Chapter 1: Business Functions and Business Processes

TRUE/FALSE
1. One of the four functional areas of operation is Human Resources (HR).
ANS: T

PTS: 1

REF: 2

2. Historically, businesses have had organizational structures that separated the functional areas, but
business schools have not been organized like that.
ANS: F

PTS: 1

REF: 3

3. Information systems that are designed so functional areas share data are called integrated information
systems.
ANS: T

PTS: 1

REF: 4

4. Sales forecasts are historical records of sales.

ANS: F

PTS: 1

REF: 7

5. The business process of Cash Flow Management is handled under the Accounting and Finance
functional area of operation.
ANS: T

PTS: 1

REF: 2 | 7

6. The functional area of Supply Chain Management (SCM) sets prices.

ANS: F

PTS: 1

REF: 7 | 9

7. When manufacturing runs out of raw materials, its known as a stockout.

ANS: T

PTS: 1

REF: 11

8. To avoid stockouts, manufacturers might carry extra raw materials. This excess is known as safety
stock.
ANS: T

PTS: 1

REF: 11

9. Accounts receivable are recorded by the Human Resources department (HR).

ANS: F

PTS: 1

REF: 12

10. The business function of government compliance falls under the Supply Chain Management functional
area of operation.
ANS: F

PTS: 1

REF: 2 | 14

MULTIPLE CHOICE
1. Which of the following is a functional area of operation?

a. Packaging
b. Supply Chain Management
ANS: B

PTS: 1

c. Shipping
d. Baking
REF: 2

2. Which business function is performed by Accounting and Finance?

a. Cost allocation and control
c. Benefits
b. Taking sales orders
d. Plant maintenance
ANS: A

PTS: 1

REF: 2

3. What are the computers, people, procedures, and software that store, organize, and deliver information
in an organization?
a. The CPU
c. Information systems
b. The Process System
d. Personnel systems
ANS: C

PTS: 1

REF: 3

4. Todays managers are beginning to think in terms of business process. A business process cuts across
which functional areas of operation?
a. Marketing and Sales
d. Human Resources
b. Supply Chain Management
e. All of the above
c. Accounting and Finance
ANS: E

PTS: 1

REF: 3

5. Information systems that can be designed so that functional areas of operation share data are called:
a. integrated information systems
c. non-middleware information systems
b. complete information systems
d. linked information systems
ANS: A

PTS: 1

REF: 4

6. Estimates of future product demand, which are the amount of a product that customers will want to
buy, are called:
a. sales forecasts
c. sales diving
b. sales divining
d. sales deriving
ANS: A

PTS: 1

REF: 7

7. Which of the following is an input to the Marketing and Sales functional area?
a. Production plans
c. Per-unit cost
b. Raw material orders
d. Accounts payable data
ANS: C

PTS: 1

REF: 10

8. When purchasing a computer, the functional area responsible for handling the financial help for
purchasing that computer is:
a. Marketing and Sales
c. Supply Chain Management
b. Accounting and Finance
d. Human Resources
ANS: B

PTS: 1

REF: 3

9. Successful business managers view their business operations from the perspective of a(n):
a. satisfied customer
c. profitable sale
b. positive cash flow
d. accurate sales forecast
ANS: A

PTS: 1

REF: 4

10. When manufacturing runs out of raw material, it is known as a(n):

a. shortfall
c. depletion
b. empty shelf
d. stockout
ANS: D

PTS: 1

REF: 11

11. ____ can result in management overinvesting in inventory.

a. Bulging raw materials
c. Safety stock
b. Stockup
d. Excess baggage
ANS: C

PTS: 1

REF: 11

12. Which of the following outputs would emerge from the Accounting and Finance functional area?
a. Packaging orders
c. Regulation compliance
b. Sales strategy
d. Financial reports
ANS: D

PTS: 1

13. Which of the following is an input to HR?

a. Personnel forecasts
b. Sales data
ANS: A

PTS: 1

REF: 13
c. Layoff and recall company policy
d. Travel expense company policy
REF: 14

COMPLETION
1. ____________________ programs are core software used by companies to coordinate information in
every area of the business.
ANS:
Enterprise Resource Planning
ERP
Enterprise Resource Planning (ERP)
ERP (Enterprise Resource Planning)
PTS: 1

REF: 1

2. A collection of activities that takes one or more kinds of input and creates an output that is of value to
the customer is called a(n) ____________________.
ANS: business process
PTS: 1

REF: 1

3. The business functions of financial accounting, cost allocation and control, planning and budgeting,
and cash-flow management take place in the ____________________ functional area of operation.
ANS:
Accounting and Finance
A/F
Accounting and Finance (A/F)
A/F (Accouting and Finance)

PTS: 1

REF: 2

4. One example of the business function that happens in the human resource area of operation would be
____________________.
ANS:
Recruiting and hiring
Training
Payroll
Benefits
Government compliance
PTS: 1

REF: 2

5. A(n) ____________________ includes the computers, people, procedures, and software that store,
organize, and deliver information.
ANS:
information system
IS
information system (IS)
IS (information system)
PTS: 1

REF: 3

6. Information systems designed so that functional areas share data are called ____________________.
ANS:
integrated information systems
integrated IS
integrated information systems (IIS)
IIS
PTS: 1

REF: 4

7. A shortfall of raw materials is known as a(n) ____________________.

ANS: stockout
PTS: 1

REF: 11

8. To avoid stockouts, manufacturers might carry extra raw materials known as ____________________.
ANS: safety stock
PTS: 1

REF: 11

SHORT ANSWER
1. Describe the difference between functional areas of operation and business processes. Give an example
of a business process.
ANS:

Most companies have four main functional areas of operation. Each area comprises a variety of
narrower business functions, which are activities specific to that functional area of operation.
Recall that a business process is a collection of activities that takes one or more kinds of input and
creates an output that is of value to the customer.
Thinking in terms of business processes helps managers to look at their organization from the
customers perspective. For example, suppose that a customer wants to purchase a new computer.
PTS: 1

REF: 2-3

2. What are integrated information systems?

ANS:
Sharing data effectively and efficiently between and within functional areas leads to more efficient
business processes. Information systems can be designed so that functional areas share data. These
systems are called integrated information systems.
PTS: 1

REF: 4

3. Give some examples of Marketing and Sales in a small business such as a coffee shop or some other
simple example.
ANS:
For the most part, this is a cash business and does not require formal record keeping, but you still need
to keep track of your customers so that you can send flyers to repeat customers or send occasional
thank you notes. Thus, your records must show not only the amount of sales, but also must identify
repeat customers.
Product development can be done informally in such a simple business; you gather information about
who buys which kind of lemonade and note what customers say about each product. You also
analyze historical sales records to spot trends that are not obvious.
PTS: 1

REF: 6-7

4. Choose an example company and give situations for each business process in the accompanying
figure. Depending on your major or interest, choose one functional area of operation.

Figure 1-1 Examples of functional areas of operation and their business functions
ANS:
Depending on the company chosen, and the major, answers will vary. For example, if a student is
interested in HR in an engineering firm, they might discuss the process for recruiting and hiring a
graduating senior from their university. Then they could describe some training courses the new
engineer would take. Payroll and benefits to the new employee should be discussed. Finally,
government compliance such as the equal opportunity act could also be mentioned.
PTS: 1

REF: 2

5. What departments are involved in the business process of selling a new smartphone?
ANS:
Refer to the accompanying figure for answers:

Figure 1-2 Sample business processes related to the sale of a smartphone

PTS: 1

REF: 3

6. Describe the material order process in the accompanying figure:

Figure 1-3 A process view of business operations

ANS:
When production is alerted to a new order, if raw materials are needed for this order, then production
prompts purchasing to arrange for the purchase and delivery of raw materials. Accounting must pay
for those raw materials. They are delivered to the Logistics function and then sent to production to
make the order.
PTS: 1

REF: 5

Chapter 2: The Development of Enterprise Resource Planning Systems

TRUE/FALSE
1. Individual information systems for each functional area in a company are known as silos.
ANS: T

PTS: 1

REF: 20

2. Silos of information are also known as stovepipes.

ANS: T

PTS: 1

REF: 20

3. The complex hardware and software that goes into an ERP system was not available until the 1970s.
ANS: F

PTS: 1

REF: 21

4. The capabilities of computer hardware doubling every 18 months is known as Gates Law.
ANS: F

PTS: 1

REF: 21

5. Scalability means that the capacity of a piece of equipment can be increased by adding new hardware.
ANS: T

PTS: 1

REF: 22

6. The software that holds data in an organized fashion is known as a database management system, or a
DBMS.
ANS: T

PTS: 1

REF: 22

7. Materials requirements prediction (MRP) software allows a plant manager to plan production and raw
materials requirements by guess-timation.
ANS: F

PTS: 1

REF: 23

8. The direct computer-to-computer exchange of standard business documents is known as EDI, or

electronic data interchange.
ANS: T

PTS: 1

REF: 23

9. The functional model of business and management was useful for decades and is still the current
school of thought.
ANS: F

PTS: 1

REF: 24

10. SAP expanded into international markets but kept the software in a single language, German, and a
single currency, the Euro.
ANS: F

PTS: 1

REF: 26

11. SAPs R/3 can only run on mainframe computers.

ANS: F

PTS: 1

REF: 27

12. SAPs goal was to develop a standard software product that could be configured to meet the needs of
each company.
ANS: T

PTS: 1

REF: 26

13. Old systems are known as legacy systems.

ANS: T

PTS: 1

REF: 27

14. Open architecture encourages software companies are encouraged to develop add-on software
products that can be integrated with existing software, such as SAPs R/3.
ANS: T

PTS: 1

REF: 27

15. In the accompanying figure, data is entered into the system once and then used throughout the
organization.

Figure 2-4 Data flow within an integrated information system

ANS: T

PTS: 1

REF: 29

16. An ERP system allows data to be entered once, and then used throughout the organization.
ANS: T

PTS: 1

REF: 29

17. An ERP module is a module that automates a specific business function.

ANS: F

PTS: 1

REF: 31

18. A companys level of data integration is highest when the company uses one vendor to supply all of its
ERP modules.

ANS: T

PTS: 1

REF: 31

19. An important consideration in minimizing the risk of fraud and abuse is defining limits on the dollar
value of business transactions that certain employees can process.
ANS: T

PTS: 1

REF: 32

20. A best practice is the best, most efficient way of handling a certain business process.
ANS: T

PTS: 1

REF: 34

21. One benefit of ERP systems is that ERP integrates people and data while eliminating the need to
update and repair many separate computer systems.
ANS: T

PTS: 1

REF: 36

22. A large company will likely spent $1 million on ERP implementation, which includes software and
training.
ANS: F

PTS: 1

REF: 37

23. Not every company is a good match with the constraints inherent in ERP.
ANS: T

PTS: 1

REF: 37

24. SAPs internal programming language is Visual Basic.

ANS: F

PTS: 1

REF: 38

25. A return on investment (ROI) is an assessment of an investment projects value, calculated by dividing
the value of the projects benefits by the projects cost.
ANS: T

PTS: 1

REF: 39

MULTIPLE CHOICE
1. Individual information systems for each functional area in a company are known as:
a. silos
c. tubers
b. bagpipes
d. separated systems
ANS: A

PTS: 1

REF: 20

2. The complex software and hardware required for ERP systems was not available until the
a. 1960s
c. 1980s
b. 1970s
d. 1990s
ANS: D

PTS: 1

REF: 21

3. The observation that the number of transistors built onto a computer chip doubles every 18 months is
known as:
a. Moores Law
c. Doubletake
b. Gates Prophesy
d. Acceleration
ANS: A

PTS: 1

REF: 21

4. When a piece of equipments capacity is exceeded, its capacity can be increased by adding new
hardware. This is commonly known as:
a. adaptability
c. scalability
b. middleware
d. computability
ANS: C

PTS: 1

REF: 22

5. In the 1980s, ____, the technology that holds data in an organized fashion, existed for ERP
development.
a. spreadsheets
c. client/server architecture
b. DBMS
d. word-processors
ANS: B

PTS: 1

REF: 22

6. ____ software allows a plant manager to plan production and raw materials requirements by working
backward from the sales forecast.
a. DBMS
c. MRP
b. EDI
d. EFT
ANS: C

PTS: 1

REF: 23

7. The direct computer-to-computer exchange of standard business documents is known as:

a. MRP
c. EDI
b. e-mail
d. DDS
ANS: C

PTS: 1

REF: 23

8. In a process-oriented company, the flow of information and management activity is ______, in line
with the flow of materials and products.
a. horizontal across functions
b. vertical from top level management down through the hierarchical management structure
c. vertical through functions
d. horizontal from marketing and sales to inventory and production
ANS: A

PTS: 1

REF: 24

9. Software ____ are individual programs that can be purchased, installed, and run separately, but extract
data from the common database.
a. nodes
c. modules
b. chunks
d. tidbits
ANS: C

PTS: 1

REF: 26

10. In ______, third-party software companies are encouraged to develop add-on software products that
can be integrated with existing software.
a. open architecture
c. integrated pieces
b. clip-ons
d. piecemeal nodes
ANS: A

PTS: 1

11. ____ is SAPs biggest competitor.

a. J.D. Edwards
b. PeopleSoft
ANS: D

PTS: 1

REF: 27
c. Microsoft
d. Oracle
REF: 28

12. Old information and computer systems are known as ______.

a. dinosaurs
c. legacy systems
b. passe systems
d. relics
ANS: C

PTS: 1

REF: 27

13. Which ERP package is a popular software choice for managing human resources and financial
activities at universities?
a. SAP
c. Microsoft Dynamics
b. PeopleSoft
d. J.D. Edwards
ANS: B

PTS: 1

14. Which R/3 module records sales orders?

a. SD
b. MM
ANS: A

PTS: 1

REF: 27-28
c. PP
d. QM
REF: 29

15. Which of the following modules in SAP ERP maintains production information?
a. SD
c. PP
b. MM
d. QM
ANS: C

PTS: 1

REF: 29

16. The ______ module helps the company manage fixed-asset purchases (plant and machinery) and
related depreciation.
a. Plant Maintenance
c. Materials Management
b. Asset Management
d. Product Planning
ANS: B

PTS: 1

REF: 30

17. Which of the following module in SAP is a set of tools that can automate the activities in SAP ERP?
a. Workflow
c. Financial Accounting
b. Controlling
d. Project System
ANS: A

PTS: 1

REF: 31

18. When top management is queried on the reasons for implementing ERP systems, the overriding
answer is ____.
a. cost saving
c. increased profitability
b. control
d. inventory management
ANS: B

PTS: 1

REF: 31

19. Which R/3 module records transactions in the general ledger?

a. CO
c. FI
b. WF
d. PS
ANS: C

PTS: 1

REF: 31

20. After a company chooses the modules they want to implement, they must decide on ____ options,
which allow the customer to customize the modules to fit their business to some extent.
a. settings
c. flexible
b. configuration
d. tandem

ANS: B

PTS: 1

REF: 32

21. As part of the ______ process, a company can define any number of tolerance groups with a range of
limits, and can then assign employees to these tolerance groups.

Figure 2-6 A customization example: tolerance groups to set transaction limits

a. manufacturing
b. development
ANS: C

c. configuration
d. programming
PTS: 1

REF: 32

22. Which of the following is a benefit to running an ERP system?

a. Global integration
b. Elimination of updating and repairing multiple systems
c. Capability to manage operations, not just monitor them
d. All of the above are benefits
ANS: D

PTS: 1

REF: 36

23. An ERP system for a large company will cost ____, including software, training, and implementation.
a. $100-500 million
c. $1-5 billion
b. $1-5 million
d. $50,000-$500,000
ANS: A

PTS: 1

REF: 37

24. SAPs internal programming language is called:

a. R/3
c. Visual Basic
b. C++
d. ABAP
ANS: D

PTS: 1

REF: 38

25. One assessment of a projects value is calculated by the:

a. DVT
c. ROI
b. PMT
d. PPT
ANS: C

PTS: 1

REF: 39

26. Bumpy rollouts of ERP systems are usually caused by:

a. software problems
b. people problems
ANS: B

PTS: 1

c. hardware problems
d. configuration problems
REF: 40

COMPLETION
1. ____________________ states that the number of transistors on a computer chip doubles every 24
months.
ANS: Moores Law
PTS: 1

REF: 21

2. A central-local computer arrangement is called ____________________ architecture.

ANS:
client server
client/server
client-server
PTS: 1

REF: 22

3. ____________________ means that the capacity of a piece of equipment can be increased by adding
new hardware.
ANS:
Scalable
Scalability
PTS: 1

REF: 22

4. The software that holds that data in an organized fashion, and that allows for the easy retrieval of data,
is the ____________________.
ANS:
database management system
DBMS
database management system (DBMS)
DBMS (database management system)
PTS: 1

REF: 22

5. ____________________ software allows a plant manager to plan production and raw materials
requirements by working backward from the sales forecast.
ANS:
MRP
material requirements planning
material requirements planning (MRP)
MRP (material requirements planning)
PTS: 1

REF: 23

6. The prediction of future sales is the ____________________.

ANS: sales forecast
PTS: 1

REF: 23

7. ____________________ is the direct computer-to-computer exchange of standard business

documents.
ANS:
Electronic data interchange
EDI
Electronic data interchange (EDI)
EDI (electronic data interchange)
PTS: 1

REF: 23

8. Originially, in English, SAP was an acronym for ____________________.

ANS: Systems Analysis and Program Development
PTS: 1

REF: 25

9. In ____________________, third-party software companies are encouraged to develop add-on

software products that can be integrated with existing software.
ANS: open architecture
PTS: 1

REF: 27

10. Old systems are known as ____________________.

ANS: legacy systems
PTS: 1

REF: 27

11. SAPs biggest competitor is ____________________.

ANS: Oracle
PTS: 1

REF: 28

12. The ____________________ records sales orders and scheduled deliveries. Information about the
customer (pricing, address and shipping instructions, billing details, and so on) is maintained and
accessed from this module.
ANS:
Sales and Distribution
SD
Sales and Distribution (SD)
SD (Sales and Distribution)
PTS: 1

REF: 29

13. When data are entered into the system, data in all related files in the ____________________ are
automatically updated.
ANS: central database
PTS: 1

REF: 33

14. R/3s design incorporates ____________________, which means that R/3 designers choose the best,
most efficient ways in which business processes should be handled.
ANS: best practices
PTS: 1

REF: 34

15. SAPs internal programming language is ____________________.

ANS:
ABAP
Advanced Business Application Programming
Advanced Business Application Programming (ABAP)
ABAP (Advanced Business Application Programming)
PTS: 1

REF: 38

16. ____________________ help businesses customize the software to fit their unique needs.
ANS: configuration
PTS: 1

REF: 38

17. An assessment of an investments project value that is calculated by dividing the value of the projects
benefits by the value of the projects cost is known as a(n) ____________________.
ANS:
ROI
return on investment
return on investment (ROI)
ROI (return on investment)
PTS: 1

REF: 39

SHORT ANSWER
1. The accompanying figure depicts Moores Law. What significance does this law have with regard to
the development of ERP systems?

Figure 2-1 The actual increase in transistors on a chip approximates Moores Law
ANS:
Computers had to be powerful enough to provide integrated, real time data for decision making
PTS: 1

REF: 21

2. Describe how information is exchanged between lower operating levels in the functional organization
shown in the accompanying figure.

Figure 2-2 Information and material flows in the functional business model
ANS:
No exchange of information occurs between lower operating groups. Instead, exchange of
information between operating groups is handled by top management which might not be
knowledgeable about the functional area.
PTS: 1

REF: 24

3. Describe how information is exchanged between lower operating levels in the business process model
shown in the accompanying figure:

Figure 2-3 Information and material flow in a process business model

ANS:
Information can flow between operating levels without top managements involvement.
PTS: 1

REF: 25

ESSAY
1. Besides the fact that ERP systems are integrated information systems and lead to more efficient
business processes, there are other benefits. Outline them.
ANS:
The significance of ERP lies in its many benefits. Recall that integrated information systems can lead
to more efficient business processes that cost less than those in unintegrated systems. In addition, ERP
systems offer the following benefits:
ERP allows easier global integration. Barriers of currency exchange rates, language, and
culture can be bridged automatically, so data can be integrated across international borders.
ERP integrates people and data while eliminating the need to update and repair many separate
computer systems. For example, at one point, Boeing had 450 data systems that fed data into
its production process; the company now has a single system for recording production data.
ERP allows management to actually manage operations, not just monitor them. For example,
without ERP, getting an answer to How are we doing? requires getting data from each
business unit and then analyzing that data for a comprehensive, integrated picture. The ERP
system already has all the data, allowing the manager to focus on improving processes. This
focus enhances management of the company as a whole, and makes the organization more
adaptable when change is required.
PTS: 1

REF: 36

2. Discuss the various costs associated with the implementation of an ERP system for a large company
and for a midsize company. How long does implementation take?
ANS:
The total cost of an ERP system implementation includes several factors, including the following:
The scale of the ERP software, which corresponds to the size of the company it serves
The need for new hardware capable of running complex ERP software

 Consultants and analysts fees

Length of time required for implementation (which causes disruption of business)
Training (which costs both time and money)
A large company, one with well over 1,000 employees, will likely spend $100 million to $500 million
for an ERP system with operations involving multiple countries, currencies, languages, and tax laws.
Such an installation might cost as much as $30 million in software license fees, $200 million in
consulting fees, additional millions to purchase new hardware, and even more millions to train
managers and employeesand full implementation of the new system could take four to six years.
A midsize company (one with fewer than 1,000 employees) might spend $10 million to $20 million in
total implementation costs and have its ERP system up and running in about two years.
PTS: 1

REF: 36-37

3. Discuss the reasons behind a bumpy rollout of an ERP system. Cite some real examples.
ANS:
You can find numerous cases of implementation woes in the news. W. L. Gore, the maker of GoreTex
fabric, had problems implementing its PeopleSoft system for personnel, payroll, and benefits. The
manufacturer sued PeopleSoft, Deloitte & Touche LLP, and Deloitte Consulting for incompetence. W.
L. Gore blamed the consultants for not understanding the system and leaving its Personnel department
in a mess. PeopleSoft consultants were brought in to resolve the problems after implementation, but
the fix cost W. L. Gore additional hundreds of thousands of dollars.
Hershey Foods (now The Hershey Company) had a rough rollout of its ERP system in 1999, due to its
use of what experts call the Big Bang approach to implementation, in which huge pieces of the
system are implemented all at once. Companies rarely use this approach because it is so risky.
Hersheys order-processing and shipping departments had glitches that were being fixed as late as
September. Because of that, Hershey lost a large share of the Halloween candy market that year.
Usually, a bumpy rollout and low ROI are caused by people problems and misguided expectations, not
computer malfunctions:
Some executives blindly hope that new software will cure fundamental business problems that
are not curable by any software. The root of a problem may lie in flawed core business
processes. Unless the company changes its business processes, it will just be computerizing an
ineffective way of doing business.
Some executives and IT managers dont take enough time for a proper analysis during the
planning and implementation phase.
Some executives and IT managers skimp on employee education and training.
Some companies do not place the ownership or accountability for the implementation project
on the personnel who will operate the system. This lack of ownership can lead to a situation in
which the implementation becomes an IT project rather than a company-wide project.
Unless a large project such as an ERP installation is promoted from the top down, it is doomed
to fail; top executives must be behind a project 100 percent if it is going to be successful.
A recent academic study attempting to identify the critical success factors of ERP
implementations showed that a good project manager was critical and central to success of a
project. In addition, training was crucialalong with a project champion, that is, someone
who might not be in the CEO role but who brings enthusiasm and leadership to a project.
ERP implementation brings a tremendous amount of change for users of the system. Managers
need to effectively manage that change in order to ensure a smooth implementation.
Many ERP implementation experts emphasize the importance of proper education and training for
both employees and managers. Most people will naturally resist changing the way they do their jobs.
Many analysts have noted that active top management support is crucial for successful acceptance and
implementation of such company-wide changes.
PTS: 1

REF: 40-41

Chapter 3: Marketing Information Systems and the Sales Order Process

TRUE/FALSE
1. In SAP R/3, relatively permanent data about customers is kept in the Customer Master Data table.
ANS: T

PTS: 1

REF: 61

2. In SAP R/3, relatively permanent data about inventory is kept in the Material Master Data table.
ANS: T

PTS: 1

REF: 61

3. In SAP R/3, relatively permanent data in the Material Master Data table is available to only one
module, the Materials Management module.
ANS: F

PTS: 1

REF: 61

4. In SAP R/3, relatively permanent data about customers in the Customer Master Data table is available
to only the Sales and Distribution module.
ANS: F

PTS: 1

REF: 61

5. SAP R/3s system allows one to group customers, which is commonly known as an "organizational
structure".
ANS: T

PTS: 1

REF: 61

6. In SAP R/3, the linked set of document numbers is called the "document flow".
ANS: T

PTS: 1

REF: 63

7. In SAP R/3 the electronic evidence of a transaction is called a document.

ANS: T

PTS: 1

REF: 56

8. The first step in the SAP ERP sales and distribution process is the Sales Order Processing step.
ANS: F

PTS: 1

REF: 56

9. Pricing cannot be set or configured in the SAP ERP system.

ANS: F

PTS: 1

REF: 56

10. Pricing can be set using condition techniques.

ANS: T

PTS: 1

REF: 64

11. CRM software stands for Custom Resource Management. This is a specialized type of ERP.
ANS: F

PTS: 1

REF: 66

12. Global ATP allows for searching of a particular product at multiple plants worldwide.

ANS: T

PTS: 1

REF: 71

13. Returned products to a company are processed more efficiently if the customer first calls for a RMA.
ANS: T

PTS: 1

REF: 55

14. An inquiry in the SAP ERP system occurs in the Delivery step of the Sales and Distribution cycle.
ANS: F

PTS: 1

REF: 56

15. In the SAP ERP system, delivery means releasing the documents that the warehouse uses to pick,
pack, and ship orders, rather than the traditional definition of transferring goods.
ANS: T

PTS: 1

REF: 57

16. The PO Number is a number assigned by a company to track orders in the SAP ERP system.
ANS: F

PTS: 1

REF: 58

17. With on-demand CRM, the software and computer equipment reside with the CRM provider; it is not
installed in-house.
ANS: T

PTS: 1

REF: 67

MULTIPLE CHOICE
1. In SAP ERP the electronic evidence of a transaction is called a(n) ____.
a. trail
d. audit number
b. marker
e. document
c. tag
ANS: E

PTS: 1

REF: 56

2. A customer calls up to find out how much 1000 units of a product would cost. This is an example of
____ in the sales and distribution process.
a. presales activities
d. delivery and billing
b. sales order processing
e. payment
c. inventory sourcing
ANS: A

PTS: 1

REF: 56

3. A customer is granted a 10% price discount in a large order. This is an example of an activity in ____
in the sales and distribution process.
a. presales activities
d. delivery and billing
b. sales order processing
e. payment
c. inventory sourcing
ANS: B

PTS: 1

REF: 56

4. A customer's order is checked to see if it can be produced and delivered by the requested date. This is
an example of ____ in the sales and distribution process.
a. presales activities
d. delivery and billing
b. sales order processing
e. payment

c. inventory sourcing
ANS: C

PTS: 1

REF: 57

5. A customer's documents are released to the warehouse so that the goods can be gathered, packed and
boxed. This is an example of ____ in the sales and distribution process.
a. presales activities
d. delivery and billing
b. sales order processing
e. payment
c. inventory sourcing
ANS: D

PTS: 1

REF: 57

6. A customer's remittance causes Cash to be debited and Accounts Receivable to be credited. This is an
example of ____ in the sales and distribution process.
a. presales activities
d. delivery and billing
b. sales order processing
e. payment
c. inventory sourcing
ANS: E

PTS: 1

REF: 57

7. In SAP ERP, the history of a transaction (such as a sales order) can be researched by looking at its
____.
a. trail mix
d. material master data
b. transaction index
e. sales master data
c. document flow
ANS: C

PTS: 1

REF: 63

8. What kind of software can give top management an overview of a company's complete relationship
with a customer?
a. One to One Marketing Software
b. Open Relationship Software
c. Denouement Software
d. Customer Relationship Management Software
e. Supply Chain Management Software
ANS: D

PTS: 1

REF: 67

9. In the sales order process, there is a number used in the SAP ERP sales order that in a paper process
would be pre-printed on the sales document, usually in sequential number order. Its assigned by the
customer to the sales order. What is this number?
a. Customer ID
c. Material Number
b. Purchase Order Number
d. Billing Code
ANS: B

PTS: 1

REF: 58

10. Setting prices for customers can be very complex. SAP helps by offering a control mechanism, called
____, to determine how much to charge a given customer for a given product.
a. pricing variance
c. condition technique
b. price fixing
d. fluctuation
ANS: C

PTS: 1

REF: 64

11. The ____ system communicates with SAP ERP, BW, and APO systems in developing and executing
its plans.
a. PPO
c. CRM

b. SSA
ANS: C

d. GUp
PTS: 1

REF: 69

12. What software can automatically route customers who contact the company to a sales representative?
Companies can use this software to forecast customer needs.
a. Marketing encyclopedias
c. One-to-one marketing
b. Sales campaign management
d. Sales force automation
ANS: D

PTS: 1

REF: 67

13. The SAP ERP system allows users to define various ways to group customers and salespeople. These
groups are called ____.
a. organizational structures
c. document flows
b. master data
d. audit trails
ANS: A

PTS: 1

REF: 61

14. In ____ CRM, the software and equipment reside with the CRM provider; it is not installed in-house.
a. walk-up
c. Internet
b. on-demand
d. ERP
ANS: B

PTS: 1

REF: 67

15. Which of the following are benefits to CRM?

a. Lower costs
b. Higher revenue
c. Improved strategy and performance measurement
d. All of the above
ANS: D

PTS: 1

REF: 72

COMPLETION
1. The goal of ____________________ software is to provide a single face to the customer.
ANS:
customer relationship management
CRM
customer relationship management (CRM)
CRM (customer relationship management)
PTS: 1

REF: 67

2. With global____________________, the R/3 system automatically checks all facilities and determines
the most cost-efficient facility to use to meet the customers request in terms of ordering and
delivering goods.
ANS:
ATP
Available-To-Promise
available to promise
PTS: 1

REF: 71

SHORT ANSWER
1. Briefly describe four kinds of decisions made by Marketing managers.
ANS:
What products should we produce?
How much of each product should we produce?
How are our products best promoted and advertised?
How should our products be distributed for maximum customer satisfaction?
What price should we charge for our products?
PTS: 1

REF: 50

2. In SAP ERP a sales order is entered only once, by the sales people. It need not be entered a second
time, in Accounting, to keep the books. Briefly explain why that second entry is not needed in SAP
R/3.
ANS:
By contrast, ERP systems integrate Accounting with all business processes, so that when a sales order
is recorded, the related accounting data is updated automatically.
PTS: 1

REF: 65

3. Briefly describe two CRM activities.

ANS:
One-to-one marketing: Once a customer is categorized, the company can tailor products, promotions,
and pricing accordingly.
Sales force automation: Occurrences of customer contacts are logged in the companys database.
Sales campaign management: This software lets a company organize a marketing campaign and
compile its results.
Marketing Encyclopedias: This software serves as a database of promotional literature about products.
Call center automation: When customers call a company to get assistance with a companys products,
representatives can query a knowledge management database containing information about the
product.
PTS: 1

REF: 67-68

4. What does the term Delivery mean in the SAP R/3 system?
ANS:
In the SAP R/3 system, the word delivery means releasing the documents that the warehouse uses to
pick, pack, and ship orders, rather than the traditional use of the term to describe the transferal of
goods.
PTS: 1

REF: 57

5. What are the three benefits of CRM?

ANS:
Lower costs
Higher revenue

Improved strategy and performance measurement

PTS: 1

REF: 72

Figure 3-1 The sales process at Fitter Snacker

6. Describe the problems with the Fitter Snacker sales orders and quotations, as illustrated in the
accompanying figure.
ANS:
Salesperson might make arithmetic error in quote.
Fax to home office may arrive be illegible
Fax to home office might not arrive before customer has called in order
Therefore, in-office clerk has no knowledge of order, terms of order.
PTS: 1

REF: 52

7. Describe the problems with the Fitter Snacker Credit Check, as illustrated in the accompanying figure.
ANS:
Because the credit report is sent infrequently to the sales department, the credit report might be very
out-of-date. This would then result in either granting credit to a customer who has exceeded their
credit limit, or denying credit to a customer who is below their credit limit.
PTS: 1

REF: 52

8. In the Fitter Snacker sales system, as illustrated in the accompanying figure, ideally, how should
returns be handled?
ANS:

Returns should be marked with an RMA - return material authorization, before being shipped back to
Fitter Snacker. This is to ensure proper credit on the customers account and order.
PTS: 1

REF: 52

9. In the accompanying diagram, Taking an Order in SAP ERP, what is A?

ANS:
Sold-to party: where the customers identification number is entered.
PTS: 1

REF: 58

10. In the accompanying diagram, Taking an Order in SAP ERP, what is B?

ANS:
PO Number: The number assigned by the customer to this sales order.
PTS: 1

REF: 58

11. In the accompanying diagram, Taking an Order in SAP ERP, what is C?

ANS:
Required Delivery Date: The date when the customer would like to receive the order.
PTS: 1

REF: 58

12. In the accompanying diagram, Taking an Order in SAP ERP, what is D?

ANS:
Material and Order quantity: What the customer is ordering.
PTS: 1

REF: 58

13. What is one-to-one marketing?

ANS:
Once a customer is categorized, the company can tailor products, promotions, and pricing accordingly.
Customers can be offered products related to what they are now buying (cross-selling) or
higher-margin products in the same line (up-selling).
PTS: 1

REF: 67

ESSAY
1. Describe the problems with Fitter Snackers sales quotations and orders.
ANS:
Giving a customer a price quotation and then taking the customers order should be a straightforward
process, but at Fitter it is not. For a new customer, the sales process begins with a sales call, which
might be over the telephone or in person. At the end of the sales call, the salesperson prepares a
handwritten quotation on a form that generates two copies. The original quotation goes to the
customer, and the middle copy is first faxed and then mailed to the sales office; the salesperson keeps
the bottom copy for his or her records. On the quotation form is a toll-free number that the customer
can call to place an order.
A number of problems can occur with this process, including the following:

The salesperson might make an error in the sales quotation. For example, a salesperson in the
Direct Sales Division might offer both a quantity discount and a discretionary discount. If the
salesperson is not careful, the two discounts combined might be so deep that the company
makes little or no profit on the order.

Salespeople fax a copy of their sales quotations to the sales office, but sometimes a customer
calls to place an order before the fax is transmitted. In such cases, the sales clerk has no
knowledge of the terms of the sale (which are outlined on the quotation) and must ask the
customer to repeat the information. On the other hand, even if the quotation has been faxed,
the data might not have been entered into the customer database, so the customer might still
need to repeat the order information. This situation can also lead to a duplicate order.

The fax received by the sales office is a copy of a handwritten form, and might not be legible.

When customers place an order, they usually inquire about the delivery date. To get a shipping date,
the sales clerk must contact the warehouse supervisor and ask whether the customers order can be
immediately shipped from inventory, or whether shipping will be delayed until a future production run
is delivered to the warehouse. However, because the warehouse supervisor is generally too busy to get
an updated inventory count, total all the orders waiting to be filled, and find out how many other
orders are in process in the sales office, she can only estimate the shipping date.
Once the sales clerk has the warehouse supervisors estimated shipping date, she determines the
shipping method and how long delivery will take. Next, the clerk checks the customers credit status.
For new customers, the clerk fills out a paper credit-check form that includes basic customer data and
the amount of the order. The form goes to Accounting, where accountants perform the credit check and
then return the credit-check form showing the customers credit limit. If the order is from an existing
customer, the clerk checks a paper report from Accounting that shows the customers current balance,
credit limit, and available balance. However, because the report is generated weekly, it might not
reflect a customers most recent payments or orders. If a customers available credit is less than the
amount of the current order, assuming there are no other orders outstanding, the clerk calls the
customer to determine what action the customer wants to take (reduce the amount of the order, prepay,
or dispute the amount of credit granted).

Once the order details have been finalized, the sales clerk enters the order into the order-entry system.
The computer program performs four important tasks. First, it stores the customers order data, which
are used later to analyze sales performance at the division level. Second, it prints out a packing list and
shipping labels for the warehouse to use to pick, pack, and ship the customers order. Third, it
produces a data file of all current transactions for the Accounting Department to use for preparing
invoices (this file is also used for financial, tax, and managerial accounting, which is discussed in
Chapter 5). And fourth, the data file is copied to a USB key each evening for uploading into the
companys PC-based accounting system.
PTS: 1

REF: 53

2. Describe the problems with Fitter Snackers order filling.

ANS:
Fitters process for filling an order is no more efficient than its sales order process. Packing lists and
shipping labels are printed in the sales department twice a dayat noon and at the end of the day.
These are carried by hand to the warehouse, where they are manually sorted into small orders and large
orders.
The Production Department produces and wraps the snack bars and packs them in display boxes, 24
bars to a box. The display boxes have promotional printing and are designed to serve as a display case.
Fitter packs 12 display boxes together to form a standard shipping case. The warehouse stores both
individual display boxes and shipping cases, organized by label type (Fitter brand and store brand), so
depending on the inventory levels Marketing Information Systems and the Sales Order Process in the
warehouse, Production personnel might transfer individual display boxes directly to the warehouse, or
they might first pack the display boxes into shipping cases.
For small orders (less than a full shipping case), the order picker goes to the warehouse with a handcart
and pulls the number of display boxes listed on the packing list. If there are not enough individual
display boxes in the warehouse to fill the order, the picker might break open a shipping case to get the
required number of display boxes. If he does this, he is supposed to advise the warehouse supervisor so
she can update the inventory recordsbut sometimes this step is overlooked.
The picker then brings the display boxes back to the small-order packing area, where they are packed
into a labeled boxwith the packing list enclosedand prepared for shipping by a small package
shipper.
For large orders (one or more shipping cases), the picker uses a forklift to move the appropriate
number of shipping cases to the large-order packing area. Workers label them for shipping, load them
on a pallet, and attach them to the pallet with shrink-wrap plastic for protection. These pallets are
shipped either by one of Fitters two delivery trucks or by a less-than-truckload (LTL) common
carrier.
Fitter uses a PC database program to manage inventory levels in the warehouse. The program adjusts
inventory level figures on a daily basis, using data from production records (showing what has been
added to the warehouse), packing lists (showing what has been shipped from the warehouse), and any
additional sources of data (such as shipping cases that have been opened to pull display boxes). Each
month the warehouse staff conducts a physical inventory count to compare the actual inventory on
hand with what the inventory records in the database show. Fitters monthly inventory counts show
that inventory records are more than 95 percent accurate. Although 95 percent accuracy may not sound
too bad, having 5 percent errors means that Fitter regularly has problems filling orders.
Because snack bars are somewhat perishable, Fitter keeps inventory levels fairly low. Inventory levels
change rapidly during the day, and Fitters current system does not provide a good method for
checking inventory availability. As a result, a picker might go to the shelves to pick an order and
discover that there are not enough snack bars to fill the order. In this case, there are several possible
outcomes:

There might be more of that type of bar in the production areaready to be transferred to the
warehousein which case the picker could wait until the inventory is received into the
warehouse to finish picking the order.
For an important customer that purchases store-branded snack bars, production might change
the wrappers and display box labels currently on the production line to the customers brand to
produce enough bars to complete the order.
In other situations, the customer may be willing to take a partial shipment consisting of
whatever is on hand, with the rest shipped when it becomes availablewhich is known as a
backorder.
Or, the customer might prefer to take the goods on hand, cancel the balance of the order, and
place a new order later.
If the customers company has enough inventory on hand, the customer may prefer to wait
until the whole order can be shipped, thus saving on delivery charges.
To determine what to do in this situation, the order picker might have conversations with the
warehouse supervisor, production supervisor, and sales clerks. Whatever the final decision, the
warehouse supervisor has to contact the sales clerk so she can notify the customer (which does not
always happen when things are busy) and the Accounting Department so they can change the invoice.
PTS: 1

REF: 53-54

3. Describe the problems with Fitter Snackers accounting and invoicing.

ANS:
Invoicing the customer is problematic as well. First, the data from the current order-entry system is
only loaded into the accounting system at the end of each day, so the Accounting Department does not
have information on new sales orders until the following day. In addition, clerks must manually make
adjustments in both the order-entry system and the accounting system for partial shipments and for any
other changes that have occurred during the order-fulfillment process. Many times these corrections
are not made in both systems, causing discrepancies that must be corrected at the end of the month, at
which point it is more difficult for the parties involved to remember what happened. Delayed order
corrections also sometimes result in late or inaccurate invoices. If the completed invoice is waiting to
be mailed when the warehouse notifies Accounting of a partial shipment, then a new invoice must be
prepared. In any case, an invoice is eventually sent to the customer, separate from the shipment.
PTS: 1

REF: 54

4. Describe the problems with Fitter Snackers payment and returns.

ANS:
Fitters procedure for processing payments often yields frustrating results for customers. Almost all
customers pay the invoice within 10 days to receive the 2 percent discount. If any errors have occurred
in the sales or order-fulfillment processfrom the original quotation to entering the order into the
sales order program to filling the order in the warehousethe customer will receive an incorrect
invoice. Even though Fitter provides customers with two invoice copies, many customers do not return
a copy of the invoice with their payment, as instructed. Errors sometimes result in the incorrect
customers account being credited.

Fitters returns processing is also flawed. Because Fitters snack bars contain no preservatives, they
have a relatively short shelf life. Thus, the company has a policy of crediting customer accounts for
returned snack bars that have exceeded their sell by date (this is a generous policy, because it is
impossible to know whoFitter or the customeris responsible for the bars not selling before they
expire). Fitter also gives credit for damaged or defective cases returned by customers. Customers are
supposed to call Fitter to get a returned material authorization (RMA) number to simplify the crediting
process. When cases are returned to Fitter, the Receiving Department completes a handwritten
returned material sheet, listing the returning customers name, the materials returned, and the RMA
number. However, many customers do not call for the RMA number, or fail to include it with their
returned material, which makes it more difficult for the Accounting Department to credit the
appropriate account. Poor penmanship on the returned material sheet also creates problems for
Accounting.
When an account becomes past due, Fitter sends a dunning letter, which is the term for a letter
notifying a customer that their account is past due and requesting payment if payment has not already
been sent. As the account gets more delinquent, the dunning letters usually get more direct and
threatening. If a customers account has not been properly credited, however, the customer may
receive a dunning letter in error, or may receive a call about exceeding their credit limit after placing a
new order. Such situations damage goodwill with both new and repeat customers.
PTS: 1

REF: 55

Chapter 4: Production and Supply Chain Management Information Systems

TRUE/FALSE
1. An ERP system is a good tool for developing and executing production plans because it integrates the
functions of production planning, purchasing, materials management/warehousing, quality
management, sales, and accounting.
ANS: T
This is an accurate description of an ERP system.
PTS: 1

REF: 78

2. Production planners aggregate products into product groups to make forecasts and plans more
accurate.
ANS: F
Aggregate production plans help to simplify the planning process
PTS: 1

REF: 82

3. The Sales and Operations Planning process is used to combine the sales forecast with capacity
information to determine a production plan for finished goods.
ANS: T
Sales and operations planning (SOP) is the next step in the production planning process. The input to
this step is the sales forecast provided by Marketing and Sales. The output is a production plan
designed to balance demand with production capacity.
PTS: 1

REF: 85

4. Demand Management is the process where sales forecasts are adjusted to incorporate the impact of
marketing initiatives.
ANS: F
In the Demand Management step, the production plan is broken down into smaller time units, such as
weekly or even daily production figures, to meet demand for individual products.
PTS: 1

REF: 84

5. The MRP process determines the schedule of finished goods production.

ANS: F
The Materials Requirements Planning (MRP) process determines the amount and timing of raw
material orders.
PTS: 1

REF: 84

6. The term supply chain describes all the activities required to move raw material from inventory to
manufacturing for the purpose of producing a product.
ANS: F

The term supply chain describes all the activities that occur between the growing or mining of raw
materials and the appearance of finished products on the store shelf.
PTS: 1

REF: 109

7. In a traditional supply chain, demand information is transmitted rapidly to all members of the supply
chain.
ANS: F
In a traditional supply chain, information is passed through the supply chain reactively, as participants
change their product orders.
Because of the time lags, it might take weeks or even months for information about increased needs
for raw materials to reach suppliers. Raw material suppliers might require time to increase their
production to meet larger orders, resulting in temporary shortages for the supplier.
PTS: 1

REF: 109

8. ERP systems are necessary to implement good supply chain management.

ANS: F
The development of supply chain strategies does not necessarily require an ERP system. Before ERP
systems were available, companies could be linked with customers and suppliers through electronic
data interchange (EDI) systems.
PTS: 1

REF: 110

9. The percentage of the order that the supplier provides in the first shipment is known as the first-rate.
ANS: F
Initial fill rate is the percentage of an order that the supplier provided in the first shipment.
PTS: 1

REF: 112

10. Make to order items are produced to fill customers requests.

ANS: T
Make to order items are produced to fill specific customer orders.
PTS: 1

REF: 78

11. The cost it normally takes to manufacture a product, which is usually derived from historical data and
any changes that have occurred since then, is known as a structured cost.
ANS: F
Standard costs are the normal costs of manufacturing a product; standard costs are calculated from
historical data, factoring in any changes in manufacturing that have occurred since the collection of the
historical data.
PTS: 1

REF: 81

12. Rough-cut planning is a common term in manufacturing for aggregate planning.

ANS: T

PTS: 1

REF: 88

13. The production plan for all finished goods is known as the MPS, or the master production schedule.
ANS: T
The output of the demand management process is the master production schedule (MPS), which is the
production plan for all finished goods.
PTS: 1

REF: 95

14. Another term for the list of ingredients required to make a product is the bill of materials.
ANS: T
The bill of material (BOM) is a list of the materials (including quantities) needed to make a product.
PTS: 1

REF: 97

15. Lead times and lot sizing help a company determine the transfer of goods to the customer.
ANS: F
The lead time is the cumulative time required for the supplier to receive and process the order, take the
material out of stock, package it, load it on a truck, and deliver it to the manufacturer.
Lot sizing refers to the process of determining production quantities (for raw materials produced
in-house) and order quantities (for purchased items).
PTS: 1

REF: 98

16. Because Fitter Snacker uses large quantities of oats, the most cost-effective way to purchase oats is to
buy a farm and grown them.
ANS: F
Because Fitter uses large quantities of oats, the most cost-effective way to purchase oats is in bulk
hopper-truck quantities, which means that the material must be ordered in 44,000-pound quantities.
PTS: 1

REF: 98

17. After material requirements are entered into the system, the program automatically turns the planned
orders into purchase orders without further input from planners.
ANS: F
Planning factors such as lead times are just estimates, so planners must evaluate the planned orders
suggested by the materials requirements planning calculation before allowing the program to
automatically turn them into purchase orders.
PTS: 1

REF: 100

18. The percentage of the order that the supplier provided in the first shipment is known as the initial order
lead time.
ANS: F
Initial fill rate is the percentage of an order that the supplier provided in the first shipment. Another
metric is initial order lead time, which is the time needed for the supplier to fill the order.
PTS: 1

REF: 112

19. The initial fill rate measures the time needed for the supplier to fill the order.
ANS: F
The initial order lead time is the time needed for the supplier to fill the order.
PTS: 1

REF: 112

MULTIPLE CHOICE
1. A make-to-stock production system is where:
a. items are made for inventory in anticipation of sales orders.
b. items are produced to fill specific customer orders.
c. items are assembled for a specific customer order from an inventory of components
d. both a and c
ANS: A
Make-to-stock items are made for inventory in anticipation of sales orders: most consumer products
are made this way.
PTS: 1

REF: 78

2. An unexpected increase in product demand can lead to:

a. a depletion of finished goods inventories
b. a depletion of raw materials inventories
c. increased overtime and transportation expenses
d. all of the above
e. both a and b
ANS: D
When Production must meet an unexpected increase in demand, several things happen. First,
warehouse inventories are depleted. To compensate, Production must schedule overtime labor, which
results in higher production costs for products. Second, because some materials (such as ingredients,
wrappers, and display boxes) are custom products purchased from a single vendor, a sudden increase
in sales demand can cause shortages or even a stockout of these materials.
PTS: 1

REF: 80

The Fitter Snacker company sold 6,435 cases of snack bars in June of the previous year. They are
expecting sales to increase by 3% this year. In addition, they are launching a promotional campaign
in May, which they expect will increase sales in June by an additional 500 cases.
3. What is the sales forecast for June of this year that Fitter Snacker should use?
a. 6,628
c. 6,935
b. 7,128
d. 7,143
ANS: B
6,435 x 1.03 + 500 = 7,128
PTS: 1

REF: 85

Fitter Snacker can produce 333.3 cases of snack bars per day during the standard 8-hour work week.
They can work 2 hours of overtime per weekday, plus 4 hours on Saturday. They are developing an
SOP for a month with 23 weekdays and 4 Saturdays.

4. What is the maximum number of cases that Fitter Snacker can produce in the month if they schedule
workers for overtime on weekdays only?
a. 7,666
c. 9,582
b. 9,199
d. 10,249
ANS: C
On weekday overtime, they can produce 1.25 times the normal output, or (1.25)(333.3) = 416.6. In 23
days, they can produce (416.6)(23) = 9,581.8 cases, which rounds to 9,582. Adding in Saturdays is
equivalent to two additional days of regular production, or (2)(333.3) = 666.6. The total time
available is 9,582 + 666 = 10,248.6, which rounds to 10,249.
PTS: 1

REF: 96

5. What is the maximum number of cases they can product in the month if they schedule workers for
overtime on weekdays and Saturdays?
a. 7,666
c. 9,582
b. 9,199
d. 10,249
ANS: D
On weekday overtime, they can produce 1.25 times the normal output, or (1.25)(333.3) = 416.6. In 23
days, they can produce (416.6)(23) = 9,581.8 cases, which rounds to 9,582. Adding in Saturdays is
equivalent to two additional days of regular production, or (2)(333.3) = 666.6. The total time
available is 9,582 + 666 = 10,248.6, which rounds to 10,249.
PTS: 1

REF: 96

6. The production plan at Fitter Snacker calls for 4,134 cases of snack bars in January. If there are 22
days in the month, how many cases of snack bars should be produced in a 4-day week?
a. 188
c. 940
b. 752
d. 1034
ANS: B
To calculate the weekly quantity, we take (4,134 / 22) (4) = 751.63, which rounds to 752.
PTS: 1

REF: 96

Fitter Snacker orders oats in 44,000 lb. batches. Given the following (incomplete) MRP record:
Oats
Lead Time = 2
weeks
Gross Requirements (lb)
Scheduled Receipts
Planned Receipts
23,635
On Hand
Planned Orders

Week 1

Week 2

18,000

24,323
44,000

24,872

5,635

25,312

440

7. What Planned Orders will the MRP logic create?

a. An order for 44,000 units in week 2
b. An order for 44,000 units in week 3
c. An order for 44,000 units for weeks 2 and 3
d. An order for 88,000 units for week 3
ANS: A
The completed MRP record is:

Week 3

Week 4
18,464

Week 5
17,938

Oats
Lead Time = 2
weeks
Gross Requirements (lb)
Scheduled Receipts
Planned Receipts
23,635
On Hand
Planned Orders
PTS: 1

Week 1

Week 2

Week 3

Week 4

Week 5

18,000

24,323
44,000

24,872

18,464

17,938

5,635

25,312
44,000

440

44,000
25,976

8,038

REF: 99

8. What will the On Hand inventory be in week 5 after the system calculated planned orders?
a. 0
c. 8,038
b. 440
d. 14,038
ANS: C
The completed MRP record is:
Oats
Lead Time = 2
weeks
Gross Requirements (lb)
Scheduled Receipts
Planned Receipts
23,635
On Hand
Planned Orders
PTS: 1

Week 1

Week 2

Week 3

Week 4

Week 5

18,000

24,323
44,000

24,872

18,464

17,938

5,635

25,312
44,000

440

44,000
25,976

8,038

REF: 99

9. Immediately after MRP is run in SAP ERP:

a. the stock/requirements list and MRP list are both updated and show the same information.
b. the MRP list is updated but the stock/requirements list is unaffected.
c. the stock/requirements list is updated but the MRP list is unaffected.
d. none of the above.
ANS: A
The MRP list shows the results of the MRP calculations, while the Stock/Requirements List shows
those results plus any changes that have occurred since the MRP list was generated (planned orders
converted to purchase orders or production orders, material receipts, and so on).
PTS: 1

REF: 101

10. In detailed scheduling, longer production runs of a particular product:

a. increases the available capacity by reducing the frequency of setups.
b. increases finished goods inventory levels.
c. reduces finished goods inventory levels.
d. both a and b
e. both a and c
ANS: D
Longer production runs mean that fewer machine setups are required, reducing production costs and
increasing the effective capacity of the equipment. On the other hand, shorter production runs can be
used to lower the inventory levels for finished products.

PTS: 1

REF: 105

11. The order of the steps in the SAP R/3 production planning process are:
a. Sales Forecasting, Demand Management, Purchasing, Sales and Operations Planning,
MRP, Detailed scheduling, Production
b. Sales Forecasting, Demand Planning, Detailed scheduling, Purchasing, Demand
Management, MRP, Production
c. Sales and Operations Planning, Sales Forecasting, MRP, Purchasing, Demand
Management, Detailed scheduling, Production
d. Sales Forecasting, Sales and Operations Planning, Demand Management, MRP,
Purchasing, Detailed scheduling, Production
ANS: D
The order is Sales Forecasting, Sales and Operations Planning, Demand Management, MRP
Purchasing, Detailed scheduling, Production.
PTS: 1

REF: 83

12. The production plan for Fitter Snacker calls for 7000 cases of the snack bar product group in June. If
the snack bar product group consists of NRG-A and NRG-B bars with the proportion 70% NRG-A
bars and 30% NRG-B bars, how many NRG-A bars should be produced in June?
a. 500
c. 4900
b. 2100
d. 7000
ANS: C
7000 * .7 = 4900
7000 * .3 = 2100
PTS: 1

NRG-A
NRG-B
REF: 85

13. The costs normally required to manufacture a product, which are calculated from historical costs and
any changes from that, are known as ____.
a. standard costs
c. known costs
b. abbreviated costs
d. estimated costs
ANS: A
Standard costs are the normal costs of manufacturing a product; standard costs are calculated from
historical data, factoring in any changes in manufacturing that have occurred since the collection of the
historical data.
PTS: 1

REF: 81

14. ____ are disaggregated to generate detailed production schedules.

a. Bills of materials
c. Internet sales orders
b. Production runs
d. Rough-cut plans
ANS: D

PTS: 1

REF: 88

15. What is the production plan for all finished goods?

a. MPS - master production schedule
c. PPR - production planning run
b. QQR - quality query run
d. RUN - run
ANS: A

The output of the demand management process is the master production schedule (MPS), which is the
production plan for all finished goods.
PTS: 1

REF: 95

16. What process answers the question What do we need to order to produce the product, and when do
we need to order these raw materials?
a. SF - sales forecasting
c. MRP - materials requirements planning
b. SOP - sales and operations planning
d. DS - detailed scheduling
ANS: C
The raw materials requirements planning process answers the questions, What quantities of raw
materials should we order so that we can meet that level of production? and When should these
materials be ordered?
PTS: 1

REF: 97

17. What metric tracks the number of times a supplier meets the agreed upon delivery date?
a. initial fill rate
c. on-time performance
b. initial order lead time
d. cash-to-cash cycle time
ANS: C

PTS: 1

REF: 112

Figure 4-2 The SAP ERP production planning process

18. In the accompanying figure, which shows the SAP ERP production planning process, what is A?
a. MRP
c. Starting Inventory
b. Sales Forecasting
d. Detailed Scheduling
ANS: B

PTS: 1

REF: 83

19. In the accompanying figure, which shows the SAP ERP production planning process, what is B?
a. Starting Inventory
c. Sales Forecasting
b. Detailed Scheduling
d. MRP
ANS: A

PTS: 1

REF: 83

20. In the accompanying figure, which shows the SAP ERP production planning process, what is C?
a. Starting Inventory
c. MRP
b. Sales Forecasting
d. Detailed Scheduling
ANS: D

PTS: 1

REF: 83

21. In the accompanying figure, which shows the SAP ERP production planning process, what is D?
a. Starting Inventory
c. Sales Forecasting
b. Detailed Scheduling
d. MRP
ANS: D

PTS: 1

REF: 83

22. What stage of the production planning process splits Fitter Snackers monthly production planning
values into finer time periods?
a. Sales Forecasting
c. MRP
b. BOM
d. Demand Management
ANS: D
In the Demand Management step, the production plan is broken down into smaller time units, such as
weekly or even daily production figures, to meet demand for individual products.
PTS: 1

REF: 84

COMPLETION

1. The ____________________, shown in the accompanying figure for Fitter Snacker, is a list of the
materials needed to make NRG-A and NRG-B bars.
ANS:
Bill of Materials
BOM
Bill of Materials (BOM)

BOM (Bill of Materials

PTS: 1

REF: 97-98

2. ____________________ refers to the process of determining production quantities (for raw materials
produced in-house) and order quantities (for purchased items).
ANS: Lot sizing
PTS: 1

REF: 98

MATCHING
Match the letters in the accompanying figure with a statement below.

Figure 4-2 The SAP ERP production planning process

a.
b.
c.
d.

MRP
Demand Management
Purchasing
Sales Forecasting

1.
2.
3.
4.
5.
6.
7.
8.

What is A?
What is B?
What is C?
What is D?
What is E?
What is F?
What is G?
What is H?

1.
2.
3.
4.

ANS:
ANS:
ANS:
ANS:

D
F
H
B

PTS:
PTS:
PTS:
PTS:

e.
f.
g.
h.

1
1
1
1

REF:
REF:
REF:
REF:

Detailed Scheduling
Starting Inventory
Production
Sales and Operations Planning

83
83
83
83

5.
6.
7.
8.

ANS:
ANS:
ANS:
ANS:

A
E
C
G

PTS:
PTS:
PTS:
PTS:

1
1
1
1

REF:
REF:
REF:
REF:

83
83
83
83

SHORT ANSWER
1. How can data be entered into the SAP ERP system on the shop floor?
ANS:
Data can be entered into SAP ERP through a PC on the shop floor, scanned using barcode or RFID
technology, or entered using a mobile device. SAP ERP is an open-architecture system, meaning that it
can work with automated data-collection tools marketed by third-party hardware and software
companies.
PTS: 1

REF: 107

2. When might the SAP ERP system block the entry of the receipt of goods in the receiving department?
ANS:
Depending on the configuration settings, the SAP ERP system might block entry of the receipt if the
discrepancy is too large.
PTS: 1

REF: 108

ESSAY
1. What are the three general approaches to production?
ANS:
1. Make-to-stock items are made for inventory (the stock) in anticipation of sales orders. Most
consumer products (for example, cameras, canned corn, and books) are made this way.
2. Make-to-order items are produced to fill specific customer orders. This approach is usually taken
when producing items that are too expensive to keep in stock or items that are made or configured to
customer specifications. Examples of make-to-order items are airplanes and large industrial
equipment.
3. Assemble-to-order items are produced using a combination of make-to-stock and make-to-order
processes. The final product is assembled for a specific order from a selection of make-to-stock
components. Personal computers are a typical assemble-to-order product.
PTS: 1

REF: 78-79

2. What are the three principles that production planners follow?

ANS:
1. Work from a sales forecast and current inventory levels to create an aggregate production plan for
all products. Aggregate production plans help to simplify the planning process. The plans are usually
aggregated in two ways. First, plans are made for groups of related production rather than for
individual products. Second, the time increment used in planning is frequently a month or a quarter
rather than the daily or weekly production plans that will actually be executed. Aggregate plans should
consider the available capacity in the facility.

2. Break down the aggregate plan into more specific production plans for individual products and
smaller time intervals.
3. Use the production plan to determine raw material requirements.
PTS: 1

REF: 82

3. List and explain each step of the production planning process.

ANS:
Sales Forecasting is the process of developing a prediction of future demand for a companys
products.
Sales and Operations Planning (SOP) is the process of determining what the company will produce.
The Sales Forecast and Starting Inventory levels are inputs to this process. At first glance, it would
seem that a company should just produce products to match the forecasted sales, but developing the
production plan can be complicated because capacity must be considered. Many products have
seasonal demand, and to meet demand during peak periods, production planners must decide whether
to build up inventory levels before the peak demand, increase capacity during the peak period,
subcontract production, or use some combination.
Demand Management is the process of breaking down the production plan into smaller time units,
such as weekly or even daily production figures, to meet demand for individual products.
Materials Requirement Planning (MRP) process determines the amount and timing of raw materials
orders. This process answers the questions: What raw materials should we be ordering so we can
meet a particular level of production? and When should we order these materials?
Purchasing takes the quantity and timing information from MRP and creates purchase orders for raw
materials, which it transmits to qualified suppliers.
Detailed Scheduling uses Demand Managements production plans as an input for a production
schedule. Methods of detailed scheduling depend on the manufacturing environment. For Fitter
Snacker, the detailed production schedule will determine when to switch between the production of
NRG-A to NRG-B bars.
Production uses the detailed schedule to manage daily operations, answering the questions, What
should we be producing? and What staffing do I need?.
PTS: 1

REF: 83-84

4. SAP can provide sophisticated tools to support sales and operations planning. Is that all that is
necessary for a company to be successful? Support your answer by discussing the departments of
marketing and manufacturing.
ANS:
While an integrated ERP system like SAP can provide sophisticated tools to support sales and
operations planning, the plan will only be successful if the interested parties are committed to the
process. If Marketing and Manufacturing cannot agree on sales forecasts, promotions, and production
plans, then the company will find that it is overstocked in some items, running out of others, and
spending a lot of money on overtime production and expedited shipping. Successful sales and
operations planning depends on developing a culture of cooperation between Marketing and
Manufacturing, which usually requires continuous support, encouragement, and enforcement from top
management. Changing a companys culture is usually a much harder challenge than the technical
challenge of installing new hardware and software.
PTS: 1

REF: 92

5. What is repetitive manufacturing?

ANS:

Repetitive manufacturing environments typically have production lines that are switched from one
product to another similar product. Most packaged consumer goods are produced in repetitive
manufacturing environments. In repetitive manufacturing, production lines are scheduled for a period
of time, rather than for a specific number of items, although it is possible to estimate the number of
items that will be produced over a period of time.
PTS: 1

REF: 105

6. Describe the measurements of success with Supply Chain Management.

ANS:
Performance measurements (sometimes referred to as metrics) have been developed to show the
effects of better supply chain management. One measure is called the cash-to-cash cycle time. This
term refers to the time between paying for raw materials and collecting cash from the customer. In one
study, the cash-to-cash cycle time for companies with efficient supply chain management processes
was a month, whereas the cycle averaged 100 days for those companies without effective supply
chain management.
Another metric is total supply chain management costs. These costs include the cost of buying
and handling inventory, processing orders, and supporting a companys information systems. In one
study, companies with efficient supply chain management processes incurred costs equal to 5 percent
of sales. By contrast, companies without supply chain management incurred costs of up to 12 percent
of sales.
Other metrics have been developed to measure what is happening between a company and its
suppliers. For example, Staples, the office-supply company, measures three facets of the relationship.
Initial fill rate is the percentage of an order that the supplier provided in the first shipment. Another
metric is initial order lead time, which is the time needed for the supplier to fill the order. Finally,
Staples measures on-time performance. This measurement tracks how often the supplier met
agreed-upon delivery dates.
Improvements in metrics such as these lead to improvements in overall supply chain cost
measurements.
PTS: 1

REF: 112

7. Explain Fitter Snackers manufacturing process as shown in the accompanying figure:

Figure 4-1 Fitter Snackers manufacturing process

ANS:

Raw materials are taken from the warehouse to one of four mixers. Each mixer mixes dough in
500-pound batches. Mixing a batch of dough requires 15 minutes of mixing time, plus another 15
minutes to unload, clean, and load the mixer for the next batch of dough; therefore, each mixer can
produce two 500-pound batches of dough per hour. That means the four mixers can produce a total of
4,000 pounds of dough per hourmore than the production line can process. Because only three
mixers need to be operating at a time to produce 3,000 pounds of snack bars per hour, a mixer
breakdown will not shut down the production line.
After mixing, the dough is dumped into a hopper (bin) at the beginning of the snack bar
production line. A forming mechanism molds the dough into bars, which will weigh 4 ounces each.
Next, an automated process takes the formed bars on a conveyor belt through an oven that bakes the
bars for 30 minutes. When the bars emerge from the oven, they are individually packaged in a foil
wrapper, and each group of 24 bars is packaged into a display box. At the end of the snack bar line,
display boxes are stacked on pallets (for larger orders the display boxes are first packed into shipping
boxes, which are then stacked on the pallets).
Switching the production line from one type of snack bar to the other takes 30 minutesfor
cleaning the equipment and changing the wrappers, display boxes, and shipping cases. Each night, a
second shift of employees cleans all the equipment thoroughly and sets it up for the next days
production. Thus, changing production from NRG-A on one day to NRG-B the next day can be done
at the end of the day without a loss of capacity. (Capacity is the maximum amount of bars that can be
produced.) On the other hand, producing two products in one day results in a half-hour loss of capacity
during the changeover.
PTS: 1

REF: 79

8. Describe Fitter Snackers communication problems with regard to the production process.
ANS:
Communication breakdowns are an inherent problem in most companies, and they are magnified
in a company with an unintegrated information system. For example, at Fitter, Marketing and Sales
personnel do a poor job of sharing information with Production personnel. Marketing and Sales
frequently excludes Production from meetings, neglects to consult Production when planning sales
promotions, and often fails to even alert Production of planned promotions. Marketing and Sales also
typically forgets to notify Production when it takes an exceptionally large order.
When Production must meet an unexpected increase in demand, several things happen. First,
warehouse inventories are depleted. To compensate, Production must schedule overtime labor, which
results in higher production costs for products. Second, because some materials (such as ingredients,
wrappers, and display boxes) are custom products purchased from a single vendor, a sudden increase
in sales demand can cause shortages or even a stockout of these materials. Getting these materials to
Fitters plant might require expedited shipping, further increasing the cost of production. Finally,
unexpected spikes in demand result in high levels of frustration for Production staff.
Production personnel are evaluated on their performancehow successful they are at controlling
costs, keeping manufacturing lines running, maintaining quality control, and operating safely. If they
cannot keep production costs down, Production staff receive poor evaluations. Managers are especially
frustrated when an instant need for overtime follows a period of low demand. With advance notice of a
product promotion by Marketing and Sales, Production could use slack periods to build up inventory
in anticipation of the increase in sales.
PTS: 1

REF: 80

9. Describe Fitter Snackers inventory problems with regard to their production process.
ANS:

As noted earlier, Fitters week-to-week and day-to-day production planning is not linked in a
systematic way to expected sales levels. When deciding how much to produce, the production manager
applies rules developed through experience. Her primary indicator is the difference between the
normal amount of finished goods inventory that should be stocked and the actual inventory levels of
finished goods in the warehouse. Thus, if NRG-A or NRG-B inventory levels seem low, the
production manager schedules more bars for production. However, she does not want too many bars in
inventory because they have a limited shelf life. Her judgment is also influenced by the information
she hears informally from people in Marketing and Sales about expected sales levels.
The production managers inventory data are maintained in an Access database. Data records are
not updated in real time and do not flag inventory that has been sold but not yet shipped. (Such
inventory is not available for sale, of course, but employees cannot determine this by looking at the
database; thus, workers do not know the level of inventory that is available to ship at any given
moment). This is problematic if the Wholesale Division generates unusually large orders or high
volumes of orders. For example, two large Wholesale Division orders arriving at the same time can
deplete the entire available inventory of NRG-A bars. If Production is manufacturing NRG-B bars at
that time, it must halt production of those bars so it can fill the orders for NRG-A. This means delaying
production of NRG-B bars and losing production capacity due to the unplanned production
changeover.
The production manager lacks a systematic method not only for meeting anticipated sales
demand, but also for adjusting production to reflect actual sales. Marketing and Sales does not share
actual sales data with the Production Department, partly because this information is hard to gather on a
timely basis and partly because of a lack of trust between the Sales and Production departments (as a
result of prior negative experiences). If Production had access to sales forecasts and real-time sales
order information, the manager could make timely adjustments to production, if needed. These
adjustments would allow inventory levels to come much closer to what is actually needed.
PTS: 1

REF: 80-81

10. Describe Fitter Snackers accounting and purchasing problems with regard to its production process.
ANS:
Production and Accounting do not have a good way to calculate the day-to-day costs of Fitters
production. Manufacturing costs are based on the number of bars produced each day, a number that is
measured at the end of the snack bar production line. For the purpose of figuring manufacturing costs,
Fitter uses standard costs, which are the normal costs of manufacturing a product; standard costs are
calculated from historical data, factoring in any changes in manufacturing that have occurred since the
collection of the historical data. For each batch of bars it produces, Fitter can estimate direct costs
(materials and labor) and indirect costs (factory overhead). The number of batches produced is
multiplied by the standard cost of a batch, and the resulting amount is charged to manufacturing costs.
Most manufacturing companies use standard costs in some way, but the method requires that
standards be adjusted periodically to conform with actual costs. (These adjustments will be discussed
in Chapter 5.) Fitters actual raw material and labor costs often deviate from the standard costs, in part,
because Fitter is not good at controlling raw materials purchases. The production manager cannot give
the purchasing manager a good production forecast, so the purchasing manager works on two tracks:
First, she tries to keep raw materials inventories high to avoid stockouts. Second, if she is offered good
bulk quantity discounts on raw materials such as oats, she will buy in bulk, especially for items that
have long lead times for delivery. These purchasing practices make it difficult both to forecast the
volume of raw materials that will be on hand and to calculate an average cost of the materials
purchased for profitability planning. Fitter also has trouble accurately forecasting the average cost of
labor for a batch of bars because of the frequent need for overtime labor.

Thus, Production and Accounting must periodically compare standard costs with actual costs and
then adjust the accounts for the inevitable differences, which is always a tedious and unpleasant job.
The comparison should be done at each monthly closing, but Fitter often puts it off until the closing at
the end of each quarter, when its financial backers require legitimate financial statements. The
necessary adjustments are often quite large, depending on production volumes and costs during the
quarter.
PTS: 1

REF: 81