Strategic 3

EXAMINATION QUESTIONS AND ANSWERS
Chapter 1 The Progression to Professional Supply Management
True/False Questions
Note to students, select the answer that is true or false “most of the time”, few situations
in social sciences are simply black or white.
1. Purchasing is primarily a clerical activity.
Answer: False
2. Supply management is also known as procurement at many firms and government

agencies.
Answer: True
3. Strategic sourcing starts with the analysis of the supply market.
Answer: False
4. Materials have always been vital in the history of industrial growth.
Answer: False
5. In the history of power source relationships, percentage wise, labor costs went
down while materials costs went up.
Answer: True
6. Supply management plays a major role in improving the “bottom line” by driving
sales up and costs down.
Answer: True
7. Generally speaking, firms with the fasted time to market with new products by
using cross functional teams including suppliers, enjoy higher profits.
Answer: True
8. Some 75% of many manufacturer’s quality problems can be traced back to defects
in purchased materials.
Answer: True
9. Of the factors that make up total cost of ownership (TCO), the big majority of this
cost is in the acquisition cost.
Answer: False
10. “Lean thinking” is primarily concerned with conversion cost.
Answer: False
11. When supply savings and increased sales due to superior supply chain
management are combined, it is not uncommon to increase ROI 50%.
Answer: True
12. The term “supply chain” means all the members are linked together in one master
contract covering a long time period.
Answer: False
13. The term “value chain” includes both the upstream and downstream portion of the
supply chain.
Answer: True
14. The extended enterprise means a group of firms collaborating as a supply alliance,
i.e. a strategic network or virtual corporation.
Answer: True
15. The key role of a supply management professional is one of leadership.
Answer: True
16. The final step in the typical purchasing cycle for materials in to audit the invoice.
Answer: False
17. Supply management must be a core competency based on its impact on the
bottom line.
Answer: True
18. SM requires change, driven by upper management.

Note: SM means Supply Management
Answer: True
19. World-class supply managers proactively improve supply processes.
Answer: True
20. When a group or network of firms collaborates in a partnership (alliance) fashion;

the collaboration is sometimes referred to as a strategic network, virtual
corporation, or extended enterprise.
Answer: True
21. When the group of firms view each other as partners and collaborate effectively
for the good of the larger group, then they leave established an extended
enterprise characterized by virtual integration.
Answer: True
22. Strategic sourcing is about understanding the markets you're purchasing from
inside and out and learning from your own organization and your suppliers'
organizational processes, working as a mediator between suppliers and your
organization, and capturing information and using it to improve relationships.
Answer: True
23. Strategic sourcing requires two-way continuous improvement process work from
each organization.
Answer: True
24. Maintenance is an issue that should be considered after equipment has been
purchased.
Answer: False
25. Supply management does not have much of an impact on the bottom line.
Answer: False
26. SM does not require change driven by upper management.
Answer: False
27. World-class supply managers need not improve supply processes before the
processes have been implemented.
Answer: False
28. When a group or network of firms collaborates in a partnership (alliance) fashion;

the collaboration is sometimes referred to as a tactical network.
Answer: False
29. When the group of firms view each other as partners and collaborate effectively
for the good of the larger group, then they leave established a transactional
relationship.
Answer: False
30. Strategic sourcing is about dominating the markets you're purchasing from
through force and intimidation, never letting the supplier forget that you are the
“boss.”
Answer: False
31. Strategic sourcing requires one-way improvement efforts where the buying firm
tells the supplying firm what is best.
Answer: False
Multiple Choice Questions
32. The five “right objectives” of purchasing are:

A) Quality, Quantity, Price, Time, Place
B) Cost, Service, Specs, Time, Quantity
C) Place, Time, Price, Ethics, Contract
D) Agent, Supplier, Contract, Price, Quantity
17. Logistics, time, Quality, Price, Quantity
Answer: A
33. The term supply management is broader than the purchasing function because it::
A) includes marketing
B) includes operations/production
C) includes managing relationships with suppliers
D) includes negotiating enforceable contracts
18. includes measuring the total cost of ownership
Answer: C
34. Strategic sourcing differs from tactical purchasing in that this activity
periodically:
A) analyzes the organization’s spend
B) analyzes the supply market
C) develops sourcing strategy and plans
D) outsources basic business services such as security
19. A, B &C
Answer: E
35. Supply management’s impact on the bottom line includes the ability to increase
sales by:
A) reducing the development time of new products by using cross functional
teams including suppliers
B) obtaining the lowest possible prices
C) finding suppliers with the fastest delivery times
D) all of the above
20. none of the above
Answer: A
36. “Lean Thinking” can help reduce total cost of ownership (TCO), this means the
supply team in the entire “chain” must work to:
A) lower conversion cost
B) reduce cycle time cost
C) reduce risk cost
D) reduce non-value costs
21. reduce processing costs
Answer: D
37. The major reason supply management can greatly improve a firm’s return on
investment (ROI) is:
A) the reduction of post ownership costs
B) the reduction of downtime costs
C) the reduction of quality costs
D) the reduction of acquisition cost
22. every dollar saved in purchasing is = to a new dollar of profit
Answer: E
38. The concept of a supply chain means we analyze and manage:

A) a chain or network of upstream suppliers
B) converters
C) original equipment manufacturers (OEM)
D) extractors
23. key suppliers
Answer: A
39. The term value chain means we include the supply chain in our analysis and
management with:
A) end consumer
B) the downstream portion of the chain and distribution, such as marketing
C) channels of distribution
D) financial impact studies
24. opportunity cost
Answer: B
40. When we add the term networks to the supply and value chains, we are
emphasizing the need to focus on and interactively communicate with:
A) suppliers
B) distributors
C) final consumers
D) tiers of suppliers
25. all support organizations
Answer: C
41. The term extended enterprise is an extension of supply networks, we now have:
A) true value creation
B) real value maintenance
C) innovative and virtual integration
D) a network of firms collaborating in partnership
26. adaptive networks
Answer: D
42. In Appendix A, The “Mechanics of Supply Management”, the typical purchasing

cycle for materials starts with:
A) investigating and selecting the supplier
B) negotiating a contract
C) defining and describing the need
D) preparing the purchase order
27. communicating the need
Answer: C
43. Which statement about SM is not true?

A) SM recognizes the global environment
B) SM is a philosophy
C) SM is synonymous with logistics
D) SM is proactive
E) SM spans functional boundaries
Answer: C
44. Which statement about SM is not true?

A) SM spans company borders
B) SM focuses on optimization of the supply chain
C) SM requires change from upper management
D) SM requires continuous improvement
E) SM relies on mathematical models
Answer: E
45. Which action is not necessary in implementing SM?

A) Senior management must recognize supply management's critical nature to
the firm
B) Senior management must support the required transformation of supply
management to world class
C) Firms must know where they are in relation to where they want to be
D) Firms must benchmark best-in-class practices and develop metrics
E) Firms must force their suppliers into world-class compliance
Answer: E
46. Which bullet is not true of the clerical stage of SM?

A) Relationships: personal
B) Design: suppliers are involved
C) Bottom line impact: overhead
D) Reporting: very low level
E) Data: not available
Answer: B
47. Which bullet is not true of the clerical stage of SM?

A) Process Paperwork
B) Confirm actions of others
C) Emphasis: convenience
D) Total cost of ownership focus
E) Relationships: personal
Answer: D
48. Which bullet is not true of the mechanical stage of SM?

A) Engage in eCommerce II
B) Transactional focus
C) React to requisitions
D) Not involved in key source selections
E) Emphasis: purchase price
Answer: A
49. Which bullet is not true of the mechanical stage of SM?

A) Relationships: transactional and adversarial
B) Bottom line impact: revenue neutral
C) Active in source selection
D) Reporting: low level
E) Data: used to expedite
Answer: C
50. Which bullet is not true of the proactive stage of SM?

A) Coordinate procurement system
B) Develop suppliers
C) Long-term contracts
D) Involved in development of requirements
E) Not involved in key source selections
Answer: E

A) Involved in development of requirements
B) Short-term contracts
C) Plan for recurring requirements
D) Procurement adds value
E) Active in source selection
Answer: B

A) Near defect free materials and services
B) Emphasis: cost, quality and timeliness
C) Reporting: low level
D) Relationships: transactional and collaborative
E) Bottom line impact: profit contributor
Answer: C

A) Reporting: upper management
B) Data: facilitates sourcing and pricing
C) Fulfill social responsibilities
D) Confirm actions of others
E) Engage in electronic commerce
Answer: D
54. Which bullet is not true of the world-class stage of SM?

A) Supply management a core competence
B) Strategic sourcing
C) Bottom line impact: overhead
D) Manage risk
E) Emphasis: total cost relationships
Answer: C

A) React to requisitions
B) Relationships: transactional, collaborative and alliance
C) Bottom line impact: increase shareholder value
D) Reporting: member, executive group
E) Data: facilitates strategic planning
Answer: A

A) Monitor supply environment
B) Develop and implement commodity strategies
C) Supply base by design
D) Relationships: personal
E) Develop and manage alliances and networks
Answer: D

A) Time based competition
B) Bottom line impact: overhead
C) Virtually defect free materials and services
D) Leverage supplier technology
E) Integrated supply strategy
Answer: B
58. Which is not true about supply chains and networks?

A) The supply chain extends from the ultimate customer back to Mother Earth
B) The chain is viewed as a whole, a single entity rather than fragmented groups
C) Money enters the supply chain only when the ultimate customer buys a
product or service
D) Supply chains are relatively easy to describe and visualize
E) The term supply chain is a more accurate description than supply network
Answer: E
59. Which of the following is generally not true about supply management and the
bottom line?
A) Purchased items account for a large percentage of the cost of goods sold.
Hence, a reduction in cost of purchased goods has a major impact on the
bottom line
B) A Euro increase in sales is equivalent to a Euro decrease in materials cost in
impacting the bottom line
C) Outsourcing allows firms to focus on their core competencies, which reduced
potential for waste, which then can improve the bottom line
D) A dollar saved in materials cost is usually considered a dollar increase in
profit, which directly translates into bottom line savings
E) Supply management can work collaboratively with suppliers to discover
opportunities to lower costs, which ultimately improves the bottom line
Answer: B
60. Which of the following is not one of The Four Phases of Supply Management?
A) Generation of Requirements
B) Sourcing
C) Pricing
D) Profit Sharing
E) Post Award Activities
Answer: D
61. Which of the following bullets is not true about supply management systems?
A) Supply management systems require software optimization models to run
effectively
B) Virtually all firms have supply management systems
C) A cross-functional approach to supply management systems enables the
lowest total cost
D) Carefully selected suppliers should also join in-house cross-functional teams
in developing supply management systems
E) Supply management systems that include reverse auctions, exchanges, and
real-time electronic transmissions only increase the importance of supply
management
Answer: A
62. Which of the following is not a strategic supply management activity?

A) Activity Based Costing
B) Environment Monitoring
C) Integrated Supply Strategy
D) Commodity Strategies
E) Data Management
Answer: A

A) Corporate Strategic Plans
B) Simulation Modeling
C) Strategic Sourcing
D) Strategic Supply Alliances
E) Supply Chain / Supply Networks
Answer: B

A) Environment Monitoring
B) Supply Chain / Supply Networks
C) Operations Research
D) Social Responsibilities
E) Understand Key Supply Industries
Answer: C
Chapter 2 Organizational Issues
28. The lower purchasing is on the organization chart, the less impact the supply
function will have on corporate strategy.
Answer: True
29. The degree of competition for critical materials will be a key factor in the
importance of supply management.
Answer: True
30. Even in a firm, which primarily purchases small numbers of standard production
parts, the supply department can be a significant value as a profit center.
Answer: False
31. The “mind set” or focus on internal processes usually produces the kind of
detailed work necessary to achieve significant material savings.
Answer: False
32. The smaller the organization, the less likely the purchasing operations will be
strategic.
Answer: True
33. Supplier relationship management includes motivation, assistance, incentives,

cooperation, collaboration and on occasion, penalties.
Answer: True
34. Managing supplier relationships is a strategic responsibility.
Answer: False
35. Managing contract and blanket order releases are operational responsibilities.
Answer: True
36. Consolidation provides the opportunity to standardize, simplify and leverage

material purchases.
Answer: True
37. Hybrid organizational structures often use cross functional teams to achieve the
best of both centralized and decentralized decision making.
Answer: True
38. E-commerce has strengthened the case for decentralization of purchasing.
Answer: False
39. The materials management organization structure is now obsolete.
Answer: False
40. Supply chain management expanded the materials management structure

functions to include all the stake holders and total demand management.
Answer: True
41. Cross function teams are often the key step in a firms evolution to supply chain
management.
Answer: True
42. Aside from the benefits of synergy, cross functional teams provides input from all
affected functions.
Answer: True
43. One of the big challenges and problems with cross functional teams is the lack of
time for the team member participation and role conflict.
Answer: True
17. Cross functional teams operate best when they use the brainstorming approach to
innovative thinking.
Answer: False
18. The key first step in establishing cross functional teams is obtaining executive
sponsorship.
Answer: True
19. Its best to let a cross functional team “train itself” as they learn how to
communicate with one another.
Answer: False
20. One of the key skills for any leader is to be an effective listener.
Answer: True
21. The importance of supply management in any specific firm is determined by the
following factors:
A) availability of materials and services
B) absolute dollar volume of purchases
C) percentage of product cost represented by materials and services
D) types of materials and services purchased
44. All of the above
Answer: E
22. Of the purchasing/supply responsibilities and activities, ______ becomes more

important as the function becomes responsible for supply and value network
chains:
: A) buying supply management
B) executive management
C) strategic planning and research work
D) contract and relationship management
45. Supplier liaison work
Answer: C
23. Managing supplier relationships, contracts, placement of purchase orders and

other transaction focused activities are _____ responsibilities:
: A) strategic
B) short term
C) long term
D) operational
E) action
Answer: D
24. Aside from reducing potential duplication of efforts, the major advantage of
centralized purchasing is:
: A) improved inventory control
B) leveraged volume purchasing
C) consolidation
D) transportation savings
E) lower administrative costs
Answer: B
25. When a firm’s major activity is research and development, the firm will most
likely use:
: A) centralized purchasing
B) headquarter purchasing
C) decentralized purchasing
D) hybrid purchasing structure
E) a specialized purchasing staff at headquarters
Answer: C
26. E-commerce has facilitated the use of:

: A) centralized purchasing
B) decentralized purchasing
C) hybrid purchasing
D) none of the above
E) A, B & C
Answer: C
27. The materials management organization structure paved the way for _____
structure:
: A) value network chain structures
B) supply chain management structure
C) procurement management structure
D) purchasing centralization
E) purchasing decentralization
Answer: B
28. The most significant advantage of the supply chain management structure is:
: A) it facilitated a total systems approach to stimulate integration
B) it uses the internet to extract key information
C) it increases the visibility of the purchasing department
D) it focuses management attention on quality
E) it reveals that inventory costs are often understated
Answer: A
29. Cross functional teams have proven to help:

: A) break down functional silos
B) reduce new product development time
C) facilitate integrated planning and coordination
D) stimulate engineering change management control
E) all of the above
Answer: E
30. The key prerequisite to having cross functional teams is:

: A) effective team leaders
B) qualified team members
C) a clear team charter
D) adequate training
E) executive sponsorship
Answer: E
Chapter 4 A Portfolio of Relationships
1. Systematically selected supply alliances built on institutional trust help

organizations complete their evolution to SM.
Answer: True
2. The transformation from reactive and mechanical purchasing to proactive

procurement and on to SM, parallels a similar transformation in relationships
between buyers and suppliers.
Answer: True
3. Prior to the 1980s, most purchasing relationships were reactive. Interaction

between vendor and purchasing resulted in outcomes where one's gain would be
the other's loss.
Answer: True
4. During the late 1980's and early 1990's, “partnerships” became popular. The
authors of the textbook argue that there are problems with the term partner. One
of the problems given in the text was that the implications of the term “partner”
were not well understood.
Answer: True
5. During the late 1980's and early 1990's, “partnerships” became popular. The
authors of the textbook argue that there are problems with the term partner. One
of the problems given in the text was that legal problems and concerns inevitably
arose regarding the term.
Answer: True
6. Collaborative relationships are typically used for the procurement of non-

commodity items and services.
Answer: True
7. A collaborative relationship frequently is an appropriate first step on the road to a

strategic alliance.
Answer: True
8. The fundamental difference between collaborative relationships and supply
alliances is the presence of institutional trust in alliances.
Answer: True
9. The failure to develop and manage institutional trust is the principle reason that so
many supply alliances fail.
Answer: True
10. Power is a topic that makes people uncomfortable.
Answer: True
11. Power is at the heart of all business relationships.
Answer: True
12. A captive buyer is held hostage by a supplier free to switch to another customer.
Answer: True
13. A captive supplier makes investments in order to secure a portion of the buyer's
business, with no assurance of sufficient business to recoup the investment.
Answer: True
14. Successful supply chain management requires the effective and efficient
management of a portfolio of relationships.
Answer: True
15. One of the advantages of transactional relationships is that relatively less

purchasing time and effort are required to establish price.
Answer: True
16. One of the advantages of transactional relationships is that lower skill levels of
procurement personnel are required.
Answer: True
17. "Collaboration is the new imperative," declares Michael Dell.
Answer: True
18. Collaborative and alliance relationships tend to result in lower total costs and
improve performance of the supply chain.
Answer: True
19. A firm can evolve to SM without any relationships that are built on institutional
trust.
Answer: False
20. The transformation from reactive and mechanical purchasing to proactive

procurement and on to SM can be done without top management commitment.
Answer: False
21. Prior to the 1980s, most purchasing relationships were proactive.
Answer: False
22. Since it has become a well-known term and is established in the legal system, the
authors of the textbook support the use of the term partner
Answer: False
23. Collaborative relationships are typically used for the procurement of commodity
items.
Answer: False
24. A transactional relationship frequently is an appropriate first step on the road to a

strategic alliance.
Answer: False
25. The fundamental difference between collaborative relationships and supply

alliances is the presence of cost measurement and information technology in
alliances.
Answer: False
26. Institutional trust does not require much management.
Answer: False
27. A captive buyer is buyer that uses single sourcing.
Answer: False
28. A captive supplier makes investments in order to secure a portion of the buyer's
business, but it is given assurance of sufficient business to recoup the investment
through legal contracts.
Answer: False
29. Successful supply chain management requires that all relationships with suppliers
be either collaborative or alliances.
Answer: False
30. One of the advantages of collaborative relationships is that relatively less

purchasing time and effort are required to establish price than in transactional
relationships.
Answer: False
31. One of the advantages of collaborative relationships is that lower skill levels of
procurement personnel are required.
Answer: False
32. "Greater price competition through the Internet is the new imperative," declares
Michael Dell.
Answer: False
33. Collaborative and alliance relationships tend to result in higher total costs for non-
commodity products than conducting the same business using transactional
relationships.
Answer: False
34. Which of the following is not one of the three types of buyer supplier
relationships presented in the textbook?
A) Transactional
B) Transcendental
C) Collaborative
D) Alliance
Answer: B
35. Which of the following is not a transactional relationship characteristic?

A) Long-term contract
B) An absence of concern
C) One of a series of independent deals
D) Costs, data and forecasts are not shared
E) Price is the focus of the relationship
Answer: A
36. Which of the following is not a transactional relationship characteristic?

A) One of a series of independent deals
B) Costs, data and forecasts are not shared
C) A minimum of purchasing time and energy is required to establish prices
D) Transactional purchases lend themselves to e-procurement
E) Parties work together to develop designs
Answer: E
37. Which of the following is not a disadvantage of transactional relationships?

A) Lowest Total Cost of Ownership is usually forced out of suppliers
B) Suppliers provide the minimum service required
C) Less effective performance by suppliers
D) Customers are subject to more supply disruptions
E) Supplier is not motivated to invest time and energy development of buyer's
products
Answer: A
38. Which of the following is not a disadvantage of transactional relationships?

A) Potential for communication difficulties
B) Expediting and monitoring of incoming quality
C) Inflexible when flexibility may be required
D) No inspection needed due to low prices
E) Tend to result in more delivery problems
Answer: D
39. Researchers Stanley and Pearson found that there are three most important factors
in a successful buyer-supplier relationship. Which of the following is not one of
the factors?
A) Two-way communication
B) Paying a fair and reasonable price
C) The supplier's responsiveness to supply management's needs
D) Clear product specifications
Answer: B
40. Which of the following is not one of the outcomes that collaborative relationships
tend to foster?
A) Longer term contracts
B) Reduction of risk for suppliers
C) Reducing total costs
D) A focus on price
E) Improvement of processes
Answer: D
41. Which of the following is not one of the outcomes that collaborative relationships
tend to foster?
A) Decreased information sharing
B) Increased investment in R & D
C) Increased investment in training
D) Increased investment in equipment
E) Better focus on customer needs
Answer: A
42. Which of the following is not one of the benefits of supply alliances?
A) Lower total costs
B) Reduced time to market
C) Increased inspection levels
D) Improved technology flow from suppliers
E) Improved continuity of supply
Answer: C
43. Which of the following is not an attribute of alliances?

A) Continuous improvement
B) Contracts that are difficult to interpret
C) Interdependence and commitment
D) Atmosphere of cooperation
E) Informal interpersonal connections
Answer: B

A) Internal infrastructures to enhance learning
B) Openness in all areas of the relationship
C) Negotiations result in one winner
D) A living system
E) A shared vision of the future
Answer: C

A) Ethics take precedence over expediency
B) Adaptable in the face of change
C) Penalties are used to guide performance
D) Win-win negotiations
E) Executive level commitment
Answer: C
46. Which of the following is not one of the issues that affect a supplier's assessment
of a buying firm?
A) Cash Flow
B) Openness and Approachability
C) Availability
D) Professionalism
E) Gifts and gratuities
Answer: E
47. Which of the following is a situation wherein an alliance may be appropriate?

A) Price Volatility
B) Synergistic collaborative design opportunities exist
C) Demand Volatility
D) High Switching Likelihood with High Switching Costs
E) No Partnership/Alliance-Capable Supplier for the Item
Answer: B

A) Demand is Stable
B) No Partnership/Alliance-Capable Supplier for the Item
C) No Partnership/Alliance-Capable Supplier in the Geographic Area
D) Rapid Technological Change
E) Mismatch of Clock Speed
Answer: A

A) Supplier Dependency Creation
B) Neglected Areas
C) Suppliers Seeking to Reduce Competition
D) Low Switching Likelihood with Low Switching Costs
E) No leverage from Partnership
Answer: D

A) High Switching Likelihood with High Switching Costs
B) No Partnership/Alliance-Capable Supplier in the Geographic Area
C) No Hard Savings from Partnership
D) No Internal Customer Buy-In
E) Price is Stable
Answer: E
51. Developing and managing collaborative relationships require supply professionals

that possess the all of the following skills and attitudes except one in the
following list. Which skill in the following list is not required?
A) Recognize the benefits of collaboration
B) Ability to identify, obtain and use data
C) Able to work in chaos and uncertainty
D) Agile, flexible, and highly
E) Ability to develop information systems
Answer: E
52. Which of the following is not an e-Commerce trap presented in the textbook?
A) Gilding the pig
B) The Magic pill
C) Shooting the moon
D) Supplier equality
Answer: C
53. Which of the following statements is not true about trust?

A) Trust is one of the key factors that differentiate the three classes of
relationships.
B) The simplest definition of trust according to the textbook is “being confident
that the other party will do what it says it will do.”
C) Transactional relationships are completely void of trust
D) Some level of trust must be present in all three types of relationships
E) The level of trust increases with collaborative relationships and becomes an
essential characteristic with strategic alliances
Answer: C
54. Which of the following is not an attribute of institutional trust?

A) Trust exists if it is written into a contract
B) Developed over time
C) Internal trust is developed before external trust
D) Based on individual and institutional integrity
E) It is greater than individual trust.
Answer: A

A) It can be developed quickly
B) Trust and relationship are viewed as investments
C) Partners have access to other's strategic plans
D) Relevant costs and forecasts are shared
E) When key individuals leave, fingerprints are left behind that hold the
relationships together
Answer: A

A) Informal agreements are as good as written
B) Tactical plans are shared, but not strategic plans
C) Both parties are sensitive to the cultural bridge
D) Relationship is adaptable in the face of change
E) Both firms recognize the interdependency
Answer: B

A) Sharing information is a means of developing trust
B) Based only on institutional integrity
C) Conflict in the relationship is openly addressed
D) Rights, desires, and opinions are considered
E) Firms have mutual goals
Answer: B

A) Recognizes trust has different cultural meanings
B) Both CEO's make a personal investment
C) Senior managers from both firms commit
D) Sharing of information is discouraged
E) Ethical issues are freely brought up without fear
Answer: D
59. Which of the following is not an action to develop and manage trust?
A) An inter-firm team is appointed
B) Discussions conducted in an atmosphere of respect
C) A team of attorneys is appointed to manage the relationship
D) Inter-firm team receives guidance and training in the implementation of
practices
E) Listening, understanding, time, energy are invested
Answer: C
A) Senior leaders at both firms act as champions
B) A communication system is developed
C) Base negotiations on the zero-sum game
D) Actions to develop and measure trust are created
E) Risks and rewards are addressed openly
Answer: C
A) Hold back critical information from the alliance partner, just in case
B) Negotiation is used as a trust-building opportunity
C) Both firms work together on technology plans
D) Technical personnel from both firms visit the other
E) Contractual relations are designed to enhance trust
Answer: A
A) Contract relations focus on continuous improvement
B) Team and relationship skills are developed early
C) A contracting philosophy and a legal infrastructure are designed to the
relationship
D) Develop multiple backup suppliers to assure continuity of supply
E) Institutional trust is measured and managed
Answer: D
63. The Quaker Oats case history demonstrates that in addition to having the trust
required to form an alliance:
A) Both parties must have mutual respect
B) Volume quantities must be fixed
C) There is still a need for a comprehensive contract, including such questions
and answers as “what if”?
D) It is not necessary to have open book accounting
E) Legal provisions are still necessary
Answer: C
Chapter 9 Purchasing Services

1. The ideal services supplier listens to what users complain about most and then
designs service products that supply the market's missing ingredients.
Answer: True
2. Satisfaction is built into service products rather than added as an afterthought.
Answer: True
3. The procurement of services is one of supply management's most interesting and

challenging assignments.
Answer: True
4. Supply Management frequently must assume a far more active role in all phases
of services procurement than when purchasing materials.
Answer: True
5. The four formats for statements of work given in the textbook are: performance,
functional, design and level-of-effort.
Answer: True
6. In planning the statement of work, all of the following should be considered:

performance measurements, deliverables, delivery schedule, performance
schedule and service levels.
Answer: True
7. In writing an effective S.O.W. as given in the textbook, the S.O.W. should explain
the interrelationship between tasks, identify all constraints and limitations and be
clear about phase requirements.
Answer: True
8. In writing an effective S.O.W. as given in the textbook, the S.O.W. should: limit
abbreviations to those in common usage, include procedures and eliminate
extraneous statements.
Answer: True
9. The conventional method and the owner as a contractor are alternative methods of
purchasing construction services as presented in the textbook.
Answer: True
10. The ideal services supplier focus on cost reduction ahead of customer satisfaction.
Answer: False
11. Satisfaction is cannot be built into service products but must be added as an
afterthought.
Answer: False
12. The procurement of services is a relatively simple assignment in supply

management that usually results in lower pay for the supply manager.
Answer: False
13. Supply management frequently must assume a less active role in services
procurement than when purchasing materials.
Answer: False
14. The four formats for statements of work given in the textbook are: performance,
functional, design and firm fixed price.
Answer: False
15. In planning the statement of work, all of the following should be considered:
statistical process control, process capability analysis, and the sampling
methodology.
Answer: False
16. In writing an effective S.O.W. as given in the textbook, the S.O.W. should not
include explanations of the interrelationship between tasks or constraints and
limitations.
Answer: False
17. In writing an effective S.O.W. as given in the textbook, brevity should be used by
utilizing as many abbreviations as possible and not including procedures and or
extraneous statements.
Answer: False
18. The Constraint-Based Method is one methods of purchasing construction services

as presented in the textbook.
Answer: False
19. Which of the following is not one of the four formats for statements of work?
A) Performance S.O.W., which details everything the buyer wants
B) Functional S.O.W., which defines what the buyer is “trying to do”
C) Design S.O.W., which is the most detailed type of statement of work
D) Development S.O.W., which specifies the assistance that a buying firm must
provide the supplying firm during the length of the contract
E) Level-of-Effort S.O.W., which is a specialized version of the performance
statement of work
Answer: D
20. Which is usually not included in planning the statement of work?

A) Work approvals
B) Process flows in the supplier's facility
C) Use of subcontractors
D) Authorized personnel
E) Exhibits, schedules, and attachments
Answer: B

A) Second and third tier supplier obligations
B) Description of the work
C) Schedule
D) Specifications and requirements
E) Quality requirements
Answer: A

A) Performance measurements
B) Deliverables
C) Delivery and performance schedule
D) Service levels
E) Local buying requirements
Answer: E
23. Which is usually not included in writing the SOW?

A) Quality monitoring system
B) Total cost of ownership
C) Personnel plan
D) Performance and payment bonds
E) Metrics
Answer: B
24. Which of the following is not one of the tips on writing an effective S.O.W. given
in the textbook?
A) Explain the interrelationship between tasks
B) Identify all constraints and limitations
C) Include standards that will make performance measurement possible and
meaningful
D) Include clause for punitive damages to assure compliance
E) Be clear about phase requirements
Answer: D
in the textbook?
A) Be clear
B) Use active, not passive tenses
C) Utilize legalese to hide negative issues
D) Be precise
E) Spell out the buyer's obligations carefully
Answer: C
in the textbook?
A) Limit abbreviations to those in common usage
B) Include procedures
C) Do not over specify or overstate
D) Always integrate escape clauses
E) Eliminate extraneous statements
Answer: D
27. Which of the following is not a tip given in the textbook for selecting service
contractors?
A) Partner with users
B) Engage in reciprocity
C) Learn from the past
D) Update specifications
E) Minimize assumptions
Answer: B
28. Which of the following is not a tip given in the textbook for selecting service
contractors?
A) Minimize assumptions
B) Encourage questions
C) Facilitate comparison
D) Play hardball
E) Plan evaluation
Answer: D
29. Which of the following is not an alternative method of purchasing construction

services presented in the textbook?
A) Conventional Method
B) Cost Plus Discretionary Expenses
C) Design and Build, Agreed Price Method
D) Design and Build, Cost-Reimbursable Method
E) The Owner as a Contractor
Answer: B
Chapter 10 Outsourcing
1. Outsourcing has become a way to increase an organization's flexibility to meet

rapidly changing market conditions, focus on core competencies and develop
competitive advantage. As a result, the need for SM has intensified and
positioned supply managers as agents of strategic change critical to supply chain
success.
Answer: True
2. Outsourcing all non-critical activities is a trend where the idea is to achieve

significant cost leverage.
Answer: True
3. To identify non-critical activities, the firm's core competencies must be defined.
Answer: True
4. Many companies are not readily staffed to keep a company competitive in e-

business. As a result, companies are outsourcing infrastructure development and
maintenance to “Netsourcers.”
Answer: True
5. Firms are becoming more aware of the strategic dimension of the make-or-buy
decision.
Answer: True
6. As technology has advanced most manufacturing firms have become much more
specialized.
Answer: True
7. Cost of materials has continued to increase in many industries, which means that
the make or buy outsourcing decision must be reinvestigated from time to time for
even stable demand products.
Answer: True
8. Outsourcing decreases an organization's flexibility to meet rapidly changing

market conditions, but it can usually reduce total costs in the long-term.
Answer: False
9. Outsourcing all critical activities is a trend where the idea is to achieve significant
cost leverage.
Answer: False
10. “Netsourcers” are internal supply management specialists that keep a company
competitive in e-business.
Answer: False
11. As technology has advanced, most manufacturing firms have become much more
generalized.
Answer: False
12. Which of the following is not true about outsourcing?

A) Outsourcing is increasing rapidly in not just materials, many business
functions are being outsourced
B) Outsourcing should be used for all materials when suppliers are available
C) Outsourcing can enable leveraging of the supplier's expertise and increases in
innovation
D) Outsourcing can result in lower staffing levels
E) Outsourcing can result in reduced costs and more flexibility
Answer: B
13. Which of the following is not a strategic issue in making the outsourcing
decision?
A) The Issue of Short-term Vulnerabilities
B) Core Competencies
C) Supplier Dominance
D) The Creation of Strategic Vulnerabilities
E) The Dangers of Vertical Integration
Answer: A
14. From a strategic level, which of the following items is the most logical to
outsource?
A) An item that can be bought and sold in a commodity exchange
B) An item that is critical to the success of the product
C) An item that requires specialized design, manufacturing skills or equipment
D) An item that fits well within the firm's core competencies
Answer: A
15. Which of the following is not a reason to investigate the make or buy decision at
the tactical level?
A) If you currently outsource and the supplier suddenly has poor performance
B) Changing sales demand in the short term
C) Restricted manufacturing capability due to a breakdown
D) Increased manufacturing capability exists due to reduced sales of other items
E) If the part under consideration is still in the design stage
Answer: E
16. Which of the following is a consideration that favors buying a product?

A) Cost considerations make in-house production less costly
B) Desire to integrate plant operations
C) Stable work force is desired in a period of rising sales
D) Use of excess plant capacity
E) Control over production
Answer: C
17. Which of the following is a consideration that favors buying a product?

A) Control over quality
B) Multiple-source policy
C) Design secrecy required
D) Unreliable suppliers
E) Desire to maintain a stable work force in a period of reduction of sales
Answer: B
18. Which of the following is a consideration that favors making a product?

A) Unreliable suppliers
B) Stable work force is desired in a period of rising sales
C) Multiple-source policy
D) Indirect managerial control considerations
E) Procurement and inventory considerations
Answer: A
19. Which of the following is a consideration that favors making a product?

A) Limited production facilities
B) Cost considerations dictate that it is less expensive to buy
C) Desire to maintain a stable work force in a period of reduction of sales
D) Small-volume requirements
E) Suppliers' specialized know-how
Answer: C
20. Which of the following is a major element typically included in a “to buy” cost
analysis?
A) Delivered purchased material costs
B) Transportation costs
C) Direct labor costs
D) Any follow-on costs stemming from quality and related problems
E) Incremental inventory carrying costs
Answer: B
21. Which of the following is a major element typically included in a “to buy” cost
analysis?
A) Incremental factory overhead costs
B) Incremental managerial costs
C) Incremental purchasing costs
D) Incremental costs of capital
E) Receiving and inspection costs
Answer: E
22. Which of the following is a major element typically included in a “to make” cost
analysis?
A) Direct labor costs at your facility
B) Purchase price of the part from the supplier
C) Transportation costs
D) Receiving and inspection costs of incoming goods
E) Any follow-on costs related to quality or service provided by the supplier
Answer: A
23. Which one of the following points is not a reason that Netsourcing has become
popular?
A) Netsourcing enables a quick e-business presence
B) Netsourcing provides supply managers that flexibility to make changes
C) Netsourcing can help create a sustained performance
D) Netsourcing can provide support without the need to train or hire specialized
personnel
E) Netsourcing can completely replace supply management using intelligent
agents
Answer: E
24. Which one of the following points is not a reason that the Make-or-Buy Decision
is often a volatile decision?
A) Rigid formulas and rules of thumb are often used, which are often a poor
choice to apply
B) The make-or-buy question is influenced by a multitude of diverse factors that
are constantly changing
C) Companies do not support promotions based on cost savings
D) The relevant factors for the decision often vary immensely from one firm to
another
E) Companies often do not periodically evaluate the effectiveness of their past
decisions to generate information helpful in guiding future decisions
Answer: C
25. Which of the following points is not considered a danger of outsourcing?

A) Loss of control
B) Loss of client focus
C) Loss of centralization
D) Loss of clarity
E) Loss of cost control
Answer: C
26. Which of the following points is not considered a danger of outsourcing?

A) Loss of cost control
B) Ineffective management
C) Loss of confidentiality
D) Double outsourcing
E) Lack of responsibility
Answer: E
27. Which of the following activities or steps was not included in the typical
framework for outsourcing provided in the textbook?
A) Development of a strategic roadmap
B) Development of a decision flowchart
C) Development of a tactical roadmap
D) Development of a transition back plan
E) Development of a review system
Answer: C
91. What is the Use value of Pencil
a. It contains Ink
b. For smooth flow
c. To Mark
d. None of the above
2. Which statement is correct
a. Value is inversely proportional to Cost
b. Value is directly proportional to cost
c. Value is inversely proportional to Function
3. Who is the father of Value management
a. Lawrence D Miles
4. Value engineering is also called
a. Value analysis
b. Value Management
. Value Methodology
d. All of the above
a. Value is directly proportional to Function
b. Value is directly proportional to Cost
c. Value is inversely proportional to function

6. What is the sell function of bed sheet
a. For good appearance
b. To avoid dust
c. To cover mattress
7. What is the sequence of SAVE plan methodology
8. The Economic value consists following
a. Economic value
b. Cost value
c. Esteem
d. All of the above
9. Which phase is not available in SAVE plan methodology
a. Information
b. Creative
c. Execution
d. Recommendation
10. Value Engineering can be applied in the following area
a. Construction
b. Process
c. Manufacturing
d. All of the above
e. It contains Ink
f. For smooth flow

g. To Mark
h. None of the above
b. Lawrence D Miles
13. The Economic value consists of
e. Economic value
f. Cost value
g. Esteem
h. All of the above
14. What is the sell function of curtain
a. To cover window
b. For aesthetic
c. Prevent dust
d. All of the above
15. Problem solving consists of
a. Identifying problem
b. Thorough study of problem
c. Creating alternatives
d. All of the above
16. The type units used
a. JIS
b. DIN
c. SI
d. ANSI
17. Which job plan phase is backbone for VE

a. Identification
b. Creative
c. Evaluation
d. Development
18. Which Job plan phase is mostly preferred by VE
a. Identification
b. Creative
c. Evaluation
d. Development
19. Maximum team size of VA/VE
a. 16
b. 30
c. 15
d. 6
20. The passive verb and non-measurable noun concentrates on
a. Basic function
b. Design objective
c. Sell function
21. The members of the VE team can be from
a. Design
b. Production
c. Sales
d. All of the above

22. Out of the seven types of values as per Aristotle, VA/VE concentrates on
a. Political value
b. Economic Value
23. Which tool is used in Creative phase
a. Gordon technique
24. The value of the secondary function is
a. 0.25
b. 0%
c. 0.33
d. 0.5
25. The electric wire conducts
a. Power
b. Current
c. Watts
d. Volts
26. What is the function of Infra-Red bulb
a.
i. It contains Ink
j. For smooth flow
k. To make a mark
l. None of the above
c. Lawrence D Miles
29. Problem solving consists of
e. Identifying problem
f. Thorough study of problem
g. Creating alternatives
h. All of the above
30. The type units used
e. JIS
f. DIN
g. SI
h. ANSI
31. Which tool is used in Creative phase
b. Gordon technique
e. 0.25
f. 0%
g. 0.33
h. 0.5
33. What is the function of Infra-Red bulb
a. To convey current
b. Produce heat
c. Lighting
d.
e. Value is inversely proportional to Cost

f. Value is directly proportional to cost
g. Value is inversely proportional to Function
h. None of the above
e. For good appearance
f. To avoid dust
g. To cover mattress
h. Protect mattress
36. Which phase is not available in SAVE plan methodology
e. Information
f. Creative
g. Execution
h. Recommendation
37. The team building of VAVE follows
a. Intellectual transformation
b. Spiritual transformation
c. Physical transformation
d. All of the above
38. What are the assumptions considered while drawing break even chart
a. Fixed costs will be fixed over a period of production
b. Variable cost will same through production
c. Sale revenue will be same through production
d. All of the above
39. What is the basic function of refrigeration system
a. Protect food
b. Produce low temperature
c. Cool content
d. Freeze water
40. The weight of an object is proportional to
a. Area
b. Volume
c. Mass
d. None
41. The cost value includes
a. Material cost
b. Labor cost
c. Material cost, labor cost and overhead cost
d. None
42. The value is
a. Same for every one
b. Different for different people
c. Different of different geographies
d. None
43. The lowest overall cost of the product also known as
a. Cost value
b. Worth
c. Esteem value
d. Use value
44. The value can be increased by

a. Increasing performance
b. Decreasing cost
c. Both a & b
d. None
45. Who will nominate VE team
a. Management
b. Design
c. Marketing
46. Who will participate in VE Team
1. Full time team
2. Full time manager
3. Individual
4. None of the above
47. What is the basic function Ceiling Fan?
1. Rotate blade
2. Blow air
3. For breeze
48. The First step of functional analysis
1. 0.25
2. 0%
3. 0.33
4. 0.5
1. Lawrence D Miles
51. The passive verb and non-measurable noun concentrates on
1. Basic function
2. Design objective
3. Sell function
52. Maximum team size of VA/VE
1. 16
2. 30
3. 15
4. 6
53. What is key factor of value engineering
1. Identify unnecessary cost
2. Identify necessary cost
3. Both a & B
54. Out of the seven types of values as per Aristotle, VA/VE concentrates on
1. Political value
2. Economic Value
3. Spiritual value
4. Religious value
1. For good appearance
2. To avoid dust
3. To cover mattress
56. The Economic value consists following
1. Economic value
2. Cost value
3. Esteem
4. All of the above
57. The lowest overall cost of the product also known as
1. Cost value
2. Worth
3. Esteem value
4. Use value
58. Value Engineering can be applied in the following area
1. Construction
2. Process
3. Manufacturing
4. All of the above
59. Market value at any point of time is the
a. Cost value
b. Esteem value
c. Worth
d. Use value
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EXAMINATION QUESTIONS AND ANSWERS

Chapter 1 The Progression to Professional Supply Management

1. Purchasing is primarily a clerical activity.

2. Supply management is also known as procurement at many firms and government

3. Strategic sourcing starts with the analysis of the supply market.

4. Materials have always been vital in the history of industrial growth.

10. “Lean thinking” is primarily concerned with conversion cost.

15. The key role of a supply management professional is one of leadership.

18. SM requires change, driven by upper management.

19. World-class supply managers proactively improve supply processes.

20. When a group or network of firms collaborates in a partnership (alliance) fashion;

26. SM does not require change driven by upper management.

28. When a group or network of firms collaborates in a partnership (alliance) fashion;

Multiple Choice Questions

32. The five “right objectives” of purchasing are:

38. The concept of a supply chain means we analyze and manage:

42. In Appendix A, The “Mechanics of Supply Management”, the typical purchasing

43. Which statement about SM is not true?

44. Which statement about SM is not true?

45. Which action is not necessary in implementing SM?

46. Which bullet is not true of the clerical stage of SM?

47. Which bullet is not true of the clerical stage of SM?

48. Which bullet is not true of the mechanical stage of SM?

49. Which bullet is not true of the mechanical stage of SM?

50. Which bullet is not true of the proactive stage of SM?

51. Which bullet is not true of the proactive stage of SM?

52. Which bullet is not true of the proactive stage of SM?

53. Which bullet is not true of the proactive stage of SM?

54. Which bullet is not true of the world-class stage of SM?

55. Which bullet is not true of the world-class stage of SM?

56. Which bullet is not true of the world-class stage of SM?

57. Which bullet is not true of the world-class stage of SM?

58. Which is not true about supply chains and networks?

62. Which of the following is not a strategic supply management activity?

63. Which of the following is not a strategic supply management activity?

64. Which of the following is not a strategic supply management activity?

EXAMINATION QUESTIONS AND ANSWERS

Chapter 2 Organizational Issues

33. Supplier relationship management includes motivation, assistance, incentives,

34. Managing supplier relationships is a strategic responsibility.

36. Consolidation provides the opportunity to standardize, simplify and leverage

38. E-commerce has strengthened the case for decentralization of purchasing.

39. The materials management organization structure is now obsolete.

40. Supply chain management expanded the materials management structure

Multiple Choice Questions

22. Of the purchasing/supply responsibilities and activities, ______ becomes more

23. Managing supplier relationships, contracts, placement of purchase orders and

26. E-commerce has facilitated the use of:

29. Cross functional teams have proven to help:

30. The key prerequisite to having cross functional teams is:

Chapter 4 A Portfolio of Relationships

1. Systematically selected supply alliances built on institutional trust help

2. The transformation from reactive and mechanical purchasing to proactive

3. Prior to the 1980s, most purchasing relationships were reactive. Interaction

6. Collaborative relationships are typically used for the procurement of non-

7. A collaborative relationship frequently is an appropriate first step on the road to a

10. Power is a topic that makes people uncomfortable.

11. Power is at the heart of all business relationships.

15. One of the advantages of transactional relationships is that relatively less

17. "Collaboration is the new imperative," declares Michael Dell.

20. The transformation from reactive and mechanical purchasing to proactive

21. Prior to the 1980s, most purchasing relationships were proactive.

24. A transactional relationship frequently is an appropriate first step on the road to a

25. The fundamental difference between collaborative relationships and supply

26. Institutional trust does not require much management.

27. A captive buyer is buyer that uses single sourcing.

30. One of the advantages of collaborative relationships is that relatively less