply chain network design.
Answer: E
Diff: 3
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
39) The evaluation of supply chain networks
A) should use only one metric.
B) should use multiple metrics.
C) should not use more than one metric.
D) should not use multiple metrics.
E) should be subjective.
Answer: B
Diff: 2
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
40) Financial analysis should be used as
A) the decision-making process.
B) an alternative decision-making process.
C) an input to decision making, not as the decision-making process.
D) all of the above
E) none of the above
Answer: C
Diff: 2
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
1-117
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
41) One of the best ways to speed up the process of financial analysis and arrive at a good
decision is to
A) use estimates of inputs when it appears that finding a very accurate input would take an
inordinate amount of time.
B) use estimates backed up by sensitivity analysis when it appears that finding a very accurate
input would take an inordinate amount of time.
C) use estimates of inputs except when it appears that finding a very accurate input would take
an inordinate amount of time.
D) make sure that every detail is very accurate.
E) none of the above
Answer: B
Diff: 3
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
42) The tailored strategy "Focus on low-cost, decentralized capacity for predictable demand"
follows which risk mitigation strategy?
A) Get redundant suppliers
B) Increase capacity
C) Increase responsiveness
D) Increase inventory
Answer: B
Diff: 3
Topic: 6.3 Risk Management in Global Supply Chains
Learning Outcome: Compare common approaches to supply chain design
43) Flexibility can be divided into three broad categories. Which of the following is not one of
the categories?
A) New product flexibility
B) Mix flexibility
C) Risk flexibility
D) Volume flexibility
Answer: C
Diff: 2
Topic: 6.3 Risk Management in Global Supply Chains
44) A labor dispute is a risk driver to be considered during network design. What category does a
"labor dispute" belong?
A) Disruptions
B) Inventory risk
C) Systems risk
D) Capacity risk
Answer: A
Diff: 3
Topic: 6.3 Risk Management in Global Supply Chains
Learning Outcome: Compare common approaches to supply chain design
1-118
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
45) What is the type of this network design?
A) Dedicated network
B) Fully flexible network
C) Chained network with one long chain
D) Chained network with two long chains
Answer: B
Diff: 1
Topic: 6.2 The Offshoring Decision: Total Cost
AACSB: Analytic Skills
Learning Outcome: Compare and contrast different sourcing strategies including outsourcing
and insourcing
46) Simulation methods are very good at evaluating decisions when
A) the paths are decision dependent.
B) the decision rules are simple.
C) there are different forms of uncertainty.
D) implicit solutions are needed for analysis.
Answer: C
Diff: 3
Topic: 6.6 To Onshore or Offshore: Evaluation of Global Supply Chain Design Decisions Under
Uncertainty
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
47) The textbook mentions that decision makers should design global supply chain networks
considering a portfolio of strategic options including
A) the option to wait, build finite capacity, build flexible capacity.
B) sign shorter-term contracts, purchase from the spot market.
C) uncertainty can usually be disregarded.
D) the option to wait, build excess capacity, build flexible capacity.
Answer: D
Diff: 1
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
1-119
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
6.3 Essay Questions
1) Explain additive and multiplicative binomial representations of uncertainty.
Answer: The binomial representation of uncertainty is based on the assumption that when
moving from one period to the next, the value of the underlying factor (such as demand or price)
has only two possible outcomes — up or down. In the commonly used multiplicative binomial, it
is assumed that the underlying factor either moves up by a factor u > 1 with probability p, or
down by a factor d < 1 with probability 1 - p. In the additive binomial, it is assumed that the
underlying factor increases by u in a given period with probability p and decreases by d with
probability 1 - p. The multiplicative binomial cannot take on negative values and can be used for
factors like demand, price, and exchange rates that cannot become negative. It also has the
advantage of the growth or decline in the given factor being proportional to the current value of
the factor and not fixed independent of size. A logical objection to both the multiplicative and
additive binomial is the fact that the underlying factor takes on only one of two possible values at
the end of each period. Certainly a price can change to more than just two values. But by making
the period short enough, this assumption may be justified.
Diff: 3
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
2) Summarize the steps in the decision tree analysis methodology.
Answer: The decision tree analysis methodology is summarized as follows:
1. Identify the duration of each period (month, quarter, etc.) and the number of periods T over
which the decision is to be evaluated.
2. Identify factors such as demand, price, and exchange rate, whose fluctuation will be
considered over the next T periods.
3. Identify representations of uncertainty for each factor; that is, determine what distribution to
use to model the uncertainty.
4. Identify the periodic discount rate k for each period.
5. Represent the decision tree with defined states in each period, as well as the transition
probabilities between states in successive periods.
6. Starting at period T, work back to Period 0, identifying the optimal decision and the expected
cash flows at each step. Expected cash flows at each step in a given period should be discounted
back when included in the previous period.
Diff: 2
Topic: 6.5 Evaluating Network Design Decisions Using Decision Trees
1-120
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
3) Discuss the ideas that managers should consider to make better supply chain network design
decisions under uncertainty.
Answer: Managers should consider the following ideas to help them make better network design
decisions under uncertainty:
1. Combine strategic planning and financial planning during network design. In most
organizations, financial planning and strategic planning are performed independently. Strategic
planning tries to prepare for future uncertainties but often without rigorous quantitative analysis,
whereas financial planning performs quantitative analysis but assumes a predictable or welldefined future. Decision makers should design supply chain networks considering a portfolio of
strategic options–the option to wait, build excess capacity, build flexible capacity, sign long-term
contracts, purchase from the spot market, and so forth. The various options should be evaluated
in the context of future uncertainty.
2. Use multiple metrics to evaluate supply chain networks. As one metric can only give part of
the picture, it is beneficial to examine network design decisions using multiple metrics such as
firm profits, supply chain profits, customer service levels, and response times. Often, different
metrics will recommend different decisions and by using multiple metrics, the differences
between the strategic choices will become clearer. The best decisions can be made when a
multitude of metrics are available, because each metric enhances the overall view of the
alternatives being considered.
3. Use financial analysis as an input to decision making, not as the decision-making process.
Financial analysis is a great tool in the decision-making process, as it often produces an answer
and an abundance of quantitative data to back up that answer. However appealing this may be,
management should not rely solely on financial analysis to make decisions. Use of this analysis
as a large part of the decision-making process is fine, but other inputs into the decision process
that are difficult to quantify should be included in the analysis as well. Financial methodologies
alone do not provide a complete picture of the alternatives. These impacts should be considered
in addition to the raw financial analysis. In the final analysis, management must use other inputs
beyond financial analysis in the decision-making process to get the most complete view of the
alternatives possible.
4. Use estimates along with sensitivity analysis. Many of the inputs into financial analysis can be
difficult, if not impossible, to nail down in a very accurate fashion. This can cause financial
analysis to be a long and drawn out process. One of the best ways to speed the process along and
arrive at a good decision is to use estimates of inputs when it appears that finding a very accurate
input would take an inordinate amount of time. Using estimates is fine when the estimates are
backed up by sensitivity analysis. By performing sensitivity analysis on the input's range,
managers can often show that no matter where the true input lies within the range, the outcome
remains the same. When this is not the case, they have highlighted a key variable to making the
decision and it likely deserves more attention to arrive at a more accurate answer. In summary, to
effectively make supply chain design decisions, managers need to make estimates of inputs and
then test all recommendations with sensitivity analysis.
Diff: 2
Topic: 6.7 Making Global Supply Chain Design Decisions Under Uncertainty in Practice
1-121
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
4) The XYZ Company has a choice between two warehouses. A lease at location A costs $1000
per month with a payment of $2000 up front to guarantee the 3 year lease. Location B would cost
$1200 per month and would be leased from month to month. The anticipated revenue in either
location is $1500 per month. The estimated rate of return is 10% per year. Using net present
value, determine which location would be the better choice.
Answer: Location A
Expected annual profit = 12 × ($1500 - $1000) = $6000
NPV = $6000 + ($6000/1.1) + ($6000/1.12) - $2000 = $14,413.22
Location B
Expected annual profit = 12 × ($1500 - $1200) = $3600
NPV = $3600 + ($3600/1.1) + ($3600/1.12) = $9847.93
Location A is the better choice.
Diff: 2
Topic: 6.4 Discounted Cash Flows
1-122
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Supply Chain Management, 5e (Chopra/Meindl)
Chapter 14 Transportation in a Supply Chain
14.1 True/False Questions
1) Transportation plays a key role in every supply chain because products are usually produced
and consumed in the same location.
Answer: FALSE
Diff: 1
Topic: 14.1 The Role of Transportation in a Supply Chain
Learning Outcome: Compare common approaches to supply chain design
2) A distributor makes investment decisions regarding the transportation infrastructure and then
makes operating decisions to try to maximize the return from these assets.
Answer: FALSE
Diff: 3
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
3) A carrier uses transportation to minimize the total cost (transportation, inventory, information,
and facility) while providing an appropriate level of responsiveness to the customer.
Answer: FALSE
Diff: 3
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
4) The vehicle-related cost is incurred whether the vehicle is operating or not and is considered
fixed for short-term operational decisions by the carrier.
Answer: TRUE
Diff: 2
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
5) A carrier's decisions are affected by the prices that the market will bear, but not the
responsiveness it seeks to provide its target segment.
Answer: FALSE
Diff: 2
Topic: 14.2 Modes of Transportation and Their Performance Characteristics
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
14-1
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
6) Transportation cost depends on the prices offered by different carriers and the extent to which
the shipper uses inexpensive and slow, or expensive and fast, means of transportation.
Answer: TRUE
Diff: 1
Topic: 14.2 Modes of Transportation and Their Performance Characteristics
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
7) Rail is the dominant mode of freight transportation in the United States and accounts for over
75 percent of the nation's freight bill.
Answer: FALSE
Diff: 2
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
8) A milk run is a route in which a truck either delivers product from a single supplier to multiple
retailers or goes from multiple suppliers to a single retailer.
Answer: TRUE
Diff: 1
Topic: 14.1 The Role of Transportation in a Supply Chain
Learning Outcome: Compare common approaches to supply chain design
9) Milk runs reduce outbound transportation costs by consolidating large shipments.
Answer: FALSE
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
10) The mode of transportation that results in the lowest transportation cost will lower total costs
for a supply chain.
Answer: FALSE
Diff: 2
Topic: 14.4 Design Options for a Transportation Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
11) Ignoring inventory costs when making transportation decisions can result in choices that
worsen the performance of a supply chain.
Answer: TRUE
Diff: 2
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
14-2
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
12) Firms can significantly reduce the safety inventory they require by physically aggregating
inventories in one location, which will also decrease transportation cost.
Answer: FALSE
Diff: 2
Topic: 14.5 Trade-Offs in Transportation Design
Learning Outcome: Compare common approaches to supply chain design
13) Temporal aggregation decreases a firm's responsiveness because of shipping delay but also
decreases transportation costs because of economies of scale that result from larger shipments.
Answer: TRUE
Diff: 1
Topic: 14.5 Trade-Offs in Transportation Design
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
14) A firm can meet customer needs by using tailored transportation to provide the appropriate
transportation choice based on customer and product characteristics, but at a higher cost.
Answer: FALSE
Diff: 2
Topic: 14.5 Trade-Offs in Transportation Design
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
15) Tailored transportation is the use of different transportation networks and modes based on
customer and product characteristics.
Answer: TRUE
Diff: 1
Topic: 14.6 Tailored Transportation
Learning Outcome: Compare common approaches to supply chain design
16) The most important operational decision related to transportation in a supply chain is the
routing and scheduling of deliveries.
Answer: TRUE
Diff: 2
Topic: 14.6 Tailored Transportation
Learning Outcome: Compare common approaches to supply chain design
17) Transportation is a significant component of the costs incurred by most supply chains.
Answer: TRUE
Diff: 1
Topic: 14.1 The Role of Transportation in a Supply Chain
Learning Outcome: Compare common approaches to supply chain design
14-3
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
14.2 Multiple Choice Questions
1) The movement of product from one location to another as it makes its way from the beginning
of a supply chain to the customer's hands is referred to as
A) transportation.
B) retailing.
C) distribution.
D) manufacturing.
Answer: A
Diff: 2
Topic: 14.1 The Role of Transportation in a Supply Chain
Learning Outcome: Compare common approaches to supply chain design
2) Transportation plays a key role in every supply chain because
A) products are normally produced and consumed in the same location.
B) products are rarely produced and consumed in the same location.
C) the cost of transportation is inconsequential.
D) transportation is not a factor in determining profitability.
Answer: B
Diff: 1
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
3) The key players in any transportation that takes place within a supply chain are
A) the shipper and the receiver.
B) the shipper and the supplier.
C) the shipper and the manufacturer.
D) the shipper and the carrier.
Answer: D
Diff: 2
Topic: 14.1 The Role of Transportation in a Supply Chain
Learning Outcome: Compare common approaches to supply chain design
4) Investment decisions regarding the transportation infrastructure (rails, locomotives, trucks,
airplanes, etc.) are the primary concern of
A) the shipper.
B) the supplier.
C) the manufacturer.
D) the carrier.
Answer: D
Diff: 3
Topic: 14.1 The Role of Transportation in a Supply Chain
Learning Outcome: Compare common approaches to supply chain design
14-4
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
5) Which of the following uses transportation to minimize the total cost (transportation,
inventory, information, and facility) while providing an appropriate level of responsiveness to
the customer?
A) The shipper
B) The supplier
C) The manufacturer
D) The carrier
Answer: A
Diff: 2
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
6) Which of the following is not a factor that affects carrier decisions?
A) Vehicle-related cost
B) Fixed operating cost
C) Quantity-related cost
D) Transportation cost
Answer: D
Diff: 3
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
7) Which of the following is not a cost the shipper needs to consider when making transportation
decisions?
A) Transportation cost
B) Inventory cost
C) Facility cost
D) Quantity-related cost
Answer: D
Diff: 2
Topic: 14.4 Design Options for a Transportation Network
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
8) The total amount paid to various carriers for transporting products to customers is
A) transportation cost.
B) inventory cost.
C) facility cost.
D) processing cost.
Answer: A
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
14-5
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
9) The cost of holding inventory incurred by the shipper's supply chain network is
A) transportation cost.
B) inventory cost.
C) facility cost.
D) processing cost.
Answer: B
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
10) The cost of various facilities in the shipper's supply chain network is
A) transportation cost.
B) inventory cost.
C) facility cost.
D) processing cost.
Answer: C
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
11) The cost of loading/unloading orders, as well as other processing costs associated with
transportation, is considered
A) transportation cost.
B) inventory cost.
C) facility cost.
D) processing cost.
Answer: D
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
12) Which mode of transportation is the most expensive?
A) Air
B) Truck
C) Rail
D) Water
Answer: A
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
14-6
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
13) Which mode of transportation is the least expensive?
A) Air
B) Truck
C) Rail
D) Water
Answer: D
Diff: 2
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
14) Which mode of transportation is the dominant form of freight transportation?
A) Air
B) Truck
C) Rail
D) Water
E) Pipeline
Answer: B
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
15) Which mode of transportation is used primarily for petroleum and natural gas?
A) Air
B) Truck
C) Water
D) Pipeline
Answer: D
Diff: 1
Topic: 14.2 Modes of Transportation and Their Performance Characteristics
Learning Outcome: Compare common approaches to supply chain design
16) Which transportation network design option has the elimination of intermediate warehouses
and its simplicity of operation and coordination as its major advantage?
A) Direct shipping network
B) Direct shipping with milk runs
C) All shipments via central DC
D) Shipping via DC using milk runs
Answer: A
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
14-7
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
17) Which transportation network design option establishes an extra layer between suppliers and
retailers to store inventory and to serve as a transfer location?
A) Direct shipping network
B) Direct shipping with milk runs
C) All shipments via central DC
D) Shipping via DC using milk runs
Answer: C
Diff: 2
Topic: 14.4 Design Options for a Transportation Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
18) Which transportation network design option uses a combination of other options to reduce
the cost and improve responsiveness of the supply chain?
A) Direct shipping network
B) Direct shipping with milk runs
C) Shipping via DC using milk runs
D) Tailored network
Answer: D
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
19) What trade-offs do managers need to consider when making transportation decisions?
A) Transportation cost versus inventory cost
B) Transportation cost versus customer responsiveness
C) Inventory cost versus customer responsiveness
D) A and B only
Answer: D
Diff: 2
Topic: 14.4 Design Options for a Transportation Network
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
20) The fundamental supply chain decision(s) involving the trade-off between transportation and
inventory costs is (are)
A) choice of transportation mode.
B) inventory aggregation.
C) level of customer responsiveness.
D) both A and B
Answer: D
Diff: 2
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
14-8
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
21) Cheaper modes of transport typically have
A) shorter lead times and smaller minimum shipment quantities.
B) shorter lead times and larger minimum shipment quantities.
C) longer lead times and smaller minimum shipment quantities.
D) longer lead times and larger minimum shipment quantities.
Answer: D
Diff: 1
Topic: 14.4 Design Options for a Transportation Network
Learning Outcome: Compare common approaches to supply chain design
22) Temporal aggregation
A) is the process of combining orders across time.
B) increases a firm's responsiveness.
C) decreases transportation costs because of economies of scale.
D) all of the above
Answer: A
Diff: 2
Topic: 14.5 Trade-Offs in Transportation Design
Learning Outcome: Compare common approaches to supply chain design
23) Tailored transportation is the use of different transportation networks and modes based on
A) customer density.
B) customer distance from warehouse.
C) customer size and location.
D) all of the above
Answer: D
Diff: 2
Topic: 14.6 Tailored Transportation
Learning Outcome: Compare common approaches to supply chain design
24) The most important operational decision related to transportation in a supply chain is
A) minimizing cost of transportation.
B) maximizing profitability of the supply chain.
C) reducing the level of cycle inventory.
D) the routing and scheduling of deliveries.
Answer: D
Diff: 3
Topic: 14.7 The Role of IT in Transportation
Learning Outcome: Compare common approaches to supply chain design
14-9
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
25) Which of the following are computational procedures that can be used to make decisions
regarding the routing and scheduling of deliveries?
A) the savings matrix method
B) the generalized assignment method
C) the loss prevention method
D) A and B only
Answer: D
Diff: 2
Topic: 14.7 The Role of IT in Transportation
Learning Outcome: Compare common approaches to supply chain design
26) Managers should ensure that a firm's transportation strategy
A) involves cost minimization.
B) involves profit maximization.
C) supports its competitive strategy.
D) is separate from competitive strategy.
Answer: C
Diff: 3
Topic: 14.9 Making Transportation Decisions in Practice
Learning Outcome: Compare common approaches to supply chain design
27) Ignoring uncertainty in demand encourages a greater use of
A) expensive but flexible transportation modes.
B) inexpensive and inflexible transportation modes.
C) inexpensive and flexible transportation modes.
D) expensive and inflexible transportation modes.
Answer: B
Diff: 2
Topic: 14.9 Making Transportation Decisions in Practice
Learning Outcome: Compare common approaches to supply chain design
28) Inexpensive and inflexible transportation modes tend to
A) perform poorly.
B) perform very poorly when plans change.
C) perform well when everything goes as planned.
D) all of the above
Answer: C
Diff: 2
Topic: 14.9 Making Transportation Decisions in Practice
Learning Outcome: Compare common approaches to supply chain design
14-10
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
29) The ________ is the party that requires the movement of the product between two points in
the supply chain.
A) carrier
B) producer
C) shipper
D) consumer
Answer: C
Diff: 3
Topic: 14.1 The Role of Transportation in a Supply Chain
Learning Outcome: Compare common approaches to supply chain design
30) The ________ is the party that moves or transports the product.
A) carrier
B) producer
C) shipper
D) consumer
Answer: A
Diff: 1
Topic: 14.1 The Role of Transportation in a Supply Chain
Learning Outcome: Compare common approaches to supply chain design
31) Which of the following is the fastest delivery method of transportation?
A) Rail
B) Truck
C) Air
D) Intermodal
Answer: C
Diff: 1
Topic: 14.2 Modes of Transportation and Their Performance Characteristics
Learning Outcome: Compare common approaches to supply chain design
32) Major infrastructure elements for transportation systems would not include
A) air.
B) rail.
C) canals.
D) seaports.
Answer: A
Diff: 3
Topic: 14.3 Transportation Infrastructure and Policies
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
14-11
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
33) A shipper uses transportation to minimize the total cost while providing an appropriate level
of responsiveness to the customer. Which of the following is not considered to be a major part of
the total cost?
A) Sourcing
B) Inventory
C) Information
D) Production
Answer: D
Diff: 3
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
34) The text states that the effectiveness of carriers is influenced by infrastructure. Which of the
following would not fall into this category?
A) Ports
B) Effective management
C) Roads
D) Airports
Answer: B
Diff: 3
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
35) ________ carriers offer a very fast and fairly expensive mode of transportation for cargo.
A) Air
B) Truck
C) Rail
D) Water
Answer: A
Diff: 1
Topic: 14.2 Modes of Transportation and Their Performance Characteristics
Learning Outcome: Compare common approaches to supply chain design
36) ________ typically move commodities over large distances at lower costs per unit shipped.
A) Air
B) Truck
C) Rail
D) Package carriers
Answer: C
Diff: 1
Topic: 14.2 Modes of Transportation and Their Performance Characteristics
Learning Outcome: Compare common approaches to supply chain design
14-12
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
37) ________ are the preferred mode of transport for online businesses such as Amazon.com and
Dell, as well as for companies such as W.W. Grainger and McMaster-Carr that send small
packages to customers.
A) Air
B) Package carriers
C) Rail
D) Water
Answer: B
Diff: 1
Topic: 14.2 Modes of Transportation and Their Performance Characteristics
Learning Outcome: Compare common approaches to supply chain design
38) There are three basic questions to be considered when designing a transportation network
between two stages of a supply chain. Which of the following is not a question to be considered?
A) Should transportation be direct or through an intermediate site?
B) Should intermediate site stock product or only serve as a cross-docking location?
C) Should each delivery route supply a single destination or multiple destinations (milk run)?
D) Should transportation costs be minimized?
Answer: D
Diff: 1
Topic: 14.3 Transportation Infrastructure and Policies
AACSB: Analytic Skills
Learning Outcome: Compare common approaches to supply chain design
14-13
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
14.3 Essay Questions
1) Discuss the two key players involved in any transportation in the supply chain.
Answer: There are two key players in any transportation that takes place within a supply chain.
The shipper is the party that requires the movement of the product between two points in the
supply chain. The carrier is the party that moves or transports the product.
When making transportation-related decisions, factors to be considered vary depending on
whether one takes the perspective of a carrier or shipper. A carrier makes investment decisions
regarding the transportation infrastructure (rails, locomotives, trucks, airplanes, etc.) and then
makes operating decisions to try to maximize the return from these assets. A shipper, in contrast,
uses transportation to minimize the total cost (transportation, inventory, information, and facility)
while providing an appropriate level of responsiveness to the customer.
Diff: 2
Topic: 14.1 The Role of Transportation in a Supply Chain
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
2) What trade-offs do managers need to consider when making transportation decisions?
Answer: The cost of coordinating operations is generally hard to quantify. Companies should
evaluate different transportation options in terms of various costs as well as revenues and then
rank them according to coordination complexity. A manager can then make the appropriate
transportation decision. Managers must consider the following trade-offs when making
transportation decisions:
∙ Transportation and inventory cost trade-off
∙ Transportation cost and customer responsiveness trade-off
The trade-off between transportation and inventory costs is significant when designing a supply
chain network. Two fundamental supply chain decisions involving this trade-off are:
∙ Choice of transportation mode
∙ Inventory aggregation
When selecting a mode of transportation, managers must account for inventory costs. Modes
with high transportation costs can be justified if they result in significantly lower inventories.
Firms can significantly reduce the safety inventory they require by physically aggregating
inventories in one location. Transportation cost, however, increases when inventory is
aggregated.
The transportation cost a supply chain incurs is closely linked to the degree of responsiveness the
supply chain aims to provide. If a firm has high responsiveness and ships all orders within a day
of their receipt from the customer, it will have small outbound shipments resulting in a high
transportation cost. If it decreases its responsiveness and aggregates orders over a longer time
horizon before shipping them out, it will be able to exploit economies of scale and incur a lower
transportation cost because of larger shipments.
Diff: 2
Topic: 14.5 Trade-Offs in Transportation Design
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
14-14
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
3) Explain why transportation systems should be tailored.
Answer: Tailored transportation is the use of different transportation networks and modes based
on customer and product characteristics. A firm can meet customer needs at a lower cost by
using tailored transportation to provide the appropriate transportation choice based on customer
and product characteristics.
Firms must consider customer density and distance from warehouse when designing
transportation networks. Firms must consider customer size and location when designing
transportation networks. The degree of inventory aggregation and the modes of transportation
used in a supply chain network should vary with the demand and value of a product.
Tailoring transportation based on customer density and distance, customer size, or product
demand and value allows a supply chain to achieve appropriate responsiveness and cost.
Diff: 2
Topic: 14.6 Tailored Transportation
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
4) Discuss the relationship between transportation strategy and competitive strategy.
Answer: Transportation strategy needs to be aligned with competitive strategy. Managers should
ensure that a firm's transportation strategy supports its competitive strategy. They should design
functional incentives that help achieve this goal. Historically, the transportation function within
firms has been evaluated based on the extent to which it can lower transportation costs. Such a
focus leads to decisions that lower transportation costs but hurt the level of responsiveness
provided to customers and may raise the firm's total cost.
Diff: 2
Topic: 14.8 Risk Management in Transportation
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
5) Discuss the importance of designing flexibility into the transportation network.
Answer: Flexibility needs to be designed into the transportation network. When designing
transportation networks, managers should take into account uncertainty in demand, as well as
availability of transportation. Ignoring uncertainty encourages a greater use of inexpensive and
inflexible transportation modes that perform well when everything goes as planned. Such
networks, however, perform very poorly when plans change. When managers account for
uncertainty, they are more likely to include flexible, though more expensive, modes of
transportation within their network. Although these modes may be more expensive for a
particular shipment, including them in the transportation options allows a firm to reduce the
overall cost of providing a high level of responsiveness.
Diff: 2
Topic: 14.9 Making Transportation Decisions in Practice
AACSB: Reflective Thinking Skills
Learning Outcome: Compare common approaches to supply chain design
14-15
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall