CPM Procurement & JIT Inventory 3 — Questions and Answers
Question 1: A plant using JIT experiences a supplier quality failure that halts the production line. What does this event reveal about the JIT implementation?
- Safety stock levels were too high
- The pull system was not properly configured
- Supplier qualification and quality assurance processes were inadequate (Correct answer)
- The kanban system had too many cards in circulation
Correct answer: Supplier qualification and quality assurance processes were inadequate
JIT's lack of buffer inventory amplifies the impact of supplier quality failures, exposing weaknesses in upstream supplier qualification and quality controls.
Question 2: What is the primary purpose of a supplier scorecard in procurement management?
- To negotiate lower prices during contract renewals
- To objectively measure and track supplier performance across key criteria (Correct answer)
- To document supplier payment terms and conditions
- To rank suppliers by geographical proximity
Correct answer: To objectively measure and track supplier performance across key criteria
Supplier scorecards provide a structured, data-driven method to evaluate and track performance on quality, delivery, cost, and responsiveness over time.
Question 3: In supply chain management, what does 'demand amplification' (the bullwhip effect) result from?
- Excess manufacturing capacity at the plant level
- Small demand fluctuations that cause increasingly larger order swings upstream (Correct answer)
- Seasonal demand peaks aligned across all supply chain tiers
- Overproduction driven by high machine efficiency
Correct answer: Small demand fluctuations that cause increasingly larger order swings upstream
The bullwhip effect occurs when small consumer demand changes are progressively amplified into larger order variability as they move upstream through the supply chain.
Question 4: Which procurement approach best supports a lean manufacturing environment?
- Annual bulk purchasing to maximize volume discounts
- Frequent small-lot deliveries synchronized with production schedules (Correct answer)
- Maintaining large safety stocks to prevent stockouts
- Centralizing all purchasing decisions at corporate headquarters
Correct answer: Frequent small-lot deliveries synchronized with production schedules
Lean manufacturing requires frequent, small deliveries timed to production needs to minimize inventory while ensuring continuous supply.
Question 5: A plant negotiates a 2% early payment discount (net 30, 2/10). What is the annualized cost of NOT taking this discount?
- Approximately 12%
- Approximately 24%
- Approximately 36% (Correct answer)
- Approximately 48%
Correct answer: Approximately 36%
Using the formula: (2/98) × (360/20) ≈ 36.7%, forgoing a 2/10 net 30 discount carries roughly a 36% annualized cost of capital.
Question 6: What distinguishes a strategic supplier from a transactional supplier in a procurement portfolio?
- Strategic suppliers are always the lowest-cost option
- Strategic suppliers provide critical inputs where switching costs and supply risk are high (Correct answer)
- Transactional suppliers require long-term contracts
- Strategic suppliers are located domestically while transactional suppliers are offshore
Correct answer: Strategic suppliers provide critical inputs where switching costs and supply risk are high
Strategic suppliers provide items critical to operations with high switching costs or supply risk, warranting deeper relationships and collaboration.
Question 7: In a JIT pull system, production at each work center is triggered by:
- A master production schedule pushed from central planning
- A downstream signal indicating actual consumption or demand (Correct answer)
- A supervisor's daily production directive
- Inventory count falling below the reorder point
Correct answer: A downstream signal indicating actual consumption or demand
JIT pull systems use downstream consumption signals (like kanban) to authorize production upstream, preventing overproduction.
CPM Procurement & JIT Inventory 3
A plant using JIT experiences a supplier quality failure that halts the production line.
What does this event reveal about the JIT implementation?