12 - Chap016

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Global Production, Outsourcing, and Logistics

True / False Questions True / False Questions

1. Production denotes both service and manufacturing activities. 1. Production denotes both service and manufacturing activities. True alse

True alse

!. "fficient suppl# chain management reduces the

!. "fficient suppl# chain management reduces the amount of inventor# in the s#stem andamount of inventor# in the s#stem and decreases the inventor#

decreases the inventor# turnover.turnover. True alse

True alse

$. The firm that improves %ualit# control &ill also reduce its costs of value creation. $. The firm that improves %ualit# control &ill also reduce its costs of value creation. True alse

True alse

'. ( firm can lo&er costs b# dispersing production to locations around the globe &here each '. ( firm can lo&er costs b# dispersing production to locations around the globe &here each activit# can be

activit# can be performed most efficientl#performed most efficientl#.. True alse

True alse

). The principle tool that most managers no

). The principle tool that most managers no& use to increase the reliabilit# of their product& use to increase the reliabilit# of their product offering is T*+.

offering is T*+. True alse True alse

6. The T*+ philosoph# &as first adopted b# the (merican companies 6. The T*+ philosoph# &as first adopted b# the (merican companies True alse

True alse

. ( statisticall# based philosoph# that aims to

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2. "uropean 3nion firms must compl# &ith /O 0

2. "uropean 3nion firms must compl# &ith /O 0 standards in their manufacturingstandards in their manufacturing processes and products before the# &ill be given access to the "uropean 3nion maret. processes and products before the# &ill be given access to the "uropean 3nion maret.

True alse True alse

0. Countr# factors, technological factors, and product

0. Countr# factors, technological factors, and product factors, all influence the decision offactors, all influence the decision of &here to produce.

&here to produce. True alse True alse

1. 4hen a currenc# depreciates, a lo&-cost location can be turned into a high-cost location. 1. 4hen a currenc# depreciates, a lo&-cost location can be turned into a high-cost location. True alse

True alse

11. ( r

11. ( relativel# high level of fi5ed costs can mae elativel# high level of fi5ed costs can mae it uneconomical to perform a particularit uneconomical to perform a particular activit# in several locations at once.

activit# in several locations at once. True alse

True alse

1!. The level of output

1!. The level of output at &hich most plant-level scale economies are e5hauat &hich most plant-level scale economies are e5hau sted is referred tosted is referred to as the minimum efficient scale of output.

as the minimum efficient scale of output. True alse

True alse

1$. (s a plant output e5pands, unit costs decrease. 1$. (s a plant output e5pands, unit costs decrease. True alse

True alse

1'. The smaller the minimum efficient scale of a plant relative to

1'. The smaller the minimum efficient scale of a plant relative to total global demand, thetotal global demand, the greater the argument for centraliing production in a single location

greater the argument for centraliing production in a single location or a limited number ofor a limited number of locations. locations. True alse True alse 16-! 16-!

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2. "uropean 3nion firms must compl# &ith /O 0

2. "uropean 3nion firms must compl# &ith /O 0 standards in their manufacturingstandards in their manufacturing processes and products before the# &ill be given access to the "uropean 3nion maret. processes and products before the# &ill be given access to the "uropean 3nion maret.

True alse True alse

0. Countr# factors, technological factors, and product

0. Countr# factors, technological factors, and product factors, all influence the decision offactors, all influence the decision of &here to produce.

&here to produce. True alse True alse

1. 4hen a currenc# depreciates, a lo&-cost location can be turned into a high-cost location. 1. 4hen a currenc# depreciates, a lo&-cost location can be turned into a high-cost location. True alse

True alse

11. ( r

11. ( relativel# high level of fi5ed costs can mae elativel# high level of fi5ed costs can mae it uneconomical to perform a particularit uneconomical to perform a particular activit# in several locations at once.

activit# in several locations at once. True alse

True alse

1!. The level of output

1!. The level of output at &hich most plant-level scale economies are e5hauat &hich most plant-level scale economies are e5hau sted is referred tosted is referred to as the minimum efficient scale of output.

as the minimum efficient scale of output. True alse

True alse

1$. (s a plant output e5pands, unit costs decrease. 1$. (s a plant output e5pands, unit costs decrease. True alse

True alse

1'. The smaller the minimum efficient scale of a plant relative to

1'. The smaller the minimum efficient scale of a plant relative to total global demand, thetotal global demand, the greater the argument for centraliing production in a single location

greater the argument for centraliing production in a single location or a limited number ofor a limited number of locations.

locations. True alse True alse

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1). Producing greater product variet# from

1). Producing greater product variet# from a factor# implies longer production runs.a factor# implies longer production runs. True alse

True alse

16. Lean production is another

16. Lean production is another term for fle5ible manufacturing technolog#.term for fle5ible manufacturing technolog#. True alse

True alse

1. +ass customiation describes the abilit# of companies to use

1. +ass customiation describes the abilit# of companies to use fle5ible manufacturingfle5ible manufacturing technolog# to reconcile lo& cost and product customiation.

technolog# to reconcile lo& cost and product customiation. True alse

True alse

12. ( grouping of various t#pes of machiner#, a common materials handler, and a centralied 12. ( grouping of various t#pes of machiner#, a common materials handler, and a centralied cell controller is a fle5ible machine cell.

cell controller is a fle5ible machine cell. True alse

True alse

10. le5ible manufacturing technologies can

10. le5ible manufacturing technologies can help a firm improve efficienc#, lo&er costs, andhelp a firm improve efficienc#, lo&er costs, and customie products to small marets.

customie products to small marets. True alse

True alse

!. ( product7s value-to-&eight ratio affects the firm7s transportation costs. !. ( product7s value-to-&eight ratio affects the firm7s transportation costs. True alse

True alse

!1. 8ecause of the lo& value-to &eight ratio of man# pharmaceutical and electronics !1. 8ecause of the lo& value-to &eight ratio of man# pharmaceutical and electronics products, there is great pressure to produce these products in the optimal locati

products, there is great pressure to produce these products in the optimal location and serveon and serve the &orld from there.

the &orld from there. True alse

True alse

16-$ 16-$

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!!. Concentrating production at an optimal location is more attractive &hen a product serves universal needs.

True alse

!$. Concentration of production maes most sense &hen trade barriers are high. True alse

!'. 9ecentraliation of production is appropriate &hen the product serves universal needs. True alse

!). 9ecentraliation of production is appropriate &hen the product7s value-to-&eight is lo&. True alse

!6. ( ma:or aspect of a transnational strateg# is a belief in the idea that valuable no&ledge does not reside :ust in a firm7s domestic operations.

True alse

!. The mae-or-bu# decision involves deciding &hether a firm should mae or bu# the component parts that go into the final product.

True alse

!2. ;istoricall#, most outsourcing decisions have involved the manufacture of service products.

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$. ( firm that has integrated horiontall# is maing all or part of a product in-house. True alse

$1. 4hen one firm invests in specialied assets to suppl# another, mutual dependenc# is created.

True alse

$!. 4hen substantial investments in specialied assets are re%uired to manufacture a component, the firm &ill prefer to contract it out to a supplier.

True alse

$$. The greatest advantage of bu#ing component parts from independent suppliers is that the firm can maintain its strategic fle5ibilit#.

True alse

$'. 4hen political ris is high, sourcing products from independ ent suppliers can be advantageous.

True alse

$). ncentive problems that occur &ith independent suppliers do not arise &ith internal suppliers.

True alse

$6. ssues of strategic fle5ibilit# and organiational control are greater for purel# domestic businesses than for international ones.

True alse

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$. /trategic alliances can effectivel# limit a firm7s strategic fle5ibilit#. True alse

$2. ( C(9<C(+ s#stem allo&s the firm to economie on inventor# holding costs b# ha ving materials arrive at a manufacturing plant :ust in time to enter the production process and not before.

True alse

$0. 3nder a =T s#stem, products are briefl# &arehoused before entering the manufacturing process.

True alse

'. irms use "9 to coordinate the flo& of materials into manufacturing, through manufacturing, and out to customers.

True alse

Multiple Choice Questions

'1. >>>>> is the activit# that controls the transportation of ph#sical materials through the value chain, from procurement through production and into distribution.

(. Outsourcing 8. Production C. Logistics 9. 9istribution

'!. >>>>> is a management philosoph# according to &hich mistaes, defects, and poor-%ualit# materials are not acceptable and should be eliminated.

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'$. The /i5 /igma methodolog#?

(. is a direct descendant of the total %ualit# management philosoph#. 8. is a direct descendant of benchmaring.

C. &as adopted first b# 8ritish companies and then =apanese companies during the 102s. 9. &as developed b# 9eming, =uran, and eigenbaum.

''. /aving time b# not producing poor-%ualit# products that cannot be sold, lo&ering re&or costs, lo&ering scrap costs, and lo&ering &arrant# costs are the intended results of?

(. total feature management. 8. reengineering.

C. logistics.

9. total %ualit# management.

'). 8efore a firm is allo&ed access to the "uropean maretplace, the "uropean 3nion re%uires that the %ualit# of the firm7s manufacturing processes and products be certified under a %ualit# standard no&n as?

(. total %ualit# management. 8. reengineering.

C. %ualit# management s#stem. 9. /O 0.

'6. The modern successor to T*+ is? (. Corporate *ualit# Commitment. 8. /O 0.

C. *ualit# Process @ealied. 9. /i5 /igma.

'. (t si5 sigma, a production process &ould be 00.00066 percent accurate, creating :ust >>>>>.

(. $.' defects per hundred thousand units 8. $.' defects per million units

C. $' defects per million units 9. 6.2 defects per million units

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'2. 4hich of the follo&ing statements about /i5 / igma is trueA (. t is a statisticall# based philosoph#.

8. t is easil# possible for a compan# to achieve /i5 /igma perfection.

C. (t si5 sigma, a production process &ill have 66 defects per million units. 9. (t si5 sigma, a production process &ould be 1 percent accurate.

'0. actors that help a firm decide &here to locate its manufacturing facilities can be best grouped under three broad headings. These are?

(. political factors, social factors, and legal factors.

8. countr# factors, technological factors, and product factors. C. product factors, service factors, and labor factors.

9. language factors, cultural factors, and transportation factors.

). The creation of a global &eb of value creation activities is the result of? (. location economies.

8. diseconomies of scale. C. shortage of silled labor. 9. informal trade barriers.

)1. dentif# the incorrect statement pertaining to e5change rate movements.

(. (dverse changes in e5change rates can %uicl# alter a countr#7s attractiveness as a manufacturing base.

8. Currenc# appreciation can transform a lo&-cost location into a high-cost location.

C. Currenc# appreciation can cause firms to move their manufacturing offshore to lo&er-cost locations.

9. ( lo&-cost location can be transformed into a high-cost location because of currenc# depreciation.

)!. 8eing too dependent on one location is particularl# ris# because of? (. floating e5change rates.

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)$. (ccording to the concept of economies of scale? (. as plant output reduces, unit costs decrease. 8. as plant output e5pands, unit costs increase. C. as plant output reduces, unit costs remain static. 9. as plant output e5pands, unit costs decrease.

)'. dentif# an advantage of a lo& minimum efficient scale.

(. (llo&s the firm to accommodate demands for local responsiveness 8. 9iscounts currenc# ris b# manufacturing all products in one location C. ;elps eep overheads lo& at the e5pense of fi5ed costs

9. ;elps a firm to standardie its products for all marets

)). ( compan# that &ants to reduce set-up time for comple5 e%uipment, increase the

utiliation of individual machines through better scheduling, and improve %ualit# control at all stages of the manufacturing process should adopt?

(. standardiation.

8. diseconomies of scale.

C. fle5ible machine technolog#. 9. minimum efficient scale.

)6. The term >>>>> has been coined to describe the abilit# of companies to use fle5ible manufacturing technolog# to reconcile the goals of lo& cost and product customiation. (. assembl#-line-lie customiation

8. economies of customiation C. mass customiation

9. standardied customiation

). le5ible manufacturing technolog# is also no&n as? (. mass customiation.

8. lean production.

C. fle5ible machine cells. 9. minimum efficient scale.

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)2. (ccording to the concept of economies of scale &hat is the best &a# to achieve high efficienc# and lo& unit costsA

(. Customiing products for each individual maret 8. +ass producing standardied outputs

C. Concentrating on production of small volumes of products 9. ncreasing the product variet# dramaticall#

)0Bchoose. This allo&s the compan# to produce a &ider variet# of end products at a unit cost that at one time could be achieved onl# through the mass production of a standardied output. (. Daien

8. /i5 /igma

C. Lean production 9. T*+

6. >>>>> challenged the notion that the &a# to increase efficienc# and drive do&n unit costs is to limit product variet# and produce a standardied product in large volumes.

(. 8artlett and Ghoshal7s theor# of a transnational compan# 8. +inimum efficient scale

C. "conomies of scale

9. le5ible manufacturing technolog#

61. ( >>>>> is a grouping of various t#pes of machiner#, a common materials handler, and a centralied cell controller.

(. fle5ible machine cell 8. mass customiation polic# C. lean production s#stem

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6!. (ll of the follo&ing are the ma:or efficienc# benefits of fle5ible manufacturing technologies e5cept?

(. it enables companies to customie products to the demands of small consumer groups. 8. it helps a compan# achieve mass customiation, &hich increases its customer

responsiveness.

C. it re%uires firms to establish manufacturing facilities in each ma:or maret to provide products that satisf# specific consumer tastes and preferences.

9. it improves capacit# utiliation and reductions in &or in progress and &aste.

6$. 4hen a compan#7s product has a lo& value-to-&eight ratio, the compan# should? (. have a centralied manufacturing location.

8. produce the product in multiple locations close to ma:or marets. C. ignore transportation costs.

9. produce the product in one optimal location and serve the &orld from there.

6'. 4hich of the follo&ing statements about products &ith high value-to-&eight ratios is trueA

(. The# are relativel# ine5pensive and &eigh a lot. 8. The# are e5pensive and do not &eigh ver# much.

C. Transportation costs usuall# account for a large percentage of their total costs. 9. The# must be produced in multiple locations close to ma:or marets.

6). 4hich of the follo&ing is a characteristic of manufacturing technolog# that should be considered b# a firm contemplating international productionA

(. Trade barriers

8. Ealue-to-&eight ratio C. Level of fi5ed costs 9. "5change rates

66. ( compan# might consider decentraliing &hen? (. a product7s value-to-&eight ratio is high.

8. the product serves universal needs. C. trade barriers are lo&.

9. volatilit# in important e5change rates is e5pected.

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6. The concentration of production maes most sense &hen? (. volatilit# in important e5change rates is e5pected.

8. the product7s value-to-&eight ratio is high. C. location e5ternalities are not important. 9. trade barriers are high.

62. The concentration of production is favored &hen all of the follo&ing factors are high e5cept

(. fi5ed costs.

8. minimum efficient scale. C. value-to-&eight ratio. 9. trade barriers.

60. nitiall#, man# foreign factories are established &here >>>>> are lo&. (. trade barriers

8. inventor# turnover C. mareting costs 9. labor costs

. 9ecisions a firm must mae about &hether to perform a certain value creation activit# themselves, or outsource it to another entit# are best no&n as?

(. outsource potential decisions. 8. in-house potential decisions. C. mae-or-bu# decisions. 9. integration decisions.

1. 4hich of the follo&ing is not an argument that supports maing a product in-houseA (. Eertical integration ma# be associated &ith higher costs.

8. Eertical integration ma# protect proprietar# product technolog#.

C. Eertical integration ma# facilitate investment in highl# specialied assets. 9. Eertical integration ma# ease the scheduling of ad:acent processes.

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!. ( >>>>> is an asset &hose value is contingent u pon a particular relationship persisting. (. specialied asset

8. common asset

C. complementar# asset 9. supplementar# asset

$. ( firm &ill prefer to mae the component internall# rather than contract it out to a supplier, because of all of the follo&ing reasons e5cept?

(. it needs to maintain control over its proprietar# technolog#.

8. substantial investments in specialied assets are re%uired to manufacture a co mponent. C. the firm completel# trusts the independent supplier to p la# fair.

9. it runs the ris that suppliers &ill e5propriate the technolog# for their o&n use.

' Bchoose. ;o& can firms attain tight coordination bet&een different stages in the production processA

(. 8# using information technolog#

8. 8# lo&ering the costs of value creation C. 8# implementing /O 0

9. 8# minimum efficient scale of output

). 4hich of the follo&ing is not a reason to outsource productionA (. t can give the firm greater fle5ibilit#

8. t can mae planning, coordination, and scheduling of ad:acent processes easier C. t can help drive do&n the firm7s cost structure

9. t ma# help the firm capture orders from international customers

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6. (n advantage of bu#ing component parts, or even an entire product, from independent suppliers is that?

(. the firm can maintain its fle5ibilit# of s&itching orders bet&een suppliers as circumstances dictate.

8. it can mae planning, coordination, and scheduling of ad:acent processes easier for the firm.

C. it reduces the ris for the firm that suppliers &ill e5propriate the technolog# for their o&n use.

9. the firm is able to maintain firm control over its proprietar# technolog#.

. Eertical integration ma# raise a firm7s cost structure for all of the follo&ing reasons e5cept?

(. the greater the number of subunits in an organiation, the more problems coordinating and controlling those units.

8. the firm that verticall# integrates into component part manufacturing ma# find that because its internal suppliers have an active customer, the# lac the motivation to be more efficient. C. verticall# integrated firms have to determine appropriate prices for good s transferred to subunits &ithin the firm.

9. it maes planning, coordination, and scheduling of ad:acent processes more difficult, as compared to bu#ing from independent suppliers, particularl# &ith :ust-in-time inventor# s#stems.

2. The ma:or costs saving associated &ith =T comes from? (. speeding up inventor# turnover.

8. having materials arrive at a manufacturing plant before the# are needed. C. avoiding production slo&do&ns b# ensuring inven tor# is stocpiled. 9. using &arehouse space to maintain on-hand inventor#.

0. =ust-in-time inventor# s#stems?

(. can help firms improve product %ualit#. 8. are fast becoming obsolete.

C. re%uire that parts be &arehoused. 9. give firms a buffer stoc of inventor#.

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2. 4hich of the follo&ing is a dra&bac associated &ith a =T s#stemA (. There are high transportation costs involved

8. t leaves a firm &ithout a buffer stoc of inventor#

C. t leaves a firm &ith scrap costs associated &ith defective p roducts 9. t increases the &arrant# costs

21. 4ith >>>>>, suppliers, shippers, and the purchasing firm can communicate &ith each other &ith no time dela#.

(. a C(9 s#stem 8. a =T s#stem C. a C(+ s#stem 9. an "9 s#stem

Essa Questions

2!. 4hat are the five interrelated issues confronting a firm as trade barriers fall and global marets developA

2$. 4hat is logisticsA 9iscuss the relationship bet&een production and logistics.

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2'. 9iscuss the strategic ob:ectives of the production and logistics functions of an international firm.

2). 4hat is the principle tool used b# most managers to increase the reliabilit# of their product offeringA

26. 4hat does /i5 /igma refer toA

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22. 9escribe the "uropean 3nion7s efforts to raise product %ualit#. n #our opinion, does the effort represent a trade barrierA

20. 4hat are the three main factors that affect the decision of &here to locate productionA

0. 9iscuss the effect of countr# factors on the decision of &here to locate productionA

01. 4hat is meant b# minimum efficient scaleA 9iscuss the implications of minimum efficient scale.

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0!. ;o& does the t#pe of technolog# a firm uses affect its decision of &here to locate productionA

0$. 4hat is mass customiationA

0'. ;o& do fle5ible machine cells &orA 4hat is the advantage of incorporating this t#pe o f technolog# into a strateg#A

0). "5plain ho& the concept of production efficienc# has changed &ith the rise of fle5ible manufacturing technologies.

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06. ;o& do product factors affect the decision of &here to locate productionA /uppose #our firm produces refined sugar. 4here should #our firm locate productionA

0. 4hen does concentration of production mae senseA

02. "5plain ho& the role of foreign factories evolves over time.

00. 4h# should a firm consider vertical integration as opposed to simpl# outsourcing the component parts that go into its final productA 4hat are the advantages of maing a product in-houseA

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1. "5plain &h# a firm might adopt the :ust-in-time s#stem. 4h# might a firm choose a different inventor# s#stemA

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Chapter 16 Global Production, Outsourcing, and Logistics (ns&er De#

True / False Questions

1. (p. 544) Production denotes both service and manufacturing activities.

T!"E

AACSB: Analytic Skills Bloom's: Knowledge Difficlty: !asy

"ea#ning $%&ectie: *+

!. (p. 545) "fficient suppl# chain management reduces the amount of inventor# in the s#stem

and decreases the inventor# turnover. F#L$E

AACSB: ,ale C#eation Bloom's: Comp#e-ension Difficlty: edim "ea#ning $%&ectie: *+

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$. (p. 545) The firm that improves %ualit# control &ill also reduce its costs of value creation.

T!"E

'. (p. 544*545) ( firm can lo&er costs b# dispersing production to locations around the globe

&here each activit# can be performed most efficientl#. T!"E

AACSB: ,ale C#eation Bloom's: Knowledge Difficlty: edim "ea#ning $%&ectie: *+

). (p. 545) The principle tool that most managers no& use to increase the reliabilit# of their

product offering is T*+. F#L$E

AACSB: Analytic Skills Bloom's: Knowledge Difficlty: edim "ea#ning $%&ectie: *+

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6. (p. 545) The T*+ philosoph# &as first adopted b# the (merican companies

F#L$E

. (p. 54) ( statisticall# based philosoph# that aims to reduce defects, boost productivit#,

eliminate &aste, and cut costs throughout a compan# is no&n as /O 0. F#L$E

2. (p. 54) "uropean 3nion firms must compl# &ith /O 0 standards in their manufacturing

processes and products before the# &ill be given access to the "uropean 3nion maret. T!"E

AACSB: Analytic Skills Bloom's: Comp#e-ension Difficlty: edim "ea#ning $%&ectie: *+

0. (p. 54/) Countr# factors, technological factors, and product factors, all influence the decision

of &here to produce. T!"E

AACSB: 0eflectie 1-inking Skills Bloom's: Comp#e-ension

Difficlty: edim "ea#ning $%&ectie: *+2

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1. (p. 54/) 4hen a currenc# depreciates, a lo&-cost location can be turned into a high-cost

location. F#L$E

11. (p. 543) ( relativel# high level of fi5ed costs can mae it uneconomical to perform a

particular activit# in several locations at once. T!"E

AACSB: ,ale C#eation Bloom's: Comp#e-ension Difficlty: edim "ea#ning $%&ectie: *+2

1!. (p. 543) The level of output at &hich most plant-level scale economies are e5hausted is

referred to as the minimum efficient scale of output. T!"E

"ea#ning $%&ectie: *+2

1$. (p. 543) (s a plant output e5pands, unit costs decrease.

T!"E

(26)

1'. (p. 543) The smaller the minimum efficient scale of a plant relative to total g lobal demand,

the greater the argument for centraliing production in a single location or a limited number of locations.

F#L$E

1). (p. 55+) Producing greater product variet# from a factor# implies longer production runs.

F#L$E

16. (p. 55+) Lean production is another term for fle5ible manufacturing technolog#.

T!"E

1. (p. 55+) +ass customiation describes the abilit# of companies to use fle5ible manufacturing

technolog# to reconcile lo& cost and product customiation. T!"E

AACSB: ,ale C#eation Bloom's: Knowledge Difficlty: !asy

(27)

12. (p. 55) ( grouping of various t#pes of machiner#, a common materials handler, and a

centralied cell controller is a fle5ible machine cell. T!"E

10. (p. 55) le5ible manufacturing technologies can help a firm improve efficienc#, lo&er costs,

and customie products to small marets. T!"E

AACSB: ,ale C#eation Bloom's: Knowledge Difficlty: edim "ea#ning $%&ectie: *+2

!. (p. 552) ( product7s value-to-&eight ratio affects the firm7s transportation costs.

T!"E

!1. (p. 552) 8ecause of the lo& value-to &eight ratio of man# pharmaceutical and electronics

products, there is great pressure to produce these products in the optimal location and serve the &orld from there.

F#L$E

(28)

!!. (p. 552) Concentrating production at an optimal location is more attractive &hen a product

serves universal needs. T!"E

!$. (p. 55) Concentration of production maes most sense &hen trade barriers are high.

F#L$E

AACSB: Analytic Skills Bloom's: Knowledge Difficlty: edim "ea#ning $%&ectie: *+2

!'. (p. 55) 9ecentraliation of production is appropriate &hen the product serves universal

needs. F#L$E

!). (p. 55) 9ecentraliation of production is appropriate &hen the product7s value-to-&eight is

lo&. T!"E

(29)

!6. (p. 55) ( ma:or aspect of a transnational strateg# is a belief in the idea that valuable

no&ledge does not reside :ust in a firm7s domestic operations. T!"E

"ea#ning $%&ectie: *+

!. (p. 55) The mae-or-bu# decision involves deciding &hether a firm should mae or bu# the

component parts that go into the final product. T!"E

Difficlty: !asy

!2. (p. 55) ;istoricall#, most outsourcing decisions have involved the manufacture of service

products. F#L$E

!0. (p. 55/) Outsourcing decisions pose plent# of problems for international businesses but even

more problems for purel# domestic businesses. F#L$E

AACSB: Analytic Skills Bloom's: Comp#e-ension Difficlty: edim "ea#ning $%&ectie: *+4

(30)

$. (p. 55/) ( firm that has integrated horiontall# is maing all or part of a product in-house.

F#L$E

$1. (p. 55/) 4hen one firm invests in specialied assets to suppl# ano ther, mutual dependenc# is

created. T!"E

$!. (p. 55) 4hen substantial investments in specialied assets are re%uired to manufacture a

component, the firm &ill prefer to contract it out to a supplier. F#L$E

$$. (p. 55) The greatest advantage of bu#ing component parts from independent suppliers is

that the firm can maintain its strategic fle5ibilit#. T!"E

(31)

$'. (p. 55) 4hen political ris is high, sourcing products from independent suppliers can be

advantageous. T!"E

$). (p. 553) ncentive problems that occur &ith independent suppliers do not arise &ith internal

suppliers. F#L$E

AACSB: 0eflectie 1-inking Skills Bloom's: Knowledge

$6. (p. 5+) ssues of strategic fle5ibilit# and organiational control are greater for purel#

domestic businesses than for international ones. F#L$E

Difficlty: !asy

$. (p. 5+) /trategic alliances can effectivel# limit a firm7s strategic fle5ibilit#.

T!"E

(32)

$2. (p. 5) ( C(9<C(+ s#stem allo&s the firm to economie on inventor# holding costs b#

having materials arrive at a manufacturing plant :ust in time to enter the production process and not before.

F#L$E

$0. (p. 5) 3nder a =T s#stem, products are briefl# &arehoused before entering the

manufacturing process. F#L$E

'. (p. 52) irms use "9 to coordinate the flo& of materials into manufacturing, through

manufacturing, and out to customers. T!"E

AACSB: 6se of 7nfo#mation 1ec-nology Bloom's: Knowledge

(33)

'1. (p. 544) >>>>> is the activit# that controls the transportation of ph#sical materials through

the value chain, from procurement through production and into distribution. (. Outsourcing

8. Production C% Logistics 9. 9istribution

Production and logistics are closel# lined since a firm7s abilit# to perform its production activities efficientl# depends on a timel# suppl# of high-%ualit# material inputs, for &hich logistics is responsible.

'!. (p. 545) >>>>> is a management philosoph# according to &hich mistaes, defects, and

poor-%ualit# materials are not acceptable and should be eliminated. (. /cientific management

&% Total %ualit# management C. /O 0

9. Lean manufacturing

The total %ualit# management BT*+ philosoph# that &as &idel# adopted, first b# =apanese companies and then (merican companies, during the 102s and earl# 100s.

(34)

'$. (p. 545) The /i5 /igma methodolog#?

#% is a direct descendant of the total %ualit# management philosoph#. 8. is a direct descendant of benchmaring.

C. &as adopted first b# 8ritish companies and then =apanese companies during the 102s. 9. &as developed b# 9eming, =uran, and eigenbaum.

/i5 /igma, the modern successor to T*+, is a statisticall# based philosoph# that aims to reduce defects, boost productivit#, eliminate &aste, and cut costs throughout a compan#.

AACSB: Analytic Skills Bloom's: Knowledge Difficlty: edim "ea#ning $%&ectie: *+

''. (p. 545) /aving time b# not producing poor-%ualit# products that cannot be sold, lo&ering

re&or costs, lo&ering scrap costs, and lo&ering &arrant# costs are the intended results of? (. total feature management.

8. reengineering. C. logistics.

'% total %ualit# management.

The effect of improved %ualit# control in these &a#s is to lo&er the costs of value creation b# reducing both production and after-sales service costs.

(35)

'). (p. 54) 8efore a firm is allo&ed access to the "uropean maretplace, the "uropean 3nion

re%uires that the %ualit# of the firm7s manufacturing processes and products b e certified under a %ualit# standard no&n as?

(. total %ualit# management. 8. reengineering.

C. %ualit# management s#stem. '% /O 0.

(lthough the /O 0 certification process has proved to be some&hat bureaucratic and costl# for man# firms, it does focus management attention on the need to improve the %ualit# of products and processes.

'6. (p. 54) The modern successor to T*+ is?

(. Corporate *ualit# Commitment. 8. /O 0.

C. *ualit# Process @ealied. '% /i5 /igma.

/i5 /igma is a statisticall# based philosoph# that aims to reduce defects, boost productivit#, eliminate &aste, and cut costs throughout a compan#.

(36)

'. (p. 54) (t si5 sigma, a production process &ould be 00.00066 percent accurate, creating :ust

>>>>>.

(. $.' defects per hundred thousand units &% $.' defects per million units

C. $' defects per million units 9. 6.2 defects per million units

Sigma comes from the Gree letter that statisticians use to represent a standard deviation from a meanF the higher the number of sigmas the smaller the number of errors.

'2. (p. 54) 4hich of the follo&ing statements about /i5 /igma is trueA

#% t is a statisticall# based philosoph#.

8. t is easil# possible for a compan# to achieve /i5 /igma perfection.

C. (t si5 sigma, a production process &ill have 66 defects per million units. 9. (t si5 sigma, a production process &ould be 1 percent accurate.

/i5 /igma is a statisticall# based philosoph# that aims to reduce defects, boost productivit#, eliminate &aste, and cut costs throughout a compan#.

Difficlty: edim "ea#ning $%&ectie: *+

(37)

'0. (p. 54/) actors that help a firm decide &here to locate its manufacturing facilities can be

best grouped under three broad headings. These are? (. political factors, social factors, and legal factors.

&% countr# factors, technological factors, and product factors. C. product factors, service factors, and labor factors.

9. language factors, cultural factors, and transportation factors.

(n essential decision facing an international firm is &here to locate its production activities to best minimie costs and improve product %ualit#.

). (p. 54/) The creation of a global &eb of value creation activities is the result of?

#% location economies. 8. diseconomies of scale. C. shortage of silled labor. 9. informal trade barriers.

Other things being e%ual, a firm should locate its various manufacturing activities &here the economic, political, and cultural conditions, including relative factor costs, are conducive to the performance of those activities. The benefits derived from such a strateg# are referred to as location economies.

(38)

)1. (p. 54/) dentif# the incorrect statement pertaining to e5change rate movements.

(. (dverse changes in e5change rates can %uicl# alter a countr#7s attractiveness as a manufacturing base.

8. Currenc# appreciation can transform a lo&-cost location into a high-cost location.

C. Currenc# appreciation can cause firms to move their manufacturing offshore to lo&er-cost locations.

'% ( lo&-cost location can be transformed into a high-cost location because of currenc# depreciation.

Currenc# appreciation can transform a lo&-cost location into a high-cost location.

Difficlty: 8a#d

)!. (p. 543) 8eing too dependent on one location is particularl# ris# because of?

#% floating e5change rates. 8. fi5ed e5change rates.

C. lac of movement in currencies. 9. static e5change rates.

8eing too dependent on one location is particularl# ris# in a &orld of floating e5change rates.

(39)

)$. (p. 543) (ccording to the concept of economies of scale?

(. as plant output reduces, unit costs decrease. 8. as plant output e5pands, unit costs increase. C. as plant output reduces, unit costs remain static. '% as plant output e5pands, unit costs decrease.

The reasons include the greater utiliation of cap ital e%uipment and the productivit# gains that come &ith specialiation of emplo#ees &ithin the plant.

)'. (p. 543) dentif# an advantage of a lo& minimum efficient scale.

#% (llo&s the firm to accommodate demands for local responsiveness 8. 9iscounts currenc# ris b# manufacturing all products in one location C. ;elps eep overheads lo& at the e5pense of fi5ed costs

9. ;elps a firm to standardie its products for all marets

The level of output at &hich most plant-level scale economies are e5hausted is referred to as the minimum efficient scale of output.

AACSB: ,ale C#eation Bloom's: Comp#e-ension Difficlty: 8a#d

(40)

)).

)). (p. 55+) (p. 55+) ( compan# that &ants to reduce set-up time for comple5 e%uipment, ( compan# that &ants to reduce set-up time for comple5 e%uipment, increase theincrease the

utiliation of individual machines through better scheduling, and

utiliation of individual machines through better scheduling, and improve %ualit# control at allimprove %ualit# control at all stages of the manufacturing process should adopt?

stages of the manufacturing process should adopt? (.

(. standardiation. standardiation. 8.

8. diseconomies of scale. diseconomies of scale. C%

C% fle5ible machine fle5ible machine technolog#.technolog#. 9.

9. minimum efficient scale. minimum efficient scale.

le5ible manufacturing technologies allo& the compan# to produce a &ider variet# of end le5ible manufacturing technologies allo& the compan# to produce a &ider variet# of end products at a unit cost that at one time could be achieved onl# through the mass production of products at a unit cost that at one time could be achieved onl# through the mass production of

a standardied output. a standardied output.

AACSB: ,a

AACSB: ,ale C#eationle C#eation Bloom's: Comp#

Bloom's: Comp#e-ensione-ension Difficlty: edim Difficlty: edim "ea#ning $%&ectie: *+2 "ea#ning $%&ectie: *+2

)6.

)6. (p. 55+) (p. 55+) The term >>>>> has been coined to describe the The term >>>>> has been coined to describe the abilit# of companies to use fle5ibleabilit# of companies to use fle5ible

manufacturing technolog# to reconcile the goals of lo& cost and product customiation. manufacturing technolog# to reconcile the goals of lo& cost and product customiation. (.

(. assembl#-line-lie customiation assembl#-line-lie customiation 8.

8. economies of customiation economies of customiation C%

C% mass customiation mass customiation 9.

9. standardied customiation standardied customiation

+ass customiation reconciles t&o goals that &ere once thought to be incompatibleHlo& +ass customiation reconciles t&o goals that &ere once thought to be incompatibleHlo& cost and product customiation.

cost and product customiation.

AACSB: ,a

Bloom's: Comp#e-ensione-ension Difficlty: !asy Difficlty: !asy "ea#ning $%&ectie: *+2 "ea#ning $%&ectie: *+2 16-$0 16-$0

(41)

).

). (p. 55+) (p. 55+) le5ible manufacturing technolog# is also no&n as? le5ible manufacturing technolog# is also no&n as?

(.

(. mass customiation. mass customiation. &%

&% lean production. lean production. C.

C. fle5ible machine cells. fle5ible machine cells. 9.

9. minimum efficient scale. minimum efficient scale.

AACSB: Analytic Skills AACSB: Analytic Skills Bloom's: Knowledg Bloom's: Knowledgee Difficlty: edim Difficlty: edim "ea#ning $%&ectie: *+2 "ea#ning $%&ectie: *+2 )2.

)2. (p. 55+) (p. 55+) (ccording to the concept of economies of scale &hat is the best &a# to achieve high (ccording to the concept of economies of scale &hat is the best &a# to achieve high

efficienc# and lo& unit costsA efficienc# and lo& unit costsA (.

(. Customiing products for each individual maret Customiing products for each individual maret &%

&% +ass producing standardied outputs +ass producing standardied outputs C.

C. Concentrating on production of Concentrating on production of small volumes of productssmall volumes of products 9.

9. ncreasing the product variet# dramaticall# ncreasing the product variet# dramaticall# Central to the concept of econo

Central to the concept of economies of scale is the idea that the mies of scale is the idea that the best &a# to achieve highbest &a# to achieve high efficienc#

efficienc#, and hence lo& un, and hence lo& unit costs, is through the mass production of a standardied it costs, is through the mass production of a standardied output.output.

AACSB: ,a

Bloom's: Comp#e-ensione-ension Difficlty: 8a#d Difficlty: 8a#d

"ea#ning $%&ectie: *+2 "ea#ning $%&ectie: *+2

(42)

)0.

)0. (p. 55+) (p. 55+) This allo&s the compan# to p This allo&s the compan# to produce a &ider variet# of end roduce a &ider variet# of end products at a unit costproducts at a unit cost

that at one time could be achieved onl# through the mass production of a standardied output. that at one time could be achieved onl# through the mass production of a standardied output. (.

(. Daien Daien 8.

8. /i5 /igma /i5 /igma C%

C% Lean production Lean production 9.

9. T*+ T*+

Lean production is another name for fle5ible manufacturing technolog#. Lean production is another name for fle5ible manufacturing technolog#.

AACSB: ,a

AACSB: ,ale C#eationle C#eation Bloom's: Knowledg Bloom's: Knowledgee Difficlty: edim Difficlty: edim "ea#ning $%&ectie: *+2 "ea#ning $%&ectie: *+2 6.

6. (p. 55+) (p. 55+) >>>>> challenged the notion that the &a# to increase efficienc# and drive do&n unit >>>>> challenged the notion that the &a# to increase efficienc# and drive do&n unit

costs is to limit product variet# and produce a

costs is to limit product variet# and produce a standardied product in large volumes.standardied product in large volumes. (.

(. 8artlett and Ghoshal7s theor# of a transnational compan# 8artlett and Ghoshal7s theor# of a transnational compan# 8.

8. +inimum efficient scale +inimum efficient scale C.

C. "conomies of scale "conomies of scale '%

'% le5ible manufacturing technolog# le5ible manufacturing technolog#

AACSB: ,a

Bloom's: Comp#e-ensione-ension Difficlty: edim Difficlty: edim "ea#ning $%&ectie: *+2 "ea#ning $%&ectie: *+2 16-'1 16-'1

(43)

61. (p. 55) ( >>>>> is a grouping of various t#pes of machiner#, a common materials handler,

and a centralied cell controller. #% fle5ible machine cell

8. mass customiation polic# C. lean production s#stem

9. minimum efficient scale cluster

"ach cell normall# contains four to si5 machines capable of performing a variet# of operations.

6!. (p. 55*552) (ll of the follo&ing are the ma:or efficienc# benefits of fle5ible manufacturing

technologies e5cept?

(. it enables companies to customie products to the demands of small consumer groups. 8. it helps a compan# achieve mass customiation, &hich increases its customer

responsiveness.

C% it re%uires firms to establish manufacturing facilities in each ma:or maret to provide products that satisf# specific consumer tastes and preferences.

9. it improves capacit# utiliation and reductions in &or in progress and &aste.

4hen fle5ible manufacturing technologies are available, a firm can manufacture products customied to various national marets at a single factor# sited at the optimal location.

(44)

6$. (p. 552) 4hen a compan#7s product has a lo& value-to-&eight ratio, the compan# should?

(. have a centralied manufacturing location.

&% produce the product in multiple locations close to ma:or marets. C. ignore transportation costs.

9. produce the product in one optimal location and serve the &orld from there.

The first is the product7s value-to-&eight ratio because of its influence on transportation costs. +an# electronic components and pharmaceuticals have high value-to-&eight ratiosF the# are e5pensive and the# do not &eigh ver# much. Thus, even if the# are shipped half&a# around the &orld, their transportation costs account for a ver# small percentage of total costs. The opposite holds for products &ith lo& value-to-&eight ratios.

6'. (p. 552) 4hich of the follo&ing statements about products &ith high value-to-&eight ratios is

trueA

(. The# are relativel# ine5pensive and &eigh a lot. &% The# are e5pensive and do not &eigh ver# much.

C. Transportation costs usuall# account for a large percentage of their total costs. 9. The# must be produced in multiple locations close to ma:or marets.

Thus, even if the# are shipped half&a# around the &orld, their transportation costs account for a ver# small percentage of total costs.

(45)

6). (p. 55) 4hich of the follo&ing is a characteristic of manufacturing techno log# that should

be considered b# a firm contemplating international productionA (. Trade barriers

8. Ealue-to-&eight ratio C% Level of fi5ed costs 9. "5change rates

Table 16.1 Location /trateg# and Production The other distracters should be considered b# a firm &hile contemplating international production but the# all under countr# and product factors.

Difficlty: 8a#d

66. (p. 55) ( compan# might consider decentraliing &hen?

(. a product7s value-to-&eight ratio is high. 8. the product serves universal needs. C. trade barriers are lo&.

'% volatilit# in important e5change rates is e5pected.

Concentration of production maes more sense for all the other distracters.

6. (p. 55) The concentration of production maes most sense &hen?

(. volatilit# in important e5change rates is e5pected. &% the product7s value-to-&eight ratio is high.

C. location e5ternalities are not important. 9. trade barriers are high.

(46)

62. (p. 55) The concentration of production is favored &hen all of the follo&ing factors are high

e5cept

(. fi5ed costs.

8. minimum efficient scale. C. value-to-&eight ratio. '% trade barriers.

The concentration of production of production is favored &hen trade barriers are lo&.

Difficlty: 8a#d

60. (p. 554) nitiall#, man# foreign factories are established &here >>>>> are lo&.

(. trade barriers

8. inventor# turnover C. mareting costs '% labor costs

Their strategic role t#picall# is to produce labor-intensive products at as lo& a cost a s possible.

"ea#ning $%&ectie: *+

(47)

. (p. 55) 9ecisions a firm must mae about &hether to perform a certain value creation

activit# themselves, or outsource it to another entit# are best no&n as? (. outsource potential decisions.

8. in-house potential decisions. C% mae-or-bu# decisions. 9. integration decisions.

;istoricall#, most outsourcing decisions have involved manufacturing ph#sical products. +ost manufacturing firms have done their o&n final assembl#, but have had to decide

&hether to verticall# integrate and manufacture their o&n component parts or outsource the production of such parts, purchasing them from independent suppliers. /uch mae-or-bu#

decisions are an important aspect of the strateg# of man# firms.

1. (p. 55/) 4hich of the follo&ing is not an argument that supports maing a product

in-houseA

#% Eertical integration ma# be associated &ith higher costs.

8. Eertical integration ma# protect proprietar# product technolog#.

C. Eertical integration ma# facilitate investment in highl# specialied assets. 9. Eertical integration ma# ease the scheduling of ad:acent processes.

Eertical integration ma# be associated &ith lo&er costs.

AACSB: ,ale C#eation Bloom's: Comp#e-ension Difficlty: 8a#d

(48)

!. (p. 55/) ( >>>>> is an asset &hose value is contingent upon a particular relationship persisting. #% specialied asset 8. common asset C. complementar# asset 9. supplementar# asset

4hen substantial investments in specialied assets are re%uired to manufacture a c omponent, the firm &ill prefer to mae the component internall# rather than contract it out to a supplier.

$. (p. 55) ( firm &ill prefer to mae the component internall# rather than contract it out to a

supplier, because of all of the follo&ing reasons e5cept?

(. it needs to maintain control over its proprietar# technolog#.

8. substantial investments in specialied assets are re%uired to manufacture a co mponent. C% the firm completel# trusts the independent supplier to pla# fair.

9. it runs the ris that suppliers &ill e5propriate the technolog# for their o&n use.

(nother argument for producing all or part of a product in-house is that production cost savings result because it maes planning, coordination, and scheduling of ad:acent processes easier.

(49)

'. (p. 55) ;o& can firms attain tight coordination bet&een d ifferent stages in the production

processA

#% 8# using information technolog#

8. 8# lo&ering the costs of value creation C. 8# implementing /O 0

9. 8# minimum efficient scale of output

or international businesses that source &orld&ide, the time and distance bet&een the firm and its suppliers can e5acerbate scheduling problems.

AACSB: 6se of 7nfo#mation 1ec-nology Bloom's: Knowledge

). (p. 55) 4hich of the follo&ing is not a reason to outsource productionA

(. t can give the firm greater fle5ibilit#

&% t can mae planning, coordination, and scheduling of ad:acent processes easier C. t can help drive do&n the firm7s cost structure

9. t ma# help the firm capture orders from international customers

Producing all or part of a product in-house is that production cost savings result because it maes planning, coordination, and scheduling of ad:acent processes easier.

(50)

6. (p. 55) (n advantage of bu#ing component parts, or even an entire product, from

independent suppliers is that?

#% the firm can maintain its fle5ibilit# of s&itching orders bet&een suppliers as circumstances dictate.

8. it can mae planning, coordination, and scheduling of ad:acent processes easier for the firm.

C. it reduces the ris for the firm that suppliers &ill e5propriate the technolog# for their o&n use.

9. the firm is able to maintain firm control over its proprietar# technolog#.

This is particularl# important internationall#, &here changes in e5change rates and trade barriers can alter the attractiveness of suppl# sources.

. (p. 553) Eertical integration ma# raise a firm7s cost structure for all of the follo&ing reasons

e5cept?

(. the greater the number of subunits in an organiation, the more problems coordinating and controlling those units.

8. the firm that verticall# integrates into component part manufacturing ma# find that because its internal suppliers have an active customer, the# lac the motivation to be more efficient. C. verticall# integrated firms have to determine appropriate prices for good s transferred to subunits &ithin the firm.

'% it maes planning, coordination, and scheduling of ad:acent processes more difficult, as compared to bu#ing from independent suppliers, particularl# &ith :ust-in-time inventor# s#stems.

t maes planning, coordination, and scheduling of ad:acent processes easier.

AACSB: 0eflectie 1-inking Skills Bloom's: Comp#e-ension Difficlty: edim "ea#ning $%&ectie: *+4

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2. (p. 5) The ma:or costs saving associated &ith =T comes from?

#% speeding up inventor# turnover.

8. having materials arrive at a manufacturing plant before the# are needed. C. avoiding production slo&do&ns b# ensuring inven tor# is stocpiled. 9. using &arehouse space to maintain on-hand inventor#.

The basic philosoph# behind :ust-in-time B=T s#stems is to economie on inventor# h olding costs b# having materials arrive at a manufacturing plant :ust in time to enter the production process and not before.

0. (p. 5) =ust-in-time inventor# s#stems?

#% can help firms improve product %ualit#. 8. are fast becoming obsolete.

C. re%uire that parts be &arehoused. 9. give firms a buffer stoc of inventor#.

The basic philosoph# behind :ust-in-time B=T s#stems is to economie on inventor# h olding costs b# having materials arrive at a manufacturing plant :ust in time to enter the production process and not before.

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2. (p. 5) 4hich of the follo&ing is a dra&bac associated &ith a =T s#stemA

(. There are high transportation costs involved

&% t leaves a firm &ithout a buffer stoc of inventor#

C. t leaves a firm &ith scrap costs associated &ith defective p roducts 9. t increases the &arrant# costs

(lthough buffer stocs are e5pensive to store, the# can help a firm respond %uicl# to increases in demand and tide a firm over shortages brought about b# disruption among suppliers.

21. (p. 52) 4ith >>>>>, suppliers, shippers, and the purchasing firm can communicate &ith

each other &ith no time dela#. (. a C(9 s#stem

8. a =T s#stem C. a C(+ s#stem '% an "9 s#stem

irms no& t#picall# use electronic data interchange B"9 via the nternet to coordinate the flo& of materials into manufacturing, through manufacturing, and out to customers.

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2!. (p. 544) 4hat are the five interrelated issues confronting a firm as trade b arriers fall and

global marets developA

(s trade barriers fall, and global marets develop, firm face five interrelated issues. irst, &here in the &orld should production activities be locatedA /econd, &hat should be the long-term strategic role of foreign production sitesA Third, should the firm o&n foreign production activities, or is it better to outsource those activities to private vendorsA ourth, h o& should a globall# dispersed suppl# chain be managed, and &hat is the role of nternet-based

information technolog# in the management of global logisticsA inall#, should the firm manage global logistics itself, or should it outsource the management to enterprises that specialie in this activit#A

2$. (p. 544) 4hat is logisticsA 9iscuss the relationship bet&een production and logistics.

Logistics is the activit# that controls the transmission of ph#sical materials through the value chain, from procurement through production and into distribution. Production and logistics are closel# lined since a firm7s abilit# to perform its production activities efficientl# depends on a timel# suppl# of high-%ualit# material inputs, for &hich logistics is responsible.

AACSB: 0eflectie 1-inking Skills Bloom's: Comp#e-ension Difficlty: !asy

(54)

2'. (p. 544*54) 9iscuss the strategic ob:ectives of the production and logistics functions of an

international firm.

The production and logistics functions of an international firm have a number of important strategic ob:ectives. ( primar# ob:ective is to lo&er costs. 9ispersing production activities to various locations around the globe &here each activit# can be performed most efficientl# can lo&er costs. Costs can also be lo&ered b# managing the global suppl# chain to better match suppl# and demand. ( second strategic ob:ective is to increase product %ualit# b# eliminating defective products b# both the suppl# chain and the manufacturing process. ( third ob:ective involves meeting demands for local responsiveness. inall#, production and logistics must be able to respond to shifts in customer demand.

Difficlty: edim "ea#ning $%&ectie: *+

2). (p. 545*54) 4hat is the principle tool used b# most managers to increase the reliabilit# of

their product offeringA

The principle tool used b# most managers to increase the reliabilit# of their product offering is the /i5 /igma %ualit# improvement methodolog#. /i5 /igma is the successor of the total

%ualit# management philosoph# that aims to reduce defects, boost productivit#, eliminate &aste, and cut costs throughout a compan#.

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26. (p. 54) 4hat does /i5 /igma refer toA

/i5 /igma is the modern successor to T*+. t is a statisticall# based philosoph# that aims to reduce defects, boost productivit#, eliminate &aste, and cut costs throughout a compan#. /i5 /igma is the principle tool used b# most managers to increase the reliabilit# of their product offering. (t /i5 /igma, a production process &ould be 00.00066 percent accurate, creating :ust $.' defects per million units.

2. (p. 545*54) 4ho &as 4. "d&ard 9emingA 4hat is his contribution to businessA

9eming &as a e# contributor to the development of the total %ualit# management BT*+ techni%ue. 9eming identified a number of steps that should be part of an# T*+ program. ;e argued that management should embrace the philosoph# that mistaes, defects, and poor

%ualit# materials are not acceptable and should be eliminated. ;e suggested that the %ualit# of supervision should be improved b# allo&ing more time for supervisors to &or &ith

emplo#ees, that management should create an environment in &hich emplo#ees &ill not fear reporting problems or recommending improvements, and that some no tion of %ualit# should be included in &or standards to promote the production of defect-free output. 9eming also argued that it is management7s responsibilit# to train &orers in ne& sills to eep pace &ith changes in the &orplace. (ccording to 9eming, achieving better %ualit# re%uires the

commitment of ever#one in the compan#.

Difficlty: 8a#d