Supply Chain Management Exercise
True or False
1. A supply chain includes only the organizations directly involved in supplying components
needed for manufacturing.
Answer: False
Difficulty: Moderate
2. A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer
request.
Answer: True
Difficulty: Moderate
3. A supply chain could be more accurately described as a supply network or supply web.
Answer: True
Difficulty: Moderate
4. The objective of every supply chain is to maximize the overall value generated.
Answer: True
Difficulty: Easy
5. The objective of every supply chain is to maximize the value generated for the manufacturing
component of the supply chain.
Answer: False
Difficulty: Moderate
6. All supply chain activities within a firm belong to one of three macro processes – CRM,
ISCM and SRM.
Answer: True
Difficulty: Easy
7. There is a close connection between the design and management of supply chain flows and
the success of a supply chain.
Answer: True
Difficulty: Easy
8. A company’s competitive strategy defines the set of customer needs that it seeks to satisfy
through its products and services.
Answer: True
Difficulty: Easy
9. The value chain emphasizes the close relationship between all the functional strategies within
a company.
Answer: True
Difficulty: Moderate
10. A company’s product development strategy defines the set of customer needs that it seeks to
satisfy through its products and services.
Answer: False
Difficulty: Moderate
11. A company’s product development strategy specifies the portfolio of new products that it will
try to develop.
Answer: True
Difficulty: Easy
12. A company’s supply chain strategy specifies how the market will be segmented and how the
product will be positioned, priced, and promoted.
Answer: False
Difficulty: Easy
13. 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
Difficulty: Easy
14. The degree of supply chain responsiveness should be consistent with the implied uncertainty.
Answer: True
Difficulty: Easy
15. The degree of supply chain responsiveness does not need to be consistent with the implied
uncertainty.
Answer: False
Difficulty: Moderate
16. The two major types of facilities are distribution sites and storage sites.
Answer: False
Difficulty: Moderate
17. Inventory is an important supply chain driver because changing inventory policies can
dramatically alter the supply chain’s efficiency and responsiveness.
Answer: True
Difficulty: Moderate
18. Information is potentially the biggest driver of performance in the supply chain as it directly
affects each of the other drivers.
Answer: True
Difficulty: Easy
19. The high utilization facility will have no more difficulty responding to demand fluctuations
than one with a lot of unused capacity.
Answer: False
Difficulty: Easy
20. 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
Difficulty: Moderate
21. Warehouse unit storage is the warehousing methodology that uses a traditional warehouse to
store all of one type of product together.
Answer: False
Difficulty: Moderate
22. Distribution occurs between every pair of stages in the supply chain.
Answer: True
Difficulty: Moderate
23. Distribution only occurs between manufacturing and consumers in the supply chain.
Answer: False
Difficulty: Moderate
24. 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
Difficulty: Moderate
25. 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
Difficulty: Moderate
26. When designing supply chain networks, companies must build appropriate flexibility to help
counter fluctuations in exchange rates and demand across different countries.
Answer: True
Difficulty: Moderate
27. Inventory and facility costs increase as the number of facilities in a supply chain increase.
Answer: True
Difficulty: Moderate
28. Transportation costs increase as the number of facilities is increased.
Answer: False
Difficulty: Moderate
29. 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
Difficulty: Hard
30. 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
Difficulty: Easy
31. 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
Difficulty: Moderate
32. 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
Difficulty: Moderate
33. 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, define the boundaries within which the
supply chain must compete.
Answer: True
Difficulty: Moderate
34. 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
Difficulty: Easy
35. Long-term contracts for both warehousing and transportation requirements will be more
effective if either demand or the price of warehousing drops in the future.
Answer: False
Difficulty: Moderate
36. The present value of future cash flows is found by using a discount factor.
Answer: True
Difficulty: Moderate
37. The rate of return k is also referred to as the present value of capital.
Answer: False
Difficulty: Easy
38. A negative NPV for an option indicates that the option will lose money for the supply chain.
Answer: True
Difficulty: Moderate
39. The decision with the lowest NPV will provide a supply chain with the highest financial
return.
Answer: False
Difficulty: Moderate
40. In reality, demand and prices are highly uncertain and are likely to fluctuate during the life of
any supply chain decision.
Answer: True
Difficulty: Moderate
41. The goal of aggregate planning is to satisfy demand in a way that minimizes profit.
Answer: False
Difficulty: Easy
42. Aggregate planning is a process by which a company determines levels of capacity,
production, subcontracting, inventory, stockouts, and even pricing over a specified time horizon.
Answer: True
Difficulty: Moderate
43. Aggregate planning solves problems involving aggregate decisions rather than stock keeping
unit (SKU) level decisions.
Answer: True
Difficulty: Easy
44. Forecasting errors are dealt with in aggregate plans using either safety backlog or safety
capacity.
Answer: False
Difficulty: Moderate
45. Safety inventory is defined as inventory held to satisfy demand that is higher than forecasted.
Answer: True
Difficulty: Easy
46. Safety capacity is defined as capacity used to satisfy demand that is lower than forecasted.
Answer: False
Difficulty: Easy
47. Companies should work with downstream partners to produce forecasts and with upstream
partners to determine constraints when doing aggregate planning.
Answer: True
Difficulty: Easy
48. The aggregate plan should be viewed primarily as an in-house tool that does not need to be
communicated to supply chain partners.
Answer: False
Difficulty: Easy
49. Given that forecasts are always wrong to some degree, the aggregate plan needs to have some
flexibility built into it if it is to be useful.
Answer: True
Difficulty: Moderate
50. With supply and demand management decisions being made independently, it is easier to
coordinate the supply chain, thereby increasing profit.
Answer: False
Difficulty: Moderate
51. A firm can vary supply of product by controlling production capacity and inventory.
Answer: True
Difficulty: Easy
52. A firm that uses flexible work hours from the workforce to manage capacity to better meet
demand is using a seasonal workforce.
Answer: False
Difficulty: Moderate
53. Offering a promotion during a peak period that has significant forward buying creates even
more variable demand than before the promotion.
Answer: True
Difficulty: Easy
54. Average inventory decreases if a promotion is run during the peak period and increases if the
promotion is run during the off-peak period.
Answer: False
Difficulty: Easy
55. Promoting during a peak demand month may decrease overall profitability if a significant
fraction of the demand increase results from a forward buy.
Answer: True
Difficulty: Hard
56. As forward buying becomes a smaller fraction of the demand increase from a promotion, it is
less profitable to promote during the peak period.
Answer: False
Difficulty: Hard
57. As the product margin declines, promoting during the peak demand period becomes less
profitable.
Answer: True
Difficulty: Easy
58. Cycle inventory exists because producing or purchasing in large lots allows a stage of the
supply chain to exploit economies of scale and increase cost.
Answer: False
Difficulty: Moderate
59. A lot or batch size is the quantity that a stage of the supply chain either produces or purchases
at a given time.
Answer: True
Difficulty: Moderate
60. Cycle inventory is the physical inventory in the supply chain due to either production or
purchases demanded by the customer.
Answer: True
Difficulty: Moderate
61. The inventory profile is a plot depicting the level of inventory over time.
Answer: True
Difficulty: Easy
62. A discount is volume-based if the pricing schedule offers discounts based on the quantity
ordered in a single lot.
Answer: False
Difficulty: Hard
63. A discount is volume-based if the discount is based on the total quantity purchased over a
given period, regardless of the number of lots purchased over that period.
Answer: True
Difficulty: Easy
64. Pricing schedules with all unit quantity discounts encourage retailers to increase the size of
their lots, which reduces the average inventory and flow time in a supply chain.
Answer: False
Difficulty: Moderate
65. Safety inventory is inventory carried for the purpose of satisfying demand that exceeds the
amount forecasted for a given period.
Answer: True
Difficulty: Moderate
66. Safety inventory is carried because demand forecasts are accurate and a product shortage
may result if the forecast demand exceeds the actual demand.
Answer: False
Difficulty: Moderate
67. Raising the level of safety inventory increases product availability and thus the margin
captured from customer purchases.
Answer: True
Difficulty: Moderate
68. Raising the level of safety inventory increases inventory holding costs.
Answer: True
Difficulty: Easy
69. Carrying excessive inventory can help counter demand volatility when new products come on
the market.
Answer: False
Difficulty: Moderate
70. The appropriate level of safety inventory is determined by the uncertainty of both demand
and supply and the desired level of cycle inventory.
Answer: False
Difficulty: Moderate
71. As the uncertainty of supply or demand grows, the required level of safety inventories
increases.
Answer: True
Difficulty: Moderate
72. As the desired level of product availability increases, the required level of safety inventory
decreases.
Answer: False
Difficulty: Easy
73. Lead time is the gap between when an order is placed and when it is received.
Answer: True
Difficulty: Easy
74. Periodic review policies require more safety inventory than continuous review policies for
the same level of product availability.
Answer: True
Difficulty: Easy
75. When using a continuous review policy, a manager has to account for the uncertainty of
demand during the lead time and the review interval.
Answer: False
Difficulty: Easy
Multiply Choice
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
Difficulty: Easy
2. 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
Difficulty: Difficult
3. 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
Difficulty: Moderate
4. 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
Difficulty: Easy
5. 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
Difficulty: Hard
6. 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
Difficulty: Easy
7. 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
Difficulty: Easy
8. 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
Difficulty: Easy
9. 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.
10. 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
Difficulty: Easy
11. A supply chain strategy includes
a. supplier strategy.
b. operations strategy.
c. logistics strategy.
d. all of the above
e. none of the above
Answer: d
Difficulty: Moderate
12. Customer demand from different segments varies along which of the following attributes?
a. The quantity of product needed in each lot.
b. The response time that customers are willing to tolerate.
c. The variety of products needed.
d. The service level required.
e. all of the above
Answer: e
Difficulty: Easy
13. Which of the following is not an attribute along which customer demand varies?
a. The uniqueness of the product.
b. The quantity of product needed in each lot.
c. The variety of products needed.
d. The desired rate of innovation in the product.
e. All of the above are attributes.
Answer: a
Difficulty: Moderate
14. 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
Difficulty: Moderate
15. 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
Difficulty: Moderate
16. Which of the following supply chain capabilities will cause supply uncertainty to increase?
a. Frequent breakdowns
b. Unpredictable and low yields
c. Poor quality
d. Limited supply capacity
e. all of the above
Answer: e
Difficulty: Easy
17. 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
Difficulty: Easy
18. 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
Difficulty: Moderate
19. 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
Difficulty: Easy
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
Difficulty: Moderate
21. 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 (., 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
Difficulty: Hard
22. 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
Difficulty: Easy
23. 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
Difficulty: Moderate
24. 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
Difficulty: Easy
25. The time between when a customer places an order and receives delivery is
a. response time.
b. product variety.
c. product availability.
d. customer experience.
e. order visibility.
Answer: a
Difficulty: Easy
26. 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
Difficulty: Easy
27. 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
Difficulty: Moderate
28. 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
Difficulty: Moderate
29. 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
Difficulty: Moderate
30. 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
Difficulty: Moderate
31. 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
Difficulty: Easy
32. 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
Difficulty: Moderate
33. 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
Difficulty: Easy
34. 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
Difficulty: Easy
35. 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
Difficulty: Moderate
36. Positive externalities are instances where
a. the collocation of multiple firms benefits all of them.
b. the dispersion of multiple firms benefits all of them.
c. the cooperation of multiple firms benefits all of them.
d. the coordination of multiple firms benefits all of them.
e. the disagreement of multiple firms benefits all of them.
Answer: a
Difficulty: Moderate
37. The basis for all strategic and planning decisions in a supply chain comes from
a. the forecast of demand.
b. sales targets.
c. profitability projections.
d. production efficiency goals.
e. all of the above
Answer: a
Difficulty: Easy
38. For push processes, a manager must forecast what customer demand will be in order to
a. plan the service level.
b. plan the level of available capacity and inventory.
c. plan the level of productivity.
d. plan the level of production.
e. none of the above
Answer: d
Difficulty: Moderate
39. For pull processes, a manager must forecast what customer demand will be in order to
a. plan the service level.
b. plan the level of available capacity and inventory.
c. plan the level of productivity.
d. plan the level of production.
e. none of the above
Answer: b
Difficulty: Moderate
40. In general, the further up the supply chain a company is (or the further they are from the
consumer),
a. the greater the distortion of information they receive.
b. the smaller the distortion of information they receive.
c. the information they receive is more accurate.
d. the information they receive is more useful.
e. none of the above
Answer: a
Difficulty: Moderate
41. Which of the following is not a forecasting method?
a. qualitative
b. time series
c. causal
d. simulation
e. All of the above are forecasting methods.
Answer: e
Difficulty: Moderate
42. Predictable variability is
a. change in demand that can be forecasted.
b. change in demand that cannot be forecasted.
c. change in demand that has been planned.
d. change in demand that has been scheduled.
e. all of the above
Answer: a
Difficulty: Easy
43. Which of the following is not a problem caused by products experiencing predictable
variability of demand?
a. high levels of stockouts during peak demand
b. high levels of excess inventory during periods of low demand
c. increased responsiveness of the supply chain
d. increased costs in the supply chain
e. decreased responsiveness of the supply chain
Answer: c
Difficulty: Easy
44. A firm can handle predictable variability by managing
a. supply using capacity, inventory, trade promotions, and backlogs.
b. supply using capacity, inventory, subcontracting, and backlogs.
c. demand using short-term price discounts and trade promotions.
d. a and c only
e. b and c only
Answer: e
Difficulty: Easy
45. Seasonal demand can be met by
a. maintaining enough manufacturing capacity to meet demand in any period.
b. building up inventory during the off season to meet demand during peak seasons.
c. offering a price promotion during periods of low demand to shift some of the demand into a
slow period.
d. all of the above
e. a and b only
Answer: d
Difficulty: Moderate
46. The advantage of maintaining enough manufacturing capacity to meet demand in any period
is
a. very low inventory costs because inventory needs to be carried from period to period.
b. very low inventory costs because no inventory needs to be carried from period to period.
c. very high inventory costs because no inventory needs to be carried from period to period.
d. very high inventory costs because expensive capacity would go unused during most months
when demand was lower.
e. none of the above
Answer: b
Difficulty: Moderate
47. The disadvantage of maintaining enough manufacturing capacity to meet demand in any
period is
a. much of the expensive capacity would go unused during most months when demand was
lower.
b. the expensive capacity would be used consistently throughout the year.
c. most of the expensive capacity would still be used during most months when demand was
lower.
d. very low inventory costs because no inventory needs to be carried from period to period.
e. None of the above are true.
Answer: a
Difficulty: Moderate
48. A firm can vary supply of product by controlling
a. production capacity and inventory.
b. production capacity and price promotions.
c. price promotions and inventory.
d. production capacity and inventory promotions.
e. none of the above
Answer: a
Difficulty: Moderate
49. Which of the following is not an approach that firms can use when managing capacity to
meet predictable demand variability?
a. time flexibility from workforce
b. use of seasonal workforce
c. use of subcontracting
d. use of dual facilities—dedicated and flexible
e. using common components across multiple products
Answer: e
Difficulty: Easy
50. Cycle inventory is primarily held to
a. take advantage of diseconomies of scale and increase cost within the supply chain.
b. take advantage of diseconomies of scale and reduce cost within the supply chain.
c. take advantage of economies of scale and increase cost within the supply chain.
d. take advantage of economies of scale and reduce cost within the supply chain.
e. None of the above are true.
Answer: d
Difficulty: Moderate
51. Which of the following is not a cost that must be considered in any lot sizing decision?
a. Average price per unit purchased, $C/unit
b. Fixed ordering cost incurred per lot, $S/lot
c. Holding cost incurred per unit per year, $H/unit/year = hC
d. Manufacturing cost per unit, $M/unit
e. All of the above are costs to be considered.
Answer: d
Difficulty: Moderate
52. The primary role of cycle inventory is to allow different stages in the supply chain to
a. purchase product in lot sizes that maximize the sum of the material, ordering, and holding
cost.
b. purchase product in lot sizes that minimize the sum of the material, ordering, and holding
cost.
c. sell product in lot sizes that maximize the sum of the material, ordering, and holding cost.
d. sell product in lot sizes that minimize the sum of the material, ordering, and holding cost.
e. none of the above
Answer: b
Difficulty: Moderate
53. A key to reducing cycle inventory is
a. the reduction of holding cost.
b. the reduction of manufacturing cost.
c. the reduction of lot size.
d. the reduction of warehouse space.
e. all of the above
Answer: c
Difficulty: Moderate
54. A key to reducing lot size without increasing costs is to
a. reduce the holding cost associated with each lot.
b. reduce the fixed cost associated with each lot.
c. reduce the material cost associated with each lot.
d. reduce the manufacturing cost associated with each lot.
e. increase the holding cost associated with each lot.
Answer: b
Difficulty: Moderate
55. A price discount where the pricing schedule offers discounts based on the quantity ordered in
a single lot is
a. customer based.
b. lot size based.
c. supplier based.
d. volume based.
e. none of the above
Answer: b
Difficulty: Easy
56. A price discount where the discount is based on the total quantity purchased over a given
period, regardless of the number of lots purchased over that period is
a. customer based.
b. lot size based.
c. supplier based.
d. volume based.
e. none of the above
Answer: d
Difficulty: Moderate
57. The practice where a firm charges differential prices to maximize profits is
a. lot pricing.
b. marginal pricing.
c. price incrimination.
d. price discrimination.
e. all of the above
Answer: d
Difficulty: Moderate
58. Discounts related to price discrimination will be
a. volume based.
b. unit based.
c. marginally based.
d. lot size based.
e. none of the above
Answer: a
Difficulty: Hard
59. The goal of trade promotions is to
a. influence retailers to act in a way that helps the retailer achieve its objectives.
b. influence retailers to act in a way that helps the manufacturer achieve its objectives.
c. influence retailers to act in a way that will maximize supply chain profit.
d. influence retailers to act in a way minimize supply chain cost.
e. none of the above
Answer: b
Difficulty: Hard
60. As the safety inventory is increased
a. fill rate increases and cycle service level decreases.
b. fill rate decreases and cycle service level increases.
c. both fill rate and cycle service level increase.
d. both fill rate and cycle service level decrease.
e. none of the above
Answer: c
Difficulty: Moderate
61. For the same safety inventory, an increase in lot size
a. decreases the fill rate but not the cycle service level.
b. increases the fill rate but not the cycle service level.
c. decreases both the fill rate and the cycle service level.
d. increases both the fill rate and the cycle service level.
e. none of the above
Answer: c
Difficulty: Hard
62. The required safety inventory
a. grows rapidly with a decrease in the desired product availability.
b. grows rapidly with an increase in the desired product availability.
c. decreases with an increase in the desired product availability.
d. remains stable with an increase in the desired product availability.
e. none of the above
Answer: b
Difficulty: Moderate
63. The required safety inventory
a. increases with an increase in the lead time and the standard deviation of periodic demand.
b. decreases with an increase in the lead time and the standard deviation of periodic demand.
c. remains stable with an increase in the lead time and the standard deviation of periodic
demand.
d. increases with a decrease in the lead time and the standard deviation of periodic demand.
e. none of the above
Answer: d
Difficulty: Moderate
64. A goal of any supply chain manager is to
a. increase the level of safety inventory required in a way that does not adversely affect product
availability.
b. increase the level of safety inventory required regardless of the effect on product availability.
c. reduce the level of safety inventory required regardless of the effect on product availability.
d. reduce the level of safety inventory required in a way that does not adversely affect product
availability.
e. none of the above
Answer: d
Difficulty: Moderate
65. Which of the following is not an approach to reduce the level of safety inventory required in
a way that does not adversely affect product availability?
a. Reduce the supplier lead time.
b. Reduce the underlying uncertainty of demand.
c. Reduce the cost of material coming from suppliers.
d. All of the above are approaches.
e. None of the above are approaches.
Answer: c
Difficulty: Hard
66. Often, safety inventory calculations in practice
a. do not include any measure of supply uncertainty, resulting in levels that may be higher than
required.
b. do not include any measure of supply uncertainty, resulting in levels that may be lower than
required.
c. include measures of supply uncertainty, resulting in levels that may be higher than required.
d. include any measures of supply uncertainty, resulting in levels that may be lower than
required.
e. None of the above are accurate.
Answer: b
Difficulty: Hard
67. The level of product availability
a. is also referred to as the customer service level.
b. is an important component of any supply chain’s responsiveness.
c. increases revenues for the supply chain by increasing sales.
d. All of the above are true.
e. Only a and b are true.
Answer: e
Difficulty: Hard
68. A supply chain can use a high level of product availability to
a. improve its responsiveness and attract customers.
b. reduce costs for the supply chain by reducing inventories.
c. increase revenues for the supply chain by increasing sales.
d. All of the above are true.
e. Only a and c are true.
Answer: e
Difficulty: Easy
69. A high level of product availability requires
a. large inventories and tends to raise costs for the supply chain.
b. large inventories and tends to reduce costs for the supply chain.
c. small inventories and tends to raise costs for the supply chain.
d. small inventories and tends to reduce costs for the supply chain.
e. none of the above
Answer: a
Difficulty: Easy
70. A supply chain needs to achieve a balance between the level of availability and the cost of
inventory that
a. maximizes supply chain revenues.
b. minimizes supply chain costs.
c. maximizes supply chain profitability.
d. maximizes supply chain availability.
e. all of the above
Answer: c
Difficulty: Moderate
71. Whether the optimal level of product availability is high or low depends on where a
particular company believes they can
a. minimize cost.
b. maximize revenue.
c. maximize profits.
d. maximize product availability.
e. all of the above
Answer: c
Difficulty: Moderate
72. The key factors that influence the optimal level of product availability do not include
a. the cost of overstocking the product.
b. the cost of stocking the product.
c. the cost of understocking the product.
d. All of the above are key factors.
e. None of the above are key factors.
Answer: b
Difficulty: Moderate
73. With reduced demand uncertainty, a supply chain manager can
a. increase both overstocking and understocking.
b. increase overstocking and reduce understocking.
c. reduce overstocking and increase understocking.
d. reduce both overstocking and understocking.
e. none of the above
Answer: d
Difficulty: Easy
74. A company that uses better market intelligence and collaboration to reduce demand
uncertainty is making use of
a. tailored sourcing.
b. quick response.
c. postponement.
d. improved forecasting.
e. decreased margin.
Answer: d
Difficulty: Moderate
75. An increase in forecast accuracy
a. decreases both the overstocked and understocked quantity and decreases a firm’s profits.
b. decreases both the overstocked and understocked quantity and increases a firm’s profits.
c. increases both the overstocked and understocked quantity and decreases a firm’s profits.
d. increases both the overstocked and understocked quantity and increases a firm’s profits.
e. none of the above
Answer: b
Difficulty: Moderate