Outsourcing Strategy – Ch11s Test Bank | 10e Global

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Operations Management, 10e, Global Edition (Heizer/Render)

Chapter 11 Supplement Outsourcing as a Supply-Chain Strategy

1) Some organizations use outsourcing to replace entire purchasing, information systems, marketing, finance, and operations departments.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

2) Offshoring is the practice of procuring from foreign external sources services or products that are normally part of an organization.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

3) Outsouring is the practice of procuring from external sources services or products that are normally part of an organization.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

4) Outsourcing is the practice of moving a business process to a foreign country but retaining control of it.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

5) Offshoring is the practice of moving a business process to a foreign country but retaining control of it.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

6) Outsourcing is not a new concept; it is simply an extension of the long-standing practice of subcontracting production activities.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

7) Outsourcing has expanded to become a major strategy in business due to the continuing move toward specialization in an increasingly technological society.

Diff: 2

Topic: What is outsourcing?

AACSB: Use of IT

Objective: no LO

8) Some business activities, such as human resources and legal processes, cannot be outsourced.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

9) Nearly any business activity can be outsourced.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

10) An organization's unique skills, talents, and capabilities are referred to as its core competencies.

Diff: 1

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

11) Core competencies are good candidates for outsourcing.

Diff: 1

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

12) The theory of competitive advantage states that you should allow another firm to perform work activities for your company if that company can do it more productively than you can.

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

13) The theory of comparative advantage states that you should allow another firm to perform work activities for your company if that company can do it more productively than you can.

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

14) U.S. government data suggest that foreigners outsource far more services to the U.S. than American companies send abroad.

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

15) U.S. government data suggest that foreigners outsource far fewer services to the U.S. than American companies send abroad.

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

16) The term renewal has been created to describe the return of business activity to the purchasing firm.

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

17) Research indicates that of all the reasons given for outsourcing failure, the most common is that the decision was made without sufficient understanding of the options through analysis.

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

18) The factor-rating method is an excellent tool for dealing with both country risk assessment and source provider selection problems.

Diff: 1

Topic: Evaluating outsourcing risk with factor rating

Objective: LO11-Supplement-3

19) A purchasing firm should not include its home country when conducting a country risk assessment.

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

Objective: LO11-Supplement-3

20) Nearshoring is the practice of choosing an external provider in the home country or in a nearby country.

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

Objective: LO11-Supplement-3

21) The number-one reason driving outsourcing for many firms is to focus on core competencies.

Diff: 2

Topic: Advantages and disadvantages of outsourcing

Objective: LO11-Supplement-4

22) What is the practice of procuring from external sources services or products that are normally part of an organization?

A) nearshoring

B) farshoring

C) offshoring

D) outsourcing

E) backsourcing

Diff: 2

Topic: What is outsourcing?

Objective: no LO

23) What is the practice of moving a business process to a foreign country but retaining control of it?

A) exporting

B) farshoring

C) offshoring

D) outsourcing

E) backsourcing

Diff: 2

Topic: What is outsourcing?

Objective: no LO

24) Outsourcing is simply an extension of the long-standing practice of

A) subcontracting

B) importing

C) exporting

D) postponement

E) e-procurement

Diff: 1

Topic: What is outsourcing?

Objective: no LO

25) Outsourcing manufacturing is also known as

A) license manufacturing

B) sublease manufacturing

C) concurrent manufacturing

D) hollow manufacturing

E) contract manufacturing

Diff: 2

Topic: What is outsourcing?

Objective: no LO

26) Which of the following is not true regarding core competencies?

A) They may include specialized knowledge.

B) They may represent a small portion of an organization's total business.

C) They may include proprietary technology or information.

D) They may be good candidates for outsourcing.

E) They may include unique production methods.

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

27) What theory states that you should allow another firm to perform work activities for your company if that company can do it more productively than you can?

A) theory of competitive advantage

B) theory of core competencies

C) theory of comparative advantage

D) theory of outsourcing

E) theory of offshoring

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

28) What term has been created to describe the return of business activity to the purchasing firm?

A) renewal

B) backsourcing

C) reversal

D) reversesourcing

E) insourcing

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

29) Which of the following statements is most accurate?

A) Nearly all outsourcing relationships do not last beyond two years.

B) Nearly all U.S. firms that outsourced processes to India have backsourced them.

C) Approximately half of all outsourcing agreements fail.

D) Outsourcing is a relatively risk-free activity.

E) More than 90% of outsourcing agreements succeed.

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

30) According to research, which of the following is the most common reason cited for outsourcing failure?

A) core competencies identified as non-core

B) erratic power grids in foreign countries

C) unable to control product development, schedules, and quality

D) decisions made without sufficient understanding of the options through analysis

E) political and exchange rate uncertainty

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

31) The decline in customer satisfaction for outsourced call centers highlights which aspect of outsourcing risk?

A) cost

B) quality

C) core competency

D) cultural

E) technological

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

32) A company that had previously sent its call center business to India has now brought that business back to small towns in the U.S. such as Dubuque, Iowa. This is an example of

A) return outsourcing

B) inshoring

C) offshoring

D) outsourcing

E) backsourcing

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

33) Which of the following are possible outsourcing risks?

I. Incorrectly identifying a core competency as non-core

II. Setting savings goals too high

III. Inability to control product development, quality

IV. Non-responsive provider

V. Currency fluctuations

A) I, II, IV

B) II, III, V

C) I, III, V

D) III, IV, V

E) I, II, III, IV, V

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

34) The reason behind most outsourcing failures is

A) decision was rushed

B) lack of understanding and analysis before decision

C) costs were higher than predicted

D) labor was less productive than predicted

E) unable to handle increased logistic complexity

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

35) The practice of choosing an external provider in the home country or in a nearby country is referred to as

A) homeshoring

B) homesourcing

C) nearshoring

D) nearsourcing

E) backsourcing

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

Objective: LO11-Supplement-3

36) A manufacturing plant is considering outsourcing its production of tires. There are 5 risk areas in which the decision will be based. The current plant had scores of 1, 2, 4, 8, 2 while the outsourced plant had scores of 3, 2, 4, 2, 5. What is the current plant's score if high scores indicate low risk and an unweighted factor method is applied?

A) 14

B) 15

C) 16

D) 17

E) none of the above

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

AACSB: Analytic Skills

Objective: LO11-Supplement-3

37) Nearsourcing helps compromise a company's desire for __________ while still providing some __________.

A) control, cost savings

B) quality, control

C) control, quality

D) quality, cost savings

E) political stability, quality

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

Objective: LO11-Supplement-3

38) Which of the following is not an advantage of outsourcing?

A) cost savings

B) gaining outside expertise

C) improving operations and service

D) outsourcing core competencies

E) gaining outside technology

Diff: 1

Topic: Advantages and disadvantages of outsourcing

Objective: LO11-Supplement-4

39) Which of the following is the number-one reason driving outsourcing for many firms?

A) cost savings

B) gaining outside expertise

C) improving operations and service

D) focusing on core competencies

E) gaining outside technology

Diff: 2

Topic: Advantages and disadvantages of outsourcing

Objective: LO11-Supplement-4

40) Advantages of outsourcing do not include

A) cost savings

B) outside expertise

C) renewed focus on core competencies

D) gaining outside technologies

E) creating future competition

Diff: 2

Topic: Advantages and disadvantages of outsourcing

Objective: LO11-Supplement-4

41) One difference between outsourcing advantages compared to disadvantages is that

A) cost savings are realized at the expense of ethical labor practices

B) advantages are realized faster (over a shorter term) than disadvantages

C) disadvantages are realized faster (over a shorter term) than advantages

D) advantages outweigh disadvantages

E) disadvantages outweigh advantages

Diff: 2

Topic: Advantages and disadvantages of outsourcing

Objective: LO11-Supplement-4

42) Which of the following metrics is most likely used in evaluating an outsourced call center but not a manufacturing process?

A) quality

B) delivery

C) logistics

D) cost

E) personal evaluations and training

Diff: 2

Topic: Audits and metrics to evaluate performance

Objective: no LO

43) Which of the following is a key issue coupled between ethics and outsourcing?

A) moving pollution from one country to another

B) ignoring religious customs and holidays

C) low wages that are the result of labor abuse

D) short-term arrangements instead of long-term deals

E) All of the above are key tenets of ethics in outsourcing

Diff: 2

Topic: Ethical issues in outsourcing

Objective: no LO

44) __________ is the practice of procuring from external sources services or products that are normally part of an organization.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

45) __________ is the practice of moving a business process to a foreign country but retaining control of it.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

46) Offshoring is the practice of moving a business process to a foreign country but retaining __________.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

47) Outsourcing manufacturing is also known as __________.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

48) Offshoring is the practice of moving a business process to a foreign country __________ control of it.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

49) Outsourcing is an extension of the long-standing practice of __________ production activities.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

50) An organization's unique skills, talents, and capabilities are referred to as its __________.

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

51) The theory of __________ states that you should allow another firm to perform work activities for your company if that company can do it more productively than you can.

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

52) The term __________ has been created to describe the return of business activity to the original firm.

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

53) The factor-rating method is an excellent tool for dealing with both __________ and __________ problems.

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

Objective: LO11-Supplement-3

54) __________ is the practice of choosing an external provider in the home country or in a nearby country.

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

Objective: LO11-Supplement-3

55) __________ is the number-one reason driving outsourcing for many firms.

Diff: 2

Topic: Advantages and disadvantages of outsourcing

Objective: LO11-Supplement-4

56) Whatever the outsourced product or service, agreements must specify ongoing __________ and expected __________.

Diff: 2

Topic: Audits and metrics to evaluate performance

Objective: no LO

57) In the electronics industry, the __________ sets environmental standards, bans child labor and excessive overtime, and audits outsourcing producers to ensure compliance.

Diff: 2

Topic: Ethical issues in outsourcing

AACSB: Ethical Reasoning

Objective: no LO

58) Describe the difference between outsourcing and offshoring.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

59) Identify three factors fueling the continuing growth of outsourcing.

Diff: 2

Topic: What is outsourcing?

AACSB: Communication

Objective: no LO

60) Identify some business processes that are outsourced.

Diff: 2

Topic: What is outsourcing?

Objective: no LO

61) What do you think would be a major risk for a government trying to promote its country as a low-cost producer, filled with ready and willing outsourcing providers?

Diff: 2

Topic: Strategic planning and core competencies

AACSB: Reflective Thinking

Objective: LO11-Supplement-1

62) Has there been any political backlash in the United States resulting from outsourcing in foreign countries? Explain.

Diff: 2

Topic: Strategic planning and core competencies

Objective: LO11-Supplement-1

63) Identify several risks in outsourcing.

Diff: 2

Topic: Risks in outsourcing and advantages and disadvantages of outsourcing

AACSB: Multicultural and Diversity

Objective: LO11-Supplement-2, LO11-Supplement-4

64) Identify several outsourcing processes, that is, activities that firms should undertake when embarking on outsourcing.

Diff: 2

Topic: Risks in outsourcing

Objective: LO11-Supplement-2

65) Identify five main advantages of outsourcing.

Diff: 2

Topic: Advantages and disadvantages of outsourcing

Objective: LO11-Supplement-4

66) What permits CEOs, who prefer short-term planning and are interested only in bottom-line improvements, to use the outsourcing strategy to make quick gains at the expense of longer-term objectives?

Diff: 2

Topic: Advantages and disadvantages of outsourcing

AACSB: Ethical Reasoning

Objective: LO11-Supplement-4

67) Identify some ethical principles as applied to outsourcing.

Diff: 2

Topic: Ethical issues in outsourcing

AACSB: Ethical Reasoning

Objective: no LO

68) A firm is evaluating country risk as a first step in its outsourcing provider selection process. Legal issues, currency risk, political risk, and cultural compatibility have been assigned weights of 30%, 10%, 20%, and 40%, respectively. Three countries were scored on each of those risk factors (see table below) using a scale of 1-10, with a score of 1 meaning high risk and 10 meaning minor risk. Using the factor-rating method, which country appears to have the least risk overall?

Country B: 6(.3) + 4(.1) + 8(.2) + 1(.4) = 4.2

Country C: 10(.3) + 2(.1) + 2(.2) + 2(.4) = 4.4

Since a high score implies low risk in this problem, Country C has the least risk.

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

AACSB: Analytic Skills

Objective: LO11-Supplement-3

69) Which country should the firm choose for production using an unweighted factor method if high scores indicate low risk?

America=9+8+6=23

Mexico=5+10+9=24

China= 3+6+8= 17

The firm should choose either Canada or Mexico to minimize risk.

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

AACSB: Analytic Skills

Objective: LO11-Supplement-3

70) Which country should a firm choose for production using a weighted factor method if high scores indicate high risk?

Singapore=5(7)+3(7)+7(5)+2(9)= 109

Mexico=5(8)+3(5)+7(7)+2(9)= 122

The firm should choose Singapore (lowest risk)

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

AACSB: Analytic Skills

Objective: LO11-Supplement-3

71) A firm is considering two countries to outsource its call center. Currently the weighted factor method has given a score of 120 to the first country and 110 to the second country. If the

second country wants to improve its score in the labor rating (weight=1.5), how much must it increases its labor rating by to have a score greater than or equal to country 1?

rating to tie country 1.

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

AACSB: Analytic Skills

Objective: LO11-Supplement-3

72) Two firms that are being considered for an outsourced job have equal un-weighted factor method

scores. Suppose that the ratings for each firm are identical except in two categories, currency and cost risk with high numbers representing low risk. The weight factor for currency risk is three times that of cost risk. Firm 1's score for currency is a 2 and Firm 2's score for cost is a 5. If firm 1 and 2 have identical cumulative scores with the weighted method, find Firm 1's cost score and Firm 2's currency score.

From the fact that the un-weighted scores are equal, X(1)+Y(1)=X(2)+Y(2). In addition 3*X(1)+Y(1)= 3*X(2)+Y(2). There are two equations with two unknowns, simplified as

6+Y(1)=3*X(2)+5

And

2+Y(1)=X(2)+5

Given X(1) = 2 and Y(2)=5

Solving this system of equations yields X(1)= 2 and Y(2)= 5.

Diff: 3

Topic: Evaluating outsourcing risk with factor rating

AACSB: Analytic Skills

Objective: LO11-Supplement-3

73) A company is deciding between 2 countries to locate its call center.

A: Which country is preferred by an un-weighted method if high scores indicate low risk.

B: Suppose a consultant recommended that Factor 2 have its weight doubled while Factor 3 should have its weight quadrupled. Which country is best now using a weighted method?

B: Country A=10+2(7)+2(2)(4)=40 , Country B = 5+16+24=45 so Country B is preferred

Diff: 2

Topic: Evaluating outsourcing risk with factor rating

AACSB: Analytic Skills

Objective: LO11-Supplement-3