Question 1

A hospital supply company invests in training for a team of sales associates to learn the details of each hospital chain's operations.In return,the hospital chain invests in a computer system that supports supply ordering.The supply company and the hospital chain are working to ensure the success of their long-term relationship by
A) reducing the risk of losing proprietary technology.
B) making a credible commitment.
C) encouraging competitive bidding.
D) facilitating vertical integration.
E) using parallel sourcing.

Accepted Answer

By investing in training and a computer system, both the hospital supply company and the hospital chain are making a credible commitment to each other. This helps to ensure that the relationship will last long-term and both parties will benefit from the partnership.

Question 2

To build trust in a cooperative relationship,both firms can
A) rely on competitive bidding.
B) make mutual investments in specialized assets.
C) write short-term contracts that must be renewed frequently.
D) increase their vertical integration.
E) use outsourcing of noncore activities.

Accepted Answer

Making mutual investments in specialized assets encourages both firms to commit to one another and signals that they intend to have a long-term relationship. This type of investment makes it more difficult for either party to break the relationship without significant loss. Options A, C, D, and E do not build trust in a cooperative relationship as effectively as mutual investments in specialized assets. Competitive bidding and short-term contracts may signal a lack of commitment, which can undermine trust. Vertical integration and outsourcing do not involve building a cooperative relationship with another firm.

Question 3

When there is a minimal need for close long-term cooperation between a company and its suppliers,which of the following strategies is the most appropriate?
A) Full integration
B) Taper integration
C) Competitive bidding
D) Long-term contracting
E) Diversification based on economies of scope

Accepted Answer

Competitive bidding is the most appropriate strategy when there is a minimal need for close long-term cooperation between a company and its suppliers. This strategy allows the company to select the supplier with the best price and quality for each individual transaction or purchase, without committing to a long-term relationship. This is particularly useful when the company needs flexibility in its supply chain and does not require the benefits of full integration, taper integration, or long-term contracting. Economies of scope diversification may be appropriate for some companies, but it is not directly related to supplier management.

Question 4

Long-term contracts
A) are preferable to short-term contracts when there is a minimal need for cooperation.
B) are preferable to vertical integration when it is not feasible to exchange hostages.
C) generally result in lower prices than does competitive bidding.
D) achieve exactly the same outcomes as vertical integration, but they incur higher bureaucratic costs.
E) are a low-cost alternative to vertical integration when it is possible to build cooperative relationships with suppliers.

Accepted Answer

Long-term contracts can be a low-cost alternative to vertical integration when it is possible to build cooperative relationships with suppliers. This allows the organizations to build a long-term relationship with the suppliers, providing stability and predictability. This can result in lower transaction costs and a better understanding of mutual needs and goals, which can lead to improved quality, reduced lead times, and lower costs.

Question 5

The price that one division of a company charges another division for its products,which are the inputs the other division requires to manufacture its own products refers to:
A) vertical disintegration.
B) vertical integration .
C) transfer pricing.
D) related diversification.
E) none of these.

Accepted Answer

Transfer pricing refers to the practice of setting prices for the transfer of goods or services between divisions within the same company. This is done to allocate costs and profits between different divisions and to ensure that each division is being charged a fair price for the inputs it requires to manufacture its own products. Vertical integration refers to a company's ownership of multiple stages of the supply chain, from raw materials to finished products, while vertical disintegration refers to the opposite - breaking up a company into separate independent units. Related diversification involves expanding a company into related businesses in order to benefit from synergies and economies of scope. None of these options accurately describe the practice of transfer pricing.

Question 6

Credible commitments
A) are believable promises or pledges to support the development of a long-term relationship between companies.
B) facilitate diversification based on acquisitions and restructuring.
C) facilitate competitive bidding.
D) facilitate vertical integration.
E) reduce the risk of losing proprietary technology to a venture partner and facilitate vertical integration.

Accepted Answer

Credible commitments refer to promises or pledges that are seen as believable, and which can support the development of long-term relationships between companies. This can include commitments to invest in shared projects or to protect the interests of the other party. The other options all refer to different strategies or processes that may be facilitated by credible commitments, but they do not describe the concept itself.

Question 7

In which of the following is a firm most likely to lose direct control over value creation activities?
A) Merger
B) Acquisition
C) Vertical integration
D) Strategic alliance
E) Outsourcing

Accepted Answer

Outsourcing involves delegating certain value creation activities to third-party service providers, which means the firm loses direct control over those activities. The other options - merger, acquisition, vertical integration, and strategic alliance - typically involve the firm gaining greater control over value creation activities.

Question 8

Which of the following problems is (are)associated with a strategy of vertical integration?
A) An increasing cost structure
B) Manufacturing disadvantages that arise because of rapidly changing technology
C) Marketing disadvantages that arise when demand is unpredictable
D) All of these
E) None of these

Accepted Answer

Vertical integration, which involves owning and controlling multiple stages of a supply chain, can lead to an increasing cost structure due to the high capital investment required for acquiring and integrating new stages. This can also result in manufacturing disadvantages when new technology emerges more rapidly than can be implemented. Additionally, it can create marketing disadvantages when demand is unpredictable, leaving the company with excess inventory or underutilized production capacity. Therefore, all of these problems are associated with a strategy of vertical integration.

Question 9

Outsourcing
A) eliminates the need for a value chain.
B) reduces the firm's dependence on its value chain.
C) reorders the steps in a firm's value chain.
D) moves some value chain activities outside the firm.
E) strengthens the firm's capabilities in each value chain function.

Accepted Answer

Outsourcing involves moving some or all of a firm's value chain activities outside of the firm to be performed by a third-party vendor, therefore eliminating the need for those activities within the firm. This can reduce the firm's dependence on its value chain, but it does not eliminate the need for a value chain altogether. It also does not necessarily reorder the steps in the value chain or strengthen the firm's capabilities in each function.

Question 10

When technology in an industry is changing rapidly,a company pursuing a strategy of vertical integration may find itself
A) locked into an old, inefficient technology.
B) able to sell its products at continually lower prices.
C) increasing returns on its assets.
D) all of these choices.
E) none of these choices.

Accepted Answer

Vertical integration involves owning and controlling multiple stages of a supply chain, from production to distribution. This can often lead to investment in fixed assets and technology specific to that supply chain. In a rapidly changing technological landscape, this can result in a company becoming locked-in to an older, possibly less efficient technology compared to competitors who have the flexibility to adopt new technologies or partner with more innovative suppliers. This can result in decreased competitiveness and potentially decreased returns on assets. Therefore, option A is the best choice as it is the most accurate reflection of the potential risks of pursuing a vertical integration strategy in a rapidly changing technological environment.

Question 11

Vertical integration is based on a company entering industries that add ____ to its core products.
A) costs
B) little or nothing
C) incremental elements
D) shipping expenses
E) value

Accepted Answer

Vertical integration involves a company entering industries that add value to its core products. By doing so, the company can take control of more stages in the supply chain, reduce costs, improve quality and efficiency, and ultimately create more value for its customers. Therefore, the best choice is E.

Question 12

Ownership of retail outlets may be important for a manufacturer if
A) the products produced by the manufacturer are not complex.
B) after-sales service is required for complex products.
C) products are expended in consumption.
D) products are intended for one-time use.
E) products are inexpensive.

Accepted Answer

If the products produced by the manufacturer are complex and require after-sales service, then having ownership of retail outlets can ensure that proper after-sales service is provided to customers. This can help improve customer satisfaction and loyalty, which in turn can benefit the manufacturer's sales and reputation.

Question 13

Another name for long-term cooperative relationships between two or more companies who agree to commit resources to develop new products is
A) horizontal integration.
B) outsourcing.
C) strategic alliance.
D) joint venture.
E) vertical integration.

Accepted Answer

The term "strategic alliance" best describes long-term cooperative relationships between two or more companies who agree to commit resources to develop new products. Horizontal integration refers to the process of merging companies that operate on the same level in the value chain, while outsourcing involves hiring a third-party contractor to perform tasks or services. Joint ventures and vertical integration involve collaboration between companies, but they are not specific to developing new products.

Question 14

Companies can maintain market discipline over suppliers by
A) outsourcing.
B) demanding hostages.
C) attaining a credible commitment.
D) parallel sourcing.
E) full integration.

Accepted Answer

The answer of Companies can maintain market discipline over suppliers...

Question 15

A company pursuing a strategy of vertical integration may expand its operations
A) backward into an industry that produces inputs for the company's products.
B) forward into an industry that uses, distributes, or sells the company's products.
C) laterally into an industry that competes with the company's products.
D) A and B.
E) A and C.

Accepted Answer

A company pursuing a strategy of vertical integration may choose to expand its operations backward into an industry that produces inputs for the company's products (referred to as backward integration) or forward into an industry that uses, distributes, or sells the company's products (referred to as forward integration). Therefore, the best choice that satisfies both options is D. The company may expand its operations in both directions if it chooses to do so. It is not logical for a company pursuing vertical integration to expand laterally into an industry that competes with its products as this conflicts with the goal of vertical integration, which is to strengthen the company's position in the supply chain by controlling more stages of the production process.

Question 16

John's surfboard shop has a long-term relationship with two surfboard makers.John is using
A) parallel sourcing.
B) cross-selling.
C) product bundling.
D) vertical integration.
E) horizontal integration.

Accepted Answer

Parallel sourcing involves maintaining relationships with multiple suppliers for a particular product or service. In this case, John has a long-term relationship with two surfboard makers, indicating that he is using parallel sourcing to ensure a consistent supply of surfboards for his shop.

Question 17

Under which of the following circumstances is vertical integration hazardous?
A) When the technology involved in different stages of production is changing rapidly
B) When vertical integration involves moving downstream into retailing
C) When the value added by successive stages of production is declining
D) When the industries involved are undergoing rapid expansion
E) When the company's competitors are also following a strategy of vertical integration

Accepted Answer

When the technology involved in different stages of production is changing rapidly, vertical integration can be hazardous because it may lead to the company being unable to keep up with the changes in technology and losing its competitive advantage. This can also result in sunk costs from outdated equipment and technology.

Question 18

Which of the following strategies facilitates the implementation of a just-in-time inventory system?
A) Short-term contracts
B) Vertical integration
C) Unrelated diversification
D) Diversification based on transferring competencies
E) Diversification based on realizing economies of scope

Accepted Answer

Vertical integration facilitates just-in-time inventory by ensuring better control over the supply chain, reducing lead times, and improving coordination between production and supply.

Question 19

All of the following are benefits of horizontal integration except:
A) Higher cost structure
B) Increased product differentiation
C) Replicated business model
D) Increased bargaining power over suppliers
E) All of these are benefits of horizonatal integration

Accepted Answer

Higher cost structure is not a benefit of horizontal integration, but rather a potential drawback. Horizontal integration can lead to economies of scale, increased bargaining power, and the ability to offer a wider range of products or services. Replicated business models and increased bargaining power over suppliers are both potential benefits of horizontal integration, as is increased product differentiation if the combined company is able to bring complementary products or services together in innovative ways.

Question 20

Outsourcing occurs when a firm
A) buys one of its rivals.
B) merges with one of its suppliers.
C) enters into a joint venture with a rival.
D) hires another firm to perform value creation activities.
E) enters into contracts with two suppliers simultaneously.

Accepted Answer

Outsourcing occurs when a firm hires another firm to perform value creation activities. The outsourcing firm contracts out a business process or service to another company, rather than performing it in-house. This could be to reduce costs, improve efficiency, or gain access to specialized expertise.

Quiz 9: Corporate-Level Strategy: Horizontal Integration, Vertical Integration, and Strategic Outsourcing

To build trust in a cooperative relationship,both firms can

When there is a minimal need for close long-term cooperation between a company and its suppliers,which of the following strategies is the most appropriate?

Long-term contracts

The price that one division of a company charges another division for its products,which are the inputs the other division requires to manufacture its own products refers to:

Credible commitments

In which of the following is a firm most likely to lose direct control over value creation activities?

Which of the following problems is (are) associated with a strategy of vertical integration?

Outsourcing

When technology in an industry is changing rapidly,a company pursuing a strategy of vertical integration may find itself

Vertical integration is based on a company entering industries that add ____ to its core products.

Ownership of retail outlets may be important for a manufacturer if

Another name for long-term cooperative relationships between two or more companies who agree to commit resources to develop new products is

Companies can maintain market discipline over suppliers by

A company pursuing a strategy of vertical integration may expand its operations

John's surfboard shop has a long-term relationship with two surfboard makers.John is using

Under which of the following circumstances is vertical integration hazardous?

Which of the following strategies facilitates the implementation of a just-in-time inventory system?

All of the following are benefits of horizontal integration except:

Outsourcing occurs when a firm