Supply Chain Coordination Chapter 19 Test Bank Answers

Matching Supply with Demand: An Introduction to Operations Management, 4e (Cachon)

Chapter 19 Supply Chain Coordination

1) Dan's Independent Book Store is trying to decide how many copies of a book to purchase at the start of the upcoming selling season. The book retails at $28.00. The publisher sells the book to Dan at $20.00. Dan will dispose of all of the unsold copies of the book at 50% off the retail price, at the end of the season. Dan estimates that demand for this book during the season is normal with a mean of 1000 and a standard deviation of 250.

The publisher is thinking of offering the following scheme to Dan. At the end of the season, they will buy back unsold copies at a pre-determined price of $17.00. However, Dan would have to bear the costs of shipping unsold copies back to the publisher at $1.00 per copy. What is the quantity that Dan should order, to maximize his expected profits?

Difficulty: 3 Hard

Topic: Buy-Back Contracts

AACSB: Knowledge Application

Blooms: Apply

2) Corleone Inc. sells a set of products (pasta) to a distributor who uses an order-up-to model to place orders. In particular, if Corleone is unable to fill the distributor's entire order, the order is back ordered. For example, the distributor may order one truckload of pasta that includes 20 different kinds of pasta and the truck ships only when the order quantity in each kind can be satisfied (so that the truck is indeed full when it makes its delivery). Which of the following influences the average amount of inventory on-order between Corleone and the distributor?

I) The travel time between Corleone and the distributor

II) Corleone's in-stock probability for each kind of pasta

III) The standard deviation of the distributor's order quantities

A) I only

B) II only

C) III only

D) I and II

E) I and III

F) II and III

G) I, II and III

H) none of the above

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Analytical Thinking

Blooms: Analyze

3) Retailers order replenishment inventory from a supplier in full truckload quantities (i.e., each retailer waits until it has accumulated enough demand to justify ordering a full truckload). Suppose there is an industry-wide decline in demand (i.e., each retailer experiences a reduction in its sales). The supplier collects data on the total amount the retailers order each day. What is likely to happen to the coefficient of variation of the order quantities due to the shift in aggregate demand? Assume the retailers continue to order in full truckload quantities.

A) It is unlikely to change because the retailers are continuing to order in full truckload quantities.

B) It is unlikely to change because the retailers will continue to order as frequently as they did before.

C) It is likely to decrease because each retailer's average demand decreases.

D) It is likely to increase because each retailer will order less frequently due to the decline in sales.

E) None of the above is correct.

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Analytical Thinking

Blooms: Analyze

4) One warehouse supplies 50 dealers with parts used by the dealers to repair their customers' heavy equipment. Dealers currently place orders about once a week, because the ordering process is somewhat cumbersome — it is a paper process that must be filled out manually and faxed to the warehouse. The firm will implement a new system that will allow dealers to submit orders electronically. Because this process should be less cumbersome, it is expected that the dealers will submit orders more frequently, maybe some of them even daily. The new system is not expected to change customer demands for parts (i.e., the dealers' demand processes will be unaffected). What change is this likely to have on the characteristics of the warehouse's total daily demand (i.e., the total of the dealers' orders on any given day)?

A) Average daily demand should increase as well as the standard deviation.

B) Average daily demand should increase, but the standard deviation should remain the same.

C) Average daily demand should increase but the standard deviation should decrease.

D) Average daily demand should remain the same, but the standard deviation should increase.

E) Average daily demand should remain the same as well as the standard deviation.

F) Average daily demand should remain the same, but the standard deviation should decrease.

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Mitigating Strategies

AACSB: Analytical Thinking

Blooms: Analyze

5) Suppose a manufacturer sells an outdoor grill to a hardware store. The manufacturer's current wholesale price of the grill is $185, and the retailer sells the grill for $250. The manufacturer is considering offering the retailer a buyback contract with which the retailer can return grills left over at the end of the season to the manufacturer at $138.75 for each grill. The wholesale price at the start of the season will remain at $185. Which of the following statements is true?

A) The manufacturer's expected profit will decrease because now the manufacturer must pay to receive returns without any increase in the upfront wholesale price.

B) The manufacturer's expected profit will increase because return policies can increase the profits of all of the firms in the supply chain.

C) There isn't enough information given to determine whether the manufacturer's expected profit increases or decreases.

Difficulty: 3 Hard

Topic: Buy-Back Contracts

AACSB: Analytical Thinking

Blooms: Analyze

6) A retailer operates a distribution center (DC) that serves 250 retail stores. The retail stores sell individual units but shipments from the DC to the stores are done in case quantities (i.e., each store orders from the DC an integer number of cases). Orders submitted to suppliers for delivery to the DC are done in pallet quantities. Each pallet holds multiple cases, with the actual number of cases depending on the size and weight of the product. Which of the following statements is true?

A) The bullwhip effect is not likely to be present in this supply chain because the retailer is consistent in the order multiples used (i.e., always ordering in a case or pallet quantities).

B) The bullwhip effect is not likely to be present in this supply chain because the same firm operates both the DC and the retail stores and can, therefore, better coordinate ordering.

C) The bullwhip effect is likely to be present in this supply chain because there is evidence of order batching effects.

D) The bullwhip effect is likely to be present in this supply chain because there is evidence of forward buying.

E) It is not possible to determine with the information given whether the bullwhip effect will be present in this supply chain or not.

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Analytical Thinking

Blooms: Analyze

7) Which of the following situations is likely to cause forward buying among retailers?

I. The supplier offers a temporary price discount.

II. The supplier announces that she is about to cut her price permanently.

III. The supplier announces that she is about to raise her price permanently.

A) Only I.

B) Only II.

C) Only III.

D) Only I. and II.

E) Only I. and III.

F) Only II. and III.

G) I., II. and III.

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Reflective Thinking

Blooms: Analyze

8) Which of the following situations is certain to present incentives to forward buy?

A) The retailer has a limited amount of warehouse capacity.

B) The supplier is about to permanently adjust prices lower.

C) The supplier is about to permanently adjust prices higher.

D) The retailer's holding cost is reduced.

E) The supplier's lead time to the retailer is reduced.

F) The retailer's target in-stock probability is increased.

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Analytical Thinking

Blooms: Analyze

9) Phantom ordering is best described as

A) orders that are intended to be used for diversion.

B) irresponsible ordering on the part of downstream buyers.

C) orders submitted electronically.

D) current orders that are likely to be canceled at some future date.

Difficulty: 2 Medium

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Knowledge Application

Blooms: Understand

10) Which of the following is the least important part of the contract manufacturing industry's value proposition?

A) Contract manufacturers can quickly establish production capacity for a firm.

B) Contract manufacturers take advantage of scale to procure components cheaply.

C) Contract manufacturers provide lower assembly costs because they can pool capacity among multiple customers.

D) Contract manufacturers provide legal services because they have significant experience with multiple suppliers and customers.

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Mitigating Strategies

AACSB: Analytical Thinking

Blooms: Analyze

11) Which of the following is/are part of Barilla's JITD proposal?

I. Barilla controls the distributor's assortment.

II. Barilla decides how much of each SKU to ship to a distributor.

III. Barilla receives sales and inventory data from its distributor.

IV. Barilla receives sales and inventory data from retailers.

A) I only

B) II only

C) I and III

D) II and III

E) II and IV

F) I, II and III

G) I, III and IV

H) II, III and IV

J) I, II, III and IV

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Knowledge Application

Blooms: Apply

12) The hockey stick phenomenon could be caused by

A) a large fraction of downstream retailers placing orders on the same day of the week.

B) diversion by local and small-scale retailers.

C) diversion by large and wholesale retailers.

D) delayed differentiation of the product.

E) inefficient location pooling.

F) everyday low pricing.

Difficulty: 2 Medium

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Knowledge Application

Blooms: Apply

13) Suppose a supply chain consisting of a wholesaler and a retailer decides to switch from a wholesale price contract to a revenue-sharing contract and changes the wholesale price in the process. Which of the following could occur as a result?

A) An increase in retailer's profit but a decrease in the wholesaler's profit.

B) A decrease in the retailer's profit but an increase in the wholesaler's profit.

C) A decrease in both retailer's and wholesaler's profits.

D) An increase in both retailer's and wholesaler's profits.

E) All of the above.

Difficulty: 3 Hard

Topic: More Supply Chain Contracts

AACSB: Reflective Thinking

Blooms: Analyze

14) Apple iTunes store songs are sold at 99 cents per download. Apple pays 65 cents on average to the respective music label company for each download (which is then shared with artists). The terms of this agreement are closest to

A) news vendor problem with salvage costs.

B) quantity flexibility contract.

C) revenue sharing contract.

D) buy-back contracts.

E) price protection.

Difficulty: 3 Hard

Topic: More Supply Chain Contracts

AACSB: Analytical Thinking

Blooms: Analyze

15) According to the Barilla case, the following is the strongest evidence that Barilla is suffering from the bullwhip effect?

A) After JITD introduction, inventory levels initially went up.

B) The service level at the DC decreased notably during the Gulf War.

C) Barilla sells both fresh and dry pasta products through different distribution channels.

D) Inbound shipments to the Cortese DC fluctuate more than outbound shipments from the Cortese DC.

E) Most retailers only carry a subset of Barilla's product line.

F) Pasta consumption per capita in southern Italy is higher than in northern Italy.

Difficulty: 3 Hard

Topic: The Bullwhip Effect: Causes and Consequences

AACSB: Reflective Thinking

Blooms: Analyze

16) A supplier sells a seasonal product with uncertain demand to a retailer. Consider two contracts. With the wholesale price contract, the supplier sells to a retailer with a wholesale price of $45; the supplier does not accept returns and, as a result, the retailer salvages leftover inventory at the end of the season for $30. With the buy-back contract the supplier sells to the retailer with a wholesale price of $45, the supplier buys back unsold inventory from the retailer for $38 at the end of the season, and the supplier's salvage value of returned inventory is $30. The retailer pays $0.50 per unit to ship the product back to the supplier. Which of the following is true?

A) The retailer is better off with the buy-back contract, but the supplier is worse off.

B) The retailer is better off with the buy-back contract, and the supplier is better off too.

C) The retailer is worse off with the buy-back contract, and the supplier is worse off also.

D) The retailer is worse off with the buy-back contract, but the supplier is better off.

E) The retailer is better off with the buy-back contract, but the supplier could be better off or worse off.

F) The retailer could be better off or worse off with the buy-back contract, but the supplier is better off.

G) None of the above.

Difficulty: 3 Hard

Topic: Buy-Back Contracts

AACSB: Reflective Thinking

Blooms: Analyze

17) Revenue sharing contracts greatly benefitted Blockbuster in the VHS rental market. Suppose that now Blockbuster is considering similar contracts for DVDs. However, revenue sharing contracts for DVDs would not be as beneficial for Blockbuster as for VHS tapes because

A) Netflix dominates the rental market for DVDs.

B) due to the increased number of movies produced, the rentals from any single DVD are small.

C) using technology and advanced statistics, the studios can predict the demand for rentals for a particular DVD with greater accuracy.

D) uncertainty in demand for DVDs is much greater than uncertainty in demand for VHS tapes.

E) the production cost and the wholesale price of each DVD are small relative to those of a VHS tape so that inefficiency in the supply chain under the wholesale price contract is minimal.

Difficulty: 3 Hard

Topic: More Supply Chain Contracts

AACSB: Analytical Thinking

Blooms: Analyze

18) Furniture Brands Inc. (FBI) is the sole supplier to a large number of independent and similarly sized retail furniture outlets. These retailers placed orders weekly, and on each day of the week, nearly the same number of retailers submitted orders. To improve supply chain performance, FBI managed to convince 95% of retailers to submit orders on Monday and the remaining retailers ordered on the other days of the week. Which of the following statements regarding the mean and standard deviation of the retailers' total daily orders (i.e., FBI's demand) remains true after the performance improvement effort?

A) The mean and the standard deviation of the orders received have increased.

B) The mean and the standard deviation of the orders have now decreased because nearly all of the orders are now submitted on Mondays.

C) The mean of the orders is lower, but the standard deviation of the orders has increased.

D) Only the timing of orders has changed; therefore, the mean and the standard deviation of the orders continue to remain the same.

E) The mean remains the same, but the standard deviation of the orders has increased.

F) The mean remains the same, but the standard deviation of the orders has decreased because of better supply chain coordination.

Difficulty: 3 Hard

Topic: More Supply Chain Contracts

AACSB: Analytical Thinking

Blooms: Analyze

19) By selecting the parameters of a revenue-sharing contract appropriately, it is possible to

A. achieve the maximum possible profit in the supply chain by coordinating the actions of the supplier and the retailer.

B. have the supplier's profit equal to twice the retailer's profit.

C. ensure that the retailer orders the same amount of inventory as he would under any wholesale price contract.

A) A only

B) B only

C) C only

D) A and B

E) B and C

F) A and C

G) A, B, and C

H) None of the above

Difficulty: 3 Hard

Topic: More Supply Chain Contracts

AACSB: Analytical Thinking

Blooms: Analyze

20) Eddie's bookstore currently buys books from the wholesaler using a simple wholesale price contract. Following the shift in industry practices, the wholesaler starts offering the bookstore an option to return books at a partial refund (70% of the wholesale price, which is higher than retailer's current salvage value) while keeping the wholesale price the same. Suppose shipping costs are negligible. What effect will this new contract have?

I. The bookstore's order quantity will increase.

II. The bookstore's profit will increase.

III. The wholesaler's profit will increase.

A) I only.

B) II only.

C) III only.

D) I and II only.

E) I and III only.

F) II and III only.

G) I, II and III.

H) None of I, II and III.

Difficulty: 3 Hard

Topic: Buy-Back Contracts

AACSB: Reflective Thinking

Blooms: Analyze