Supply Chain Management Operations & Supply Chain Management 5 — Questions and Answers
Question 1: A retailer notices that small fluctuations in end-customer demand create increasingly large order swings upstream in the supply chain. This is called:
- The hockey-stick effect
- The bullwhip effect (Correct answer)
- Demand amplification variance
- Inventory oscillation
Correct answer: The bullwhip effect
The bullwhip effect describes how demand variability amplifies as it moves upstream through a supply chain, causing excessive inventory swings at each tier.
Question 2: Which global trade term (Incoterm) means the seller delivers goods to a named port and pays for export clearance and ocean freight, but the buyer assumes risk once goods are loaded on the vessel?
- EXW (Ex Works)
- FOB (Free On Board) (Correct answer)
- DDP (Delivered Duty Paid)
- CIF (Cost, Insurance, and Freight)
Correct answer: FOB (Free On Board)
Under FOB, the seller is responsible until goods pass the ship's rail at the named port of shipment; risk and cost then transfer to the buyer.
Question 3: A Six Sigma project reduces defects from 6,210 DPMO to 233 DPMO. What sigma level has the process reached?
- Three sigma
- Four sigma
- Five sigma
- Six sigma (Correct answer)
Correct answer: Six sigma
Six sigma performance corresponds to approximately 3.4 DPMO, but the widely cited 233 DPMO is closer to five sigma; 3.4 DPMO defines true six sigma.
Question 4: Which cost category includes expenses such as obsolescence, storage space, insurance, and capital tied up in inventory?
- Ordering costs
- Stockout costs
- Carrying (holding) costs (Correct answer)
- Setup costs
Correct answer: Carrying (holding) costs
Carrying costs (holding costs) encompass all costs associated with holding inventory, including capital cost, storage, insurance, deterioration, and obsolescence.
Question 5: In supply chain sustainability, 'reverse logistics' specifically refers to:
- Sourcing raw materials from local suppliers
- The flow of products from customers back through the supply chain for return, repair, recycling, or disposal (Correct answer)
- Backward vertical integration into raw material extraction
- Shipping from distribution centers to retail stores
Correct answer: The flow of products from customers back through the supply chain for return, repair, recycling, or disposal
Reverse logistics manages the upstream movement of goods from end-users back to manufacturers or recyclers for recovery, refurbishment, or disposal.
Question 6: Master Production Schedule (MPS) serves as the primary input to which planning system?
- Enterprise Resource Planning (ERP)
- Material Requirements Planning (MRP) (Correct answer)
- Capacity Requirements Planning (CRP)
- Sales and Operations Planning (S&OP)
Correct answer: Material Requirements Planning (MRP)
The MPS feeds directly into MRP, which explodes it through the bill of materials to generate time-phased material requirements for components and raw materials.
Question 7: A company adopts a 'hub-and-spoke' distribution network. What is a primary advantage of this design?
- Eliminates the need for a central warehouse
- Consolidates shipments at hubs to achieve transportation economies of scale (Correct answer)
- Delivers goods directly from factory to every customer
- Reduces the total number of distribution facilities needed to zero
Correct answer: Consolidates shipments at hubs to achieve transportation economies of scale
Hub-and-spoke networks consolidate freight from many origins at central hubs, enabling full truckload or high-volume shipments that lower per-unit transportation costs.
Supply Chain Management Operations & Supply Chain Management 5
A retailer notices that small fluctuations in end-customer demand create increasingly large order swings upstream in the supply chain.
This is called: