1. Lowering the costs is one of the objectives of the production and logistics function

Transcription

1 Chapter 17 Global Production, Outsourcing, and Logistics True / False Questions 1. Lowering the costs is one of the objectives of the production and logistics function of an international firm. True False 2. The firm that improves its quality control will also reduce its costs of value creation. True False 3. Deming, the proponent of total quality management, suggested that management shouldn't attempt to train employees in new skills. True False

2 4. A production process would create just 1 defect per six thousand products at Six Sigma. True False 5. Other things being equal, a firm should locate its various manufacturing activities where the relative factor costs are conducive to the performance of those activities. True False 6. The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. True False 7. The argument for centralizing production will be greater if the minimum efficient scale of a plant relative to total global demand is low. True False 8. Maintaining high minimum efficient scale allows a firm to hedge against currency risks. True False

3 9. Lean production covers a range of manufacturing technologies designed to reduce setup times for complex equipment. True False 10. Mass customization facilitates product customization at low costs. True False 11. A flexible machine cell is used to perform a standardized operation. True False 12. Flexible manufacturing technologies enable companies to customize products to the demands of small consumer groups. True False 13. The minimum efficient scale of production is high when fixed costs are low. True False 14. Products such as electronic components and pharmaceuticals have low value-toweight ratios. True False

4 15. Organizations are under pressure to produce products in the optimal location and to serve the world market from there if their products have low value-to-weight ratios. True False 16. Products such as refined sugar, certain bulk chemicals, paint, and petroleum products have low value-to-weight ratios. True False 17. Modern consumer products such as personal computers serve universal needs. True False 18. Decentralized production is favored if differences between countries in factor costs have a substantial impact on the costs of manufacturing in various countries. True False 19. Concentration of production is not favored when important exchange rates are expected to remain relatively stable. True False

5 20. Decentralization of production is appropriate when location externalities are important. True False 21. Decentralization of production is appropriate when the product does not serve universal needs. True False 22. Poor product quality and low productivity are hidden costs associated with basing production in a foreign location. True False 23. Upward migration in the strategic role of foreign production sites arises when they upgrade their own capabilities. True False 24. Global learning refers to the idea that valuable knowledge does not reside just in a firm's domestic operations. True False

6 25. Make-or-buy decisions are decisions that concern the components to be used in a production process. True False 26. A specialized asset is an asset that is used to perform day-to-day activities. True False 27. Firms would prefer buying component parts, or an entire product, from independent suppliers to protect proprietary product technologies. True False 28. Dynamic capabilities describe skills that become more valuable over time through learning. True False 29. Firms can increase flexibility by producing all parts of a product in-house. True False 30. The firm that sources from independent suppliers has fewer subunits to control. True False

7 31. Outsourcing some manufacturing to independent suppliers based in other countries would help firms capture more orders from that country. True False 32. The benefits of making all or part of a product in-house is minimal when highly specialized assets are involved. True False 33. Buying a product from external vendors is highly appropriate when a firm intends to protect proprietary technology. True False 34. Making all or part of a product in-house is beneficial when the firm intends to build valuable capabilities over time. True False 35. Strategic alliances build trust between the firm and its suppliers. True False

8 36. Use of technologies such as just-in-time inventory systems and computer-aided design has reduced pressures for firms to establish long-term relationships with their suppliers. True False 37. The objectives of logistics are to manage a firm's global supply chain at the lowest possible cost and in a way that best serves customer needs. True False 38. Just-in-time systems are used to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. True False 39. Just-in-time systems reduce product quality although it brings about huge cost savings. True False 40. Just-in-time systems help a firm respond quickly to increases in demand. True False

9 Multiple Choice Questions 41. Logistics is the activity that controls the. A. transmission of physical materials through the value chain B. customer contact points of a business C. activities involved in creating a product D. information exchange between a business and its customers 42. The Six Sigma methodology. A. is used to compare and benchmark the performances of competing firms B. gives more importance to productivity than product quality C. is a direct descendant of the total quality management philosophy D. recommends that only one product should be defective in thousand products 43. Deming, the proponent of total quality management, argued that. A. work standards should be defined only as quotas and numbers B. supervision is not essential for quality improvements C. management should train employees in new skills D. products should be certified with standards such as ISO 9000

10 44. Before a firm is allowed access to the European marketplace, the European Union requires that the quality of the firm's manufacturing processes and products be certified under a quality standard known as. A. Six Sigma B. ISO 9000 C. Kaizen D. total quality management 45. At Six Sigma, a production process would be highly accurate and create just. A. 3.4 defects per hundred thousand units B. 6.8 defects per million units C. 3.4 defects per million units D. 6.8 defects per hundred thousand units 46. Which of the following statements is true of Six Sigma? A. It is a statistically based philosophy to reduce defects and boost productivity. B. At Six Sigma, a production process will have 6.6 defects per million units. C. At Six Sigma, a production process would be 100 percent accurate. D. A company can achieve Six Sigma perfection by reducing the number of defects to one in six thousand.

11 47. Which of the following statements is true of the country factors that govern international business? A. Relative factor costs should be considered when selecting a country for production. B. Centralized production is the most suitable method of doing international business. C. Exchange rates are not a significant factor that determines the selection of a country. D. Decentralized manufacturing is the most suitable method of doing international business. 48. Which of the following is a factor that transforms a low-cost location to a high-cost location? A. Appreciation of local currency B. Use of fixed exchange rates C. Use of pegged exchange rates D. Implementation of free trade regime

12 49. Which of the following is a technological factor that affects international business? A. Exchange rates that govern the business B. Relative factors costs in the locality C. Availability of a skilled labor pool D. Fixed costs of setting up a production plant 50. Which of the following makes being dependent on one location particularly risky? A. Governmental intervention in exchange rates B. Floating exchange rates C. Fixed exchange rates D. Preferential treatment of domestic industries 51. According to the concept of economies of scale, as plant output expands,. A. productivity decline B. total costs decrease C. unit costs decrease D. utilization of capital decline

13 52. Identify an advantage of adopting a low minimum efficient scale. A. It helps companies reduce the level of initial capital required for business. B. It allows the firm to accommodate demands for local responsiveness. C. It allows firms discount political risks and other global capital risks. D. A minimum efficient scale of a plant allows decentralization of production. 53. Central to the concept of economies of scale is the idea that the best way to achieve high efficiency, and hence low unit costs, is through the. A. customization of products for each individual market B. mass production of a standardized output C. production of goods that are different from each other D. production of small volumes of high-quality products 54. Flexible manufacturing technology is also known as. A. Six sigma production B. line production C. standardization D. lean production

14 55. Which of the following is a desired outcome of flexible manufacturing technology? A. Minimizing the utilization of individual machines B. Reducing setup times for complex equipments C. Standardizing the output of a system D. Implementing specialized equipments in production 56. allows the company to produce a wider variety of end products at a unit cost that at one time could be achieved only through the mass production of a standardized output. A. Standardization B. Kaizen C. Six Sigma D. Lean production

15 57. The term has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile the goals of low cost and product personalization. A. assembly-line production B. product standardization C. mass customization D. Six Sigma production 58. A(n) is a grouping of various types of machinery, a common materials handler, and a centralized cell controller. A. flexible machine cell B. Six Sigma C. assembly line D. minimum efficient scale 59. Which of the following statements is true of products with high value-to-weight ratios? A. Transportation costs usually account for a large percentage of their total costs. B. They are relatively inexpensive and weigh a lot. C. They are usually produced in multiple locations close to major markets. D. Their transportation account for a very small percentage of the total costs.

16 60. Which of the following products will most likely have high value-to-weight ratios? A. Pharmaceuticals B. Refined sugar C. Bulk chemicals D. Petroleum products 61. When a company's product has a low value-to-weight ratio, the company should. A. produce the product from two or three optimal locations and ship products from there B. manufacture products from a centralized location C. ignore transportation costs as they would only be a minor part D. produce the product in multiple locations close to major markets 62. Which of the following products will have low value-to-weight ratios? A. Pharmaceuticals B. Refined sugar C. Microprocessor D. Electronic items

17 63. Concentration of production is appropriate when. A. the product serves universal needs B. the product does not serve universal needs C. the product's value-to-weight ratio is low D. volatility in important exchange rates is expected 64. Decentralization of production is appropriate when. A. a product's value-to-weight ratio is high B. the product serves universal needs C. barriers to trade are low D. volatility in key exchange rates is expected 65. Which of the following is a hidden cost associated with basing production in a foreign location? A. Cost of labor within the location B. High employee turnover C. Transportation costs D. Differences in the value of currency

18 66. Which of the following is a major source of the improvement in the capabilities of a foreign site? A. Increasing abundance of advanced factors of production in the nation where the factory is located B. Changes in the labor costs associated with the foreign site C. Fluctuations in the quality of the product coming out of the foreign site D. Sudden changes in the currency exchanges rates with the nation in which the factory is located 67. RSA is a bicycle manufacturing company. Which of the following is a make-or-buy decision that the company will have to make? A. Should the company increase its responsiveness toward the retailers? B. What are the products that the company should manufacture? C. Should the company outsource production to a low-cost vendor? D. What should be the pricing strategy of the company's product? 68. Make-or-buy decisions are decisions about. A. the components to be used in manufacturing process B. procuring raw materials for a production process C. procuring the capital equipments for production D. whether or not to outsource value creation activities

19 69. Vertical integration refers to. A. outsourcing production to a low-cost based company B. making all or part of a product in-house C. using multiple suppliers to procure raw materials D. procuring raw materials or products from a single supplier 70. A is an asset whose value is contingent upon a particular relationship persisting. A. specialized asset B. balanced asset C. universal asset D. supplementary asset 71. An advantage of engaging in in-house production of products and components is that. A. the firm will have fewer subunits to control by making products in-house B. it will help the firm capture more orders from other countries C. it enables a firm to protect the proprietary technologies that it has D. firms can make better use of the location advantages of certain countries

20 72. Dynamic capabilities describe skills that. A. are used to perform the day-to-day activities in a firm B. refer to extrinsic capabilities of an employee C. become more valuable over time through learning D. are used by managers to make transactional decisions 73. An advantage of buying component parts, or even an entire product, from independent suppliers is that. A. it can make planning, coordination, and scheduling of adjacent processes easier for the firm B. the firm can maintain its flexibility by switching orders according to circumstances C. the firm will be able to maintain strict control over its proprietary technology D. the firm will have access to superior quality raw materials and will deliver high quality products

21 74. The benefits of making all or part of a product in-house seem to be greatest when the firm. A. wants to accumulate dynamic capabilities B. has highly specialized assets C. lacks efficiency in some processes D. faces the risk of strategic inflexibility 75. How has the adoption of just-in-time inventory systems, computer-aided design, and computer-aided manufacturing impact firms' associations with suppliers? A. The bargaining power of the firms over their suppliers has increased enormously. B. It has reduced the level of data sharing between firms and their suppliers. C. Firms are capable of switching suppliers often due to such technologies. D. It has increased pressures to establish long-term relationships with suppliers. 76. The major cost saving associated with JIT systems comes from. A. early delivery of raw materials to production B. decentralization of manufacturing C. speeding up inventory turnover D. reduced spending on CRM activities

22 77. Just-in-time inventory systems. A. are used when procurement is not organized B. require large warehouses for storage C. economize on inventory holding costs D. maintain large buffer for inventory 78. Which of the following is a drawback of a just-in-time system? A. Transport costs are high when using a just-in-time system. B. It leaves a firm without a buffer stock of inventory. C. It increases the warranty costs associated with products. D. It leaves a firm with high scrap costs associated with defective products. 79. With a(n) system, suppliers, shippers, and the purchasing firm can communicate with each other with no time delay. A. CAD B. JIT C. CAM D. EDI

23 80. Which of the following statements is true of Web-based EDI systems? A. Web-based EDI systems are more expensive than proprietary solutions. B. Small firms will not be able to make use of Web-based EDI systems C. Web-based systems are much easier to install compared to proprietary solutions. D. Most Web-based systems are implemented to support proprietary solutions. Essay Questions 81. What is logistics? Discuss the relationship between production and logistics.

24 82. Discuss the strategic objectives of the production and logistics functions of an international firm. 83. Describe the major arguments put forth by Edward Deming. 84. Briefly describe the Six Sigma methodology.

25 85. What are the three main factors that affect the decision of locating production? 86. Discuss the effect of country factors on the decision of where to locate production?

26 87. How does the type of technology a firm uses affect its decision of where to locate production? 88. Explain how fixed costs impact the decision to locate a plant.

27 89. Describe the concept of minimum efficient scale. Discuss the implications of minimum efficient scale. 90. What is mass customization?

28 91. Explain how the concept of production efficiency has changed with the rise of flexible manufacturing technologies. 92. How do flexible machine cells work? What is the advantage of incorporating this type of technology into a strategy?

29 93. How do product factors affect the decision of where to locate production? Where will you locate your firm's production plant if your firm produces refined sugar? 94. When does concentration of production make sense? 95. Explain how the strategic role of foreign factories evolves over time.

30 96. Describe global learning with reference to foreign subsidiaries of a firm. 97. Explain make-or-buy decisions with an example. 98. Explain specialized assets with an example.

31 99. Explain why a firm might adopt the just-in-time system. Why might a firm choose a different inventory system? 100. Discuss the role of information technology and the Internet in materials management.

32 Chapter 17 Global Production, Outsourcing, and Logistics Answer Key True / False Questions 1. Lowering the costs is one of the objectives of the production and logistics function of an international firm. TRUE The production and logistics functions of an international firm have a number of important strategic objectives. One is to lower costs. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics

33 2. The firm that improves its quality control will also reduce its costs of value creation. TRUE Improved quality control reduces costs by: (1) Increasing productivity because time is not wasted producing poor-quality products that cannot be sold, leading to a direct reduction in unit costs. (2) Lowering rework and scrap costs associated with defective products. (3) Reducing the warranty costs and time associated with fixing defective products. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 3. Deming, the proponent of total quality management, suggested that management shouldn't attempt to train employees in new skills. FALSE Deming argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain why production and logistics decisions are of central importance to many multinational

34 businesses. Topic: Strategy, Production, and Logistics 4. A production process would create just 1 defect per six thousand products at Six Sigma. FALSE At Six Sigma, a production process would be percent accurate, creating just 3.4 defects per million units. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics 5. Other things being equal, a firm should locate its various manufacturing activities where the relative factor costs are conducive to the performance of those activities. TRUE Other things being equal, a firm should locate its various manufacturing activities where the economic, political, and cultural conditions, including relative factor costs, are conducive to the performance of those activities. Blooms: Remember Difficulty: 1 Easy

35 Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 6. The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. TRUE The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 7. The argument for centralizing production will be greater if the minimum efficient scale of a plant relative to total global demand is low. FALSE The larger the minimum efficient scale of a plant relative to total global demand, the greater the argument for centralizing production in a single location or a limited number of locations. Blooms: Understand Difficulty: 2 Medium

36 Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 8. Maintaining high minimum efficient scale allows a firm to hedge against currency risks. FALSE The advantages of a low minimum efficient scale include allowing the firm to accommodate demands for local responsiveness or to hedge against currency risk by manufacturing the same product in several locations. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

37 9. Lean production covers a range of manufacturing technologies designed to reduce setup times for complex equipment. TRUE The term flexible manufacturing technology or lean production covers a range of manufacturing technologies designed to (1) reduce setup times for complex equipment, (2) increase the utilization of individual machines through better scheduling, and (3) improve quality control at all stages of the manufacturing process. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 10. Mass customization facilitates product customization at low costs. TRUE The term mass customization has been coined to describe the ability of companies to use flexible manufacturing technology to reconcile two goals that were once thought to be incompatible low cost and product customization. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of

38 where to locate production activities. Topic: Where to Produce 11. A flexible machine cell is used to perform a standardized operation. FALSE A flexible machine cell is a grouping of various types of machinery, a common materials handler, and a centralized cell controller. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 12. Flexible manufacturing technologies enable companies to customize products to the demands of small consumer groups. TRUE Besides improving efficiency and lowering costs, flexible manufacturing technologies also enable companies to customize products to the demands of small consumer groups at a cost that at one time could be achieved only by mass-producing a standardized output. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of

39 where to locate production activities. Topic: Where to Produce 13. The minimum efficient scale of production is high when fixed costs are low. FALSE When fixed costs are low, the minimum efficient scale of production is low. The arguments for concentrating production at one or a few locations are not as compelling under this circumstance. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 14. Products such as electronic components and pharmaceuticals have low valueto-weight ratios. FALSE Many electronic components and pharmaceuticals have high value-to-weight ratios. They are expensive and they do not weigh very much. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

40 15. Organizations are under pressure to produce products in the optimal location and to serve the world market from there if their products have low value-toweight ratios. FALSE Products that have high value-to-weight ratios are expensive and they do not weigh very much. Their transportation costs account for a very small percentage of total costs. Given this, other things being equal, there is great pressure to produce these products in the optimal location and to serve the world market from there. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

41 16. Products such as refined sugar, certain bulk chemicals, paint, and petroleum products have low value-to-weight ratios. TRUE Products such as refined sugar, certain bulk chemicals, paint, and petroleum products have low value-to-weight ratios. They are relatively inexpensive products that weigh a lot. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 17. Modern consumer products such as personal computers serve universal needs. TRUE Many industrial products such as industrial electronics, steel, bulk chemicals and modern consumer products such as handheld calculators, personal computers, and video game serve universal needs. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

42 18. Decentralized production is favored if differences between countries in factor costs have a substantial impact on the costs of manufacturing in various countries. FALSE Concentration of production makes most sense when differences between countries in factor costs, political economy, and culture have a substantial impact on the costs of manufacturing in various countries. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 19. Concentration of production is not favored when important exchange rates are expected to remain relatively stable. FALSE Concentration of production is favored when important exchange rates are expected to remain relatively stable. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities.

43 Topic: Where to Produce 20. Decentralization of production is appropriate when location externalities are important. FALSE Decentralization of production is appropriate when location externalities are not important. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 21. Decentralization of production is appropriate when the product does not serve universal needs. TRUE Decentralization of production is appropriate when the product does not serve universal needs. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

44 22. Poor product quality and low productivity are hidden costs associated with basing production in a foreign location. TRUE There may be some "hidden costs" to basing production in a foreign location. Numerous anecdotes suggest that high employee turnover, shoddy workmanship, poor product quality, and low productivity are significant issues in some outsourcing locations. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce 23. Upward migration in the strategic role of foreign production sites arises when they upgrade their own capabilities. TRUE Upward migration in the strategic role of foreign production sites arises because many foreign sites upgrade their own capabilities. Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site

45 24. Global learning refers to the idea that valuable knowledge does not reside just in a firm's domestic operations. TRUE Global learning refers to the idea that valuable knowledge does not reside just in a firm's domestic operations. It may also be found in its foreign subsidiaries. Blooms: Remember Difficulty: 1 Easy Learning Objective: Recognize how the role of foreign subsidiaries in production can be enhanced over time as they accumulate knowledge. Topic: The Strategic Role of a Foreign Production Site 25. Make-or-buy decisions are decisions that concern the components to be used in a production process. FALSE Make-or-buy decisions are decisions about whether companies should perform a certain value creation activity themselves or outsource it to another entity. Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions

46 26. A specialized asset is an asset that is used to perform day-to-day activities. FALSE A specialized asset is an asset whose value is contingent upon a particular relationship persisting. Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 27. Firms would prefer buying component parts, or an entire product, from independent suppliers to protect proprietary product technologies. FALSE Proprietary product technology is unique to a firm. If the firm outsources the production of entire products or components containing proprietary technology, it runs the risk that those suppliers will expropriate the technology for their own use or that they will sell it to the firm's competitors. Thus, to maintain control over its technology, the firm might prefer to make such products or component parts in-house. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the

47 company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 28. Dynamic capabilities describe skills that become more valuable over time through learning. TRUE The term dynamic capabilities is used to describe skills that become more valuable over time through learning. Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 29. Firms can increase flexibility by producing all parts of a product in-house. FALSE The great advantage of buying component parts, or even an entire product, from independent suppliers is that the firm can maintain its flexibility, switching orders between suppliers as circumstances dictate. Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions

48 30. The firm that sources from independent suppliers has fewer subunits to control. TRUE The firm that sources from independent suppliers has fewer subunits to control. Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 31. Outsourcing some manufacturing to independent suppliers based in other countries would help firms capture more orders from that country. TRUE One reason for outsourcing some manufacturing to independent suppliers based in other countries is that it may help the firm capture more orders from that country. Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions

49 32. The benefits of making all or part of a product in-house is minimal when highly specialized assets are involved. FALSE The benefits of making all or part of a product in-house seem to be greatest when highly specialized assets are involved. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 33. Buying a product from external vendors is highly appropriate when a firm intends to protect proprietary technology. FALSE Making a product in-house is more appropriate when a firm intends to protect proprietary technology. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions

50 34. Making all or part of a product in-house is beneficial when the firm intends to build valuable capabilities over time. TRUE The benefits of making all or part of a product in-house seem to be greatest when the firm may build valuable capabilities over time if it continues to perform an activity in-house. Blooms: Understand Difficulty: 2 Medium Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 35. Strategic alliances build trust between the firm and its suppliers. TRUE Strategic alliances build trust between the firm and its suppliers. Trust is built when a firm makes a credible commitment to continue purchasing from a supplier on reasonable terms. Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions

51 36. Use of technologies such as just-in-time inventory systems and computer-aided design has reduced pressures for firms to establish long-term relationships with their suppliers. FALSE The adoption of just-in-time inventory systems (JIT), computer-aided design (CAD), and computer-aided manufacturing (CAM) over the past two decades seems to have increased pressures for firms to establish long-term relationships with their suppliers. Blooms: Remember Difficulty: 1 Easy Learning Objective: Identify the factors that influence a firm's decision of whether to source supplies from within the company or from foreign suppliers. Topic: Outsourcing Production: Make-or-Buy Decisions 37. The objectives of logistics are to manage a firm's global supply chain at the lowest possible cost and in a way that best serves customer needs. TRUE The twin objectives of logistics are to manage a firm's global supply chain at the lowest possible cost and in a way that best serves customer needs, thereby lowering the costs of value creation and helping the firm establish a competitive advantage through superior customer service.

52 Blooms: Remember Difficulty: 1 Easy Learning Objective: Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 38. Just-in-time systems are used to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. TRUE The basic philosophy behind just-in-time (JIT) systems is to economize on inventory holding costs by having materials arrive at a manufacturing plant just in time to enter the production process and not before. Blooms: Remember Difficulty: 1 Easy Learning Objective: Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 39. Just-in-time systems reduce product quality although it brings about huge cost savings. FALSE In addition to the cost benefits, just-in-time systems can also help firms improve product quality. Blooms: Understand

53 Difficulty: 2 Medium Learning Objective: Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain 40. Just-in-time systems help a firm respond quickly to increases in demand. FALSE The drawback of a JIT system is that it leaves a firm without a buffer stock of inventory. Although buffer stocks are expensive to store, they can help a firm respond quickly to increases in demand and tide a firm over shortages brought about by disruption among suppliers. Blooms: Understand Difficulty: 2 Medium Learning Objective: Describe what is required to efficiently coordinate a globally dispersed production system. Topic: Managing a Global Supply Chain Multiple Choice Questions

54 41. Logistics is the activity that controls the. A. transmission of physical materials through the value chain B. customer contact points of a business C. activities involved in creating a product D. information exchange between a business and its customers Logistics is the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics

55 42. The Six Sigma methodology. A. is used to compare and benchmark the performances of competing firms B. gives more importance to productivity than product quality C. is a direct descendant of the total quality management philosophy D. recommends that only one product should be defective in thousand products The Six Sigma methodology is a direct descendant of the total quality management (TQM) philosophy that was widely adopted, first by Japanese companies and then American companies during the 1980s and early 1990s. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics

56 43. Deming, the proponent of total quality management, argued that. A. work standards should be defined only as quotas and numbers B. supervision is not essential for quality improvements C. management should train employees in new skills D. products should be certified with standards such as ISO 9000 Deming argued that management has the responsibility to train employees in new skills to keep pace with changes in the workplace. In addition, he believed that achieving better quality requires the commitment of everyone in the company. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics

57 44. Before a firm is allowed access to the European marketplace, the European Union requires that the quality of the firm's manufacturing processes and products be certified under a quality standard known as. A. Six Sigma B. ISO 9000 C. Kaizen D. total quality management The European Union requires that the quality of a firm's manufacturing processes and products be certified under a quality standard known as ISO 9000 before the firm is allowed access to the EU marketplace. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics

58 45. At Six Sigma, a production process would be highly accurate and create just. A. 3.4 defects per hundred thousand units B. 6.8 defects per million units C. 3.4 defects per million units D. 6.8 defects per hundred thousand units At Six Sigma, a production process would be percent accurate, creating just 3.4 defects per million units. While it is almost impossible for a company to achieve such perfection, Six Sigma quality is a goal that several strive toward. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics

59 46. Which of the following statements is true of Six Sigma? A. It is a statistically based philosophy to reduce defects and boost productivity. B. At Six Sigma, a production process will have 6.6 defects per million units. C. At Six Sigma, a production process would be 100 percent accurate. D. A company can achieve Six Sigma perfection by reducing the number of defects to one in six thousand. Explanation: Six Sigma is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. At Six Sigma, a production process would be percent accurate, creating just 3.4 defects per million units. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain why production and logistics decisions are of central importance to many multinational businesses. Topic: Strategy, Production, and Logistics

60 47. Which of the following statements is true of the country factors that govern international business? A. Relative factor costs should be considered when selecting a country for production. B. Centralized production is the most suitable method of doing international business. C. Exchange rates are not a significant factor that determines the selection of a country. D. Decentralized manufacturing is the most suitable method of doing international business. Other things being equal, a firm should locate its various manufacturing activities where the economic, political, and cultural conditions, including relative factor costs, are conducive to the performance of those activities. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

61 48. Which of the following is a factor that transforms a low-cost location to a highcost location? A. Appreciation of local currency B. Use of fixed exchange rates C. Use of pegged exchange rates D. Implementation of free trade regime Adverse changes in exchange rates can quickly alter a country's attractiveness as a manufacturing base. Currency appreciation can transform a low-cost location into a high-cost location. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

62 49. Which of the following is a technological factor that affects international business? A. Exchange rates that govern the business B. Relative factors costs in the locality C. Availability of a skilled labor pool D. Fixed costs of setting up a production plant Three technological factors majorly affect international business: the level of fixed costs, the minimum efficient scale, and the flexibility of the technology. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

63 50. Which of the following makes being dependent on one location particularly risky? A. Governmental intervention in exchange rates B. Floating exchange rates C. Fixed exchange rates D. Preferential treatment of domestic industries Being too dependent on one location is particularly risky in a world of floating exchange rates. Many firms disperse their manufacturing plants to different locations as a "real hedge" against potentially adverse moves in currencies. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

64 51. According to the concept of economies of scale, as plant output expands,. A. productivity decline B. total costs decrease C. unit costs decrease D. utilization of capital decline The concept of economies of scale tells us that as plant output expands, unit costs decrease. The reasons include the greater utilization of capital equipment and the productivity gains that come with specialization of employees within the plant. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

65 52. Identify an advantage of adopting a low minimum efficient scale. A. It helps companies reduce the level of initial capital required for business. B. It allows the firm to accommodate demands for local responsiveness. C. It allows firms discount political risks and other global capital risks. D. A minimum efficient scale of a plant allows decentralization of production. The advantages of a low minimum efficient scale include allowing the firm to accommodate demands for local responsiveness or to hedge against currency risk by manufacturing the same product in several locations. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

66 53. Central to the concept of economies of scale is the idea that the best way to achieve high efficiency, and hence low unit costs, is through the. A. customization of products for each individual market B. mass production of a standardized output C. production of goods that are different from each other D. production of small volumes of high-quality products Central to the concept of economies of scale is the idea that the best way to achieve high efficiency, and hence low unit costs, is through the mass production of a standardized output. The trade-off implicit in this idea is between unit costs and product variety. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

67 54. Flexible manufacturing technology is also known as. A. Six sigma production B. line production C. standardization D. lean production The term flexible manufacturing technology is also known as lean production. Blooms: Remember Difficulty: 1 Easy Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce

68 55. Which of the following is a desired outcome of flexible manufacturing technology? A. Minimizing the utilization of individual machines B. Reducing setup times for complex equipments C. Standardizing the output of a system D. Implementing specialized equipments in production The term flexible manufacturing technology or lean production, as it is often called covers a range of manufacturing technologies designed to (1) reduce setup times for complex equipment, (2) increase the utilization of individual machines through better scheduling, and (3) improve quality control at all stages of the manufacturing process. Blooms: Understand Difficulty: 2 Medium Learning Objective: Explain how country differences; production technology; and product features all affect the choice of where to locate production activities. Topic: Where to Produce