Supply Chain Management A Logistics Perspective 9th Edition By Coyle -Test Bank

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

Chapter 5 Test Bank

CHAPTER 5 TEST QUESTIONS

True-False

1. A metric and a measure are the same.

ANSWER: False, Page 141

2. A metric is complex to define, usually involves a calculation or a combination of

measurements, and is often in the form of a ratio.

ANSWER: True, Page 141

3. A metric could drive inappropriate behavior.

ANSWER: True, Page 142

4. Scorecards and key performance indicators (KPIs) are the same thing.

ANSWER: True, Page 142

5. Evaluating current or potential supply chain performance metrics is not important to a

sound logistics program.

ANSWER: False, Page 145

6. The focus on performance measurement is a recent event in industry.

ANSWER: False, Page 144

7. Customers and suppliers should be included in the development of metrics.

ANSWER: True, Page 145

8. Managers should resist sub-optimization of their particular function unless it benefits the

organization as a whole.

ANSWER: True, Pages 145-146

9. Four major categories that provide a useful way to examine logistics and supply chain

performance are: time, quality, cost, and inventory.

ANSWER: False, Page 147

10. Another metric classification scheme that has been receiving increased attention is that

developed by the Supply Chain Council and contained in the Supply Chain Operations and

Reference (SCOR) model.

ANSWER: True, Page 147

11. Order cycle time (OCT) is another very important logistics service metric. OCT influences

product availability, customer inventories, and seller’s cash flow and profit.

ANSWER: True, Page 150

12. Supply chain management involves the control of raw material, in-process, and finished

goods inventories.

ANSWER: True, Page 151

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Chapter 5 Test Bank

Multiple-Choice

13. The purpose of this chapter is to

a. discuss how supply chain metrics are developed.

b. develop quantitative tools to show how metrics can be linked to financial

performance.

c. offer methods for classifying supply chain metrics.

d. all of these answers

ANSWER: d, Page 140

14. An index

a. b. combines two or more metrics into a single indicator.

is complex to define, usually involves a calculation and is often in the form of

a ratio.

c. is easily defined with no calculations and with simple dimensions

d. is any quantitative output of an activity or process

ANSWER: a, Page 141

15. Scorecard and key performance indicators (KPIs) refer to

a. sporting events.

b. metrics to manage logistics operations.

c. management’s evaluation of supply chain staff.

d. measuring output.

ANSWER: b, Page 142

16. The current logistics management approach is supported by which performance

measurement concepts?

a. metrics.

b. total cost.

c. least total cost.

d. the D1 concept developed by the Supply Chain Council.

ANSWER: c, Page 144

17. Another driving influence for supply chain reexamination has been the desire of

organizations to change their supply chain focus from a __________to an “investment”

center.

a. warehouse system

b. logistics-oriented system

c. cost center

d. value neutral

ANSWER: c, Page 145

18. An “executive dashboard” is

a. b. c. a small number (usually less than five) of KPIs.

used by senior management to track profits.

metrics used by an organization’s suppliers

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d. ANSWER: a, Page 145

a trend that has only recently developed.

19. There are four major categories that provide a useful way for examining logistics and supply

chain performance: They are: time, ______, cost, and supporting metrics.

a. delivery

b. KPIs

c. competition

d. quality

ANSWER: d, Page 147

20. In the SCOR Model there are five major categories of metrics that need to be used to measure the

performance of Process D1: reliability, ___________, agility, costs, and asset management.

a. ROA

b. responsiveness

c. supply chains

d. cash to cash cycle

ANSWER: b, Page 147

21. The decision to alter the supply chain process is essentially ___________issue.

a. a management

b. an optimization

c. a supply chain

d. a customer satisfaction

ANSWER: b, Page 151

22. What is the best financial metric to show the profit an organization generates in relationship to

assets utilized?

a. ROA

b. Profit

c. Return on net worth

d. Stock price

ANSWER: a., Page 155

23. Channel structure management includes decisions regarding the use of outsourcing,

channel inventories, ____________, and channel structure.

a. cash to cash management

b. information systems

c. order cycle

d. KPIs

ANSWER: b, Page 156

24. Effective order management can have an impact on

a. reducing supply chain costs.

b. increasing revenues.

c. improving ROA.

d. all of these answers

ANSWER: d, Page 157

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25. Which of the following is NOT an element of Order Management?

a. reducing stockouts

b. reducing order processing times

c. optimizing mode mix

d. optimizing order fill rate

ANSWER c, Page 157

26. Which of the following is NOT a supply chain decision area regarding ROA

improvement?

a. Channel Structure Management

b. Inventory Management

c. Order Management

d. Information Management

ANSWER d, Page 157

27. Gross margin equals

a. sales minus COGS

b. Sales + taxes minus COGS

c. COGS – Sales

d. COGS – taxes

ANSWER a, Page 177

Essay

28. Discuss the differences between the terms metric, measure, and index.

ANSWER: Traditionally, the term measure was used to denote any quantitative output of an

activity or process. Today, the term metric is being used more often in place of the term

measure. A measure is easily defined with no calculations and with simple dimensions.

Logistics examples would include units of inventory and backorder dollars. A metric is more

complex to define and usually involves a calculation or a combination of measurements,

often in the form of a ratio. Logistics examples would include inventory future days of

supply, inventory turns, and sales dollars per stock-keeping unit. An index combines two or

more metrics into a single indicator. Usually an index is used to track trends in the output of

a process. A logistics example of an index is the perfect order. (Page 141)

29. There are ten characteristics of a good metric. Name at least five, and pick

any two for further discussion.

ANSWER: A good metric:

 Is quantitative

 Is easy to understand

 Encourages appropriate behavior

 Is visible

 Is defined and mutually understood

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 Encompasses both outputs and inputs

 Measures only what is important

 Is multidimensional

 Uses economies of effort

 Facilitates trust (Figure 5.1 on Page 141)

30. There are seven factors in the successful development of supply chain metrics. Name

them, and select any two to discuss in more detail.

ANSWER: First, develop a metrics program that is the result of a team effort. Second, involve

customers and suppliers, where appropriate, in the metrics development process. Third, develop a

tiered structure for the metrics. Many organizations develop a small number (usually less than five) of

KPIs or “executive dashboard” metrics that are reviewed at the executive level for strategic decision

making. Fourth, identify metric “owners” and tie metric goal achievement to an individual’s or

division’s performance evaluation. Fifth, establish a procedure to mitigate conflicts arising from

metric development and implementation. A true process metric might require a functional area within

an organization to sub-optimize its performance to benefit the organization as a whole. Sixth,

establish supply chain metrics that are consistent with corporate strategy. Finally, establish top

management support for the development of a supply chain metrics program. (Pages 145-146)

31. There are four major categories that provide a useful way to classify supply chain

performance metrics. Name them, and select one to discuss in more detail.

ANSWER: Four major categories that provide a useful way for examining logistics and supply chain

performance are: (1) time, (2) quality, (3) cost, and (4) supporting metrics. (Pages 146-147)

32. Discuss the metric classification scheme that has been developed by the Supply Chain

Council and defined in the Supply Chain Operations and Reference (SCOR) model to

measure the performance of Process D1: Deliver Stocked Product.

ANSWER: According to the Supply Chain Council, there are five major categories of metrics that

need to be used to measure the performance of Process D1: (1) reliability – the performance of the

supply chain in delivering the correct product, to the correct place, at the correct time, in the correct

condition and packaging, in the correct quantity, with the correct documentation, to the correct

customer; (2) responsiveness – the speed at which the supply chain provides products to customers;

(3) agility – the flexibility of the supply chain in responding to marketplace changes to gain or

maintain competitive advantage; (4) costs – the expenditures associated with operating the supply

chain; and (5) asset management – the effectiveness of an organization in managing assets to support

demand satisfaction and including the management of all assets (fixed and working capital). (Page

147)

33. Discuss how a seller’s cost influences a customer’s profit and how a seller’s service impacts

a customer’s revenue.

ANSWER: If the cost of a seller’s logistics service allows a customer to make more profit from the

seller’s product, the customer should be willing to buy more products from the seller. For example, a

manufacturer is able to deliver its product to the buyer’s retail store for $0.25 less per case than the

competitor can deliver its product to the same store. By keeping the price constant at the shelf, the

buyer can realize an additional $0.25 per case profit. Similarly, a manufacturer’s logistics service

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level will have an impact on the retailer’s revenues. For example, the same manufacturer in the

previous example has an in-stock rate at the buyer’s store of 98 percent, compared to 90 percent for

the competition. This higher in-stock service level allows the buyer to realize higher revenues from

the higher product availability. So, transaction cost and revenue highlight the need to emphasize the

impacts of logistics cost and service on supply chain profits and revenues. (Page 150)

34. What is the “Order-to-Cash” cycle?

ANSWER: The order-to-cash cycle includes all of the activities that occur from the time an order is

received by a seller until the seller receives payment for the shipment. Typically, the invoice is sent to

the customer after the order is shipped. If the terms of sale are net 30 days, the seller will receive

payment in 30 days plus the time needed to process the order. The longer the order-to-cash cycle, the

longer it takes for the seller to get its payment. The longer the order-to-cash cycle, the higher the

accounts receivable and the higher the investment in “sold” finished goods. So the length of the

order-to-cash cycle directly relates to the amount of capital tied up and not available for other

investments. (Page 151)

35. Discuss the revenue-cost savings connection and include the formula.

ANSWER: Logistics and supply chain managers find it advantageous to transform cost reductions

into equivalent revenue increases to explain to top management the effects of improved supply chain

cost performance. To accomplish this, the following equations can be used:

Profit = Revenue − Costs

where

Cost = (X%)(Revenue)

then

Profit = Revenue − (X%)(Sales) = Revenue(1 − X%)

where

(1 − X%) = Profit Margin

Sales = Profit/Profit Margin

Assuming that everything else remains unchanged, a logistics cost saving will directly increase pre-

tax profits by the amount of the cost saving. If a logistics cost saving increases profit by the same

amount, the revenue equivalent of this cost saving is found by dividing the cost saving by the profit

margin, as shown in the preceding equations. (Page 153)

36. Discuss the Supply Chain Financial Impact on an organization.

ANSWER: A major financial objective for any organization is to produce a satisfactory return for

stockholders. This requires the generation of sufficient profit in relation to the size of the

stockholders’ investment to ensure that investors will maintain confidence in the organization’s

ability to manage its investments. Low returns over time will see investors seek alternative uses for

their capital. High returns over time, however, will buoy investor confidence to maintain their

investments with the organization.

The absolute size of the profit must be considered in relation to the stockholders’ net investment, or

net worth. For example, if Company A makes a profit of $1 million and Company B makes a profit of

$100 million, it would appear that Company B would be a better investment. However, if A has a net

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worth of $10 million and B $10 billion, the return on net worth for a stockholder in Company A is 10

percent ($1 million/$10 million) and for Company B it is 1 percent ($100 million/$10 billion).

An organization’s financial performance is also judged by the profit it generates in relationship to the

assets utilized, or return on assets (ROA). An organization’s return on assets is a financial

performance metric that is used as a benchmark to compare management and organization

performance to that of other organizations in the same industry or similar industries. As with return

on net worth, return on assets is dependent on the level of profits for the organization.

The supply chain plays a critical role in determining the level of profitability in an organization. The

more efficient and productive the supply chain, the greater the profit potential of the organization.

Conversely, the less efficient and less productive, the higher the supply chain costs and the lower the

profitability. (Pages 154 – 155)

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