CHAPTER 1: AN OVERVIEW OF LOGISTICS
I Multiple Choice Questions
1. Logistics clearly contributes to ___________ and ___________ utility.
a. time; place
b. form; time
c. place; form
d. possession; time
[LO 1.1: To discuss the economic impacts of logistics; Moderate; Application; AACSB Category
3: Analytical thinking]
2. ___________ utility refers to the value or usefulness that comes from a customer being able
to take possession of a product.
a. Time
b. Place
c. Form
d. Possession
[LO 1.1: To discuss the economic impacts of logistics; Easy; Concept; AACSB Category 3:
Analytical thinking]
3. ___________ utility refers to having products available where they are needed by
customers.
a.
b.
c.
d.
Possession
Time
Place
Form
[LO 1.1: To discuss the economic impacts of logistics; Easy; Concept; AACSB Category 3:
Analytical thinking]
4. All of the following are types of economic utility except:
a.
b.
c.
d.
time.
production.
place.
possession.
[LO 1.1: To discuss the economic impacts of logistics; Moderate; Synthesis; AACSB Category
3: Analytical thinking]
1
5. “How well a company does what it says it’s going to do” represents ___________.
a.
b.
c.
d.
efficiency
productivity
quality
effectiveness
[LO 1.2: To define what logistics is; Easy; Concept; AASCB Category 3: Analytical thinking]
6. What concept refers to “how well company resources are used to achieve what a company
promises it can do”?
a.
b.
c.
d.
efficiency
productivity
reengineering
effectiveness
[LO 1.2: To define what logistics is; Easy; Concept; AASCB Category 3: Analytical thinking]
7. Every customer getting the same type and level of logistics service refers to ___________.
a.
b.
c.
d.
tailored logistics
mass logistics
effectiveness
efficiency
[LO 1.2: To define what logistics is; Easy; Concept; AASCB Category 3: Analytical thinking]
8. Which of the following is not a reason for the increased importance of logistics?
a.
b.
c.
d.
growing power of manufacturers
reduction in economic regulation
globalization of trade
technological advances
[LO 1.3: To analyze the increased importance of logistics; Moderate; Synthesis; AACSB
Category 3: Analytical thinking]
9. Widespread reductions in economic regulation of U.S. transportation carriers occurred in
___________.
a. the 1960s and 1970s
b. the 1970s and 1980s
c. the 1980s and 1990s
d. only the 1990s
2
[LO 1:3: To analyze the increased importance of logistics; Easy; Application; AACSB
Category 3: Analytical thinking]
10. The ___________ concept suggests that the customer desires a product offering that is highly
tailored to the customer’s exact preferences.
a. market demassification
b. relationship marketing
c. customized customer
d. niche marketing
[LO 1.3: To analyze the increased importance of logistics; Easy; Concept; AACSB Category 3:
Analytical thinking]
11. Approximately ___________ percent of U.S. families with children reports that both parents
work.
a. 70
b. 60
c. 50
d. 40
[LO 1.3: To analyze the increased importance of logistics; Moderate; Application; AACSB
Category 3: Analytical thinking]
12. ___________ refers to the removal of intermediaries between producer and consumer.
a. Direct channel
b. Market demassification
c. Consolidation
d. Disintermediation
[LO 1.3: To analyze the increased importance of logistics; Easy; Concept; AACSB Category 3:
Analytical thinking]
13. ___________ are stores with large amounts of both floor space and product for sale.
a. Mass merchandisers
b. Power retailers
c. Big-box retailers
d. Do-it-yourself (DIY) retailers
[LO 1.3: To analyze the increased importance of logistics; Easy; Application; AACSB Category
3: Analytical thinking]
3
14. An example of ___________ involves ordering something online and then picking it up at a
bricks-and-mortar store.
a. supply chain management
b. finance
c. omnichannel retailing
d. big-box retailing
[LO 1.3: To analyze the increased importance of logistics; Easy; Application; AACSB Category
3: Analytical thinking]
15. World trade has grown at an average annual rate of approximately ___________ percent
since 1990.
a. 6
b. 5
c. 4
d. 3
[LO 1.3: To analyze the increased importance of logistics; Moderate; Application; AACSB
Category 3: Analytical thinking]
16. The ___________ approach indicates that a company’s objectives can be realized by
recognizing the mutual interdependence of major functional areas.
a. systems
b. supply chain
c. physical distribution
d. materials management
[LO 1.4: To discuss the systems and total cost approaches to logistics; Easy; Concept; AACSB
Category 3: Analytical thinking]
17. The movement and storage of materials into a firm refers to ___________.
a. physical distribution
b. materials management
c. supply chain management
d. materials handling
[LO 1.4: To discuss the systems and total cost approaches to logistics; Easy; Concept; AACSB
Category 3: Analytical thinking]
18. Which concept refers to the storage of finished product and movement to the customer?
a. supply chain management
4
b. business logistics
c. physical distribution
d. materials management
[LO 1.4: To discuss the systems and total cost approaches to logistics; Easy; Concept; AACSB
Category 3: Analytical thinking]
19. Logistics managers use the ___________ approach to coordinate materials management and
physical distribution in a cost-efficient manner.
a. total cost
b. supply chain
c. balanced
d. intrafunctional logistics
[LO 1.4: To discuss the systems and total cost approaches to logistics; Easy; Concept; AACSB
Category 3: Analytical thinking]
20. A cost trade-off is a situation where:
a. all costs react according to their individual degrees of inflation in the economy.
b. all costs are reflected as a percentage variation from standard costs.
c. some costs increase and some costs decrease.
d. some costs are eliminated by efficient management controls.
[LO 1.4: To discuss the systems and total cost approaches to logistics; Moderate; Synthesis;
AACSB Category 3: Analytical thinking]
21. The ___________ department often measures inventory in terms of its cost or value in
dollars whereas ___________ tends to measure inventory in terms of units.
a. marketing; logistics
b. finance; production
c. marketing; production
d. finance; logistics
[LO 1.5: To expose you to logistical relationships within the firm; Moderate; Application;
AACSB Category 3: Analytical thinking]
22. A common interface between production and logistics involves:
a. the types of materials handling equipment.
b. the length of production runs.
c. the use of plastic versus wood pallets.
d. the mode of transportation.
5
[LO 1.5: To expose you to logistical relationships within the firm; Moderate; Application;
AACSB Category 3: Analytical thinking]
23. ___________ refers to the delay of value-added activities such as assembly, production, and
packaging to the latest possible time.
a. Building block
b. Lean manufacturing
c. Deferral
d. Postponement
[LO 1.5: To expose you to logistical relationships within the firm; Easy; Concept; AACSB
Category 3: Analytical thinking]
24. The four basic components of the marketing mix include all of the following except:
a. price.
b. production.
c. place.
d. promotion.
[LO 1.5: To expose you to logistical relationships within the firm; Easy; Concept; AACSB
Category 3: Analytical thinking]
25. Landed costs refer to:
a. the costs of a product shipped via surface transport.
b. the costs of a product that is quoted cash on delivery (COD).
c. the costs of a prepaid shipment.
d. a price that includes both the cost of the product plus transportation to the buyer.
[LO 1.5: To expose you to logistical relationships within the firm; Moderate; Concept; AACSB
Category 3: Analytical thinking]
26. ___________ refers to being out of an item at the same time there is demand for it.
a. Postponement
b. Tailored logistics
c. Stockout
d. Supplier indifference
[LO 1.5: To expose you to logistical relationships within the firm; Easy; Concept; AACSB
Category 3: Analytical thinking]
6
27. Enticing customers with the promise of a low-priced product, only to find that it is
unavailable, but having a higher-priced substitute product readily available refers to
___________.
a. loss-leader marketing
b. unfair trade practices
c. bait-and-switch tactics
d. price lining
[LO 1.5: To expose you to logistical relationships within the firm; Easy; Concept; AACSB
Category 3: Analytical thinking]
28. Which of the following is not part of the marketing channel?
a. logistics channel
b. negotiations channel
c. management channel
d. finance channel
[LO 1.6: To introduce you to marketing channels; Moderate; Application; AACSB Category 3:
Analytical thinking]
29. The ownership channel consists of all parties except:
a. customers.
b. manufacturers.
c. wholesalers.
d. retailers.
[LO 1.6: To introduce you to marketing channels; Moderate; Concept; AACSB Category 3:
Analytical thinking]
30. Which channel covers the movement of title to the goods?
a. promotions
b. logistics
c. finance
d. ownership
[LO 1.6: To introduce you to marketing channels; Easy; Concept; AACSB Category 3:
Analytical thinking]
31. ___________ is bringing together similar stocks from different sources.
a. Accumulating
b. Assorting
7
c. Auditing
d. Allocating
[LO 1.6: To introduce you to marketing channels; Moderate; Concept; AACSB Category 3:
Analytical thinking]
32. ___________ refers to breaking a homogeneous supply into smaller lots.
a. Sorting out
b. Allocating
c. Accumulating
d. Assorting
[LO 1.6: To introduce you to marketing channels; Moderate; Concept; AACSB Category 3:
Analytical thinking]
33. Channel intermediaries:
a. assume temporary ownership of the goods.
b. tend to lack focus.
c. fill niches.
d. tend to disappear as the market becomes organized.
[LO 1.6: To introduce you to marketing channels; Moderate; Synthesis; AACSB Category 3:
Analytical thinking]
34. Brokers are intermediaries that are commonly associated with the ___________ channel.
a. promotions
b. finance
c. ownership
d. negotiation
[LO 1.6: To introduce you to marketing channels; Moderate; Concept; AACSB Category 3:
Analytical thinking]
35. The costliest logistics activity in many firms is ___________.
a. industrial packaging
b. transportation management
c. order management
d. warehousing management
[LO 1.7: To provide a brief overview of activities in the logistics channel; Moderate;
Application; AACSB Category 3: Analytical thinking]
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II SHORT ANSWER QUESTIONS
1. Did it surprise you that logistics has such an important economic impact? Why or why not?
Logistics plays a critical role in the economy, and its significance should not be surprising when
you consider its various functions. Efficient logistics operations are essential for businesses to
get their products to customers and to manage their supply chains effectively. Here are a few
reasons why logistics has a significant economic impact:
Cost Reduction: Efficient logistics can reduce transportation, inventory, and warehousing costs.
These cost savings can directly impact a company's profitability and, by extension, the broader
economy.
Improved Productivity: Effective logistics management enhances productivity by ensuring that
goods are transported and delivered in a timely manner. This leads to increased production and
economic growth.
Supply Chain Management: Logistics is a crucial component of supply chain management,
which is essential for ensuring a steady flow of goods and services. A well-functioning supply
chain can reduce disruptions and minimize economic downtime.
Global Trade: In an increasingly globalized world, logistics is vital for international trade. It
facilitates the movement of goods across borders, contributing to economic growth by expanding
market access and fostering international cooperation.
Job Creation: The logistics industry is a significant source of employment, from truck drivers
and warehouse workers to supply chain managers and software developers. Job creation in this
sector has a direct impact on the economy.
Customer Satisfaction: Efficient logistics leads to better customer service and satisfaction.
Satisfied customers are more likely to make repeat purchases, contributing to a company's
revenue and, ultimately, the economy.
In summary, logistics is integral to the modern economy due to its influence on cost reduction,
productivity, supply chain management, global trade, job creation, and customer satisfaction. It's
not surprising that logistics has such a substantial economic impact given its crucial role in
facilitating the movement of goods and services within and across borders.
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2. How do you view the statement “logistics is not equivalent to supply chain management”?
The statement "logistics is not equivalent to supply chain management" is accurate, and it
reflects an important distinction between two related but distinct concepts within the field of
business operations and management. Here's how you can view this statement:
Logistics refers to the process of planning, implementing, and controlling the efficient flow and
storage of goods, services, and information from the point of origin to the point of consumption.
It primarily focuses on the physical aspects of moving and managing goods, including
transportation, warehousing, inventory management, and distribution. Logistics is a subset of
supply chain management.
Supply Chain Management (SCM) is a broader concept that encompasses not only the physical
aspects of logistics but also the end-to-end management and coordination of all activities
involved in sourcing, procurement, production, and distribution. SCM involves strategic
decisions related to suppliers, production facilities, distribution channels, and customer demand.
It also includes the flow of information and finances throughout the entire supply chain.
Here's a simplified analogy to clarify the difference:
If a company is a machine, logistics are like the gears and cogs that ensure the machine's parts
move efficiently and are in the right place at the right time.
Supply chain management, on the other hand, is like the operator of the machine who plans,
manages, and coordinates the use of those gears and cogs to ensure that the machine operates
effectively, not just in terms of the physical components but also in terms of the overall
performance and value it delivers.
In summary, logistics is a crucial component of supply chain management, but supply chain
management is a more comprehensive and strategic concept that goes beyond logistics to
encompass the entire network of activities required to bring a product or service from its creation
to the end consumer.
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3. Why is logistics an imperative component in retailing?
Logistics is an imperative component in retailing for several reasons:
Efficient Inventory Management: Retailers need to stock and manage inventory effectively to
meet customer demand while minimizing carrying costs. Logistics helps with inventory control,
ensuring the right products are available when and where they are needed.
Supply Chain Optimization: Effective logistics operations contribute to a well-optimized supply
chain. This means retailers can source products from suppliers efficiently, reduce lead times, and
streamline the flow of goods from manufacturers to stores or customers.
Customer Satisfaction: Timely and accurate order fulfillment is critical for customer satisfaction.
Good logistics ensure that products are available on shelves or delivered to customers' doorsteps
when promised, leading to happy customers and repeat business.
Multi-Channel Retailing: With the rise of e-commerce and multi-channel retailing, retailers often
have to manage both physical stores and online sales. Logistics help integrate these channels,
allowing customers to buy online and return in-store, or vice versa, while maintaining a seamless
experience.
Seasonal and Promotional Demands: Retailers frequently face fluctuations in demand due to
seasons and promotions. Effective logistics enable the quick adjustment of inventory levels and
distribution to meet these changing demands.
Cost Efficiency: Retailers are under constant pressure to reduce operating costs. Efficient
logistics can help cut transportation, warehousing, and handling expenses, contributing to
improved profitability.
Competitive Advantage: Retail is a highly competitive industry. Efficient logistics can be a
source of competitive advantage, as it allows retailers to offer better prices, faster delivery, or
superior customer service.
Global Supply Chains: Many retailers source products globally. Logistics expertise is crucial for
managing the complexities of international shipping, customs, and cross-border operations.
Return Management: Dealing with returns is an integral part of retail. Logistics play a significant
role in handling reverse logistics efficiently, which can impact customer loyalty and cost
management.
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Data Analytics and Technology: Logistics in retail increasingly relies on data analytics and
technology, such as inventory management systems and route optimization software. These tools
help retailers make data-driven decisions and continuously improve their logistics processes.
In summary, logistics is essential in retailing because it ensures that products are available when
and where customers want them, drives cost efficiency, and contributes to overall customer
satisfaction. It is a core element of retail operations, impacting everything from inventory
management to customer service and competitive positioning in the market.
4. Define what is meant by a cost trade-off. Do you believe that this concept is workable? Why
or why not?
A cost trade-off is a decision-making concept that involves balancing or trading one cost or
expense against another. It typically occurs when a business or individual faces a situation where
reducing one type of cost might result in an increase in another type of cost. Cost trade-offs are
made to find the most cost-effective solution or to optimize resources within constraints.
Whether or not the concept of a cost trade-off is workable depends on the specific context and
the trade-offs being considered. Here are some considerations:
Workability of Cost Trade-Offs:
Necessity: Cost trade-offs are often necessary because resources are limited, and decisions must
be made to allocate those resources effectively. In many real-world situations, it's not possible to
minimize all costs simultaneously, so trade-offs are essential for rational decision-making.
Optimization: Cost trade-offs are a fundamental part of cost optimization. They allow businesses
to find the best balance between different cost elements, aiming for an optimal outcome rather
than attempting to minimize every cost individually.
Sensitivity to Context: The workability of cost trade-offs depends on the specific context. Some
trade-offs are straightforward and easily workable, while others may be more complex and
require careful analysis.
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Trade-Off Analysis: Effective decision-making in cost trade-offs involves thorough analysis and
understanding of the potential consequences. It's essential to consider not only the immediate
costs but also the long-term impact on business objectives and goals.
Measurement and Metrics: Workable cost trade-offs rely on accurate measurement and metrics.
Without clear data and metrics to assess the trade-offs, it's challenging to make informed
decisions.
Flexibility and Adaptability: In a dynamic business environment, the workability of cost tradeoffs also depends on the organization's ability to adapt and make adjustments as circumstances
change.
Challenges and Limitations:
Complexity: Some cost trade-offs can be quite complex, involving multiple variables and
uncertainties. Making informed decisions in such situations may be challenging.
Unintended Consequences: When making cost trade-offs, there is a risk of unintended
consequences. A reduction in one cost may lead to problems in other areas, which might not be
immediately apparent.
Risk Management: Trade-offs often involve risks, and the risk appetite and tolerance of an
organization should be carefully considered when making trade-off decisions.
Subjectivity: Trade-offs can be influenced by subjective judgments and assumptions, which may
introduce bias or lead to suboptimal decisions.
In conclusion, the concept of a cost trade-off is workable and often necessary in real-world
decision-making. It is a fundamental part of cost optimization and resource allocation. However,
the effectiveness of cost trade-offs depends on the context, careful analysis, data-driven decisionmaking, and the ability to manage unintended consequences and risks. When used thoughtfully,
cost trade-offs can lead to more efficient resource allocation and better overall outcomes.
5. Define what is meant by a landed cost and explain its relevance for pricing decisions.
Landed cost is a comprehensive concept that refers to the total cost incurred by a business to
acquire a product or inventory item and have it delivered to its intended destination. It includes
not only the cost of the product itself but also all the associated costs and expenses related to
procurement, transportation, customs, duties, taxes, and handling until the product is "landed" at
its final location.
The components of landed cost can vary depending on the specific circumstances and the nature
of the product. However, typical elements included in calculating landed cost are:
Product Cost: The cost of the item itself, often referred to as the "ex-factory" or "ex-works"
price.
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Shipping and Freight Costs: Expenses associated with transporting the product from the
supplier's location to the destination, which can include freight charges, shipping fees, and any
handling or unloading costs.
Customs Duties and Tariffs: Taxes and import duties imposed by the importing country's
government.
Taxes and Fees: Other taxes and fees that may apply, such as value-added tax (VAT) or sales
tax.
Handling and Storage Costs: Charges for handling, storage, and warehousing of the product, if
applicable.
Currency Exchange Costs: If transactions are conducted in a foreign currency, exchange rate
fluctuations can impact the landed cost.
Insurance: Costs related to insuring the goods during transit.
The relevance of landed cost for pricing decisions in business is significant:
Profit Margin Calculation: Accurately calculating the landed cost is essential for determining the
profit margin on a product. Understanding the total cost of acquisition and delivery helps
businesses set competitive and sustainable prices that allow for a reasonable profit.
Pricing Strategy: Landed cost information is crucial for developing a pricing strategy. Businesses
need to know the full cost of bringing products to market to make informed decisions about
pricing and market positioning.
International Trade: In global trade, where products cross borders, understanding the landed cost
is vital for compliance with import regulations and for managing the impact of tariffs and
customs duties on pricing.
Cost Control: Monitoring landed costs allows businesses to identify areas where cost reduction
or optimization is possible. This can lead to more efficient procurement and supply chain
decisions.
Market Entry: For companies considering entering new markets, the calculation of landed costs
helps in assessing the feasibility and profitability of such ventures.
In summary, landed cost is a critical factor in making informed pricing decisions. It provides a
comprehensive view of the total expenses associated with acquiring and delivering products,
which is essential for setting competitive prices, managing profit margins, and making wellinformed decisions in the context of global trade and supply chain management.
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