ch16

ch16Student: ___________________________________________________________________________

1. Production denotes both service and manufacturing activities. True False

2. Efficient supply chain management reduces the amount of inventory in the system and decreases the

inventory turnover. True False

3. The firm that improves quality control will also reduce its costs of value creation.

True False

4. A firm can lower costs by dispersing production to locations around the globe where each activity can be

performed most efficiently. True False

5. The principle tool that most managers now use to increase the reliability of their product offering is TQM.

True False

6. The TQM philosophy was first adopted by the American companies

True False

7. A statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut

costs throughout a company is known as ISO 9000. True False

8. European Union firms must comply with ISO 9000 standards in their manufacturing processes and

products before they will be given access to the European Union market. True False

9. Country factors, technological factors, and product factors, all influence the decision of where to produce.

True False

10. When a currency depreciates, a low-cost location can be turned into a high-cost location.

True False

11. A relatively high level of fixed costs can make it uneconomical to perform a particular activity in several

locations at once. True False

12. 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

13. As a plant output expands, unit costs decrease.

True False

14. The smaller 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. True False

15. Producing greater product variety from a factory implies longer production runs.

True False

16. Lean production is another term for flexible manufacturing technology.

True False

17. Mass customization describes the ability of companies to use flexible manufacturing technology to

reconcile low cost and product customization. True False

18. A grouping of various types of machinery, a common materials handler, and a centralized cell controller is

a flexible machine cell. True False

19. Flexible manufacturing technologies can help a firm improve efficiency, lower costs, and customize

products to small markets. True False

20. A product's value-to-weight ratio affects the firm's transportation costs.

True False

21. Because of the low value-to weight ratio of many pharmaceutical and electronics products, there is great

pressure to produce these products in the optimal location and serve the world from there. True False

22. Concentrating production at an optimal location is more attractive when a product serves universal needs.

True False

23. Concentration of production makes most sense when trade barriers are high.

True False

24. Decentralization of production is appropriate when the product serves universal needs. True False

25. Decentralization of production is appropriate when the product's value-to-weight is low.

True False

26. A major aspect of a transnational strategy is a belief in the idea that valuable knowledge does not reside just

in a firm's domestic operations. True False

27. The make-or-buy decision involves deciding whether a firm should make or buy the component parts that

go into the final product. True False

28. Historically, most outsourcing decisions have involved the manufacture of service products.

True False

29. Outsourcing decisions pose plenty of problems for international businesses but even more problems for

purely domestic businesses. True False

30. A firm that has integrated horizontally is making all or part of a product in-house.

True False

31. When one firm invests in specialized assets to supply another, mutual dependency is created.

True False

32. When substantial investments in specialized assets are required to manufacture a component, the firm will

prefer to contract it out to a supplier. True False

33. The greatest advantage of buying component parts from independent suppliers is that the firm can maintain

its strategic flexibility. True False

34. When political risk is high, sourcing products from independent suppliers can be advantageous.

True False

35. Incentive problems that occur with independent suppliers do not arise with internal suppliers.

True False

36. Issues of strategic flexibility and organizational control are greater for purely domestic businesses than for international ones. True False

37. Strategic alliances can effectively limit a firm's strategic flexibility.

True False

38. A CAD/CAM system allows the firm 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. Under a JIT system, products are briefly warehoused before entering the manufacturing process.

True False

40. Firms use EDI to coordinate the flow of materials into manufacturing, through manufacturing, and out to

customers. True False

41. _____ is the activity that controls the transportation of physical materials through the value chain, from

procurement through production and into distribution. A. OutsourcingB. ProductionC. LogisticsD. Distribution

42. _____ is a management philosophy according to which mistakes, defects, and poor-quality materials are

not acceptable and should be eliminated. A. Scientific managementB. Total quality managementC. ISO 9000D. Lean manufacturing

43. The Six Sigma methodology:

A. is a direct descendant of the total quality management philosophy.B. is a direct descendant of benchmarking.C. was adopted first by British companies and then Japanese companies during the 1980s.D. was developed by Deming, Juran, and Feigenbaum.

44. Saving time by not producing poor-quality products that cannot be sold, lowering rework costs, lowering

scrap costs, and lowering warranty costs are the intended results of: A. total feature management.B. reengineering.C. logistics.D. total quality management.

45. 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. total quality management.B. reengineering.C. quality management system.D. ISO 9000.

46. The modern successor to TQM is:

A. Corporate Quality Commitment.B. ISO 9000.C. Quality Process Realized.D. Six Sigma.

47. At six sigma, a production process would be 99.99966 percent accurate, creating just _____.

A. 3.4 defects per hundred thousand unitsB. 3.4 defects per million unitsC. 34 defects per million unitsD. 6.8 defects per million units

48. Which of the following statements about Six Sigma is true?

A. It is a statistically based philosophy.B. It is easily possible for a company to achieve Six Sigma perfection.C. At six sigma, a production process will have 66 defects per million units.D. At six sigma, a production process would be 100 percent accurate.

49. Factors that help a firm decide where to locate its manufacturing facilities can be best grouped under three

broad headings. These are: A. political factors, social factors, and legal factors.B. country factors, technological factors, and product factors.C. product factors, service factors, and labor factors.D. language factors, cultural factors, and transportation factors.

50. The creation of a global web of value creation activities is the result of:

A. location economies.B. diseconomies of scale.C. shortage of skilled labor.D. informal trade barriers.

51. Identify the incorrect statement pertaining to exchange rate movements.

A. Adverse changes in exchange rates can quickly alter a country's attractiveness as a manufacturing base.B. Currency appreciation can transform a low-cost location into a high-cost location.C. Currency appreciation can cause firms to move their manufacturing offshore to lower-cost locations.D. A low-cost location can be transformed into a high-cost location because of currency depreciation.

52. Being too dependent on one location is particularly risky because of: A. floating exchange rates.B. fixed exchange rates.C. lack of movement in currencies.D. static exchange rates.

53. According to the concept of economies of scale:

A. as plant output reduces, unit costs decrease.B. as plant output expands, unit costs increase.C. as plant output reduces, unit costs remain static.D. as plant output expands, unit costs decrease.

54. Identify an advantage of a low minimum efficient scale.

A. Allows the firm to accommodate demands for local responsivenessB. Discounts currency risk by manufacturing all products in one locationC. Helps keep overheads low at the expense of fixed costsD. Helps a firm to standardize its products for all markets

55. A company that wants to reduce set-up time for complex equipment, increase the utilization of individual

machines through better scheduling, and improve quality control at all stages of the manufacturing process should adopt: A. standardization.B. diseconomies of scale.C. flexible machine technology.D. minimum efficient scale.

56. 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 customization. A. assembly-line-like customizationB. economies of customizationC. mass customizationD. standardized customization

57. Flexible manufacturing technology is also known as:

A. mass customization.B. lean production.C. flexible machine cells.D. minimum efficient scale.

58. According to the concept of economies of scale what is the best way to achieve high efficiency and low

unit costs? A. Customizing products for each individual marketB. Mass producing standardized outputsC. Concentrating on production of small volumes of productsD. Increasing the product variety dramatically

59. This 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. KaizenB. Six SigmaC. Lean productionD. TQM

60. _____ challenged the notion that the way to increase efficiency and drive down unit costs is to limit

product variety and produce a standardized product in large volumes. A. Bartlett and Ghoshal's theory of a transnational companyB. Minimum efficient scaleC. Economies of scaleD. Flexible manufacturing technology

61. A _____ is a grouping of various types of machinery, a common materials handler, and a centralized cell

controller. A. flexible machine cellB. mass customization policyC. lean production systemD. minimum efficient scale cluster

62. All of the following are the major efficiency benefits of flexible manufacturing technologies except:

A. it enables companies to customize products to the demands of small consumer groups.B. it helps a company achieve mass customization, which increases its customer responsiveness.C.

it requires firms to establish manufacturing facilities in each major market to provide products that satisfy specific consumer tastes and preferences.

D. it improves capacity utilization and reductions in work in progress and waste. 63. When a company's product has a low value-to-weight ratio, the company should:

A. have a centralized manufacturing location.B. produce the product in multiple locations close to major markets.C. ignore transportation costs.D. produce the product in one optimal location and serve the world from there.

64. Which of the following statements about products with high value-to-weight ratios is true?

A. They are relatively inexpensive and weigh a lot.B. They are expensive and do not weigh very much.C. Transportation costs usually account for a large percentage of their total costs.D. They must be produced in multiple locations close to major markets.

65. Which of the following is a characteristic of manufacturing technology that should be considered by a firm

contemplating international production? A. Trade barriersB. Value-to-weight ratioC. Level of fixed costsD. Exchange rates

66. A company might consider decentralizing when: A. a product's value-to-weight ratio is high.B. the product serves universal needs.C. trade barriers are low.D. volatility in important exchange rates is expected.

67. The concentration of production makes most sense when:

A. volatility in important exchange rates is expected.B. the product's value-to-weight ratio is high.C. location externalities are not important.D. trade barriers are high.

68. The concentration of production is favored when all of the following factors are high except

A. fixed costs.B. minimum efficient scale.C. value-to-weight ratio.D. trade barriers.

69. Initially, many foreign factories are established where _____ are low.

A. trade barriersB. inventory turnoverC. marketing costsD. labor costs

70. Decisions a firm must make about whether to perform a certain value creation activity themselves, or

outsource it to another entity are best known as: A. outsource potential decisions.B. in-house potential decisions.C. make-or-buy decisions.D. integration decisions.

71. Which of the following is not an argument that supports making a product in-house?

A. Vertical integration may be associated with higher costs.B. Vertical integration may protect proprietary product technology.C. Vertical integration may facilitate investment in highly specialized assets.D. Vertical integration may ease the scheduling of adjacent processes.

72. A _____ is an asset whose value is contingent upon a particular relationship persisting.

A. specialized assetB. common assetC. complementary assetD. supplementary asset

73. A firm will prefer to make the component internally rather than contract it out to a supplier, because of all of the following reasons except: A. it needs to maintain control over its proprietary technology.B. substantial investments in specialized assets are required to manufacture a component.C. the firm completely trusts the independent supplier to play fair.D. it runs the risk that suppliers will expropriate the technology for their own use.

74. How can firms attain tight coordination between different stages in the production process?

A. By using information technologyB. By lowering the costs of value creationC. By implementing ISO 9000D. By minimum efficient scale of output

75. Which of the following is not a reason to outsource production?

A. It can give the firm greater flexibilityB. It can make planning, coordination, and scheduling of adjacent processes easierC. It can help drive down the firm's cost structureD. It may help the firm capture orders from international customers

76. An advantage of buying component parts, or even an entire product, from independent suppliers is that:

A. the firm can maintain its flexibility of switching orders between suppliers as circumstances dictate.B. it can make planning, coordination, and scheduling of adjacent processes easier for the firm.C. it reduces the risk for the firm that suppliers will expropriate the technology for their own use.D. the firm is able to maintain firm control over its proprietary technology.

77. Vertical integration may raise a firm's cost structure for all of the following reasons except:

A. the greater the number of subunits in an organization, the more problems coordinating and controlling

those units.B.

the firm that vertically integrates into component part manufacturing may find that because its internal suppliers have an active customer, they lack the motivation to be more efficient.

C. vertically integrated firms have to determine appropriate prices for goods transferred to subunits within the firm.

D.

it makes planning, coordination, and scheduling of adjacent processes more difficult, as compared to buying from independent suppliers, particularly with just-in-time inventory systems.

78. The major costs saving associated with JIT comes from:

A. speeding up inventory turnover.B. having materials arrive at a manufacturing plant before they are needed.C. avoiding production slowdowns by ensuring inventory is stockpiled.D. using warehouse space to maintain on-hand inventory.

79. Just-in-time inventory systems:

A. can help firms improve product quality.B. are fast becoming obsolete.C. require that parts be warehoused.D. give firms a buffer stock of inventory.

80. Which of the following is a drawback associated with a JIT system? A. There are high transportation costs involvedB. It leaves a firm without a buffer stock of inventoryC. It leaves a firm with scrap costs associated with defective productsD. It increases the warranty costs

81. With _____, suppliers, shippers, and the purchasing firm can communicate with each other with no time

delay. A. a CAD systemB. a JIT systemC. a CAM systemD. an EDI system

82. What are the five interrelated issues confronting a firm as trade barriers fall and global markets develop?

83. What is logistics? Discuss the relationship between production and logistics.

84. Discuss the strategic objectives of the production and logistics functions of an international firm.

85. What is the principle tool used by most managers to increase the reliability of their product offering?

86. What does Six Sigma refer to?

87. Who was W. Edward Deming? What is his contribution to business?

88. Describe the European Union's efforts to raise product quality. In your opinion, does the effort represent a

trade barrier?

89. What are the three main factors that affect the decision of where to locate production?

90. Discuss the effect of country factors on the decision of where to locate production?

91. What is meant by minimum efficient scale? Discuss the implications of minimum efficient scale.

92. How does the type of technology a firm uses affect its decision of where to locate production?

93. What is mass customization?

94. How do flexible machine cells work? What is the advantage of incorporating this type of technology into a

strategy?

95. Explain how the concept of production efficiency has changed with the rise of flexible manufacturing technologies.

96. How do product factors affect the decision of where to locate production? Suppose your firm produces

refined sugar. Where should your firm locate production?

97. When does concentration of production make sense?

98. Explain how the role of foreign factories evolves over time.

99. Why should a firm consider vertical integration as opposed to simply outsourcing the component parts that

go into its final product? What are the advantages of making a product in-house?

100.Explain why a firm might adopt the just-in-time system. Why might a firm choose a different inventory system?

101.Discuss the role of information technology and the Internet in materials management.

ch16 Key

1.(p. 544)

Production denotes both service and manufacturing activities. TRUE

AACSB: Analytic Skills

Bloom's: KnowledgeDifficulty: Easy

Hill - Chapter 16 #1Learning Objective: 16-01

2.(p. 545)

Efficient supply chain management reduces the amount of inventory in the system and decreases the inventory turnover. FALSE

AACSB: Value Creation

Bloom's: ComprehensionDifficulty: Medium


3.(p. 545)

The firm that improves quality control will also reduce its costs of value creation. TRUE




4.(p. 544-545)

A firm can lower costs by dispersing production to locations around the globe where each activity can be performed most efficiently. TRUE


Bloom's: KnowledgeDifficulty: Medium


5.(p. 545)

The principle tool that most managers now use to increase the reliability of their product offering is TQM. FALSE




6.(p. 545)

The TQM philosophy was first adopted by the American companies FALSE




7.(p. 546)

A statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company is known as ISO 9000. FALSE




8.(p. 546)

European Union firms must comply with ISO 9000 standards in their manufacturing processes and products before they will be given access to the European Union market. TRUE




9.(p. 547)

Country factors, technological factors, and product factors, all influence the decision of where to produce. TRUE

AACSB: Reflective Thinking Skills



10.(p. 547)

When a currency depreciates, a low-cost location can be turned into a high-cost location. FALSE




11.(p. 549)

A relatively high level of fixed costs can make it uneconomical to perform a particular activity in several locations at once. TRUE




12.(p. 549)

The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output. TRUE




13.(p. 549)

As a plant output expands, unit costs decrease. TRUE




14.(p. 549)

The smaller 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. FALSE




15.(p. 550)

Producing greater product variety from a factory implies longer production runs. FALSE




16.(p. 550)

Lean production is another term for flexible manufacturing technology. TRUE




17.(p. 550)

Mass customization describes the ability of companies to use flexible manufacturing technology to reconcile low cost and product customization. TRUE




18.(p. 551)

A grouping of various types of machinery, a common materials handler, and a centralized cell controller is a flexible machine cell. TRUE




19.(p. 551)

Flexible manufacturing technologies can help a firm improve efficiency, lower costs, and customize products to small markets. TRUE




20.(p. 552)

A product's value-to-weight ratio affects the firm's transportation costs. TRUE




21.(p. 552)

Because of the low value-to weight ratio of many pharmaceutical and electronics products, there is great pressure to produce these products in the optimal location and serve the world from there. FALSE




22.(p. 552)

Concentrating production at an optimal location is more attractive when a product serves universal needs. TRUE




23.(p. 553)

Concentration of production makes most sense when trade barriers are high. FALSE




24.(p. 553)

Decentralization of production is appropriate when the product serves universal needs. FALSE




25.(p. 553)

Decentralization of production is appropriate when the product's value-to-weight is low. TRUE




26.(p. 556)

A major aspect of a transnational strategy is a belief in the idea that valuable knowledge does not reside just in a firm's domestic operations. TRUE




27.(p. 556)

The make-or-buy decision involves deciding whether a firm should make or buy the component parts that go into the final product. TRUE


Bloom's: ComprehensionDifficulty: Easy


28.(p. 556)

Historically, most outsourcing decisions have involved the manufacture of service products. FALSE




29.(p. 557)

Outsourcing decisions pose plenty of problems for international businesses but even more problems for purely domestic businesses. FALSE




30.(p. 557)

A firm that has integrated horizontally is making all or part of a product in-house. FALSE




31.(p. 557)

When one firm invests in specialized assets to supply another, mutual dependency is created. TRUE




32.(p. 558)

When substantial investments in specialized assets are required to manufacture a component, the firm will prefer to contract it out to a supplier. FALSE




33.(p. 558)

The greatest advantage of buying component parts from independent suppliers is that the firm can maintain its strategic flexibility. TRUE




34.(p. 558)

When political risk is high, sourcing products from independent suppliers can be advantageous. TRUE




35.(p. 559)

Incentive problems that occur with independent suppliers do not arise with internal suppliers. FALSE




36.(p. 560)

Issues of strategic flexibility and organizational control are greater for purely domestic businesses than for international ones. FALSE




37.(p. 560)

Strategic alliances can effectively limit a firm's strategic flexibility. TRUE




38.(p. 561)

A CAD/CAM system allows the firm 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. FALSE




39.(p. 561)

Under a JIT system, products are briefly warehoused before entering the manufacturing process. FALSE




40.(p. 562)

Firms use EDI to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. TRUE

AACSB: Use of Information Technology



41.(p. 544)

_____ is the activity that controls the transportation of physical materials through the value chain, from procurement through production and into distribution. A. OutsourcingB. ProductionC. LogisticsD. Distribution

Production and logistics are closely linked since a firm's ability to perform its production activities efficiently depends on a timely supply of high-quality material inputs, for which logistics is responsible.




42.(p. 545)

_____ is a management philosophy according to which mistakes, defects, and poor-quality materials are not acceptable and should be eliminated. A. Scientific managementB. Total quality managementC. ISO 9000D. Lean manufacturing

The total quality management (TQM) philosophy that was widely adopted, first by Japanese companies and then American companies, during the 1980s and early 1990s.




43.(p. 545)

The Six Sigma methodology: A. is a direct descendant of the total quality management philosophy.B. is a direct descendant of benchmarking.C. was adopted first by British companies and then Japanese companies during the 1980s.D. was developed by Deming, Juran, and Feigenbaum.

Six Sigma, the modern successor to TQM, is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company.




44.(p. 545)

Saving time by not producing poor-quality products that cannot be sold, lowering rework costs, lowering scrap costs, and lowering warranty costs are the intended results of: A. total feature management.B. reengineering.C. logistics.D. total quality management.

The effect of improved quality control in these ways is to lower the costs of value creation by reducing both production and after-sales service costs.




45.(p. 546)

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. total quality management.B. reengineering.C. quality management system.D. ISO 9000.

Although the ISO 9000 certification process has proved to be somewhat bureaucratic and costly for many firms, it does focus management attention on the need to improve the quality of products and processes.




46.(p. 546)

The modern successor to TQM is: A. Corporate Quality Commitment.B. ISO 9000.C. Quality Process Realized.D. Six Sigma.

Six Sigma is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company.




47.(p. 546)

At six sigma, a production process would be 99.99966 percent accurate, creating just _____. A. 3.4 defects per hundred thousand unitsB. 3.4 defects per million unitsC. 34 defects per million unitsD. 6.8 defects per million units

Sigma comes from the Greek letter that statisticians use to represent a standard deviation from a mean; the higher the number of "sigmas" the smaller the number of errors.




48.(p. 546)

Which of the following statements about Six Sigma is true? A. It is a statistically based philosophy.B. It is easily possible for a company to achieve Six Sigma perfection.C. At six sigma, a production process will have 66 defects per million units.D. At six sigma, a production process would be 100 percent accurate.

Six Sigma is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company.




49.(p. 547)

Factors that help a firm decide where to locate its manufacturing facilities can be best grouped under three broad headings. These are: A. political factors, social factors, and legal factors.B. country factors, technological factors, and product factors.C. product factors, service factors, and labor factors.D. language factors, cultural factors, and transportation factors.

An essential decision facing an international firm is where to locate its production activities to best minimize costs and improve product quality.




50.(p. 547)

The creation of a global web of value creation activities is the result of: A. location economies.B. diseconomies of scale.C. shortage of skilled labor.D. informal trade barriers.

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. The benefits derived from such a strategy are referred to as location economies.




51.(p. 547)

Identify the incorrect statement pertaining to exchange rate movements. A. Adverse changes in exchange rates can quickly alter a country's attractiveness as a manufacturing

base.B. Currency appreciation can transform a low-cost location into a high-cost location.C. Currency appreciation can cause firms to move their manufacturing offshore to lower-cost locations.D. A low-cost location can be transformed into a high-cost location because of currency depreciation.

Currency appreciation can transform a low-cost location into a high-cost location.


Bloom's: ComprehensionDifficulty: Hard


52.(p. 549)

Being too dependent on one location is particularly risky because of: A. floating exchange rates.B. fixed exchange rates.C. lack of movement in currencies.D. static exchange rates.

Being too dependent on one location is particularly risky in a world of floating exchange rates.




53.(p. 549)

According to the concept of economies of scale: A. as plant output reduces, unit costs decrease.B. as plant output expands, unit costs increase.C. as plant output reduces, unit costs remain static.D. 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.




54.(p. 549)

Identify an advantage of a low minimum efficient scale. A. Allows the firm to accommodate demands for local responsivenessB. Discounts currency risk by manufacturing all products in one locationC. Helps keep overheads low at the expense of fixed costsD. Helps a firm to standardize its products for all markets

The level of output at which most plant-level scale economies are exhausted is referred to as the minimum efficient scale of output.




55.(p. 550)

A company that wants to reduce set-up time for complex equipment, increase the utilization of individual machines through better scheduling, and improve quality control at all stages of the manufacturing process should adopt: A. standardization.B. diseconomies of scale.C. flexible machine technology.D. minimum efficient scale.

Flexible manufacturing technologies allow 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.




56.(p. 550)

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 customization. A. assembly-line-like customizationB. economies of customizationC. mass customizationD. standardized customization

Mass customization reconciles two goals that were once thought to be incompatible—low cost and product customization.




57.(p. 550)

Flexible manufacturing technology is also known as: A. mass customization.B. lean production.C. flexible machine cells.D. minimum efficient scale.





58.(p. 550)

According to the concept of economies of scale what is the best way to achieve high efficiency and low unit costs? A. Customizing products for each individual marketB. Mass producing standardized outputsC. Concentrating on production of small volumes of productsD. Increasing the product variety dramatically

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.




59.(p. 550)

This 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. KaizenB. Six SigmaC. Lean productionD. TQM

Lean production is another name for flexible manufacturing technology.




60.(p. 550)

_____ challenged the notion that the way to increase efficiency and drive down unit costs is to limit product variety and produce a standardized product in large volumes. A. Bartlett and Ghoshal's theory of a transnational companyB. Minimum efficient scaleC. Economies of scaleD. Flexible manufacturing technology





61.(p. 551)

A _____ is a grouping of various types of machinery, a common materials handler, and a centralized cell controller. A. flexible machine cellB. mass customization policyC. lean production systemD. minimum efficient scale cluster

Each cell normally contains four to six machines capable of performing a variety of operations.




62.(p. 551-552)

All of the following are the major efficiency benefits of flexible manufacturing technologies except: A. it enables companies to customize products to the demands of small consumer groups.B. it helps a company achieve mass customization, which increases its customer responsiveness.C.

it requires firms to establish manufacturing facilities in each major market to provide products that satisfy specific consumer tastes and preferences.

D. it improves capacity utilization and reductions in work in progress and waste.

When flexible manufacturing technologies are available, a firm can manufacture products customized to various national markets at a single factory sited at the optimal location.




63.(p. 552)

When a company's product has a low value-to-weight ratio, the company should: A. have a centralized manufacturing location.B. produce the product in multiple locations close to major markets.C. ignore transportation costs.D. produce the product in one optimal location and serve the world from there.

The first is the product's value-to-weight ratio because of its influence on transportation costs. Many electronic components and pharmaceuticals have high value-to-weight ratios; they are expensive and they do not weigh very much. Thus, even if they are shipped halfway around the world, their transportation costs account for a very small percentage of total costs. The opposite holds for products with low value-to-weight ratios.




64.(p. 552)

Which of the following statements about products with high value-to-weight ratios is true? A. They are relatively inexpensive and weigh a lot.B. They are expensive and do not weigh very much.C. Transportation costs usually account for a large percentage of their total costs.D. They must be produced in multiple locations close to major markets.

Thus, even if they are shipped halfway around the world, their transportation costs account for a very small percentage of total costs.




65.(p. 553)

Which of the following is a characteristic of manufacturing technology that should be considered by a firm contemplating international production? A. Trade barriersB. Value-to-weight ratioC. Level of fixed costsD. Exchange rates

Table 16.1 "Location Strategy and Production" The other distracters should be considered by a firm while contemplating international production but they all under country and product factors.




66.(p. 553)

A company might consider decentralizing when: A. a product's value-to-weight ratio is high.B. the product serves universal needs.C. trade barriers are low.D. volatility in important exchange rates is expected.

Concentration of production makes more sense for all the other distracters.




67.(p. 553)

The concentration of production makes most sense when: A. volatility in important exchange rates is expected.B. the product's value-to-weight ratio is high.C. location externalities are not important.D. trade barriers are high.

Decentralization of production makes more sense for all the other distracters.




68.(p. 553)

The concentration of production is favored when all of the following factors are high except A. fixed costs.B. minimum efficient scale.C. value-to-weight ratio.D. trade barriers.

The concentration of production of production is favored when trade barriers are low.




69.(p. 554)

Initially, many foreign factories are established where _____ are low. A. trade barriersB. inventory turnoverC. marketing costsD. labor costs

Their strategic role typically is to produce labor-intensive products at as low a cost as possible.




70.(p. 556)

Decisions a firm must make about whether to perform a certain value creation activity themselves, or outsource it to another entity are best known as: A. outsource potential decisions.B. in-house potential decisions.C. make-or-buy decisions.D. integration decisions.

Historically, most outsourcing decisions have involved manufacturing physical products. Most manufacturing firms have done their own final assembly, but have had to decide whether to vertically integrate and manufacture their own component parts or outsource the production of such parts, purchasing them from independent suppliers. Such make-or-buy decisions are an important aspect of the strategy of many firms.




71.(p. 557)

Which of the following is not an argument that supports making a product in-house? A. Vertical integration may be associated with higher costs.B. Vertical integration may protect proprietary product technology.C. Vertical integration may facilitate investment in highly specialized assets.D. Vertical integration may ease the scheduling of adjacent processes.

Vertical integration may be associated with lower costs.




72.(p. 557)

A _____ is an asset whose value is contingent upon a particular relationship persisting. A. specialized assetB. common assetC. complementary assetD. supplementary asset

When substantial investments in specialized assets are required to manufacture a component, the firm will prefer to make the component internally rather than contract it out to a supplier.




73.(p. 558)

A firm will prefer to make the component internally rather than contract it out to a supplier, because of all of the following reasons except: A. it needs to maintain control over its proprietary technology.B. substantial investments in specialized assets are required to manufacture a component.C. the firm completely trusts the independent supplier to play fair.D. it runs the risk that suppliers will expropriate the technology for their own use.

Another argument for producing all or part of a product in-house is that production cost savings result because it makes planning, coordination, and scheduling of adjacent processes easier.




74.(p. 558)

How can firms attain tight coordination between different stages in the production process? A. By using information technologyB. By lowering the costs of value creationC. By implementing ISO 9000D. By minimum efficient scale of output

For international businesses that source worldwide, the time and distance between the firm and its suppliers can exacerbate scheduling problems.




75.(p. 558)

Which of the following is not a reason to outsource production? A. It can give the firm greater flexibilityB. It can make planning, coordination, and scheduling of adjacent processes easierC. It can help drive down the firm's cost structureD. It may help the firm capture orders from international customers

Producing all or part of a product in-house is that production cost savings result because it makes planning, coordination, and scheduling of adjacent processes easier.




76.(p. 558)

An advantage of buying component parts, or even an entire product, from independent suppliers is that: A. the firm can maintain its flexibility of switching orders between suppliers as circumstances dictate.B. it can make planning, coordination, and scheduling of adjacent processes easier for the firm.C. it reduces the risk for the firm that suppliers will expropriate the technology for their own use.D. the firm is able to maintain firm control over its proprietary technology.

This is particularly important internationally, where changes in exchange rates and trade barriers can alter the attractiveness of supply sources.




77.(p. 559)

Vertical integration may raise a firm's cost structure for all of the following reasons except: A. the greater the number of subunits in an organization, the more problems coordinating and

controlling those units.B.

the firm that vertically integrates into component part manufacturing may find that because its internal suppliers have an active customer, they lack the motivation to be more efficient.

C. vertically integrated firms have to determine appropriate prices for goods transferred to subunits within the firm.

D.

it makes planning, coordination, and scheduling of adjacent processes more difficult, as compared to buying from independent suppliers, particularly with just-in-time inventory systems.

It makes planning, coordination, and scheduling of adjacent processes easier.




78.(p. 561)

The major costs saving associated with JIT comes from: A. speeding up inventory turnover.B. having materials arrive at a manufacturing plant before they are needed.C. avoiding production slowdowns by ensuring inventory is stockpiled.D. using warehouse space to maintain on-hand inventory.

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.




79.(p. 561)

Just-in-time inventory systems: A. can help firms improve product quality.B. are fast becoming obsolete.C. require that parts be warehoused.D. give firms a buffer stock of inventory.

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.




80.(p. 561)

Which of the following is a drawback associated with a JIT system? A. There are high transportation costs involvedB. It leaves a firm without a buffer stock of inventoryC. It leaves a firm with scrap costs associated with defective productsD. It increases the warranty costs

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.




81.(p. 562)

With _____, suppliers, shippers, and the purchasing firm can communicate with each other with no time delay. A. a CAD systemB. a JIT systemC. a CAM systemD. an EDI system

Firms now typically use electronic data interchange (EDI) via the Internet to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers.




82.(p. 544)

What are the five interrelated issues confronting a firm as trade barriers fall and global markets develop? As trade barriers fall, and global markets develop, firm face five interrelated issues. First, where in the world should production activities be located? Second, what should be the long-term strategic role of foreign production sites? Third, should the firm own foreign production activities, or is it better to outsource those activities to private vendors? Fourth, how should a globally dispersed supply chain be managed, and what is the role of Internet-based information technology in the management of global logistics? Finally, should the firm manage global logistics itself, or should it outsource the management to enterprises that specialize in this activity?




83.(p. 544)

What is logistics? Discuss the relationship between production and logistics. Logistics is the activity that controls the transmission of physical materials through the value chain, from procurement through production and into distribution. Production and logistics are closely linked since a firm's ability to perform its production activities efficiently depends on a timely supply of high-quality material inputs, for which logistics is responsible.




84.(p. 544-546)

Discuss the strategic objectives of the production and logistics functions of an international firm. The production and logistics functions of an international firm have a number of important strategic objectives. A primary objective is to lower costs. Dispersing production activities to various locations around the globe where each activity can be performed most efficiently can lower costs. Costs can also be lowered by managing the global supply chain to better match supply and demand. A second strategic objective is to increase product quality by eliminating defective products by both the supply chain and the manufacturing process. A third objective involves meeting demands for local responsiveness. Finally, production and logistics must be able to respond to shifts in customer demand.




85.(p. 545-546)

What is the principle tool used by most managers to increase the reliability of their product offering? The principle tool used by most managers to increase the reliability of their product offering is the Six Sigma quality improvement methodology. Six Sigma is the successor of the total quality management philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company.




86.(p. 546)

What does Six Sigma refer to? Six Sigma is the modern successor to TQM. It is a statistically based philosophy that aims to reduce defects, boost productivity, eliminate waste, and cut costs throughout a company. Six Sigma is the principle tool used by most managers to increase the reliability of their product offering. At Six Sigma, a production process would be 99.99966 percent accurate, creating just 3.4 defects per million units.




87.(p. 545-546)

Who was W. Edward Deming? What is his contribution to business? Deming was a key contributor to the development of the total quality management (TQM) technique. Deming identified a number of steps that should be part of any TQM program. He argued that management should embrace the philosophy that mistakes, defects, and poor quality materials are not acceptable and should be eliminated. He suggested that the quality of supervision should be improved by allowing more time for supervisors to work with employees, that management should create an environment in which employees will not fear reporting problems or recommending improvements, and that some notion of quality should be included in work standards to promote the production of defect-free output. Deming also argued that it is management's responsibility to train workers in new skills to keep pace with changes in the workplace. According to Deming, achieving better quality requires the commitment of everyone in the company.




88.(p. 546)

Describe the European Union's efforts to raise product quality. In your opinion, does the effort represent a trade barrier? Before a firm can gain access to the European Union marketplace, the firm must meet certain quality standards. Specifically, 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. The ISO 9000 certification process has proven to be bureaucratic and costly for firms. At the same time, however, the standards have focused management attention on the need to improve the quality of products and processes.


Bloom's: ApplicationDifficulty: Hard


89.(p. 547, 548, 552)

What are the three main factors that affect the decision of where to locate production? The decision of where to locate production is determined by three main factors. Country factors: Include a country's economic, political, and cultural conditions and their effect on the production of the firm's product. Technological factors: The type of technology a firm uses to perform specific manufacturing activities can be pivotal in location decisions. Product factors: Specifically, a product's value-to-weight ratio and whether the product serves universal needs will affect where a firm locates its production activities.




90.(p. 547)

Discuss the effect of country factors on the decision of where to locate production? All other things being equal, a firm should locate its manufacturing activities in countries where the political, economic, and cultural conditions are conducive to the performance of those activities. Other country specific factors that play a role in location decisions include formal and informal trade barriers and rules and regulations regarding foreign direct investment, expected movements in currency exchange rates, and also the quality of the local labor pool.




91.(p. 549)

What is meant by minimum efficient scale? Discuss the implications of minimum efficient scale. Minimum efficient scale of output refers to the level of output at which most plant-level scale economies are exhausted. This is the level of output a plant must operate to realize all major plant level scale economies. The concept suggests that 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.




92.(p. 548-551)

How does the type of technology a firm uses affect its decision of where to locate production? The type of technology a firm uses to perform specific manufacturing activities can be pivotal in location decisions. The three primary factors that drive location decisions in terms of technology are a manufacturing activity's level of fixed costs, its minimum efficient scale, and its flexibility. When the fixed costs of setting up a manufacturing operation are high, a firm must serve the world market from a single location or from a few locations. In contrast, when fixed costs are low, a firm can scatter its manufacturing activities throughout the world to better accommodate local markets. The larger the minimum efficient scale of a plant, the greater is the argument for centralized production at a single location. Finally, when flexible manufacturing technologies are available, a firm can manufacture products customized to various national markets at a single factory at the optimal location.




93.(p. 550-551)

What is mass customization? The term mass customization has been coined to describe the ability of companies to use flexible manufacturing technology 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. Mass customization implies that a firm may be able to customize its product range to suit the needs of different customer groups without bearing a cost penalty. Research suggests that the adoption of flexible manufacturing technologies may increase efficiency and lower unit costs relative to what can be achieved by the mass production of a standardized output.




94.(p. 551)

How do flexible machine cells work? What is the advantage of incorporating this type of technology into a strategy? Flexible machine cells are a common flexible manufacturing technology. A flexible machine cell is a grouping of various types of machinery, a common materials handler, and a centralized cell controller (computer). Each cell normally contains four to six machines capable of performing various operations. The typical cell is dedicated to the production of a family of parts or products. The settings on machines are computer controlled. This allows each cell to switch quickly between the production of different parts or products.




95.(p. 550-551)

Explain how the concept of production efficiency has changed with the rise of flexible manufacturing technologies. Flexible technology, also known as lean production, covers a range of manufacturing technologies designed to reduce setup times for complex equipment, increase the utilization of individual machines through better scheduling, and improve quality control at all stages of the manufacturing process. A firm that adopts flexible manufacturing technologies can increase efficiency and lower unit costs relative to what can be achieved by the mass production of a standardized output, while at the same time allowing the firm to customize its product offering to a much greater extent than was once thought possible. In fact, flexible manufacturing technologies allow companies to produce a wider variety of products at a unit cost that at one time could only be achieved through the mass production of a standardized output.


Bloom's: EvaluationDifficulty: Medium


96.(p. 552)

How do product factors affect the decision of where to locate production? Suppose your firm produces refined sugar. Where should your firm locate production? There are two product factors that affect the decision of where to locate production. First, a product's value-to-weight ratio must be considered because of its effect on transportation costs. Students should recognize that sugar has a low value-to-weight ratio, therefore, other things being equal, there will be pressure to make these products in multiple locations close to major markets to reduce transportation costs.


Bloom's: ApplicationDifficulty: Medium


97.(p. 553)

When does concentration of production make sense? There are several situations when concentrating production facilities in a centralized location and serving the world from there makes sense. Concentration of production makes sense when the product serves universal needs, the product's value-to-weight ratio is high, trade barriers are low, important exchange rates are expected to remain stable, externalities from the concentration of like enterprises favor certain locations, differences between countries in factor costs, political economy, and culture have a substantial impact on the costs of manufacturing in various countries, and when the production technology has high fixed costs and high minimum efficient scale relative to global demand, or flexibility manufacturing technology exists.




98.(p. 554)

Explain how the role of foreign factories evolves over time. The strategic role of foreign factories can evolve over time. Initially, many foreign factories are established where labor costs are low, and at that time, their strategic role is to produce labor intensive products at as low a cost as possible. Over time, the strategic role of the factories may evolve to one in which the factories become important centers for the design and assembly of products for the global marketplace. This change may take place as factories upgrade their capabilities as the factories respond to pressure to improve their cost structures and/or customize a product to the demands of consumers in a particular nation. In addition, as the local factors of production improve, it is easier for the factories to take on a greater strategic role.




99.(p. 557)

Why should a firm consider vertical integration as opposed to simply outsourcing the component parts that go into its final product? What are the advantages of making a product in-house? The question of whether a firm should vertically integrate or outsource, the make versus buy decision, can be a difficult decision. A firm that chooses to make a product in-house can benefit from lower costs that may be achieved if the firm is the most efficient producer of that product in the industry, will facilitate specialized investments, will protect proprietary technology, and ease the scheduling of adjacent processes.




100.(p. 561-562)

Explain why a firm might adopt the just-in-time system. Why might a firm choose a different inventory system? The JIT system was developed by Japanese firms in the 1950s and 1960s. Today, most manufacturing firms have adopted the system in some way. The basic philosophy behind just-in-time (JIT) manufacturing is to economize on inventory holding costs by having materials arrive at a manufacturing plant "just in time" to enter the product process. This results in potential cost savings and quality improvements. In addition, JIT systems can lead to quality improvements. A firm might consider a different type of inventory system in some cases because the disadvantage of a JIT system is that it leaves a firm without a buffer stock of inventory. As a result, a labor dispute at a supplier's plant or a disruption in the transportation system could leave a manufacturer without adequate component parts.




101.(p. 562)

Discuss the role of information technology and the Internet in materials management. Web-based information systems play a crucial role in modern material management. Firms increasingly use EDI to coordinate the flow of materials into manufacturing, through manufacturing, and out to customers. EDI systems require computer links between a firm, its suppliers, its shippers, and sometimes its customers. These electronic links are then used to place orders with suppliers, to register parts leaving a supplier, to track them as they travel toward a manufacturing plant, and to register their arrival. Suppliers typically use an EDI link to send invoices to the purchasing firm. The EDI system enables suppliers, shippers, and the purchasing firm to communicate with each other with no time delay, which increases the flexibility and responsiveness of the whole supply system. The EDI system also eliminates much of the paperwork between suppliers, shippers, and the purchasing firm.




ch16 Summary

Category # of Questions

AACSB: Analytic Skills 27

AACSB: Reflective Thinking Skills 25

AACSB: Use of Information Technology 3

AACSB: Value Creation 46

Bloom's: Application 2

Bloom's: Comprehension 48

Bloom's: Evaluation 3

Bloom's: Knowledge 48

Difficulty: Easy 23

Difficulty: Hard 9

Difficulty: Medium 69

Hill - Chapter 16 101

Learning Objective: 16-01 23





ch16

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centralizing production

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concentration of production

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product factors

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