CPIM Supply Chain Strategy 3 — Questions and Answers
Question 1: Vertical integration in a supply chain strategy means a company:
- Partners with competitors to share distribution networks
- Owns multiple stages of the supply chain internally (Correct answer)
- Outsources all non-core activities to third parties
- Sells products through multiple channel tiers
Correct answer: Owns multiple stages of the supply chain internally
Vertical integration means a company controls multiple supply chain stages—from raw material to distribution—within its own organizational boundaries.
Question 2: The bullwhip effect in supply chains is primarily caused by:
- Excess production capacity at manufacturing facilities
- Demand signal distortion amplifying upstream order variability (Correct answer)
- Poor quality control at supplier facilities
- High transportation costs between supply chain nodes
Correct answer: Demand signal distortion amplifying upstream order variability
The bullwhip effect occurs when small demand fluctuations at the retail level get amplified into large order swings as information moves upstream.
Question 3: Which supply chain strategy aligns best with 'innovative' products characterized by high demand uncertainty?
- Efficient supply chain focused on cost minimization
- Responsive supply chain emphasizing flexibility and speed (Correct answer)
- Lean supply chain eliminating all waste
- Stable supply chain with long-term fixed contracts
Correct answer: Responsive supply chain emphasizing flexibility and speed
Fisher's framework recommends a responsive supply chain for innovative products because flexibility to match unpredictable demand is more valuable than cost efficiency.
Question 4: Total cost of ownership (TCO) analysis in supplier selection differs from price-only analysis because it:
- Focuses exclusively on transportation and logistics costs
- Includes all costs associated with acquiring and using the product over its life (Correct answer)
- Evaluates only the supplier's production quality scores
- Compares prices across multiple currencies
Correct answer: Includes all costs associated with acquiring and using the product over its life
TCO captures all direct and indirect costs—purchase price, freight, quality defect costs, service costs—providing a more complete supplier comparison.
Question 5: A company with a make-to-stock strategy should primarily use which demand signal to drive production planning?
- Confirmed customer orders only
- Statistical demand forecasts (Correct answer)
- Supplier lead time data
- Competitor pricing information
Correct answer: Statistical demand forecasts
Make-to-stock production is driven by forecasts because goods are produced in anticipation of demand before orders are received.
Question 6: Supply chain segmentation involves:
- Dividing the supplier base by geographic region only
- Applying different supply chain strategies to different product/customer groups (Correct answer)
- Splitting inventory equally across all distribution centers
- Separating inbound and outbound logistics into independent teams
Correct answer: Applying different supply chain strategies to different product/customer groups
Segmentation recognizes that different products or customers require different supply chain approaches and tailors strategies accordingly.
Question 7: Which of the following is a key benefit of supply chain visibility tools?
- Eliminating the need for safety stock entirely
- Enabling proactive risk response by detecting disruptions earlier (Correct answer)
- Reducing product design complexity
- Automating supplier contract negotiations
Correct answer: Enabling proactive risk response by detecting disruptions earlier
Real-time visibility allows supply chain managers to detect problems early and respond proactively before disruptions escalate.
CPIM Supply Chain Strategy 3
Vertical integration in a supply chain strategy means a company: