Supply Chain Management A Logistics Perspective 9th Edition By Coyle -Test Bank





Supply Chain Management A Logistics Perspective 9th Edition By Coyle -Test Bank


Sample  Questions




  1. Globalization is not considered to be one of the external factors driving change in logistics.

ANSWER:  False, Page 77

  1. The third era of globalization is said to have begun around the year 2000. The significant characteristic of this era is that it is being powered by individuals and smaller organizations in contrast to the countries of the first era and the large companies of the second era.

ANSWER:  True, Page 78

  1. The supply chain should manage four important flows, namely, materials and products,              information, financials, and demand.

ANSWER:  True, Page 79

  1. Operating globally has become harder to accomplish for individuals and small companies.

ANSWER:  False, Page 81

  1. The terms of a demise charter transfers full control of the chartered vessel to the charterer.

ANSWER:  True, Page 94

  1. Customs Trade Partnership Against Terrorism (C-TPAT) is a mandatory program in which importers must participate.

ANSWER:  False, Page 89

  1. The North American Free Trade Agreement has removed all trade barriers between the U.S., Canada, and Mexico.

ANSWER:  False, Page 90

  1. A maquiladora plant can be located anywhere in South America.

ANSWER:  False, Pages 91-92

  1. Ocean transportation offsets slower service with lower rates than other modes.

ANSWER:  True, Page 93

  1. A firm using air transportation cannot use the same packaging for international shipping as for domestic shipping because many cargo aircraft are not pressurized.

ANSWER:  False, Page 95

  1. A Foreign Freight Forwarder is unregulated by the government.

ANSWER: False, Page 96

  1. Export Trading Companies and Export Management Companies are essentially the same.

ANSWER: False, Pages 97-98

  1. An importer can store goods in a bonded warehouse for up to three years without paying duty.

ANSWER: True, Page 99

  1. Soft issues such as social and cultural concerns          should not present a challenge for supply chain       managers, whose role is to focus on the physical side of supply chain execution.

ANSWER: False, Page 86



  1. Globalization was initially driven by countries
  2. seeking new territories.
  3. outside the S. seeking to establish plants in the U.S.
  4. seeking materials and goods not available in their own land.
  5. sponsoring trading missions.

ANSWER:  c, Page 77

  1. A critical ingredient for the Third Era of globalization is:
  2. the global emphasis on tailoring products and marketing strategies to meet perceived local needs
  3. technological advances, especially in information technology and communications
  4. the global emphasis on profits and efficiency
  5. the global emphasis on the marketing mix and marketing functions

ANSWER:  b, Page 78

  1. The Supply Chain should
  2. manage all aspects of transportation, selecting the least cost when possible.
  3. seek to maximize profits.
  4. use the same techniques internationally that it uses domestically.
  5. manage materials and products, information, financials, and demand.

ANSWER: d, Page 79

  1. In his book “The Wealth of Nations”, Adam Smith stated that economies and companies could improve their wealth by
  2. allowing specialization of tasks.
  3. ensuring that logistics is used to gain advantage in the marketplace.
  4. becoming multi-national.
  5. moving production off shore.

ANSWER: a, Page 81

  1. A demand-driven system is also known as
  2. a supply chain.
  3. a pull system.
  4. a marketing system.
  5. a multi-echelon system.


ANSWER: b, Page 87


  1. A maquiladora plant is
  2. a new type of flower.
  3. an entity created under NAFTA
  4. a U.S. plant performing manufacturing, processing, or assembly activity in Mexico.
  5. a factory owned by the Maquiladora Corporation.

ANSWER: c, Pages 91-92

  1. Focused production is
  2. a strategic decision to make only what the market desires.
  3. used by those firms not sure of the market demands.
  4. a strategy in which a given plant produces one or two items of the company’s total                           product line.

d.`        a trend in the electronics industry with manufacturing in China.

ANSWER: c, Page 93

  1. Which are the major modes of international transportation?
  2. water and air
  3. water and rail
  4. rail and motor
  5. rail and air

ANSWER:  a, Page 93

  1. Which is a major category of ocean shipping?
  2. passenger travel
  3. common carriers
  4. exempt carriers
  5. charter vessels

ANSWER:  d, Page 94

  1. Which category of ocean shipping offers set schedules over specified sea routes?
  2. liner service
  3. charter vessels
  4. private vessels
  5. demise charter vessels

ANSWER:  a, Page 94


  1. Which is the main advantage of international air transport?
  2. freight rates
  3. flexibility
  4. transit times
  5. accessibility

ANSWER:  c, Page 95

  1. Which condition must be present before motor carriers and rail carriers can be used for international shipments?
  2. shipments must be in volume and in bulk
  3. the shipment must be between adjacent countries
  4. no customs barriers can be imposed

d          the shipment cannot pass through adjacent countries

ANSWER:  b, Page 96

  1. These are designated by the U.S. secretary of the treasury for the purpose of storing, repacking, sorting or cleaning imported merchandise entered for warehousing without paying import duties while the goods are in storage.
  2. Bonded warehouses
  3. Hold-on-dock storage
  4. In-transit storage areas
  5. Transit sheds

ANSWER:  a, Page 99

  1. Gemini products wishes to enter foreign markets but lacks the resources to do so. They evaluate their alternatives and approach Overseas Traders, LLC, a company that specializes in the foreign distribution of products of the type which Gemini manufacturers. Overseas purchases $50,000 of Gemini’s products for sale on the international market. Overseas is which type of global logistics channel intermediary?
  2. NVOCC
  3. export packer
  4. export trading company
  5. customs house broker

ANSWER:  c, Page 98

  1. The global logistics channel intermediary that supervises the movement of goods through customs and ensures that the documentation accompanying a shipment is complete and accurate is known as
  2. a foreign freight forwarder.
  3. an export packer.
  4. a customs house broker.
  5. a foreign trade specialist.

ANSWER:  c, Page 98

  1. Which type of global logistics channel intermediary enables goods to move through customs more easily by consolidating small shipments into more economical sizes?
  2. customs house broker
  3. NVOCC
  4. export trader
  5. foreign freight forwarder

ANSWER:  d, Page 97

  1. Goods can be stored in a bonded warehouse
  2. for up to 3 years.
  3. until next year.
  4. until the next shipment of the same product arrives.

ANSWER: a., Page 99

  1. The biggest and best known example of a regional trade agreement (RTA) is the:
  2. World Trade Organization (WTO)
  3. General Agreement on Tariffs and Trade (GATT)
  4. European Union (EU)
  5. Customs Trade Partnership Against Terrorism (C-TPAT)

ANSWER: c, Page 79

  1. America’s ports are a key component of its global commerce.  S. ports also play a vital role          for the cruise industry.  Which of these is not one of the top three departure ports for the cruise             industry?
  2. Port Canaveral, Florida
  3. Cape Liberty, New Jersey
  4. Miami, Florida
  5. Lauderdale, Florida

ANSWER: b, Page 89

  1. As market forces continue to exert pressure on companies to improve profitability, the quest for      lower-cost manufacturing has been a factor in the relocation of manufacturing from Mexico to        ________ ?
  2. South America
  3. Asia
  4. Russia
  5. Canada

ANSWER: b, Page 92


  1. 35. What are the three phases of globalization? Pick one and discuss.

ANSWER:  Globalization was initially driven by countries (1400–1800) seeking materials and goods not available in their own land, but they also had imperialistic objectives of enhancing their economic and political power.

The second era of globalization (1800–2000) was driven by companies seeking goods and materials, labor, economies of scale, and markets. This era produced multinational companies with global reach and enormous economic market power. In the second phase of globalization, companies headquartered in developed countries like the United States, Western Europe, and Japan had an advantage in terms of infrastructure, educational systems, and capital markets.  It has been suggested that the world was, figuratively speaking, tilted in favor of the developed countries. The economic advantage was such that the citizenry of the less-developed countries tended to migrate to the more developed countries, especially the United States. The well-educated and skillful immigrants added to the advantages enjoyed by the developed countries.

The third era of globalization is said to have begun around the year 2000. The significant characteristic of this era is that it is being powered by individuals and smaller organizations in contrast to the countries of the first era and the large companies of the second era. The critical ingredients for this new era have been the technological advances, especially in information technology and communications, that have connected the “four corners of the globe.” Thus, with the enabling of more broad-based participation in the global economy without some of the massive infrastructure previously required, the world has indeed become flat. (Pages 77-78)

  1. Discuss how companies and economies can increase their wealth.

ANSWER:  Adam Smith who is credited with providing the economic rationale for capitalism in his famous book, Wealth of Nations, stated that division of labor or labor specialization is limited by the extent of the market or volume of demand. In other words, economies and companies could improve their wealth by allowing specialization of tasks. The automobile assembly line is a good example of specialization wherein each individual performs a small task relative to the total product, but the output per individual is higher than if individuals each assembled a complete car. Smith’s caveat, which is relevant here, indicates that the advantage is true as long as you can sell the increased volume that is produced. An important role of logistics is to help extend the market area of countries or companies through improved efficiency to lower the landed cost in new market areas.

This logic is even more apropos for supply chains. It can be argued that supply chains help to establish the limits of what is competitively possible in the market. In other words, the cost and value at the end of the supply chain determine a firm’s ability to compete in a global marketplace.  (Page 81)

  1. 37. Discuss how our trading partners have changed in relation to their amount of trade with the S.

ANSWER:   Table 3.1 presents trade data (total of imports and exports) for the top 10 U.S. trading partners. China is now our second largest trading partner, supplanting Mexico, which historically has been number two. The trade volume with China was 22.2 percent of the total of the top 10 for 2010, and it increased its trade volume by 25 percent from 2009 to 2010.

In 2000, China was number four on the top-10 list following Canada, Mexico, and Japan, and its trade volume with the United States has nearly quintupled since that time ($457 billion vs. $94 billion). The total value of trade with these top 10 trading partners increased by 22.63 percent from 2009 to 2010, and since 2000 it has increased by about 288 percent in total value. Both of these percentage increases are reflective of the growing interdependence and the trade relationships with other countries.

India does not appear in the top 10 countries listed in Table 3.1. India’s strength has been in the area of information technology services, which tends to understate its importance for global supply chains. In 2005, 59 percent of U.S. corporate spending (offshore) for information technology services was spent in India. Interestingly, China, which is known for manufacturing various types of products, is attracting U.S. companies to establish research centers. Microsoft and Intel established research centers in Beijing in 1998, Google in 2005, and Rohm & Haas and Dupont in Shanghai in 2006. The combined populations of China and India, which are in excess of two billion people, make them attractive as markets and as sources of imports. Consequently, it seems safe to conclude that global supply chain connections to both China and India will continue to grow. (Pages 82-83)


  1. 38. From a customer service perspective, global markets and strategy have four important Name them and select one to discuss.


ANSWER: First, companies attempt to standardize to reduce complexity, but they recognize that global markets need some customization. Second, global competition reduces the product life cycle since products can be copied or reengineered quickly by competitors. Third, traditional organizational structures and related business models frequently change since companies get more involved in outsourced manufacturing and some logistical activities such as transportation, warehousing, and order fulfillment. Fourth, globalization introduces more volatility and complexity. It is much more likely that supply chains will experience challenges with weather, terrorism, strikes, and other disruptions. The need for flexibility and responsiveness is a requisite for customer service through the supply chain.   (Pages 85-87)


  1. 39. Discuss the impact of 9/11 on international logistics.


ANSWER: Global commerce between the United States and the rest of the world came to a halt on September 11, 2001, when terrorists attacked the United States. Air transportation into and out of the United States and even some domestic flights were suspended. Ocean vessels loaded with containers and other freighter ships were prevented from unloading or loading in the major ports. Many had to anchor off the coast for days, waiting to come into the assigned port. Fresh fruits and vegetables rotted, and needed materials did not arrive on time. It was a frightening period but a time when we saw firsthand how global and interdependent with the rest of the world we had become.


Before the events of September 11, 2001, ships would frequently clear U.S. ports in a matter of hours. That scenario has changed because of security measures that have been introduced. More cargo inspections, much more paperwork, and a longer time to clear U.S. borders are now a reality. Ships may be stopped and inspected and cargo inspected and checked. Some ships and items are given very close scrutiny because of their country of origin.


Given the importance of global trade to the United States, a delicate balance exists between security and the efficient flow of global commerce. If security is too tight it could impede the flow of needed goods or materials, causing delays and decreased efficiency. Ports and border gateways can become congested because of security measures. Consequently, clearance time has increased from hours to days in some instances. (Pages 87-88)


  1. Define and discuss NAFTA.


ANSWER: The North American Free Trade Agreement was signed by leaders of Canada, the United

States, and Mexico in 1993 and was ratified by Congress in early 1994. NAFTA establishes free trade between these three countries and provides the way the agreement is to be interpreted. NAFTA states that the objectives of these three countries is based on the principles of an unimpeded flow of goods, most favored nation (MFN) status, and a commitment to enhance the cross-border movement of goods and services. MFN status provides the lowest duties or customs fees, if any, and simplifies the paperwork required to move goods between the partner countries. Even though the U.S.-Canada Free Trade Agreement has been in effect for some time, certain trade barriers still remain. For example, many U.S. companies do not recognize certain French-English requirements for packaging and ingredient labeling.


The supply chain constraints will eventually be eliminated as NAFTA experience grows. Computerized customs information systems are currently operating in the United States and Canada, with Mexico a few years behind. The electronic transfer of information for NAFTA shipments into Mexico will speed the border crossing and improve logistics service.


In the long run, the goal of NAFTA is to create a better trading environment; but in the short run, it has created some confusion due to the recordkeeping required to prove the origin of the product to obtain favorable tariff treatment. NAFTA’s goals involve making the needed structural changes to operate a borderless logistics network in North America. Information systems, procedures, language, labels, and documentation are being redesigned. As new markets and supply sources develop, new transportation and storage facilities as well as intermediaries will need to be developed. (Page 90)


  1. There are four modes used for international shipments. Name them, and discuss one        mode’s role in international logistics.

ANSWER: Global transportation is usually much more complex than domestic U.S. transportation. The distances involved are greater, and the number of parties involved is typically more extensive. Because of the large expanses of water separating most regions of the world, the major modes of global transport are ocean and air. Land modes also carry freight between contiguous countries, particularly in Europe, where land routes are short. (Page 93)

  1. Define the difference between an Export Management Company and an Export Trading Company. Explain why a firm would want to use either.

ANSWER:  Often, a firm wishes to sell its products in a foreign market but lacks the resources to conduct the foreign business itself. An export management company (EMC) can supply the expertise such firms need to operate in foreign environments. EMCs act as agents for domestic firms in the international arena. Their primary function is to obtain orders for their clients’ products by selecting appropriate markets, distribution channels, and promotional campaigns.

An export trading company (ETC) exports goods and services. The ETC locates overseas buyers and handles most of the export arrangements, including documentation, inland and overseas transportation, and the meeting of foreign government requirements. The ETC may or may not take title to the goods. (Pages 97-98)





  1. Outbound-to-customer logistics systems are also referred to as physical distribution.

ANSWER: True, Page 217


  1. Materials management and physical supply are terms that cannot be used interchangeably.

ANSWER: False, Page 217


  1. Demand management might be defined as focused efforts to estimate and manage customers’ demand, with the intention of using this information to shape operating decisions.

ANSWER: True, Page 217


  1. Phantom demand is created by over-ordering during peak demand.

ANSWER: True, Page 219


  1. The essence of demand management is to estimate and manage customer demand so that demand and supply are balanced to the point where there are zero stockouts and zero safety stocks.

ANSWER: False, Page 220


  1. External balancing methods involve managing production and inventory flexibility to help offset the imbalance of supply and demand.

ANSWER: False, Page 220


  1. Forecasting has become extremely accurate, especially since the development of the S&OP process.

ANSWER: False, Page 221


  1. Dependent demand is directly influenced by independent demand.

ANSWER: True, Page 221


  1. A weighted moving average assigns higher weights to more recent periods.

ANSWER: True, Page 223


  1. Exponential smoothing can use constants higher than 1, but not more than 5.

ANSWER: False, Page 225


  1. Adjusting a forecast for seasons basically uses a combination of seasonal factors and average demand to arrive at an adjusted forecast.

ANSWER: True, Page 228


  1. While there are four types of forecast error measures that can be used, none are foolproof.

ANSWER: True, Pages 229-230


  1. A sales and operations planning process (S&OP) can produce a forecast internally that all functional areas agree upon and can execute.

ANSWER: True, Page 234


  1. Collaborative planning, forecasting, and replenishment (CPFR) has not been considered to be a good process, as it excludes transportation.

ANSWER: False, Page 237


  1. A channel of distribution is controlled by the marketing department, which selects the physical structures and intermediaries through which the product(s) flow.

ANSWER: False, Page 240


  1. An important observation to note about channel structure is that it involves the elements of fixed costs versus variable costs.

ANSWER: True, Page 242


  1. Integrated fulfillment is preferred to dedicated fulfillment.

ANSWER: False, Page 243


Multiple Choice


  1. An outbound-to-customer logistics system is also referred to as
    1. integrated fulfillment.
    2. dedicated fulfillment.
    3. store fulfillment.
    4. physical distribution.

ANSWER: d, Page 217


  1. An inbound-to-operations logistics system is also referred to as
  2. physical distribution.
  3. physical supply.
  4. dedicated fulfillment.
  5. demand management.

ANSWER: b, Page 217


  1. Demand management includes
    1. Flows of products.
    2. Flows of services.
    3. Flows of capital.
    4. All of the these answers

ANSWER: d, Page 217


  1. The term functional silos refers to:
  2. product storage for physical supply.
  3. the non communication between customers and vendors.
  4. a technique to secure corporate marketing strategies.
  5. lack of coordination between departments.

ANSWER: d, Page 218


  1. Oversupply is created by
  2. phantom demand.
  3. returns and cancellations.
  4. forecasting failures.
  5. poor channel selection.

ANSWER: a, Page 219


  1. The essence of demand management is to estimate and manage ___________ and use this information to make operating decisions.
    1. channel orders
    2. vendors and suppliers
    3. customer demand
    4. SO&P processes

ANSWER: c, Page 217


  1. The internal balancing method deals with
  2. price and lead time.
  3. inventory and production flexibility.
  4. functional silos.
  5. channel selection.

ANSWER: b, Page 220


  1. One type of demand fluctuation is caused by random variation. What is random variation?
  2. errors in inventory management
  3. errors not caught by using exponential smoothing
  4. a development that cannot normally be anticipated
  5. failure to properly execute the SO&P process plan

ANSWER: c, Page 221


  1. The weighted moving average method assigns
  2. a value in each period being averaged.
  3. a weight greater than 1.
  4. information based on a simple average.
  5. a weight to each previous period.

ANSWER: d, Page 223


  1. Exponential smoothing
  2. is one of the most commonly used techniques.
  3. uses primarily weighted averages to compensate for errors.
  4. is used to determine random variations.
  5. is used to reduce channel fluctuations.

ANSWER: a, Page 225


  1. Four types of forecast error measures can be used. Which one of the following is not one of the four types?
  2. cumulative sum of forecast errors
  3. exponential smoothing for trends
  4. mean squared error
  5. mean absolute deviation

ANSWER: b, Page 230


  1. Many industry initiatives have attempted to create efficiency and effectiveness through the integration of supply chain activities and processes. Among the various initiatives is/are
  2. quick response (QR)
  3. vendor-managed inventory (VMI)
  4. efficient consumer response (ECR)
  5. all of these answers

ANSWER: d, Page 237




  1. There are two types of demand. What are they, and how do they influence the supply chain?


ANSWER:   Two types of demand exist: (1) independent demand, which is the demand for the primary item, and (2) dependent demand, which is directly influenced by the demand for the independent item. For example, the demand for bicycles would be called independent. It is the demand for the primary, or finished, product and is directly created by the customer. The demand for bicycle tires would be called dependent, because the number of tires demanded is determined by the number of bicycles demanded. Most forecasting techniques focus on independent demand. For example, a bicycle manufacturer will forecast the demand for bicycles during a given period. Given that level of demand, the manufacturer knows that two tires will be required for each bicycle demanded. As such, there is no need for the bicycle manufacturer to forecast the demand for tires. From a different perspective, the tire manufacturer will need to forecast the demand for tires, because these are its independent demand items. However, the tire manufacturer will not need to forecast the demand for rims since each tire requires one rim. So, each organization in a particular supply chain will have different definitions for independent and dependent demand items. Forecasting, however, will still usually be done at the independent demand item level. (Page 221)


  1. 31. There are at least three forecasting methods. Name them and choose one to discuss in more detail, including advantages and disadvantages.


ANSWER:  Simple Moving Average

The simple moving average is probably the simplest to develop method in basic time series forecasting. It makes forecasts based on recent demand history and allows for the removal of random effects. The simple moving average method does not accommodate seasonal, trend, or business cycle influences. This method simply averages a predetermined number of periods and uses this average as the demand for the next period.  Each time the average is computed, the oldest demand is dropped and the most recent demand is included. A weakness of this method is that it forgets the past quickly. A strength is that it is quick and easy to use.


Weighted Moving Average

In the simple moving average method, each previous demand period was given an equal weight. The weighted moving average method assigns a weight to each previous period with higher weights usually given to more recent demand. The weights must be equal to one. The weighted moving average method allows emphasis to be placed on more recent demand as a predictor of future demand. However, the results from the weighted moving average method are still not very good forecasts of demand. There are three possible causes for this. First, the weights assigned to the previous periods might not accurately reflect the patterns in demand. Second, the number of periods used to develop the forecast might not be the appropriate number. Finally, the weighted moving average technique does not easily accommodate demand patterns with seasonal influences.


Exponential Smoothing

Exponential smoothing is one of the most commonly used techniques because of its simplicity and its limited requirements for data. Exponential smoothing needs three types of data: (1) an average of previous demand, (2) the most recent demand, and (3) a smoothing constant. The smoothing constant must be between 0 and 1. Using a higher constant assumes that the most recent demand is a better predictor of future demand. Exponential smoothing forecasts will lag actual demand. If demand is relatively constant, exponential smoothing will produce a relatively accurate forecast. However, highly seasonal demand patterns or patterns with trends can cause inaccurate forecasts using exponential smoothing. (Pages 222-225)


  1. Discuss how seasonality affects forecasts and give examples.


ANSWER:  Many organizations are faced with seasons that repeat themselves during a particular period. These seasons might be by time of day (for example, demand for hamburgers at a fast-food outlet), by day of the week (for example, the demand for gasoline), by week, by the month, or by some combination of these.  Adjusting a forecast for seasons basically uses a combination of seasonal factors and average demand to arrive at an adjusted forecast. (Page 228)


  1. 33. There are four types of forecast error measures that can be used. Name them, and choose one to discuss.


ANSWER:  The first type of forecast error measure is called the cumulative sum of forecast errors (CFE). It calculates the total forecast error for a set of data, taking into consideration both negative and positive errors. This is also referred to as bias.  This gives an overall measure of forecast error. However, taking into consideration both negative and positive errors, this method can produce an overall low error total although individual period forecasts can either be much higher or much lower than actual demand.


The second measure of forecast error is mean squared error (MSE), which squares each period error so the negative and positive errors do not cancel each other out. MSE also provides a good indication of the average error per period over a set of demand data.


The third type is Mean Absolute Deviation (MAD) and is closely related to MSE.  By taking the absolute value of each error, the negative and positive signs are removed and a good indication of average error per period is calculated. This measure is popular because it is easy to understand and provides a good indication of the accuracy of the forecast.


The final measure of forecast error is mean absolute percent error (MAPE), and it relates the forecast error to the level of demand so different types of forecasts can be compared. (Page 230)


  1. A process that organizations can use to arrive at a consensus forecast is called Sales and

      Operations Planning. Discuss the five steps used to implement this process.


ANSWER: The S&OP Benchmarking Consortium in the Center for Supply Chain Research adopted a five-step process in arriving at this consensus forecast. Step 1 (Run sales forecast reports) requires the development of a statistical forecast of future sales. This would be done using one or more forecasting techniques. Step 2 (Demand planning phase) requires the sales and/or marketing departments to review the forecast and make adjustments based on promotions of existing products, the introductions of new products, or the elimination of products. This revised forecast is usually stated in terms of both units and dollars since operations are concerned with units and finance is concerned with dollars. Step 3 (Supply planning phase) requires operations (manufacturing, warehousing, and transportation) to analyze the sales forecast to determine if existing capacity is adequate to handle the forecasted volumes. This requires analyzing not only the total volumes but also the timing of those volumes. Step 4 (Pre-S&OP meeting) asks individuals from sales, marketing, operations, and finance to attend a meeting that reviews the initial forecast and any capacity issues that might have emerged during Step 3. Initial attempts will be made during this meeting to solve capacity issues by attempting to balance supply and demand. Alternative scenarios are usually developed to present at the executive S&OP meeting (Step 5) for consideration. These alternatives would identify potential lost sales and increased costs associated with balancing supply and demand. The sales forecast is also converted to dollars to see if the demand/supply plan meets the financial plan of the organization. Step 5 (Executive S&OP meeting) is where final decisions are made regarding sales forecasts and capacity issues. This is where the top executives from the various functional areas agree to the forecast and convert it into the operating plan for the organization. (Pages 234-235)


  1. Define and discuss Collaborative Planning, Forecasting, and Replenishment (CPFR) and its impact on supply chain management.


ANSWER: One of the most recent initiatives aimed at achieving true supply chain integration is collaborative planning, forecasting, and replenishment (CPFR). CPFR has become recognized as a breakthrough business model for planning, forecasting, and replenishment. Using this approach, retailers, distributors, and manufacturers can utilize available Internet-based technologies to collaborate on operational planning through execution. Transportation providers have now been included with the concept of collaborative transportation management (CTM). Simply put, CPFR allows trading partners to agree to a single forecast for an item where each partner translates this forecast into a single execution plan. This replaces the traditional method of forecasting where each trading partner developed its own forecast for an item and each forecast was different for each partner.


CPFR is a sequence of several business processes that include the consumer, retailer, and manufacturer. The four major processes are (1) strategy and planning, (2) demand and supply management, (3) execution, and (4) analysis. Two aspects of this model are important to note. First, it includes the cooperation and exchange of data among business partners. Second, it is a continuous, closed-loop process that uses feedback (analysis) as input for strategy and planning.


CPFR emphasizes a sharing of consumer purchasing data (or point-of-sale data) as well as forecasts at retail among and between trading partners for the purpose of helping to manage supply chain activities. From these data, the manufacturer analyzes its ability to meet the forecasted demand. If it cannot meet the demand, a collaborative effort is undertaken between the retailer and manufacturer to arrive at a mutually agreed-upon forecast from which execution plans are developed. The strength of CPFR is that it provides a single forecast from which trading partners can develop manufacturing strategies, replenishment strategies, and merchandising strategies.


The CPFR process begins with the sharing of marketing plans between trading partners. Once an agreement is reached on the timing and planned sales of specific products, and a commitment is made to follow that plan closely, the plan is then used to create a forecast, by stock-keeping unit (SKU), by week, and by quantity. (Pages 237-238)


  1. Define channels of distribution and discuss their roles in fulfillment.


ANSWER: A channel of distribution consists of one or more organizations or individuals who participate in the flow of goods, services, information, and finances from the production point to the final point of consumption. A channel of distribution can also be thought of as the physical structures and intermediaries through which these flows travel. These channels encompass a variety of intermediary firms, including those that can be classified as distributors, wholesalers, retailers, transportation providers, and brokers. Some of these intermediary firms take physical possession of the goods, some take title to the goods, and some take both. Thus, it is critical in the design of a distribution channel to take into consideration both the logistics channel and the marketing channel.


The logistics channel refers to the means by which products flow physically from where they are available to where they are needed. The marketing channel refers to the means by which necessary transactional elements are managed (for example, customer orders, billing, accounts receivable). (Page 240)


  1. Pick two of the following direct-to-customer (DTC) fulfillment channel structures and discuss their characteristics, advantages and disadvantages.



  • Integrated Fulfillment
  • Dedicated Fulfillment
  • Outsourced Fulfillment
  • Drop Ship Fulfillment
  • Store Fulfillment
  • Flow-through fulfillment


Integrated fulfillment means that the retailer operates one distribution network to service two channels – both retail stores and Internet sites where customers can buy direct. In a typical distribution center for this model, both store orders and consumer orders are received, picked, packed, and shipped. One advantage to this model is low start-up costs. If the retailer has an established distribution network that handles store orders and then decides to develop an Internet presence, the existing network can service both. In other words, new distribution centers need not be built. This would also eliminate the need to have a duplicate inventory to handle the Internet orders. Another advantage to this model is workforce efficiency because of consolidated operations. The existing workforce now has an opportunity to move more volume through a fixed-cost facility. However, this model has several challenges. First, the order profile will change with the addition of consumer Internet orders. While store orders would probably be picked in case and/or pallet quantities, consumer orders would require consumer units (eaches) in smaller order quantities. Second, products might not be available in eaches.  Third, the addition of unit pick (each pick) would require a “fast pick”, or broken case, operation to be added to the distribution center.  Finally, a conflict might arise between a store order and an Internet order if there is not sufficient inventory to fill both.


Dedicated Fulfillment Another option for the retailer that desires to have both a store and an Internet presence is called dedicated fulfillment, which achieves the same delivery goals as integrated fulfillment but with two separate distribution networks. Having a separate distribution network for store delivery and consumer delivery eliminates most of the disadvantages of integrated fulfillment. However, now the retailer is faced with duplicate facilities and duplicate inventories. This assumes that the retailer offers exactly the same product offering through both channels. However, many retailers offer many more products on their Internet sites than they offer in their stores. This makes dedicated fulfillment a more logical choice.


Outsourced Fulfillment While both integrated and dedicated fulfillment assume that the retailer will perform the fulfillment itself, outsourced fulfillment assumes that another firm will perform the fulfillment. Many retailers will maintain internal control of store fulfillment and outsource some, if not all, Internet fulfillment to a third party.  One advantage of this outsourcing is low start-up costs for the retailer to service the Internet channel. Also, possible transportation economies could result from using outsourced fulfillment for Internet orders. A major disadvantage often cited with outsourcing fulfillment is the loss of control the retailer might experience over service levels. So, the major benefit of outsourced fulfillment is the ability to use existing external expertise in fulfillment. The major disadvantage of this model is the potential loss of control.


Drop-Shipped Fulfillment According to the model known as drop-shipped fulfillment, which is also referred to as direct store delivery, the manufacturer delivers its product directly to a retailer’s stores, bypassing the retailer’s distribution network. A major advantage of this model is the reduction of inventory in the distribution network. This occurs because the retailer does not need to stock the manufacturer’s inventory in its distribution centers. Another major advantage to the manufacturer is the direct control of its inventories at the store level. A disadvantage to the retailer is the possible reduction of inventory visibility of the manufacturer’s products since the retailer does not “touch” these products in its distribution network.


This type of model requires close collaboration and agreement between the manufacturer and retailer for several reasons. First, not every retailer supplier can do drop-shipped fulfillment.   From a practical perspective, if every supplier to a store delivered direct on a daily basis, the number of delivery vehicles and manufacturer personnel in a store would cause overwhelming congestion at the store. Second, the retailer and manufacturer need to agree on the types and timing of information shared on inventory levels to provide the retailer with the proper level of inventory visibility. Finally, drop-shipped fulfillment works best for products that have a short shelf life and/or where freshness is a requirement. As such, this model makes sense for a limited number of products sold in a retail store.


Store Fulfillment For a retailer that has both a storefront as well as an Internet presence, store fulfillment can offer several opportunities. In this model, the order is placed through the Internet site. The order is sent to the nearest retail store where it is picked and put aside for the customer to pick up. Several advantages exist for this type of fulfillment. First, there is a short lead time to the customer if the item is in stock. Second, there are low start-up costs for the retailer. Inventory is already in place in close proximity to the consumer. Third, returns can be handled in the usual manner through the retail store. Finally, the product will be available in consumer units.


Several disadvantages exist for this type of fulfillment. First, there might be reduced control and consistency over order fill since each store will be responsible for its own order picking. Second, conflict may arise between inventories. Stores hold inventories for the shopper, which can result in impulse buys. Now the store is required to remove the item from the shelf for an Internet order, resulting in a possible out-of-stock at the shelf. One method to alleviate this conflict is to adjust the profit of the store so it also gets credit for the Internet sale. Third, the retailer must have real-time visibility to in-store inventories in order to satisfy the Internet order. Finally, stores lack sufficient space to store product. Staging products for customer pickups in any area of the store takes space away to generate additional sales for the store.


Flow-Through Fulfillment is very similar to store fulfillment. The main difference between the two is that in flow-through fulfillment the product is picked and packed at the retailer’s distribution center and then sent to the store for customer pickup. The flow-through model eliminates the inventory conflict the store might realize between store sales and Internet sales. Because the consumer is providing the pickup service, the retailer avoids the cost of the “last mile” transportation. The retailer also does not need store-level inventory status in the flow-through model. Returns can be handled through the existing store network, as in store fulfillment. Storage space at the store for pickup items remains an issue. (Pages 243-248)