Supply Chain Management Risk Management 5 — Questions and Answers
Question 1: What is the 'bullwhip effect' and how does it relate to supply chain risk?
- A quality defect that spreads through multiple production stages
- Demand signal amplification upstream that causes inventory and capacity distortions (Correct answer)
- A logistics delay caused by port congestion
- A contractual penalty for late deliveries
Correct answer: Demand signal amplification upstream that causes inventory and capacity distortions
The bullwhip effect occurs when small demand changes at the retail level are magnified into large order swings upstream, creating inventory and capacity risks throughout the chain.
Question 2: A company identifies that a new trade tariff will increase import costs by 25%. Which risk response is most appropriate?
- Ignore the tariff and maintain current sourcing
- Evaluate nearshoring, tariff engineering, or alternative sourcing options (Correct answer)
- Immediately pass all costs to customers
- Reduce product quality to offset cost increases
Correct answer: Evaluate nearshoring, tariff engineering, or alternative sourcing options
Proactively evaluating alternative sourcing, nearshoring, or supply chain redesign allows companies to mitigate the cost impact of tariffs before they fully materialize.
Question 3: Which framework is commonly used in supply chain risk management to model and analyze supply chain performance and resilience?
- Six Sigma DMAIC
- SCOR (Supply Chain Operations Reference) model (Correct answer)
- Balanced Scorecard
- Porter's Five Forces
Correct answer: SCOR (Supply Chain Operations Reference) model
The SCOR model provides a standardized framework for analyzing supply chain processes, performance metrics, and risk factors across Plan, Source, Make, Deliver, and Return functions.
Question 4: What is 'lead time risk' in supply chain management?
- The risk that market demand exceeds supply capacity
- The risk that procurement or production lead times exceed acceptable customer delivery windows (Correct answer)
- The risk of losing a key account executive
- The risk of pricing errors in purchase orders
Correct answer: The risk that procurement or production lead times exceed acceptable customer delivery windows
Lead time risk occurs when unexpected delays in procurement or production extend beyond the time customers are willing to wait, potentially causing lost sales or service failures.
Question 5: A supply chain manager conducts a 'tabletop exercise' for a pandemic scenario. What is the primary goal?
- To test the physical capabilities of warehouse staff
- To walk through response procedures in a simulated disruption to identify gaps in the plan (Correct answer)
- To calculate the financial cost of the pandemic impact
- To train employees on new software systems
Correct answer: To walk through response procedures in a simulated disruption to identify gaps in the plan
Tabletop exercises simulate disruption scenarios in a discussion-based format to test business continuity plans and identify weaknesses before a real event occurs.
Question 6: Which supplier evaluation practice helps identify financial instability risks before they disrupt supply?
- Conducting annual on-site quality audits only
- Monitoring supplier financial health through credit ratings, financial statements, and news alerts (Correct answer)
- Requiring suppliers to hold more safety stock
- Issuing long-term fixed-price contracts to all suppliers
Correct answer: Monitoring supplier financial health through credit ratings, financial statements, and news alerts
Ongoing financial monitoring of suppliers through credit scores, balance sheets, and industry news helps detect early warning signs of insolvency or distress.
Question 7: What distinguishes 'risk mitigation' from 'risk contingency' in supply chain planning?
- Mitigation reduces risk probability or impact before an event; contingency is a pre-planned response activated after an event occurs (Correct answer)
- Mitigation is reactive while contingency is proactive
- Mitigation applies only to demand risks; contingency applies to supply risks
- Mitigation eliminates all risks; contingency manages remaining risks
Correct answer: Mitigation reduces risk probability or impact before an event; contingency is a pre-planned response activated after an event occurs
Mitigation actions reduce the likelihood or severity of risks proactively, while contingency plans are pre-designed response actions triggered once a disruption actually materializes.
Supply Chain Management Risk Management 5
What is the 'bullwhip effect' and how does it relate to supply chain risk?