A. Which of the following is an organizationally-driven reason for outsourcing?
a) Turn fixed costs into variable costs
b) Improve risk management
c) Improve effectiveness by focusing on what the firm best does
d) Reduce costs through lowered cost-structure and increased flexibility
e) Improve credibility and image by associating with superior providers
B. Which of the following is NOT an example of postponement activity carried out at the distribution centre?
a) Updating receiving schedules after supplier delays or disruptions
b) Breaking “bulk” inventories into smaller packages of various sizes
c) Attaching labels to design t-shirts
d) Adding power modules to product kits
e) Inserting “user manuals” into product boxes
C. “Drop Shipping” is a logistics technique periodically used by retailers to reduce transportation costs and time. Which of the following is not true regarding “drop shipping” in such a situation?
a) The customer orders from the retailer
b) The retailer orders from the manufacturer
c) The physical shipment would go from the manufacturer to the retailer
d) The customer pays the retailer
e) None – all of the above would occur in such a drop ship situation
The Correct Answer and Explanation is :
A. Organizationally-driven reason for outsourcing:
Correct answer: a) Turn fixed costs into variable costs
Explanation:
Outsourcing is often motivated by a desire to reduce fixed costs, which are expenses that remain constant regardless of business activity. By outsourcing certain functions, firms can convert fixed costs into variable costs, which are more flexible and dependent on the volume of production or services. This allows businesses to adapt more easily to market conditions, fluctuations in demand, and other variables.
For instance, a company might outsource manufacturing to a third-party provider, which would allow it to pay only for the units produced rather than maintaining expensive in-house facilities. This shift can help companies reduce overhead and manage their expenses more efficiently. This aligns with the objective of outsourcing being an effective strategy for improving financial flexibility and managing costs.
B. Example of postponement activity:
Correct answer: a) Updating receiving schedules after supplier delays or disruptions
Explanation:
Postponement is a strategy used in supply chain management to delay certain value-added activities until the last possible moment in the production and distribution process. This strategy is particularly useful when customization or market conditions are unpredictable. The key activities in postponement generally include those that can be done closer to the point of sale or distribution to better meet customer needs.
Examples of postponement activities in a distribution center include:
- Breaking “bulk” inventories into smaller packages to accommodate varying customer demands.
- Attaching labels to design t-shirts based on specific customer orders, allowing for personalization.
- Adding power modules to product kits or completing other assembly tasks to fulfill customer-specific configurations.
- Inserting “user manuals” into product boxes for final customer use.
However, updating receiving schedules is a logistics activity that occurs before the postponement process, and it is generally reactive to supply chain disruptions, rather than a value-added task that delays final product modifications.
C. Drop Shipping logistics technique:
Correct answer: c) The physical shipment would go from the manufacturer to the retailer
Explanation:
Drop shipping is a retail fulfillment method where the retailer doesn’t keep the products in stock. Instead, when a customer places an order, the retailer buys the product from a third-party supplier (such as a wholesaler or manufacturer) and has it shipped directly to the customer.
In a drop shipping scenario:
- The customer orders from the retailer, usually through the retailer’s website.
- The retailer orders from the manufacturer, which allows them to avoid holding inventory.
- The physical shipment goes directly from the manufacturer to the customer, not to the retailer.
- The customer pays the retailer, not the manufacturer, although the retailer may mark up the product price.
The key point in drop shipping is that the retailer doesn’t handle the physical shipment or inventory of the product. The error in the original question is that the shipment goes directly to the customer from the manufacturer, not to the retailer.
Now, let’s generate a visual representation to summarize these logistics concepts.
Here’s the flowchart summarizing the logistics of drop shipping, illustrating the steps and key players involved. Let me know if you’d like any changes or further details!