Test-Bank-for-Heizer-Operations-Management-9e

134.The following data are pulled from Walsh Manufacturing’s 2007 annual report.

Calculate: (a) Percent invested in inventory, (b) Inventory turnover, and (c) Weeks of supply.

(a)Percent invested in inventory = (120,000+50,000+300,000)/1,170,000 = 40.17%

(b)Inventory turnover = 600,000/(120,000+50,000+300,000) = 1.28

(c)Weeks of supply = (120,000+50,000+300,000)/(600,000/52) = 40.73 (Measuring supply chain performance, moderate), {AACSB: Analytic Skills}

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SUPPLEMENT 11: OUTSOURCING AS A SUPPLY

CHAIN STRATEGY

TRUE/FALSE

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

True (Introduction, moderate)

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

False (What is outsourcing?, moderate)

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

True (What is outsourcing?, moderate)

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

False (What is outsourcing?, moderate)

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

True (What is outsourcing?, moderate)

6.A firm that outsources its internal business activities is called the client firm.

True (What is outsourcing?, moderate)

7.A firm that outsources its internal business activities is called the outsource provider.

False (What is outsourcing?, moderate)

8.A firm that provides outsourcing activity is called the client firm.

False (What is outsourcing?, moderate)

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

True (What is outsourcing?, moderate)

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

True (What is outsourcing?, moderate) {AACSB: Use of IT}

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

False (What is outsourcing?, moderate)

12.Nearly any business activity can be outsourced.

True (What is outsourcing?, moderate)

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13.An organization’s unique skills, talents, and capabilities are referred to as its core competencies.

True (Strategic planning and core competencies, easy)

14.Core competencies are good candidates for outsourcing.

False (Strategic planning and core competencies, easy)

15.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.

False (Strategic planning and core competencies, moderate)

16.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.

True (Strategic planning and core competencies, moderate)

17.The term “China price” has become the global benchmark—interchangeable with “lowest price possible.”

True (Strategic planning and core competencies, moderate) {AACSB: Multiculture and Diversity}

18.The term “India price” has become the global benchmark—interchangeable with “lowest price possible.”

False (Strategic planning and core competencies, moderate) {AACSB: Multiculture and Diversity}

19.The term “Mexico price” has become the global benchmark—interchangeable with “lowest price possible.”

False (Strategic planning and core competencies, moderate) {AACSB: Multiculture and Diversity}

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

True (Outsourcing trends and political repercussions, moderate)

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

False (Outsourcing trends and political repercussions, moderate)

22.The term renewal has been created to describe the return of business activity to the client firm.

False (Outsourcing trends and political repercussions, moderate)

23.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 quantitative analysis.

True (Risks in outsourcing, moderate)

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

True (Methodologies for outsourcing, easy)

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25.A client firm should not include its home country when conducting a country risk assessment.

False (Methodologies for outsourcing, moderate)

26.Nearshoring is the practice of choosing an outsource provider in the home country or in a nearby country.

True (Methodologies for outsourcing, moderate)

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

False (Advantages and disadvantages of outsourcing, moderate)

MULTIPLE CHOICE

28.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

d (What is outsourcing?, moderate)

29.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

c (What is outsourcing?, moderate)

30.Outsourcing is simply an extension of the long-standing practice of

a.subcontracting

b.importing

c.exporting

d.postponement

e.e-procurement

a (What is outsourcing?, easy)

31.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.

d (Strategic planning and core competencies, moderate)

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32.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

c (Strategic planning and core competencies, moderate)

33.Which term has become interchangeable with “lowest price possible?”

a.“China price”

b.“Mexico price”

c.“India price”

d.“Russia price”

e.“Korea price”

a (Strategic planning and core competencies, moderate){AACSB: Multiculture and Diversity}

34.The term “China price” has become interchangeable with

a.negotiated price

b.fixed exchange rates

c.price of the lowest quality item

d.lowest price possible

e.price multiplier based on the Hong Kong stock exchange level

d (Strategic planning and core competencies, moderate) {AACSB: Multiculture & Diversity}

35.What term has been created to describe the return of business activity to the client firm?

a.renewal

b.backsourcing

c.reversal

d.reversesourcing

e.insourcing

b (Outsourcing trends and political repercussions, moderate)

36.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.

c (Risks in outsourcing, moderate)

37.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 quantitative analysis

e.political and exchange rate uncertainty

d (Risks in outsourcing, moderate)

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38.The practice of choosing an outsource provider in the home country or in a nearby country is referred to as

a.homeshoring

b.homesourcing

c.nearshoring

d.nearsourcing

e.backsourcing

c (Methodologies for outsourcing, moderate)

39.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

d (Advantages and disadvantages of outsourcing, easy)

40.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

a (Advantages and disadvantages of outsourcing, moderate)

41.Outsourcing manufacturing is also known as

a.license manufacturing

b.sublease manufacturing

c.concurrent manufacturing

d.hollow manufacturing

e.contract manufacturing

e (What is outsourcing?, moderate)

FILL-IN-THE BLANK

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

Outsourcing (What is outsourcing?, moderate)

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

Offshoring (What is outsourcing?, moderate)

44.Offshoring is the practice of moving a business process to a foreign country but retaining

__________.

control of it (What is outsourcing?, moderate)

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

but retaining (What is outsourcing?, moderate)

46.An organization that outsources is called the __________. client firm (What is outsourcing?, moderate)

47.Outsourcing is an extension of the long-standing practice of __________ production activities. subcontracting (What is outsourcing?, moderate)

48.An organization’s unique skills, talents, and capabilities are referred to as its __________. core competencies (Strategic planning and core competencies, moderate)

49.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.

comparative advantage (Strategic planning and core competencies, moderate)

50.The term __________ has become the global benchmark—interchangeable with “lowest price possible.”

“China price” (Strategic planning and core competencies, moderate) {AACSB: Multiculture and Diversity}

51.The term “China price” has become the global benchmark—interchangeable with __________.

“lowest price possible” (Strategic planning and core competencies, moderate) {AACSB: Multiculture and Diversity}

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

backsourcing (Outsourcing trends and political repercussions, moderate)

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

problems.

country risk assessment and source provider selection (Methodologies for outsourcing, moderate)

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

Nearshoring (Methodologies for outsourcing, moderate)

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

Cost savings (Advantages and disadvantages of outsourcing, moderate)

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

performance measures and outcomes (Audits and metrics to evaluate outsourcing performance, moderate)

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

Electronics Industry Code of Conduct (or EICC) (Ethical issues in outsourcing, moderate) {AACSB: Ethical Reasoning}

58.Outsourcing manufacturing is also known as __________.

contract manufacturing (What is outsourcing?, moderate)

SHORT ANSWER

59.Describe the difference between outsourcing and offshoring.

Outsourcing means procuring from external suppliers services or products that are normally a part of an organization. On the other hand, if a company moves some of its business processes to a foreign country but retains control, this move is defined as offshoring, not outsourcing. (What is outsourcing?, moderate)

60.Identify three factors fueling the continuing growth of outsourcing.

(1) increasing expertise, (2) reduced costs of more reliable transportation, and (3) the rapid development and deployment of advancements in telecommunications and computers. (What is outsourcing?, moderate) {AACSB: Communication}

61.Identify some business processes that are outsourced.

Answers will vary, but should include some of the following: (1) purchasing, (2) logistics, (3) R&D, (4) operation of facilities, (5) management of services, (6) human resources, (7) finance/accounting, (8) customer relations, (9) sales/marketing, (10) training, and (11) legal processes. (What is outsourcing?, moderate)

62.What do you think would be a major risk for a government trying to promote its country as a lowcost producer, filled with ready and willing outsourcing providers?

Answers will vary. One major risk is that today’s low-cost leader may not be tomorrow’s. For example, in recent years firms have moved from Mexico to China to chase even lower wage rates. Another concern is that developing countries worry that developed nations may exploit their labor and markets and dominate their economic landscapes. (Strategic planning and core competencies and Outsourcing trends and political repercussions, moderate) {AACSB: Reflective Thinking}

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

Yes. The loss of U.S. jobs has fueled anti-outsourcing rhetoric and action from government officials. While some action has been taken at the federal level, individual states seem to be taking the lead. Almost 100 bills aimed at keeping jobs in the U.S. have been introduced in 30 states. (Outsourcing trends and political repercussions, moderate)

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64.Identify several risks in outsourcing.

Answers should include some of the following: (1) erratic power grids in some foreign countries, (2) difficulties with local government officials, (3) inexperienced managers, (4) unmotivated employees, (5) core activities incorrectly identified as non-core, (6) incorrectly assuming that an outsource provider can perform the function more competently and efficiently than the client firm, (7) failure to understand the change in resources and talents needed internally, (8) goals set so high that failure is certain, (9) wrong outsourcing provider selected, (10) misinterpretation of measures and goals, how they are measured, and what they mean, (11) inability to control product development, schedules, and quality, (12) a nonresponsive partner, (13) unstable currency, (14) political instability, (15) cultural and language differences may inhibit successful operations, and (16) lack of understanding of the timing necessary to manage flows to different facilities and markets. Students may also point to some of the stated disadvantages of outsourcing including, (1) increased transportation costs, (2) loss of control, (3) creating future competition, (4) negative impact on employees, and (5) longer-term impact than outsourcing advantages. (Risks in outsourcing and Advantages and disadvantages of outsourcing, moderate) {AACSB: Multiculture and Diversity}

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

Answers will vary, but they should include some of the following: (1) identify non-core competencies, (2) identify non-core activities that should be outsourced, (3) identify impact on existing facilities, capacity, and logistics, (4) establish goals and draft outsourcing agreement specifications, (5) identify and select outsourcing provider, (6) negotiate goals and measures of outsourcing performance, (7) monitor and control current outsourcing program, (8) evaluate and give feedback to outsource provider, (9) evaluate international political and currency risks, and (10) evaluate coordination needed for shipping and distribution. (Risks in outsourcing, moderate)

66.Identify five main advantages of outsourcing.

(1) cost savings, (2) gaining outside expertise, (3) improving operations and service, (4) focusing on core competencies, and (5) gaining outside technology (Advantages and disadvantages of outsourcing, moderate)

67.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?

Some disadvantages of outsourcing tend to be longer term than the advantages of outsourcing. In other words, many of the risks that firms run by outsourcing may not show up on the bottom line until some time in the future. (Advantages and disadvantages of outsourcing, moderate) {AACSB: Ethical Reasoning}

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68.Identify some ethical principles as applied to outsourcing.

Answers will vary, but they should include some of the following: (1) don’t use outsourcing in a way that violates religious holidays, (2) don’t use outsourcing to move pollution from one country to another, (3) don’t use outsourcing to take advantage of cheap child labor that leads to child abuse, (4) don’t accept outsourcing that violates basic human rights, (5) don’t accept outsourcing as a short-term arrangement to reduce costs; view it as a long-term partnership, (6) use the inevitable sharing of technology to build a good relationship with foreign outsourcing firms. (Ethical issues in outsourcing, moderate) {AACSB: Ethical Reasoning}

PROBLEMS

69.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 A: 2(.3) + 8(.1) + 5(.2) + 3(.4) = 3.6

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. (Methodologies for outsourcing, moderate) {AACSB: Analytic Skills}

70.A firm is considering outsourcing its production. Currently, in-house production costs $3,000,000 per year plus $12.00 per unit. The outsourcing option would cost $5,000,000 per year to operate, but the variable production costs would be $4.00 per unit. What level of production would the firm need to have in order to make outsourcing an economically viable option?

Q = (3,000,000 − 5,000,000) / (4−12) = 250,000 units

(Methodologies for outsourcing, moderate) {AACSB: Analytic Skills}

71.A manufacturing firm has an annual demand of 300,000 units. Using its current operation, the firm pays $800,000 in annual fixed costs and $15.00 per unit in variable costs. A potential outsourcing provider has offered to produce the product for the manufacturer. Annual fixed costs would drop to $200,000, but variable costs would increase to $18.00 per unit. Should the manufacturer outsource?

Q = (800,000 − 200,000) / (18−15) = 200,000 units. So outsourcing would only be worthwhile if demand were no greater than 200,000 units. Since demand is 300,000 units, the firm should continue to produce in-house.

(Methodologies for outsourcing, moderate) {AACSB: Analytic Skills}

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