Challenge Questions
1) Customer service involves maximizing __________ and __________ utilities to the firm’s suppliers, intermediate customers, and final customers.
a. time, possession
b. possession, form
c. form, place
d. place, time
e. place, possession
2) Obsolescence, pilferage, and product damage would be examples of which component of inventory carrying costs?
a. capital costs
b. inventory risk costs
c. inventory service costs
d. opportunity costs
e. storage space costs
3) Efficient consumer response (ECR) would include all of the following strategies except:
a. continuous replenishment of inventory and flow through distribution
b. cooperative relationships between manufacturers, distributors, suppliers, and customers
c. greater use of point-of-sale data obtained by greater and more accurate use of bar coding
d. implementation of electronic data interchange (EDI) up and down the supply chain
e. increasing use of special deals and promotions to encourage larger purchases
4) If demand and lead time are constant, only __________ is necessary.
a. associated stock
b. cycle stock
c. safety stock
d. speculative stock
e. seasonal stock
5) The fixed order point, fixed order quantity model:
a. compares current inventory with forecast demand and places an order for the necessary quantity at a regular specified time
b. places an order where the inventory on hand an on order reaches a predetermined minimum level required to satisfy demand during the order cycle
c. uses multiple regression analysis that compares current inventory with forecast demand
d. places an order based on environmental scanning of competitors’ inventories
e. none of the above
6) Assuming the annual inventory carrying cost is equal to 25%, the annual demand is equal to 5,000 units, the ordering cost is equal to $20 and the average cost or value of one unit of inventory is $200, then the economic order quantity (EOQ) would be calculated to be:
a. 124 units
b. 86 units
c. 200 units
d. 63 units
e. 50 units
7) All of the following are assumptions of the EOQ except:
a. constant and known rate of demand
b. consistent lead time
c. no stockouts allowed
d. capital availability is limited
e. no inventory in transit
8) Inventory carrying costs generally include:
a. capital costs
b. inventory service costs
c. inventory risk costs
d. the fixed costs associated with a company-owned warehouse
e. A, B, and C only
9) Assume that a company has sales of $750,000 (measured at cost, not sales price). Also assume that the firm’s inventory turn is equal to 2 and the inventory carrying costs are equal to 40%. If inventory turns were increased from 2 to 4, this would result in decreasing inventory carrying costs by:
a. $150,000
b. $300,000
c. $750,000
d. $75,000
e. none of the above are correct
10) Increasing inventory turns beyond the optimum level may:
a. improve corporate profitability
b. increase average inventory
c. increase other logistics costs
d. B and C only
e. A, B and C
11) Which of the following activities would not be included within reverse logistics?
a. finished goods distribution
b. recycling
c. product and packaging reuse
d. salvage and scrap disposal
e. waste disposal
12) Which of the following statements about just-in-time (JIT) is FALSE?
a. JIT helps to reduce manufacturing cycle times
b. JIT has been defined as a philosophy that centers on the elimination of waste in the manufacturing process
c. JIT seeks to eliminate non-value-added activities
d. JIT helps a firm to reduce its overall material costs
e. JIT programs usually do not impact inventory turnover rates
13) Which of the following is not a benefit associated with successful implementation of MRP systems?
a. better manufacturing control
b. higher inventory turnover ratio(s)
c. more accurate and timely information
d. reduction in purchasing costs due to fewer orders being placed
e. work force overtime is minimized
14) Which transport mode is characterized by fast time-in-transit, moderate availability, high consistency of service, low loss and damage rates, and low to moderate flexibility with respect to meeting customer needs?
a. Air
b. motor
c. pipeline
d. rail
e. water
15) An international intermodal service in which foreign cargo crosses a country en route to another country (e.g., Europe to US via ocean, across US by rail, and US to Japan via ocean) is referred to as:
a. landbridge
b. microbridge
c. minibridge
d. minilandbridge
e. none of the above answers are correct
16) Benefits to a carrier of improved routing and scheduling include all of the following except:
a. greater vehicle utilization
b. higher levels of customer service
c. lessening of competition
d. lower transportation costs
e. reduced capital investment in equipment
17) Which of the following conditions would not indicate that cross-docking should be considered?
a. inventory destination is unknown at the time products are received
b. customer is ready to receive inventory immediately
c. some inventory is time sensitive
d. inventory arrives at firm’s receiving docks prelabeled
e. firm’s distribution center is near capacity
18) Which of the following would not be considered an advantage of public warehousing over private warehousing?
a. conservation of capital
b. minimization of labor disputes
c. knowledge of costs for storage and handling
d. degree of control exercised by owner of the products
e. ability to increase warehouse space to cover peak requirements
19) The macro approach that locates a warehouse or distribution center at a point that minimizes transportation costs for products moving between a manufacturing plant and the markets, and is relatively simplistic, is:
a. center of gravity approach
b. Hoover’s model
c. Von Thunen’s model
d. Weber’s model
e. none of these are macro location approaches
20) Which of the following would be an example of a warehouse productivity measure?
a. cases handled per labor hour
b. percent of pallets filled in a warehouse
c. ratio of capacity used to available capacity
d. actual return on assets employed versus budgeted return on assets employed
e. employee-hours worked versus employee-hours available
21) Reasons for engaging in forward buying include:
a. delay the impact of rising costs
b. decrease the firm’s average cost of capital in the short-run
c. provides protection against future anticipated shortages
d. A and C only
e. A, B and C
22) The objectives of stockless purchasing include all of the following except:
a. lower inventory levels
b. reduce administrative cost and paperwork
c. increase the number of suppliers
d. provide for timely delivery of material directly to the user
e. standardize purchase items where possible
23) The international market entry strategy that requires the least amount of knowledge about foreign markets and minimizes risk to the domestic firm is:
a. countertrade
b. exporting
c. joint ventures
d. licensing
e. ownership
24) Which international channel strategy has a major drawback (weakness), the potential that the foreign firm with whom your company works, could become a future direct competitor?
a. exporting
b. importing
c. direct ownership
d. licensing
e. countertrade
25) The term that applies to the requirement that a firm import something from a country in which it has sold something else is:
a. countertrade
b. duty drawback
c. free trade
d. import quotas
e. maquiladora operation
26) When the terms of shipment are “CIF (Cost, Insurance, Freight) at Port of Destination,” the seller is responsible for all costs of the shipment except:
a. forwarders’ and consular fees
b. inland freight
c. loading on vessel or plane
d. ocean freight
e. port charges
27) Which of the following statements about the cost and service considerations in global logistics is FALSE?
a. The distances involved are much longer.
b. Most international freight (measured by weight) moves by air.
c. Order completeness is much more important.
d. There are higher costs associated with shipping errors than in domestic logistics.
e. None of the above statements are FALSE.
28) Control over logistics costs can be accomplished by:
a. standard costs
b. absorption costing
c. productivity standards
d. A and C only
e. A, B and C
29) The order cycle time is the time that elapses between:
a. the customer’s order placement and the time the customer receives the product
b. the company receiving the order and the time the customer receives the product
c. the customer’s order placement and the time the company ships the product
d. the company receiving the order and the time the company ships the product
e. none of the above
30) What type of distribution is usually appropriate for most convenience goods, such as chewing gum?
a. measured distribution
b. selective distribution
c. exclusive distribution
d. intensive distribution
e. none of the above
31) Demand for an item increases 20 percent, and the value of each unit increases 20 percent. What is the effect on EOQ (assuming everything else remains the same)?
a. EOQ increases 10 percent
b. EOQ increases 20 percent
c. EOQ decreases 10 percent
d. EOQ decreases 20 percent
e. EOQ stays the same
32) A company has four geographically-dispersed distribution centers. The company plans to consolidate its inventories into a single, centrally-located facility. Their aggregate inventory in the four distribution centers is 100,000 units. How much inventory will need to be stored in the proposed single facility?
a. 10,000 units
b. 25,000 units
c. 50,000 units
d. 75,000 units
e. 100,000 units
33) Using the fixed order quantity model under conditions of certainty, which is the reorder point if lead time is a constant 5 days , and yearly demand is 10,000 units (assume 250 working days in the year)?
a. 100
b. 200
c. 300
d. 400
e. 500
34) A company’s average cost of inventory is $300,000. Inventory is ordered two times a year at a total reordering costs of $500. The cost of carrying inventory is 15 percent per year. What is the company’s annual inventory carrying cost?
a. $10,000
b. $45,000
c. $50,000
d. $55,000
e. $60,000
35) A company’s annual sales at inventory cost is $1,000,000, transportation costs are $100,000 and average inventory investment is $250,000. What is the turnover ratio for the company?
a. 25 percent
b. 4
c. 10 percent
d. 10
e. none of the above
36) Product A has an expected number of units out of stock annually of 2,000 and the total demand for the product is 20,000 units. What is the service level for this product?
a. 10
b. 10 percent
c. 90 percent
d. 9
e. none of the above
37) Any governmental unit or authority at any level that owns, operates, or otherwise provides wharf, dock, and other terminal facilities at port locations refers to:
a. country government
b. a maritime unit
c. a free trade zone
d. a port authority
e. none of the above
38) The current US Secretary of Transportation is:
a. Rodney Slater
b. Michael Jackson
c. Norman Mineta
d. Jane Garvey
e. Lloyd McClendon
39) What principle for materials handling suggests that high-volume items should be stored at the shortest distance?
a. storage principle
b. height principle
c. popularity principle
d. distance principle
e. simplification principle
40) According to the current CLM definition of logistics, the relationship between logistics and supply chain is:
a. they are synonymous
b. supply chain is a part of logistics
c. logistics is a part of supply chain
d. they are antonyms
e. they are both part of the marketing channel
