Module 1 - Supply Chains and Strategy

Question 1

The plan for determining actions to support the mission, goals, and objectives of an organization is the

Answer 1

strategic plan

Question 2

Threats to a company’s future well being often take the form of

Answer 2

the entry of lower cost foreign competitors

Question 3

According to the five forces model of competition, when does supplier rivalry weaken?

Answer 3

When buyer costs to switch brands are high

Question 4

In a conventional manufacturing planning and control environment, which of the following objectives often conflict?

Answer 4

Meet customer service targets and decrease inventory investment

Question 5

Value is defined by

Answer 5

the customer

Question 6

An organization is attempting to break into a market that already has several competitors who have significant market share. Which action would increase the level of competition and pressure on these established competitors?

Answer 6

introduce a daring but risky strategic innovation

Rivalry tends to be weaker when the rival (the company trying to break into the market in this case) pursues a “me too” strategy and there are no daring strategic innovators. Therefore, daring innovations are an opportunity that could pay off.

Question 7

A commercial door manufacturer wants to add some make-to-stock (MTS) capabilities to its current make-to-order (MTO) manufacturing environment. Which of the following should be modified to reflect this strategy and what competitive advantage could be emphasized in line with this strategy?

Answer 7

Essentially, a company’s vision statement answers the question, “Where are we going?” The vision statement for this organization needs to express what competitive advantage they are pursuing in moving to a MTS environment for some of their products. Often MTS is about improving availability such as by having faster lead times. While low-cost leadership could be a goal, carrying MTS inventory will make this goal harder to achieve.

Question 8

Which helps set boundaries around the type of work the company will pursue and indicates what is out of scope?

Answer 8

The Dictionary defines mission as “the overall goal(s) for an organization set within the parameters of the business scope.”

Question 9

The five forces model consists of the following elements: rivalry among competitive sellers, buyer bargaining power, substitute products, supplier power, and new entrants into the marketplace.

Answer 9

considers the impact of buyers on competition.

Question 10

An organization’s production plan would need to be changed if what occurs? A firm’s marketing strategy directly impacts the production plan by which of the following actions?

Answer 10

Short-term marketing tactics are considered a failure.

By failing to increase demand from the customer base, marketing will directly impact the existing production schedule created by production management, meaning that planned production should likely be reduced.

Question 11

An organization is examining its corporate social responsibility policies and wants to start by looking to internal influences to guide any changes it makes. Which of the following is an example of an internal influence?

Answer 11

Intended customers

Internal influences are generally within the organization’s control and include the customers that the company chooses to market to. National laws, trading blocs, and local competition are all examples of external influences.

Question 12

Which of the following statements describes the strategic plan?

Answer 12

It defines how to marshal and determine actions to support the mission, goals, and objectives of an organization.

Question 13

When aligning capabilities with needs, for an organization that competes on responsiveness, the response could be extremely focused with little excess capacity or flexibility or be designed with excess capacity and more flexibility. What would be the more desirable strategy?

Answer 13

Aligning or responding with excess capacity

Markets and operational capabilities must be aligned. For an organization that competes on responsiveness to changing customer demand, a superior strategy here is to align more loosely (with excess capacity) rather than more tightly (with just the right level of capacity). An organization that competes on cost might choose an option with little excess capacity.

Question 14

In a job shop environment, which situation is optimal from a capacity planning perspective?

Answer 14

All work centers are fully loaded and no orders are overdue per the materials plan.

Question 15

What is a typical question to ask when evaluating the acquisition of a new process technology?

Answer 15

Does the process technology improve the specification of the product of service?

Question 16

A company that chooses to see reduced revenue while postponing increases in existing manufacturing capacity is following:

Answer 16

a lag capacity strategy

A lag capacity strategy is one in which capacity is added after demand is realized.

Question 17

A company has a lag capacity strategy, If demand growth is predictable, the strategy

Answer 17

fully utilizes capacity, so unit costs are lower

Question 18

Which of the following should be true when a company is pursuing a capacity-leading strategy?

Answer 18

Operations should always have sufficient capacity to meet demand.

A capacity-leading strategy should always find sufficient capacity to meet demand, but capacity utilization will likely be lower.

Question 19

Which of the following types of processes best supports the widest range of production volume and permits a company to most easily adjust its capacity to match demand?

Answer 19

Batch

Batch production is a manufacturing technique in which parts are accumulated and processed together in a lot. Batch processes also enable companies to easily adjust resources to produce different products.

Question 20

What will likely happen when a company adds a selling option to its own website?

Answer 20

It will risk disintermediating its traditional retailers.

Question 21

A B2B organization sells hydraulic presses that are priced at $25,000. The unit contribution margin (CM) is $10,000. If the organization has $4,000,000 in fixed costs, what is the break-even point in units?

Answer 21

The break-even point in units is calculated as the fixed costs divided by the unit CM. $4,000,000/$10,000 = 400 units.

Question 22

A company is debating whether to add production capacity or outsource the additional volume. The process they must go through is called a:

Answer 22

make or buy decision

Question 23

An organization has determined that brand recognition is its most important strategic advantage for breaking into a foreign market. Which entry option would create the greatest risk to this advantage?

Answer 23

franchise

Question 24

What is an advantage of small-scale operations and facilities?

Answer 24

less overcapacity during scale up

The smaller facility better matches demand during the scale-up period; a larger facility would have excess capacity until demand catches up with it. A small-scale operation would have a lower breakeven point than a larger-scale operation. Higher unit cost is not an advantage. The other choices are advantages of large-scale operations and facilities.

Question 25

What is an advantage of the lead capacity strategy?

Answer 25

Maximizing of revenue potential

As capacity will lead demand, utilization will be lower and production costs per unit will be higher than in a lag strategy. The risk of permanent overcapacity is high, so it is not an advantage.

Question 26

A company manufactures component parts for machine tools in the UK and ships them to Southeast Asia for assembly and sale in the local market. The components have been shipped by sea, transit time averages six weeks, and the shipping cost is £1,000 per shipment. The company is considering moving the parts by air at an estimated cost of £7,500; shipment will take two days. If inventory in transit for the shipment costs £190 per day, should the company ship by air?

Answer 26

Based on cost alone, the best choice would be to ship by air.

Total Cost = Transport Cost + Inventory Carrying Cost

Air: £7,500 + £380 = £7,880

Water: £1,000 + £7,980 = £8,980

Shipping 40 days later by air rather than by sea—which has a two-day delivery lead time—enables a higher percentage of the order quantity and product mix to be based on orders rather than forecasts at the regional level. Lower levels of safety stock also will be required at the central and regional facilities.

Question 27

A market leader in systems computing fails to adapt to market trends for smaller devices and cloud computing. This reveals a poor assessment process concerning its:

Answer 27

The operations strategy shapes the long-term capabilities of an operation and should be consistent with the overall strategy.

Question 28

Which of the following statements characterizes a job shop environment?

Answer 28

Work centers are organized by function.

In a job shop plant, the different methods and equipment for producing inventory are separated into departments. Production jobs pass serially through each department as detailed in the production order routing. Production is intermittent in a job shop, not predictable. The products in a job shop are often make-to-order with very different routings. Kanban is better fit to a continuous production environment.

Question 29

A work center that is designated to produce a single item or a limited number of similar items is said to have:

Answer 29

dedicated capacity

Question 30

Operations strategy formulation should be:

Answer 30

a relatively infrequent event.

Question 31

Which of the following statements about capacity in a job shop environment is true?

Answer 31

If capacity is insufficient, no shop floor system will be able to decrease backlog.

If the load at a work center exceeds the available capacity and it is permitted to continue, the backlog will never be decreased. The backlog can only be reduced either by increasing capacity or reducing the load on the work center

Question 32

An organization’s annual sales for a particular motor scooter total $50 million. Variable costs for the product over the year amounted to $30 million. It had $10 million in fixed costs for the year. What is the organization’s contribution margin (CM) ratio for the year?

Answer 32

The contribution margin (CM) is sales minus variable costs, or $50 million minus $30 million, which equals $20 million. The CM ratio is CM divided by sales, or $20 million divided by $50 million, which equals 0.4, or 40%. Fixed costs are not needed to calculate the CM ratio.

Question 33

What should an effective manufacturing strategy provide in addition to supporting the overall organizational strategy?

Answer 33

competitive advantage

Question 34

In which of the following types of environments is capacity control likely to be of more importance than material control?

Answer 34

job shop

Question 35

An organization has determined that brand recognition is its most important strategic advantage for breaking into a foreign market. Which entry option would create the greatest risk to this advantage?

Answer 35

Franchise

When using franchising as an entry option to gain access to foreign markets, the franchisor gives up some control over its brand. Franchisees can weaken the brand in the new market by delivering poor quality or service. They may also alter the brand when it conflicts with local culture and customer preferences. This has the effect of diluting the power of the brand.

Question 36

Which lead/lag strategy tends to increase cash requirements?

Answer 36

Both lead capacity and lag capacity when lag capacity is combined with inventory stockpiling

The strategy that tends to increase a company’s cash requirements is to lead capacity and to lag capacity when lag capacity is combined with inventory stockpiling.

Question 37

Which method of setting the price of a good or service is the most realistic way to do it given today’s global economy?

Answer 37

Determine the necessary price and then subtract the total cost per unit to determine the resulting profit margin.

The price in today’s global markets is determined by market forces and is often either fixed or falling. Therefore, the price is the starting point. Necessary price considers value to the customer relative to alternatives. It also compares the total cost of ownership against competitor pricing. To sell at a profit, total costs per unit need to be lower than the market-determined price per unit or the product should not be produced.

Question 38

Which of the four Ps influences how physical distribution planning and execution addresses product volume, location of demand, and demand fluctuations?

Answer 38

Promotion influences product volume, location of demand, and demand fluctuations.

Product is incorrect because it is associated with such issues as order-winning and order-qualifying characteristics. Price is incorrect because it is associated with such issues as inventory costs. Place is incorrect because it is associated with such issues as market geography and distribution or sales channels.

Question 39

Which manufacturing environment may be best suited for a product in its introduction phase if it is feasible to do so even if more economies of scale may be needed if demand develops?

Answer 39

The job shop layout allows for the incorporation of new product into existing work centers. If this environment is feasible for production of the item, it can help avoid capital investments in methods that have better economies of scale (e.g., an assembly line) until it is know that demand exists. Some products will not have this as an option and a capital investment may be needed to develop the necessary manufacturing environment from the start.

Question 40

Which of the following types of processes best supports the widest range of production volume and permits a company to most easily adjust its capacity to match demand?

Answer 40

Batch production is a manufacturing technique in which parts are accumulated and processed together in a lot. Batch processes also enable companies to easily adjust resources to produce different products.

Question 41

How can the objectives of marketing be met while also considering other stakeholder objectives?

Answer 41

Both marketing and production objectives can be met with higher inventories. The other answers are incorrect because high inventory investment that will increase costs is of concern to finance; low inventories do not support marketing or production objectives; and marketing prefers higher inventories.

Question 42

A person dominates the discussion in a meeting. Another individual requests additional input from other members of the group. This second person is the:

Answer 42

Gatekeeping is a group technique to effectively manage a situation, discussion, or meeting.

Question 43

Which of the following manufacturing strategies is most appropriate when the customer is heavily involved in the product design?

Answer 43

In an engineer-to-order environment, customer specifications for products require unique engineering design and significant customization. The customer is usually very involved in the product design. With assemble-to-order, the product can be assembled after receipt of a customer’s order; with make-to-order, the product is manufactured using a combination of standard items and custom-modified items after receipt of a customer’s order; and, with make-to-stock, products are usually finished based on forecasts before receipt of a customer order.

Question 44

A manufacturing company implementing a focused factory strategy has likely come to what conclusion?

Answer 44

The focused factory idea holds that a plant focusing on a narrow range of products aimed at a particular market will outperform a plant attempting a broader set of objectives.

Question 45

In an assemble-to-order environment, the number of assemblies is most influenced by:

Answer 45

The structure of the bill of material

The bill of material would determine at what point subassemblies are produced.

Question 46

Capacity requirements planning (CRP) directly interfaces with:

Answer 46

Material Requirements planning (MRP)

Question 47

In repetitive manufacturing, standardization of products can be achieved through which two of the following?

Answer 47

Commonality of parts and modularity of design can help with standardization of products in repetitive manufacturing.

Question 48

Which of the following methods often is employed to make high-variety, low-volume manufacturing operate in a repetitive mode?

Answer 48

Cellular manufacturing is a process that produces families of parts within a single line or cell of machines controlled by operators who work only within the line or cell. The ease of changeover makes it ideal for high-variety, low-volume products. The other answers are incorrect, as they refer to processes that are more specialized or less flexible and thus unsuited for this purpose.

Question 49

If an organization wants to prioritize the customer’s ability to customize the organization’s service offerings, what is a tradeoff they must be prepared to accept?

Answer 49

Higher cost of services. Highly customizable services will reduce service standardization and therefore increase the cost of these services. This will tend to increase sales conversion rates. Higher contribution margins would be a positive thing. The degree of contact with the customer could also be higher or lower, but this represents a different area of tradeoffs from the degree of customization decision.

Question 50

Of the following, which has the most influence on the choice of manufacturing environment?

Answer 50

Business Planning. The business planning process uses the strategic plan as a key input. Business planning leads to decisions such as what products to sell, types of customers, product variety and volume, and order fulfillment lead time. These decisions have a major influence on choice of manufacturing environment.

The other answers are tactical planning processes aimed at leveraging the capabilities of manufacturing environments to create profitable manufacturing processes.

Question 51

Authorizing work in a push system in a make-to-order environment assumes which of the following available items?

Answer 51

Tooling.

Question 52

What is a benefit of an effective work cell layout?

Answer 52

Simplified materials handling. Benefits of the use of work cells (also called cellular layout) include that it minimizes material-handling distances and factory floor space requirements. Other benefits include reduced queue times, simplified control needs, and immediate feedback.

Question 53

Changing the plant layout to a manufacturing cell arrangement to attain faster plant throughput requires:

Answer 53

Sufficient demand for the product. There must be sufficient production volume for the product family to justify pulling equipment together.

Question 54

Which of the following is the most likely manufacturing environment for a bicycle?

Answer 54

According to the Dictionary, an assemble-to-order production environment is one in which “a good or service can be assembled after receipt of a customer’s order. The key components… used in the assembly or finishing process are planned and usually stocked in anticipation of a customer order. Receipt of an order initiates assembly of the customized product.” In the question’s example, a bicycle manufacturer will likely have all of the components for their various bicycle models already produced. When a customer orders a new bike, their chosen model (and any features) will be assembled from components in stock.

Question 55

Which type of lead time is the time required to design a product, modify or design equipment, conduct market research, and obtain all necessary materials?

Answer 55

The Dictionary defines procurement lead time as follows: “The time required to design a product, modify or design equipment, conduct market research, and obtain all necessary materials. Lead time begins when a decision has been made to accept an order to produce a new product and ends when production commences.”

Question 56

Which of the following refers to a production environment where a product can be assembled from common subassemblies after receipt of a customer’s order?

Answer 56

Assemble to order

Question 57

Which manufacturing technology would most likely provide the greatest benefit to a company whose order winners are delivery speed and flexibility?

Answer 57

A cellular manufacturing system produces families of parts within a single line or cell of machines controlled by operators who work only within the line or cell. This configuration enables high output and flexibility.

Question 58

In which manufacturing environment is product volume low and product variety high for a given item?

Answer 58

Because customer product specifications require a unique design, product volume in engineer-to-order environments is low. Generally no two products are alike; therefore, product variety is high. There can be many variations of the product.

Question 59

Which of the following ranks manufacturing environments from longest to shortest delivery lead time?

Answer 59

Engineer-to-order, make-to-order, assemble-to-order, make-to-stock

Question 60

In which facility would product unit costs most likely be reduced through a setup reduction program?

Production Vol/ Product Variety/ Production LT/ Operations per Product/ Production Resources
Facility A High High Long Many Many
Facility B High Low Short Few Many
Facility C Low High Long Many Few
Facility D Low Low Short Few Few

Answer 60

Low production volume means that a lot of small orders are released, high product variety means that a number of different products can be produced, and many operations per product means that a lot of setup is being performed.

Facility C

Question 61

Which is a primary risk in a demand-pull model and which is a primary risk in a forecast-push process?

Answer 61

Demand-pull: insufficient capacity; forecast-push: excess supply chain inventory

In the demand-pull model, the risk is that orders will begin to come in above capacity and all along the supply chain there will be expensive activity to run the plant using overtime, expedite more and faster transportation, or convince customers to wait or accept substitute product. In a forecast-push model, everything is pushed downstream from one point to the next according to schedules based on forecasts. Unfortunately it’s difficult to predict even the most stable demand, and the serial forecasting by each supply chain partner contributes to the bullwhip effect, which involves variability at each supply chain stage being magnified each stage back up the chain, and this can result in either excess supply chain inventory or costly stockouts. Since forecast-push is often make-to-stock, lead times are usually short. Demand-pull helps enable better understanding of actual market requirements.

Question 62

What is the purpose of a gate review meeting?

Answer 62

Gate review meetings, also called go/no go decision points, are used in long or complex projects to review that the project can be successful and that the initial benefit and risk profiles are still accurate.

The other choices are incorrect because management support must be in place before the project begins; periodic reconciliation of project scope and identifying and responding to signs of scope creep are performed by the project manager at regular intervals throughout the executing phase.

Question 63

Which of the following factors are required for effective project control?

Answer 63

For a project to succeed, project activities must be periodically assessed and reported on so that progress can be effectively measured. An essential part of this process is the establishment of an agreed-upon set of performance measurements and progress metrics that will show project status at any time. A critical element of project management is attaining the commitment and participation of all stakeholders involved in the project. If stakeholders do not feel the project is realistic, they will not provide their full support.

Question 64

Which of the following process choices is likely to simplify the sales and operations planning process?

Answer 64

Lines produce at a rate that can be converted into a monthly supply quantity. The other responses may all have significant planning variation by month.

Question 65

Which product design strategy shifts product differentiation closer to the consumer by delaying identity changes, such as assembly or packaging, to the last possible supply chain location?

Answer 65

Postponement enables specific identification of a product as close to the market as possible.