SCM 421 EXAM 1 (Ch. 1-6) QUESTIONS AND
ANSWERS 100% CORRECT
CH.1.3 What are retail chains big enough to buy directly from manufacturers called? -
ANSWER National accounts
CH.1.3 What are the six processes of the SCOR model? - ANSWER Plan, Source, Make,
Deliver, Return, Enable
CH.1.3 Which one of the seven "rights" of purchasing is the most important? - ANSWER
Purchasing the RIGHT supplier
CH.1.3 (T/F) Your goal as a purchasing professional should always be to get the lowest
possible price? - ANSWER FALSE
CH.1.3 What is the total cost of buying, using, and disposing of an item called? -
ANSWER Total Cost of Ownership
CH1.4 (T/F) Purchasing has always been considered a strategic, value-added function. -
ANSWER FALSE
CH.1.4 During WWII, there was an increased emphasis on purchasing's importance due
to what? - ANSWER Material shortages
CH.1.4 What is one trend that has helped to make purchasing more strategic? -
ANSWER Outsourcing
CH.1.4 What does to mean to say "organizational boundaries are blurred" from a
purchasing perspective? - ANSWER Suppliers provide innovation, not just goods and
services
CH.1.5 Purchase inputs make up about what % of COGS? - ANSWER Purchased inputs
are about 60-80% of COGS
CH.1.5 (T/F) Purchased goods and services are typically a firm's largest cost category. -
ANSWER TRUE
CH.1.6 (T/F) A dollar saved in purchasing nearly always has a greater impact on profit
than an additional dollar of sales revenue. - ANSWER TRUE
CH.1.6 What does the profit-leverage effect measure? - ANSWER It measures the
amount of sales needed to have the equivalent profit impact as a dollar of costs savings.
CH.1.6 If costs are 80% of sales (and profit is 20%), what is the amount of extra sales
needed to equal $1,500 in profit from purchasing cost savings efforts? - ANSWER $7,500
( .2 = 7500 )
,CH.1.6 Where does every dollar saved in purchasing go straight to? - ANSWER Net
Profit
CH.1.6 What do purchasing cost reduction efforts tend to reduce? - ANSWER COGS
CH.1.7 What is the return on assets (ROA) formula? - ANSWER Profit Margin x Asset
Turnover
CH.1.7 What is ROA if profit margin is 5% and asset turnover is 1.7? - ANSWER 8.5 ( 1.7 x
5 = 8.5 )
CH.1.7 (T/F) On the strategic profit model, purchasing can only impact operating costs
and taxes. - ANSWER FALSE
CH.1.7 (T/F) Sales personnel have no ability to impact the strategic profit model. -
ANSWER FALSE
CH.1.7 What is purchasing's primary impact on the income statement (upper) portion of
the strategic profit model? - ANSWER COGS
CH.1.11 Purchasers need to pay close attention to the price and quality of which
purchased inputs? - ANSWER Those inputs that directly affect the customer's
experience
CH.2.3 (T/F) Not all buys are created equal; you should spend more time and effort on
some purchases than others. - ANSWER TRUE
CH.2.3 Category is of high importance but low market complexity. - ANSWER Leverage
CH.2.3 Category is of low importance but high market complexity. - ANSWER Bottleneck
CH.2.3 (T/F) As a purchasing professional you should spend a lot of time managing
routine buys. - ANSWER FALSE
CH.2.4 (T/F) Capital goods are small, frequently purchased, low-dollar buys. - ANSWER
FALSE
CH.2.4 Why should purchasing personnel pay better attention to MRO purchases? -
ANSWER When combined, MRO purchases often represent a large dollar spend.
CH.2.4 What is one challenge in buying capital goods? - ANSWER You often need to
speak "engineering" to understand complex specifications
, CH.2.4 Why can services be challenging to buy? - ANSWER They are intangible,
It's hard to evaluate quality,
They are hard to classify - can be direct or indirect
CH.2.5 What is unauthorized buying by non-purchasing personnel called? - ANSWER
Maverick spending
CH.2.5 (T/F) Buying a larger quantity than you need to get a price break might cause
additional problems, so do this with caution. - ANSWER TRUE
CH.2.5 What is purchasing price variance? - ANSWER The price difference between the
amount that you pay a supplier to buy a product and the budgeted price.
CH.2.5 How does purchasing add value to operations? - ANSWER It lowers costs by
choosing suppliers with reasonable prices and high quality.
CH.2.5 What happens in sales & operations planning? - ANSWER Diverse functions
come together to forecast how much the company will sell, and how much it needs to
make.
CH.2.6
(T/F) The purchasing process consists of 4 key steps:
1. Need communication
2. Supplier selection
3. Transaction management
4. Relationship management - ANSWER TRUE
CH.2.6 How do internal customers formally communicate their needs to purchasing? -
ANSWER Through a purchase requisition.
ANSWERS 100% CORRECT
CH.1.3 What are retail chains big enough to buy directly from manufacturers called? -
ANSWER National accounts
CH.1.3 What are the six processes of the SCOR model? - ANSWER Plan, Source, Make,
Deliver, Return, Enable
CH.1.3 Which one of the seven "rights" of purchasing is the most important? - ANSWER
Purchasing the RIGHT supplier
CH.1.3 (T/F) Your goal as a purchasing professional should always be to get the lowest
possible price? - ANSWER FALSE
CH.1.3 What is the total cost of buying, using, and disposing of an item called? -
ANSWER Total Cost of Ownership
CH1.4 (T/F) Purchasing has always been considered a strategic, value-added function. -
ANSWER FALSE
CH.1.4 During WWII, there was an increased emphasis on purchasing's importance due
to what? - ANSWER Material shortages
CH.1.4 What is one trend that has helped to make purchasing more strategic? -
ANSWER Outsourcing
CH.1.4 What does to mean to say "organizational boundaries are blurred" from a
purchasing perspective? - ANSWER Suppliers provide innovation, not just goods and
services
CH.1.5 Purchase inputs make up about what % of COGS? - ANSWER Purchased inputs
are about 60-80% of COGS
CH.1.5 (T/F) Purchased goods and services are typically a firm's largest cost category. -
ANSWER TRUE
CH.1.6 (T/F) A dollar saved in purchasing nearly always has a greater impact on profit
than an additional dollar of sales revenue. - ANSWER TRUE
CH.1.6 What does the profit-leverage effect measure? - ANSWER It measures the
amount of sales needed to have the equivalent profit impact as a dollar of costs savings.
CH.1.6 If costs are 80% of sales (and profit is 20%), what is the amount of extra sales
needed to equal $1,500 in profit from purchasing cost savings efforts? - ANSWER $7,500
( .2 = 7500 )
,CH.1.6 Where does every dollar saved in purchasing go straight to? - ANSWER Net
Profit
CH.1.6 What do purchasing cost reduction efforts tend to reduce? - ANSWER COGS
CH.1.7 What is the return on assets (ROA) formula? - ANSWER Profit Margin x Asset
Turnover
CH.1.7 What is ROA if profit margin is 5% and asset turnover is 1.7? - ANSWER 8.5 ( 1.7 x
5 = 8.5 )
CH.1.7 (T/F) On the strategic profit model, purchasing can only impact operating costs
and taxes. - ANSWER FALSE
CH.1.7 (T/F) Sales personnel have no ability to impact the strategic profit model. -
ANSWER FALSE
CH.1.7 What is purchasing's primary impact on the income statement (upper) portion of
the strategic profit model? - ANSWER COGS
CH.1.11 Purchasers need to pay close attention to the price and quality of which
purchased inputs? - ANSWER Those inputs that directly affect the customer's
experience
CH.2.3 (T/F) Not all buys are created equal; you should spend more time and effort on
some purchases than others. - ANSWER TRUE
CH.2.3 Category is of high importance but low market complexity. - ANSWER Leverage
CH.2.3 Category is of low importance but high market complexity. - ANSWER Bottleneck
CH.2.3 (T/F) As a purchasing professional you should spend a lot of time managing
routine buys. - ANSWER FALSE
CH.2.4 (T/F) Capital goods are small, frequently purchased, low-dollar buys. - ANSWER
FALSE
CH.2.4 Why should purchasing personnel pay better attention to MRO purchases? -
ANSWER When combined, MRO purchases often represent a large dollar spend.
CH.2.4 What is one challenge in buying capital goods? - ANSWER You often need to
speak "engineering" to understand complex specifications
, CH.2.4 Why can services be challenging to buy? - ANSWER They are intangible,
It's hard to evaluate quality,
They are hard to classify - can be direct or indirect
CH.2.5 What is unauthorized buying by non-purchasing personnel called? - ANSWER
Maverick spending
CH.2.5 (T/F) Buying a larger quantity than you need to get a price break might cause
additional problems, so do this with caution. - ANSWER TRUE
CH.2.5 What is purchasing price variance? - ANSWER The price difference between the
amount that you pay a supplier to buy a product and the budgeted price.
CH.2.5 How does purchasing add value to operations? - ANSWER It lowers costs by
choosing suppliers with reasonable prices and high quality.
CH.2.5 What happens in sales & operations planning? - ANSWER Diverse functions
come together to forecast how much the company will sell, and how much it needs to
make.
CH.2.6
(T/F) The purchasing process consists of 4 key steps:
1. Need communication
2. Supplier selection
3. Transaction management
4. Relationship management - ANSWER TRUE
CH.2.6 How do internal customers formally communicate their needs to purchasing? -
ANSWER Through a purchase requisition.
