Test Bank for Supply Chain Management A Logistics Perspective 9th Edition by Coyle

Test Bank for Supply Chain Management A Logistics

Perspective 9th Edition by Coyle

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Coyle Supply Chain Management: A Logistics Perspective, 9th Edition
Chapter 7 Test Bank

CHAPTER 7 TEST QUESTIONS

True-False

1. Outbound-to-customer logistics systems are also referred to as physical distribution.

ANSWER: True, Page 217
2. Materials management and physical supply are terms that cannot be used interchangeably.
ANSWER: False, Page 217
3. Demand management might be defined as focused efforts to estimate and manage customers’
demand, with the intention of using this information to shape operating decisions.
ANSWER: True, Page 217
4. Phantom demand is created by over-ordering during peak demand.
ANSWER: True, Page 219
5. The essence of demand management is to estimate and manage customer demand so that
demand and supply are balanced to the point where there are zero stockouts and zero safety
stocks.
ANSWER: False, Page 220
6. External balancing methods involve managing production and inventory flexibility to help
offset the imbalance of supply and demand.
ANSWER: False, Page 220
7. Forecasting has become extremely accurate, especially since the development of the S&OP
process.
ANSWER: False, Page 221
8. Dependent demand is directly influenced by independent demand.
ANSWER: True, Page 221
9. A weighted moving average assigns higher weights to more recent periods.
ANSWER: True, Page 223
10. Exponential smoothing can use constants higher than 1, but not more than 5.
ANSWER: False, Page 225
11. Adjusting a forecast for seasons basically uses a combination of seasonal factors and average
demand to arrive at an adjusted forecast.
ANSWER: True, Page 228
12. While there are four types of forecast error measures that can be used, none are foolproof.
ANSWER: True, Pages 229-230
13. A sales and operations planning process (S&OP) can produce a forecast internally that all
functional areas agree upon and can execute.
ANSWER: True, Page 234

14. Collaborative planning, forecasting, and replenishment (CPFR) has not been considered to be
a good process, as it excludes transportation.
ANSWER: False, Page 237

15. A channel of distribution is controlled by the marketing department, which selects the
physical structures and intermediaries through which the product(s) flow.
ANSWER: False, Page 240
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Chapter 7 Test Bank

16. An important observation to note about channel structure is that it involves the elements of
fixed costs versus variable costs.
ANSWER: True, Page 242
17. Integrated fulfillment is preferred to dedicated fulfillment.
ANSWER: False, Page 243

Multiple Choice

18. An outbound-to-customer logistics system is also referred to as

a. integrated fulfillment.
b. dedicated fulfillment.
c. store fulfillment.
d. physical distribution.
ANSWER: d, Page 217
19. An inbound-to-operations logistics system is also referred to as
a. physical distribution.
b. physical supply.
c. dedicated fulfillment.
d. demand management.
ANSWER: b, Page 217
20. Demand management includes
a. Flows of products.
b. Flows of services.
c. Flows of capital.
d. All of the these answers
ANSWER: d, Page 217
21. The term functional silos refers to:
a. product storage for physical supply.
b. the non communication between customers and vendors.
c. a technique to secure corporate marketing strategies.
d. lack of coordination between departments.
ANSWER: d, Page 218
22. Oversupply is created by
a. phantom demand.
b. returns and cancellations.
c. forecasting failures.
d. poor channel selection.
ANSWER: a, Page 219
23. The essence of demand management is to estimate and manage ___________ and use this
information to make operating decisions.
a. channel orders
b. vendors and suppliers
c. customer demand
d. SO&P processes
ANSWER: c, Page 217
24. The internal balancing method deals with
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a. price and lead time.

b. inventory and production flexibility.
c. functional silos.
d. channel selection.
ANSWER: b, Page 220
25. One type of demand fluctuation is caused by random variation. What is random variation?
a. errors in inventory management
b. errors not caught by using exponential smoothing
c. a development that cannot normally be anticipated
d. failure to properly execute the SO&P process plan
ANSWER: c, Page 221
26. The weighted moving average method assigns
a. a value in each period being averaged.
b. a weight greater than 1.
c. information based on a simple average.
d. a weight to each previous period.
ANSWER: d, Page 223
27. Exponential smoothing
a. is one of the most commonly used techniques.
b. uses primarily weighted averages to compensate for errors.
c. is used to determine random variations.
d. is used to reduce channel fluctuations.
ANSWER: a, Page 225
28. Four types of forecast error measures can be used. Which one of the following is not one of
the four types?
a. cumulative sum of forecast errors
b. exponential smoothing for trends
c. mean squared error
d. mean absolute deviation
ANSWER: b, Page 230
29. Many industry initiatives have attempted to create efficiency and effectiveness through the
integration of supply chain activities and processes. Among the various initiatives is/are
a. quick response (QR)
b. vendor-managed inventory (VMI)
c. efficient consumer response (ECR)
d. all of these answers
ANSWER: d, Page 237

Essay

30. There are two types of demand. What are they, and how do they influence the supply
chain?
ANSWER: Two types of demand exist: (1) independent demand, which is the demand for the
primary item, and (2) dependent demand, which is directly influenced by the demand for the
independent item. For example, the demand for bicycles would be called independent. It is the
demand for the primary, or finished, product and is directly created by the customer. The demand
for bicycle tires would be called dependent, because the number of tires demanded is determined

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Chapter 7 Test Bank

by the number of bicycles demanded. Most forecasting techniques focus on independent demand.
For example, a bicycle manufacturer will forecast the demand for bicycles during a given period.
Given that level of demand, the manufacturer knows that two tires will be required for each
bicycle demanded. As such, there is no need for the bicycle manufacturer to forecast the demand
for tires. From a different perspective, the tire manufacturer will need to forecast the demand for
tires, because these are its independent demand items. However, the tire manufacturer will not
need to forecast the demand for rims since each tire requires one rim. So, each organization in a
particular supply chain will have different definitions for independent and dependent demand
items. Forecasting, however, will still usually be done at the independent demand item level.
(Page 221)
31. There are at least three forecasting methods. Name them and choose one to discuss in
more detail, including advantages and disadvantages.
ANSWER: Simple Moving Average
The simple moving average is probably the simplest to develop method in basic time series
forecasting. It makes forecasts based on recent demand history and allows for the removal of
random effects. The simple moving average method does not accommodate seasonal, trend, or
business cycle influences. This method simply averages a predetermined number of periods and
uses this average as the demand for the next period. Each time the average is computed, the
oldest demand is dropped and the most recent demand is included. A weakness of this method is
that it forgets the past quickly. A strength is that it is quick and easy to use.
Weighted Moving Average
In the simple moving average method, each previous demand period was given an equal weight.
The weighted moving average method assigns a weight to each previous period with higher
weights usually given to more recent demand. The weights must be equal to one. The weighted
moving average method allows emphasis to be placed on more recent demand as a predictor of
future demand. However, the results from the weighted moving average method are still not very
good forecasts of demand. There are three possible causes for this. First, the weights assigned to
the previous periods might not accurately reflect the patterns in demand. Second, the number of
periods used to develop the forecast might not be the appropriate number. Finally, the weighted
moving average technique does not easily accommodate demand patterns with seasonal
influences.
Exponential Smoothing
Exponential smoothing is one of the most commonly used techniques because of its simplicity
and its limited requirements for data. Exponential smoothing needs three types of data: (1) an
average of previous demand, (2) the most recent demand, and (3) a smoothing constant. The
smoothing constant must be between 0 and 1. Using a higher constant assumes that the most
recent demand is a better predictor of future demand. Exponential smoothing forecasts will lag
actual demand. If demand is relatively constant, exponential smoothing will produce a relatively
accurate forecast. However, highly seasonal demand patterns or patterns with trends can cause
inaccurate forecasts using exponential smoothing. (Pages 222-225)
32. Discuss how seasonality affects forecasts and give examples.
ANSWER: Many organizations are faced with seasons that repeat themselves during a particular
period. These seasons might be by time of day (for example, demand for hamburgers at a fast-
food outlet), by day of the week (for example, the demand for gasoline), by week, by the month,
or by some combination of these. Adjusting a forecast for seasons basically uses a combination
of seasonal factors and average demand to arrive at an adjusted forecast. (Page 228)

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Coyle Supply Chain Management: A Logistics Perspective, 9th Edition
Chapter 7 Test Bank

33. There are four types of forecast error measures that can be used. Name them, and
choose one to discuss.
ANSWER: The first type of forecast error measure is called the cumulative sum of forecast
errors (CFE). It calculates the total forecast error for a set of data, taking into consideration both
negative and positive errors. This is also referred to as bias. This gives an overall measure of
forecast error. However, taking into consideration both negative and positive errors, this method
can produce an overall low error total although individual period forecasts can either be much
higher or much lower than actual demand.
The second measure of forecast error is mean squared error (MSE), which squares each period
error so the negative and positive errors do not cancel each other out. MSE also provides a good
indication of the average error per period over a set of demand data.
The third type is Mean Absolute Deviation (MAD) and is closely related to MSE. By taking the
absolute value of each error, the negative and positive signs are removed and a good indication of
average error per period is calculated. This measure is popular because it is easy to understand
and provides a good indication of the accuracy of the forecast.
The final measure of forecast error is mean absolute percent error (MAPE), and it relates the
forecast error to the level of demand so different types of forecasts can be compared. (Page 230)
34. A process that organizations can use to arrive at a consensus forecast is called Sales and
Operations Planning. Discuss the five steps used to implement this process.
ANSWER: The S&OP Benchmarking Consortium in the Center for Supply Chain Research
adopted a five-step process in arriving at this consensus forecast. Step 1 (Run sales forecast
reports) requires the development of a statistical forecast of future sales. This would be done
using one or more forecasting techniques. Step 2 (Demand planning phase) requires the sales
and/or marketing departments to review the forecast and make adjustments based on promotions
of existing products, the introductions of new products, or the elimination of products. This
revised forecast is usually stated in terms of both units and dollars since operations are concerned
with units and finance is concerned with dollars. Step 3 (Supply planning phase) requires
operations (manufacturing, warehousing, and transportation) to analyze the sales forecast to
determine if existing capacity is adequate to handle the forecasted volumes. This requires
analyzing not only the total volumes but also the timing of those volumes. Step 4 (Pre-S&OP
meeting) asks individuals from sales, marketing, operations, and finance to attend a meeting that
reviews the initial forecast and any capacity issues that might have emerged during Step 3. Initial
attempts will be made during this meeting to solve capacity issues by attempting to balance
supply and demand. Alternative scenarios are usually developed to present at the executive S&OP
meeting (Step 5) for consideration. These alternatives would identify potential lost sales and
increased costs associated with balancing supply and demand. The sales forecast is also converted
to dollars to see if the demand/supply plan meets the financial plan of the organization. Step 5
(Executive S&OP meeting) is where final decisions are made regarding sales forecasts and
capacity issues. This is where the top executives from the various functional areas agree to the
forecast and convert it into the operating plan for the organization. (Pages 234-235)
35. Define and discuss Collaborative Planning, Forecasting, and Replenishment (CPFR) and
its impact on supply chain management.
ANSWER: One of the most recent initiatives aimed at achieving true supply chain integration is
collaborative planning, forecasting, and replenishment (CPFR). CPFR has become recognized as
a breakthrough business model for planning, forecasting, and replenishment. Using this approach,
retailers, distributors, and manufacturers can utilize available Internet-based technologies to
collaborate on operational planning through execution. Transportation providers have now been
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Coyle Supply Chain Management: A Logistics Perspective, 9th Edition
Chapter 7 Test Bank

included with the concept of collaborative transportation management (CTM). Simply put, CPFR
allows trading partners to agree to a single forecast for an item where each partner translates this
forecast into a single execution plan. This replaces the traditional method of forecasting where
each trading partner developed its own forecast for an item and each forecast was different for
each partner.
CPFR is a sequence of several business processes that include the consumer, retailer, and
manufacturer. The four major processes are (1) strategy and planning, (2) demand and supply
management, (3) execution, and (4) analysis. Two aspects of this model are important to note.
First, it includes the cooperation and exchange of data among business partners. Second, it is a
continuous, closed-loop process that uses feedback (analysis) as input for strategy and planning.
CPFR emphasizes a sharing of consumer purchasing data (or point-of-sale data) as well as
forecasts at retail among and between trading partners for the purpose of helping to manage
supply chain activities. From these data, the manufacturer analyzes its ability to meet the
forecasted demand. If it cannot meet the demand, a collaborative effort is undertaken between the
retailer and manufacturer to arrive at a mutually agreed-upon forecast from which execution plans
are developed. The strength of CPFR is that it provides a single forecast from which trading
partners can develop manufacturing strategies, replenishment strategies, and merchandising
strategies.
The CPFR process begins with the sharing of marketing plans between trading partners. Once an
agreement is reached on the timing and planned sales of specific products, and a commitment is
made to follow that plan closely, the plan is then used to create a forecast, by stock-keeping unit
(SKU), by week, and by quantity. (Pages 237-238)
36. Define channels of distribution and discuss their roles in fulfillment.
ANSWER: A channel of distribution consists of one or more organizations or individuals who
participate in the flow of goods, services, information, and finances from the production point to
the final point of consumption. A channel of distribution can also be thought of as the physical
structures and intermediaries through which these flows travel. These channels encompass a
variety of intermediary firms, including those that can be classified as distributors, wholesalers,
retailers, transportation providers, and brokers. Some of these intermediary firms take physical
possession of the goods, some take title to the goods, and some take both. Thus, it is critical in the
design of a distribution channel to take into consideration both the logistics channel and the
marketing channel.
The logistics channel refers to the means by which products flow physically from where they are
available to where they are needed. The marketing channel refers to the means by which
necessary transactional elements are managed (for example, customer orders, billing, accounts
receivable). (Page 240)
37. Pick two of the following direct-to-customer (DTC) fulfillment channel structures and
discuss their characteristics, advantages and disadvantages.
ANSWER:
• Integrated Fulfillment
• Dedicated Fulfillment
• Outsourced Fulfillment
• Drop Ship Fulfillment
• Store Fulfillment
• Flow-through fulfillment

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Coyle Supply Chain Management: A Logistics Perspective, 9th Edition
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Integrated fulfillment means that the retailer operates one distribution network to service two
channels – both retail stores and Internet sites where customers can buy direct. In a typical
distribution center for this model, both store orders and consumer orders are received, picked,
packed, and shipped. One advantage to this model is low start-up costs. If the retailer has an
established distribution network that handles store orders and then decides to develop an Internet
presence, the existing network can service both. In other words, new distribution centers need not
be built. This would also eliminate the need to have a duplicate inventory to handle the Internet
orders. Another advantage to this model is workforce efficiency because of consolidated
operations. The existing workforce now has an opportunity to move more volume through a
fixed-cost facility. However, this model has several challenges. First, the order profile will
change with the addition of consumer Internet orders. While store orders would probably be
picked in case and/or pallet quantities, consumer orders would require consumer units (eaches) in
smaller order quantities. Second, products might not be available in eaches. Third, the addition of
unit pick (each pick) would require a “fast pick”, or broken case, operation to be added to the
distribution center. Finally, a conflict might arise between a store order and an Internet order if
there is not sufficient inventory to fill both.
Dedicated Fulfillment Another option for the retailer that desires to have both a store and an
Internet presence is called dedicated fulfillment, which achieves the same delivery goals as
integrated fulfillment but with two separate distribution networks. Having a separate distribution
network for store delivery and consumer delivery eliminates most of the disadvantages of
integrated fulfillment. However, now the retailer is faced with duplicate facilities and duplicate
inventories. This assumes that the retailer offers exactly the same product offering through both
channels. However, many retailers offer many more products on their Internet sites than they
offer in their stores. This makes dedicated fulfillment a more logical choice.
Outsourced Fulfillment While both integrated and dedicated fulfillment assume that the retailer
will perform the fulfillment itself, outsourced fulfillment assumes that another firm will perform
the fulfillment. Many retailers will maintain internal control of store fulfillment and outsource
some, if not all, Internet fulfillment to a third party. One advantage of this outsourcing is low
start-up costs for the retailer to service the Internet channel. Also, possible transportation
economies could result from using outsourced fulfillment for Internet orders. A major
disadvantage often cited with outsourcing fulfillment is the loss of control the retailer might
experience over service levels. So, the major benefit of outsourced fulfillment is the ability to use
existing external expertise in fulfillment. The major disadvantage of this model is the potential
loss of control.
Drop-Shipped Fulfillment According to the model known as drop-shipped fulfillment, which is
also referred to as direct store delivery, the manufacturer delivers its product directly to a
retailer’s stores, bypassing the retailer’s distribution network. A major advantage of this model is
the reduction of inventory in the distribution network. This occurs because the retailer does not
need to stock the manufacturer’s inventory in its distribution centers. Another major advantage to
the manufacturer is the direct control of its inventories at the store level. A disadvantage to the
retailer is the possible reduction of inventory visibility of the manufacturer’s products since the
retailer does not “touch” these products in its distribution network.
This type of model requires close collaboration and agreement between the manufacturer and
retailer for several reasons. First, not every retailer supplier can do drop-shipped fulfillment.
From a practical perspective, if every supplier to a store delivered direct on a daily basis, the
number of delivery vehicles and manufacturer personnel in a store would cause overwhelming
congestion at the store. Second, the retailer and manufacturer need to agree on the types and
timing of information shared on inventory levels to provide the retailer with the proper level of
inventory visibility. Finally, drop-shipped fulfillment works best for products that have a short
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Test Bank for Supply Chain Management A Logistics Perspective 9th Edition by Coyle

Coyle Supply Chain Management: A Logistics Perspective, 9th Edition

Chapter 7 Test Bank

shelf life and/or where freshness is a requirement. As such, this model makes sense for a limited
number of products sold in a retail store.
Store Fulfillment For a retailer that has both a storefront as well as an Internet presence, store
fulfillment can offer several opportunities. In this model, the order is placed through the Internet
site. The order is sent to the nearest retail store where it is picked and put aside for the customer
to pick up. Several advantages exist for this type of fulfillment. First, there is a short lead time to
the customer if the item is in stock. Second, there are low start-up costs for the retailer. Inventory
is already in place in close proximity to the consumer. Third, returns can be handled in the usual
manner through the retail store. Finally, the product will be available in consumer units.
Several disadvantages exist for this type of fulfillment. First, there might be reduced control and
consistency over order fill since each store will be responsible for its own order picking. Second,
conflict may arise between inventories. Stores hold inventories for the shopper, which can result
in impulse buys. Now the store is required to remove the item from the shelf for an Internet order,
resulting in a possible out-of-stock at the shelf. One method to alleviate this conflict is to adjust
the profit of the store so it also gets credit for the Internet sale. Third, the retailer must have real-
time visibility to in-store inventories in order to satisfy the Internet order. Finally, stores lack
sufficient space to store product. Staging products for customer pickups in any area of the store
takes space away to generate additional sales for the store.
Flow-Through Fulfillment is very similar to store fulfillment. The main difference between the
two is that in flow-through fulfillment the product is picked and packed at the retailer’s
distribution center and then sent to the store for customer pickup. The flow-through model
eliminates the inventory conflict the store might realize between store sales and Internet sales.
Because the consumer is providing the pickup service, the retailer avoids the cost of the “last
mile” transportation. The retailer also does not need store-level inventory status in the flow-
through model. Returns can be handled through the existing store network, as in store fulfillment.
Storage space at the store for pickup items remains an issue. (Pages 243-248)

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