Chapter 2—Purchasing Management

TRUE/FALSE

1. Purchasing can be broadly classified into two categories: merchants and industrial buyers.
→T

2. Merchants primary task is to purchase raw materials for conversion purposes.

→F

3. A low ROA suggests that management is capable of generating large profits with relatively small
investments.
→F
4. The procedures for public procurement differ from the private sector.
→T

5. Cost savings is an advantage of using an e-procurement system.

→T

6. The goal of a good purchasing system is to ensure efficient information transitions between the
materials users, the purchasing personnel, and the suppliers.
→T

7. The purchase order is NOT a legally binding contract until it is accepted by the supplier.
→T

8. A material requisition and a purchase requisition are the same thing.

→T

9. A follow-up is considered a reactive approach to speed up an overdue shipment.

→F

10. Procurement credit cards can be used for small purchases including meals, lodging, and travel
expenses.
→T

12. Blank check purchase orders, Corporate purchasing cards, Petty cash, and Open-end purchase
orders are all possible alternatives to dealing with small value purchases such as those for office
supplies.
→T

13. Generally, firms outsource noncore activities while focusing on core competencies.
→T

14. If the break-even point in a typical make-buy scenario is 19,000 units and 10,000 units are
required by the firm, then the firm should choose to make the units.
→F
15. A reason for making items instead of buying them would include better quality control.
→T

16. The Total Cost of Ownership Concept does NOT include quantitative factors.
→F
 17. The total cost analysis demonstrates how other costs besides the unit cost can affect purchase
decisions.
→T

18. The possibility of events like strikes, assembly line breakdowns, and natural disasters are all
reasons a company should favor using a single supplier.
→F

19. Decentralized purchasing is the practice where individual, local purchasing departments
throughout a single corporation make their own, individual purchasing decisions to fulfill their
individual local needs.
→T

19. NAFTA and the WTO are trade organizations seeking to reduce tariff and non-tariff barriers
among its member countries.
→T

20. Foreign suppliers located farther away may be able to deliver goods faster than domestic
suppliers due to more efficient transportation and logistical systems.
→T

MULTIPLE CHOICE

1. The primary goals of purchasing include all EXCEPT:

a. Secure materials at the lowest cost
b. Maximize customer satisfaction
c. Improve the quality of finished goods produced
d. Ensure the highest quality raw materials are purchased

2. Which of the following refers to the measurement of the impact of change in purchase spend on a
firm’s profit before taxes, assuming gross sales and other expenses remain unchanged?
a. Break-Even Analysis
b. Profit-Leverage Effect
c. Direct Offset
d. Leveraging Purchase Volume

3. When calculating Return on Investment, current assets include:

a. Cash, Accounts Receivable, and Inventory
b. Cash, Accounts Receivable, and Equipment
c. Accounts Receivable, Equipment, and Real Estate
d. Equipment, Buildings, and Real Estate

4. Inventory Turnover can be calculated by:

a. Ratio of cost of goods sold over average inventory cost
b. Ratio of average inventory cost over cost of goods sold
c. Ratio of inventory days in stock over average inventory cost
d. Ratio of average inventory cost over inventory days in stock

5. Which type of requisition is used for materials and standard parts that are requested on a recurring
basis?
 a. Open requisition
b. Blanket requisition
c. Traveling requisition
d. Recyclable requisition (Cyc-Rec)

6. A form of purchasing that is placed directly to the supplier and suitable when firms use the same
components to make standard goods over a relatively long period of time is referred to as:
a. Material requisition
b. Purchase requisition
c. Planned order release
d. Traveling requisition

7. When a product is purchased which is complicated or highly technical a ______________may be

issued instead of a request for quotation.
a. Request for proposal
b. Purchase order
c. Contract for sale
d. Sales order

8. Benefits derived from implementing e-procurement systems include all of the following EXCEPT:
a. Allows buyers to submit bids and suppliers to respond to those bids in real time
b. Increases the accuracy in communication between buyers and suppliers
c. Creates numerous additional job opportunities in the purchasing department
d. Tracking bids and transactions is easier and faster

9. While most public procurement is focused on goals like those of purchasing departments in the private
sector, U.S. federal government purchases must comply with the:
a. Services and Materials Acquisition Act
b. Fair Standards and Equitable Purchases Act
c. Federal Code of Conduct for Procurement
d. Federal Acquisition Regulation

10. Petty cash is being phased out in favor of:

a. Hard cash
b. A blank check
c. P-card
d. Score-carding

11. Blanket or open-end purchase orders are suitable for buying

a. Computers
b. Heavy equipment
c. Custom built components
d. Office supplies

12. Which of the following is a reason small value purchases are handled differently?
a. To give the buyer additional supplier choices
b. To obtain a higher quality product
c. To have better tracking of material usage
d. To control unnecessary administrative costs

13. Which of the following illustrates Forward Vertical Integration?

a. Microsoft starting a new division that designs and manufactures clothing
b. Ford automotive buying additional machines for production
 c. Subway sandwich company buying a bakery to make the bread for their sandwiches.
d. Sony buying trucks to deliver their finished goods inventories to their customers'
warehouses

14. Which of the following would be a good reason to outsource (buy) versus making?
a. To utilize existing capacity within a company's own firm
b. A firm lacks the technology or expertise to produce an item
c. To have more direct control over the design and production of an end item
d. No competent supplier presently produces the needed item

15. Given the following make-buy information, what would be the break-even point?

Make Option Buy Option

Fixed Costs $5500 $1500
Variable Costs $ 4 $ 9

a. 1200 units
b. 1708 units
c. 800 units
d. 460 units

16. Given the following make-buy information, what would be the break-even point?

Make Option Buy Option

Fixed Costs $16000 $1400
Variable Costs $ 6 $ 10

a. 9170 units
b. 3650 units
c. 1040 units
d. 2750 units

17. As firms seek to improve the products they offer to the market, companies are seeking help from their
suppliers in new product design and development through:
a. Supplier certification programs
b. Manufacturer certification programs
c. Early supplier involvement
d. Total Cost of Ownership initiatives

18. Firms can use total cost analysis to:

a. See how efficiently management is using its total assets to generate profits
b. Select the most cost-effective supplier
c. Show how many times a firm’s inventory is utilized and replaced over an accounting
period
d. Brainstorm and isolate the causes of a problem

19. Total Cost of Ownership does NOT consider which of the following factors?
a. Purchase order costs
b. Freight costs
c. Payment terms
d. Tooling costs
20. The total cost of ownership for Supplier A is $2,670,000. The total cost of ownership for Supplier B is
$1,750,000. The total cost of ownership for Supplier C is $2,990,000. Using Total Cost Analysis, it
will be more cost-effective to use
a. Supplier A
b. Supplier B
c. Supplier C
d. Cannot be determined

21. Which of the following is a reason for favoring single sourcing?

a. Encourages competition among suppliers
b. Spreads the risk of supply interruption
c. Reduces variabilities in quality levels
d. Reduces information about new processing technologies

22. Which of the following is a reason that single sourcing is considered risky/bad?
a. There could be supplier interruptions due to political instability
b. It could establish close relationships with the supplier
c. Larger orders make quantity discounts more likely
d. Decreases the item to item quality variability of items purchased

23. Which of the following is an advantage of a centralized purchasing department?

a. Less bureaucracy
b. More frequent shipments
c. Specialization
d. Closer contact between buyer and user

24. Which of the following statements is FALSE?

a. Centralized purchasing is where individual, local purchasing departments, such as at
the plant level, make their own purchasing decisions.
b. Electronic procurement systems can aid a company in saving both time and money.
c. More than 50% of each sales dollar typically goes towards covering supply chain costs.
d. If a firm lacks the technology to make a required component they will need to consider
buying/outsourcing.

25. Which of the following is NOT a potential challenge for global sourcing?
a. Long delivery lead times
b. Costs involved in selecting foreign suppliers
c. Relaxed trade barriers
d. Labor and legal problems

26. Which of the following is NOT a form of countertrade?

a. Barter
b. Kaizen blitz
c. Offset
d. Counterpurchase

27. Which of the following NOT a reason firms are expanding their supply bases to include foreign
suppliers?
a. Lower shipping rates due to lower tariffs
b. Lower product cost
c. Better product quality
d. Overseas supplier holding the patent to the product
SHORT ANSWER

1. When using the Total Cost of Ownership concept, explain how a supplier with a higher unit price and
higher tooling cost can end up being more cost effective than another supplier with a lower unit price
and tooling cost.

Nhà cung cấp có đơn giá cao hơn và chi phí dụng cụ cao hơn có thể tiết kiệm chi phí hơn về lâu dài do
các yếu tố như chất lượng sản phẩm vượt trội, dụng cụ bền hơn, hỗ trợ khách hàng tốt hơn, tổng chi
phí vòng đời thấp hơn và khả năng tùy chỉnh phù hợp với nhu cầu thực tế, tất cả các yếu tố đó có thể
góp phần giảm chi phí tổng thể và tăng giá trị.

2. Use what you understand about the outsourcing decision (Make vs. Buy) to answer this question. List
and explain three reasons a restaurant might decide to buy pre-made desserts from a supplier rather
than making the goods from scratch.
3 lý do gồm có:
- Hiệu quả chi phí: Mua món tráng miệng làm sẵn từ nhà cung cấp có thể tiết kiệm chi phí hơn
do tính kinh tế theo quy mô, chi phí lao động và thiết bị thấp hơn cũng như giảm chi phí
chung.
- Tiết kiệm thời gian và hiệu quả hoạt động: Mua món tráng miệng làm sẵn cho phép chuẩn bị
hợp lý, linh hoạt hơn trong thời gian cao điểm và tối ưu hóa hoạt động nhà bếp, giúp cải thiện
hiệu quả tổng thể.
- Đảm bảo chất lượng và chuyên môn: Các nhà cung cấp cung cấp chất lượng ổn định, tay nghề
chuyên nghiệp và tuân thủ các tiêu chuẩn an toàn thực phẩm, đảm bảo rằng nhà hàng luôn
phục vụ các món tráng miệng chất lượng cao mà không cần chuyên môn và giám sát nội bộ
chuyên môn.

3. Answer the questions that follow, based on the diagram provided below

a. What are the fixed costs for the buy decision?

$500
b. What is the breakeven quantity for the two options illustrated?
 Q = 260
c. At Q = 300, would you choose the make or buy option? Why?
Tại Q = 300, phương án sản xuất sẽ được lựa chọn vì chi phí sản xuất là $4,000, thấp
hơn con số $4,200 của việc mua hàng
d. At Q = 200, what will be the total cost associated with the best decision at this quantity?
$3000 là giá để thực hiện quyết định mua hàng (buy option)
4. Global sourcing has become commonplace. Many companies now consider expanding their supply
base to include foreign suppliers. List three reasons why companies choose to source globally.
3 lý do gồm có:
- Chuyển đổi sang tìm kiếm nguồn cung khắp nơi trên thế giới nhằm đa dạng hóa nguồn cung, tránh
phụ thuộc hoàn toàn vào 1 supplier cố định khiến khả năng phản ứng nhanh nhạy và đàn hồi của chuỗi
cung ứng bị suy yếu
- Tận dụng sự phát triển của hệ thống Logistics toàn cầu mà tìm kiếm nguồn nguyên liệu đầu vào giá
rẻ với chất lượng phù hợp, nhờ đó giảm chi phí mua hàng trên mỗi unit, tăng lợi nhuận cho DN
- Thực hiện tìm nguồn cung toàn cầu nhằm tạo điều kiện thích nghi với chuỗi cung ứng được bản địa
hóa (regionalization)
Chapter 5—Demand Forecasting

TRUE/FALSE

1. The goal of a good forecasting technique is to minimize the deviation between actual demand and the
forecast. => T

2. It is possible to expect 100 percent forecast accuracy most of the time. => F

3. Toymaker Spin Master, did not properly forecast demands for their new product, Hatchimals, in 2016.
This caused stockouts for their distributors. => T

4. Minimizing the negative impacts of the bullwhip effect on supply chains is one of the goals of an
effective CPFR system. => T

5. Random variations represent either increasing or decreasing movements over many years due to
factors such as population growth, population shifts, cultural changes and income shifts. => F

6. Cyclical variations are longer than a year and are influenced by macroeconomic and political factors.
=> T

7. Trend variations are wavelike movements that are shorter than a year. => F

8. The Delphi forecasting approach is applicable for high-risk technology forecasting; large, expensive
projects; or major new product introductions => T

9. Quantitative forecasting methods are based on opinions and intuition, whereas qualitative forecasting
methods use mathematical models and relevant historical data to generate forecasts. => F

10. Individual biases could negatively impact the effectiveness of the Sales Force Composite forecasting
approach, due to the proximity of the sales personnel to the consumers. => T

11. If you felt that recent demand trends were more significant, and thus should be emphasized more in
formulating a forecast, then in forecasting demand for the upcoming demand period, you would
probably favor using a simple moving average over the conventional weighted moving average. => F

12. Regression analysis is commonly used in the cause-and-effect forecasting model. => T

13. Given the following information, the forecast for period two using exponential smoothing and α = 0.3
is 60.5.
Period Demand Forecast
1 64 59
2 70
=> T
14. The calculated forecast for May is 46, using the actual demand shown in the table below, and a
3-month weighted moving average with weights 0.1, 0.4, 0.5 (the heaviest weight applied to the most
recent period).
 Nov. Dec. Jan. Feb. Mar. Apr.
39 36 40 38 48 46
=> T
15. The Naïve forecast, Mean Profit Leverage, and Mean Square Error are examples of forecasting
accuracy measures.
=> F
16.As tighter control limits are instituted for the tracking signal, there is a greater probability of finding
exceptions that require no action, but it also means catching changes in demand earlier. => T

17. Forecast error is the actual quantity minus the forecast. => T

18. The true value of CPFR comes from the sophisticated forecasting algorithms that provide companies
with highly accurate forecasts, not from the exchange of forecasting information. => F

19. One of the benefits of CPFR include integration of planning, forecasting, and logistics activities. => T

20. Without supply chain trading partners collaborating and exchanging information, the supply chain will
always be suboptimal and contain excess inventories, resulting in less-than-maximum supply chain
profits. => T

21. CPFR is more likely to succeed if companies educate their employees on the benefits of the process
changes and the disadvantages of maintaining the status quo. => T

MULTIPLE CHOICE

1. All of the following may influence demand and should be considered when developing a forecast
EXCEPT
a. New competition
b. Supplier quality
c. Ergonomic conditions
d. Emerging markets

2. The impact of poor communication and inaccurate forecasts resonates along the supply chain and
results in the:
a. Bullwhip effect
b. Delphi method
c. CPFR effect
d. Mean deviation

3. Inaccurate forecasts can result in negative outcomes like:

a. High inventory costs and increased profits
b. Imbalances in supply and demand
c. Material shortages and decreased costs of obsolescence
d. Low inventory costs and stockouts

4. In 2016, Spin Master, did not properly forecast demand for their new product, Hatchimals, causing
___________ for their distributors.
a. Excess stock
b. The bullwhip effect
c. Stockouts
d. Price reductions

5. What component of a time series has variations in demand which show peaks and valleys that repeat
over a consistent interval such as hours, days, weeks, months, or years?
 a. Trend Variations
b. Cyclical Variations
c. Random Variations
d. Seasonal Variations

6. Your company is conducting forecasting that revolves around population growth in large cities. This
type of forecasting can be referred to as what component of a time series?
a. Cyclical Variations
b. Trend Variations
c. Seasonal Variations
d. Random Variations

7. Cyclical variations are longer than a year and can be influenced by:
a. Events such as natural disasters
b. Imbalances in supply and demand
c. Political factors
d. Population growth

8. Random variations in a Time Series component are due to:

a. Population growth
b. Unpredictable events
c. Using a large value for the exponential smoothing constant
d. Inaccurate responses of the expert participants

9. When there is not a lot of currently relevant data available it is generally best to use:
a. Qualitative forecasting
b. Time series forecasting
c. Naive forecasting
d. Simple moving average forecasting

10. Which one of the following is NOT a type of qualitative forecasting?

a. Sales force composite
b. Consumer survey
c. Jury of executive opinion
d. Simple moving average

11. Quantitative forecasts use mathematical techniques that are based on:
a. Expert opinions
b. Surveys
c. Historical data
d. Sales force knowledge of the market

12. When linear trend forecasts are developed, demand would typically be:
a. The independent variable
b. The dependent variable
c. The lead variable
d. The passive variable

13. The following time-series approach to forecasting uses historical data to generate a forecast and works
well when demand is fairly stable over time:
a. Naïve Forecast
b. Weighted Moving Average
 c. Simple Moving Average
d. Exponential Smoothing

14. Using the data set below, what would be the forecast for period 4 using a three period moving average:
(Choose the closest answer.)

Period Actual Demand

1 10000
2 12400
3 13250
4 15750
5 20500
6 18500

a. 11500
b. 11883
c. 12244
d. 14008

15. Using the data set below, what would be the forecast for period 5 using a four period weighted moving
average? The weights for each period are 0.05, 0.15, 0.30, and 0.50 from the oldest period to the most
recent period, respectively. (Choose the closest answer.)

Period Actual Demand

1 10000
2 12400
3 13250
4 14750
5 15220
6 18500

a. 12820
b. 13105
b 13710
d. 14610

16. Using the data set below, what would be the forecast for period 5 using the exponential smoothing
method? Assume the forecast for period 4 is 14000. Use a smoothing constant of α = 0.4 (Choose the
closest answer.)

Period Actual Demand

1 10000
2 12400
3 13250
4 14750
5 15220
6 18500

a. 12660
b. 13190
c. 14030
d. 15220
17. Using the actual demand shown in the table below, what is the forecast for May (accurate to 1 decimal)
using a 3-month weighted moving average and the weights 0.20, 0.35, 0.45 (with the heaviest weight
applied to the most recent period. Round to nearest whole number)?

Nov. Dec. Jan. Feb. Mar. Apr.

39 36 40 38 48 58

a. 51
b. 56
c. 62
d. 68

18. Given the following information, calculate the forecast (round to nearest whole number) for period
three using exponential smoothing and α = 0.4.

Period Demand Forecast

1 64 59
2 70

a. 60
b. 65
c. 68
d. 71

19. The smoothing constant for exponential smoothing must be?

a. Positive
b. Negative
c. Between 0 and 1
d. Greater than 1

20. A positive error implies that a forecast was?

a. Too low
b. Too high
c. Neither too high or too low
d. The sign of an error gives no information as to the direction of the error

21. A forecast tracking signal is used to determine:

a. If the product has shipped on time

b. The location of the current shipment
c. The price to charge for the product
d. If the forecast bias is within the acceptable control limits

22. The formula for the forecast error, is calculated by using the equation:
a. Actual demand for period t minus the forecasted demand for period t
b. Actual demand for period t divided by the forecasted demand for period t
c. Actual demand for period t plus the forecasted demand for period t
d. The average of Actual demand for period t and forecasted demand for period t

23. What is considered an acceptable range for a tracking signal?

a. ±1
b. ±2
 c. ±3
d. ±10

24. A forecasting method has produced the following data over the past 5 months shown in the data set.
What is the mean absolute deviation (accurate to 1 decimals)?

Month Actual Forecast

1 12 11
2 13 10
3 10 8
4 11 6
5 9 8

a.
10.0
b.
−1.2
c. 2.0
d. 2.4

25. Based on the information in the data set below, what is the mean squared error (accurate to 1 decimal)?

Month Actual Forecast

1 12 11
2 13 10
3 10 8
4 11 6
5 9 8

a. 8.0
b. 10.0
c. 1.00
d. 0.8

26. The real value of Collaborative Planning, Forecasting and Replenishment (CPFR) comes from:
a. Sophisticated forecasting algorithms
b. Exchange of forecasting information
c. Both A and B
d. None of the above

27. What does the acronym CPFR represent?

a. Coordinated planning and forecasting relationships
b. Collaborative planning, forecasting, and replenishment
c. Centralized purchasing and forecasting relationships
d. Collaborative purchasing, forecasting, and receivables

28. According to the textbook, the top three challenges for CPFR implementation include all of the
following EXCEPT:
a. Making organizational and procedural changes
b. Trust between supply chain partners
 c. Cost
d. Supplier lead times

29. Which of the following is a benefit of CPFR?

a. Provides an analysis of key performance metrics
b. Integrates planning, forecasting and logistics activities
c. Uses joint planning and promotions management
d. All of the above

30. Which of the following is a major cultural issue and big hurdle for widespread implementation of
CPFR?
a. There is no software available to use
b. Global economic changes
c. Trust
d. All of the above

SHORT ANSWER

1. List and Explain two types of qualitative forecasting methods.

a) Phương pháp Delphi (phương pháp chuyên gia)
- Nội dung:
+ Dự báo được xây dựng trên ý kiến của các chuyên gia trong hoặc ngoài doanh nghiệp.
+ Thành phần tham gia thực hiện: Những người ra quyết định; Các chuyên gia để xin ý kiến; cá nhân viên
điều phối.
- Ưu điểm: Nhanh chóng, tiết kiệm chi phí, ý kiến sâu sắc từ chuyên gia
- Nhược điểm: Ý kiến đôi khi không công bằng, thiên vị, chủ quan.
- Các bước thực hiện phương pháp Delphi
+ Thành lập ban ra quyết định và nhóm điều phối viên
+ Xác định mục đích, nhiệm vụ, phạm vi và thời gian dự báo Chọn chuyên gia để xin ý kiến → Khó để
chọn chuyên gia
+ Xây dựng bản câu hỏi điều tra, gửi chuyên gia (lần 1)
+ Nhận, phân tích, tổng hợp câu trả lời
+ Viết lại bản câu hỏi cho phù hợp, gửi chuyên gia (lần 2)
+ Tiếp tục nhận - tổng hợp - phân tích - làm mới - gửi
+ Thực hiện các bước 6-7 và chỉ dừng lại khi kết quả dự báo thoả mãn yêu cầu và mục đích đề ra → Hỏi
đến khi không ra được yếu tố mới nữa
b) Tổng hợp ý kiến người bán
- Nội dung: Nhân viên bán hàng sẽ đưa ra dự tính về số lượng hàng bán trong tương lai ở lĩnh vực mình
phụ trách
→ Vì người bán hàng sẽ nắm vững về doanh thu ở lĩnh vực mình phụ trách
 - Ưu điểm: Con số dự báo về doanh thu khá chính xác, đồng thời người bán hàng nắm vững về nhu cầu,
tính cách của khách hàng.
- Nhược điểm: Người bán hàng chỉ nắm về lĩnh vực họ phụ trách
2. List FOUR benefits that can be achieved by implementing a successful CPFR program.
- Cung cấp các phân tích về bán hàng và dự báo đặt hàng
- Giảm chi phí tồn kho, chi phí logistics,
- Tăng khả năng cung cấp hàng, tăng doanh thu bán hàng
- Tăng sự hài lòng khách hàng, cung cấp dịch vụ khách hàng tốt, củng cố quan hệ đối tác