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PDF Logistics Supply Chain Management
Procurement Methods
Multiple Choice Questions
Q1. Procurement methods have considerable impact on _________.
a. product pricing
b. inventory level
c. warehouse space
d. transportation modes
e. all the above
e. administration of inventory transfer system
Q7. The procurement policy decisions are concerned with managing the
inventory ___________ across the various distribution network.
a. independently or interdependently
b. collectively
c. using erp
d. in transit
e. none of the above
Q8. Inventory should be held only when the ___________ of holding the
inventory exceeds the ___________ of carrying the inventory.
a. cost; benefits
b. benefits; cost
c. average level; optimum level
d. benefits; purpose
e. all the above
Q11. The Economic Order Quantity (EOQ) is the number of units that a
company should add to inventory with each order to minimize the total
costs of inventory which covers holding costs, ___________, and
shortage costs.
a. opportunity cost
b. damage cost
c. pilferage
d. shrinkage cost
e. order costs
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e. all the above
Q13. Cost of inventory under the EOQ model involves a tradeoff between
inventory _______ costs and _______ costs.
a. damage; holding
b. holding; order
c. opportunity; loss; damage
d. shrinkage; holding
e. shrinkage; order
Q14. The EOQ model finds the quantity that minimizes the sum of
___________ costs.
a. order and holding
b. replenishment and transportation
c. storage and damage
d. insurance and opportunity loss
e. all the above
Q16. JIT (Just-in-Time) cuts waste by supplying parts just at the time of
assembly process and ensure improvement in __________.
a. auality
b. productivity
c. reduces assembly time
d. improvement in supplier’s relationship
e. improvement in plant layout
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Q19. Vendor Managed inventory, Just-in-time distribution and Efficient
Consumer Response (ECR) all refer to ___________ concepts, but
applied to ___________ industries.
a. Similar; different
b. different; similar
c. different; different
d. similar; similar
e. none of the above
Answers:
1.(b) 2.(a) 3.(e) 4.(c) 5.(a) 6.(b) 7.(a) 8.(b) 9.(d) 10.(a) 11.(e) 12.(a) 13.(b)
14.(a) 15.(e) 16.(b) 17.(a) 18.(c) 19.(a) 20.(d)
For example, the grocery and apparel industries tend to use ECR, whereas the
automobile industry tends to use VMI and JIT Distribution. VMI reduces stock outs and
reduces inventory in the supply chain. Some features of VMI include:
Centralized forecasting
Frequent communication on inventory position
Inventory fill up in a prioritized order
Relationship with downstream distribution channels
Result Inventory and stock out reduction
In general, the supply chain is not synchronized to consumer demand. Hence, to secure
high service levels, both the wholesaler and the retail chain feel the need to buffer
against supply disruption. This in turn, distorts the demand that is communicated to the
supply factories. The objective of VMI is to find an effective way for the vendor to take
responsibility of the wholesaler’s inventory. This way the need for double buffering
against supply disruptions could be eliminated and the basis for planning supply request
from manufacturers could be improved.
In its simplest form, Vendor Managed Inventory is the process where the vendor
assumes the task of generating purchase orders to replenish a customer’s inventory.
VMI covers many types of supply chain initiatives. These different ‘VMI’ activities can
vary substantially in purpose and application.
VMI is about improving visibility of demand and product flow in a supply chain,
facilitating a more timely and accurate replenishment process between a supplier
(vendor) and an inventory site (customer, distributor, distribution center, etc…).
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• Software calculates a reorder point for each item based on its
movement data and any overrides contributed by the retail store or
manufacturer. These overrides might include information such as
projects, seasonality, new items and so forth.
• Software compares the quantity available at the retail store with the
reorder point for each item at each location to determine whether
material is needed.
For VMI partnership to be successful and fruitful, when establishing an agreement, the
supplier and customer must agree on:
The specific products that will be covered under the VMI agreement
"Acceptable availability" of these products at the customer's site and the
corresponding investment required by the customer.
Mutually acceptable ‘service level’ agreement
How often the stock of these products will be replenished.
Automatic return of material not required by the customer.
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Better planning of its own inventory replenishment needs
Better capacity utilization of its plant
Better demand management
Customer focused approach leading to competitive advantage
Supply chain visibility
Better planning
The risks involved for supplier in participating VMI program are high administrative cost
as it is assuming responsibility for replenishment activity that was previously carried out
by the customer's buyers.
The real world implementations of VMI can be broken into three main categories:
collaboration,
automation, and
cost transfer
A Collaborative Planning model consists of sharing data, and jointly developing forecasts
and/or production schedules amongst supplier chain partners. This collaborative process
occurs at the tactical or item level. The ‘buyer’ collaborates with the supplier on
demand/usage plans in order to develop an agreed upon consensus forecast of future
demand that both companies will use to drive their business. This strictly collaborative
model is applicable to supply chains were a few, distinct items (SKU’s) generate
substantial volumes of business. In this environment it is valuable for people to review
and arrive at consensus on forecasting and replenishment plans for each SKU.
In many instances a VMI relationship is the first time supply chain partners both have
access to, and are measuring performance using the same metrics. When two
companies are focused on the same goals and have access to the same key
performance metrics, a true supply chain partnership emerges, resulting in a better
performing supply chain.
VMI delivers tangible results throughout the supply chain. As the concepts and practices
of ‘lean’ extend beyond the manufacturing floor down through the supply chain, VMI is
the enabling process to drive out costs and time. For success of VMI implementation the
following are the keys:
Organise periodic performance reviews
Use the metrics to find cost and inefficiencies
VMI can be made to work, but the problem is not just one of logistics. VMI often
encounters resistance from the sales force and distributors. The issues are roles, skills,
trust and power shifts.
ONLINE PROCUREMENT
e-Procurement system allows businesses use the Internet for acquiring the necessary
goods and services. There are three main categories of e-Procurement systems. One
type focuses on improving the transactions and the decision-making capabilities of the
company. Businesses may deal with hundreds of transactions weekly, but these
applications simplify the process and help to build stronger relationships between buyers
and suppliers. The second category of e-procurement system involves managing assets.
Systems in this category provide inventory management, maintenance scheduling, in-
house product availability, as well as other similar services. These applications are
useful for businesses that need to keep a close watch on the quality of materials in
stock. The third category includes systems designed to optimize a company's production
operations. Many of these applications deal with the entire production cycle, including
the procurement of materials when the inventory runs low, the management of supplier
contracts, and the production scheduling. Because of the differences between the
systems, it is important for companies to choose the one that is most appropriate for
their industry. For example an automobile manufacturing company is likely to use
systems from the third category. The applications would allow them to maintain
minimum level of inventory but they also need to have a system which helps them plan
and forecast their production. However, companies such as automotive repair shops,
would be more likely to use e-Procurement systems from the second category. Since
they need to keep track not only of their inventory of car parts, but also of helping them
set repair schedules.
e-Procurement systems don't automatically boost supply chain efficiency. However, the
company must select a system that has the capabilities necessary to achieve those
benefits first. For example, the system must include applications to assist with contract
management, including storing pricing information, maintaining sales terms, and
helping negotiations. By having all of this information in one place, the purchasing
process is expedited. E-Procurement allows buyer to easily compare suppliers (on
price) so that the best one can be chosen to meet that company's particular needs.
However, choosing the right supplier depends on more than just price; it also involves
product availability, customer service, industry reputation, and quality.
E-procurement is more than just a system for making purchases online. A properly
implemented system connects companies and their business processes directly with
suppliers while managing all interactions between them. This includes management of
correspondence, bids, questions and answers, previous pricing, and multiple emails sent
to multiple participants. A good e-Procurement system helps a firm organize its
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interactions with its most crucial suppliers. It provides those who use it with a set of
built-in monitoring tools to help control costs and assure maximum supplier
performance. It provides an organized way to keep an open line of communication with
potential suppliers during a business process. The system allows managers to confirm
pricing, and leverage previous agreements to assure each new price quote is more
competitive than the last.
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Chapter 7
E-Procurement
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Q6. e-Procurement process is ___________ resulting into
___________ and _______ saving.
a. complex; time; cost
b. factual; time;, cost
c. radical; time and cost
d. paperless; time;, cost
e. all the above
Q7. e-Procurement is perhaps the most direct and effective way for
an organization to leverage the ___________ to reduce costs,
improve productivity and boost profits.
a. internal strengths
b. web
c. core competencies
d. software skills
e. back end processes
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Q11. e-Procurement is outsourced to a third-party service provider
the _________ have no possibilities of creeping into.
a. seller’s en-efficiencies
b. dummy quotes
c. buyer’s culture
d. sellers influence
e. seller’s pressure
Answers:
1.(a) 2.(e) 3.(a) 4.(e) 5.(b) 6.(d) 7.(b) 8.(b) 9.(d) 10.(b) 11.(b) 12.(c)
13.(e) 14.(b)
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Chapter 8
Strategic Sourcing
Multiple Choice Questions
1
Q5. The process used for strategic procurement is designed to
ensure that the organization’s needs, issues and ___________ are
effectively managed.
a. sources
b. risks
c. plans
d. facilities
e. inventory
2
Q10. Orientations observed to get materials from suppliers
___________.
a. buying (discreet)
b. procurement
c. supply chain
d. all the above
e. none of the above
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Answers:
1.(e) 2.(a) 3.(a) 4.(e) 5.(b) 6.(a) 7.(b) 8.(a) 9.(d) 10.(d) 11.(a) 12.(e)
13.(a) 14.(b) 15.(a)
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Chapter 10
Distribution Decisions
Multiple Choice Questions
1
Q5. Depending on the product and markets there are channel
distribution structures such as __________.
a. intensive
b. selective
c. exclusive
d. all the above
e. none of the above
Q14. The place and the time utility of the product are not
possible without the close coordination between channel
__________ and the logistics __________.
a. task; operation
b. operation; task
c. programme; task
d. task; plan
e. plan; operation
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e. all the above
Answers:
1.(a) 2.(e) 3.(d) 4.(a) 5.(d) 6.(e) 7.(e) 8.(a) 9.(b) 10.(a) 11.(b) 12.(d)
13.(d) 14.(a) 15.(e) 16.(e) 17.(d) 18.(d) 19.(a) 20.(b)
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Chapter 11
1
Q6. Road transportation offers a number of advantages such as
__________.
a. door to door service
b. flexibility
c. reliability and speed
d. reach to remote places
e. all the above
2
Q12. Reduce total freight, transport by relying on ___________
products from facilities closer to their destination markets.
a. local
b. imported
c. diverse
d. customized
e. all the above
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Q18. Milk-run supports a firm in ___________ inventory
availability in automotive and electronic industries.
a. speedy
b. safety stocks
c. JIT
d. advance
e. damage free
Answers:
1.(a) 2.(c) 3.(b) 4.(b) 5.(a) 6.(e) 7.(a) 8.(c) 9.(a) 10.(e) 11.(b) 12.(a) 13.(b) 14.(a)
15.(e) 16.(d) 17.(a) 18.(c) 19.(b) 20.(b)
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Chapter 12
Inventory Management
3
Q17. The safety stocks act as buffers for the lack of
___________.in the supply chain.
a. flexibility
b. inflexibility
c. planning
d. forecasting
e. rigidity
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Q22. ABC classification is used to develop inventory
__________.
a. planning policies
b. set count frequencies for cycle counting
c. slot inventory for optimized order picking
d. inventory management activities
e. all the above
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Q27. Distribution Requirement Planning (DRP)is one of
latest IT tools for controlling the inventory in the
distribution system of the organization. It allocates the
inventory from mother warehouse to the various distribution
centers based on the following ___________.
a. demand pattern
b. safety stock provision
c. order quantity and Reorder point
d. average performance cycle length
e. all the above
Answers:
1.(a) 2.(b) 3.(c) 4.(b) 5.(e) 6.(e) 7.(e) 8.(e) 9.(b) 10.(a) 11.(b)
12.(b) 13.(a) 14.(a) 15.(c) 16.(b) 17.(a) 18.(c) 19.(b) 20.(c) 21.(a)
22.(a) 23.(c) 24.(e) 25.(c) 26.(d) 27.(e) 28.(e) 29.(a) 30.(c)
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Chapter 15
Strategic Alliance
1
Q5. Supply chain collaboration to bring fruits should be
focused on ________ sharing.
a. facilities
b. manpower
c. information
d. network
e. assets
2
Q11. There are following categories of 3PL providers, except
__________.
a. stand alone
b. practitioners
c. integrator
d. customer adapter
e. customer developer
Answers:
1.(a) 2.(e) 3.(d) 4.(b) 5.(c) 6.(a) 7.(c) 8.(d) 9.(e) 10.(e) 11.(b)
12.(a) 13.(e) 14.(b) 15.(a) 16.(a) 17.(e) 18.(b) 19.(d) 20.(e)