Global Value Chains, Operations and Resilience

Introduction

International business is increasingly organized through global value chains (GVCs): geographically dispersed networks in which design, sourcing, production, logistics, marketing, after-sales service and data management are performed by different firms and countries. A product may be designed in one country, use components from several others, be assembled elsewhere, and reach customers through a worldwide distribution system. Services such as software development, accounting, customer support and engineering may also be internationally fragmented.

Global value chains can reduce costs, provide access to specialized capabilities and allow firms to serve international markets. They can also create exposure to transportation delays, geopolitical conflict, natural disasters, cyberattacks, supplier failure, labor disputes, regulatory changes and sudden demand shifts. The central managerial problem is therefore not simply to find the lowest-cost supplier. It is to design an operating network that balances cost, quality, speed, flexibility, visibility, sustainability and resilience.

This chapter examines global sourcing, offshoring, outsourcing, logistics and supply networks. It develops practical methods for evaluating location and supplier decisions, measuring supply-chain performance, and responding to disruption through diversification, nearshoring, reshoring and scenario planning.

Learning Objectives

By the end of this chapter, you should be able to:

1. Explain the structure and strategic significance of global value chains.
2. Distinguish sourcing, outsourcing, offshoring, nearshoring and reshoring.
3. Evaluate supplier and location alternatives using cost, quality, risk, labor and sustainability criteria.
4. Explain the role of logistics, inventory and information in global supply networks.
5. Calculate basic landed cost, safety stock and expected disruption cost under stated assumptions.
6. Analyze resilience strategies, including diversification, redundancy, visibility and postponement.
7. Apply scenario planning to a realistic international operations problem.
8. Identify ethical, environmental, technological and governance issues in global operations.

1. Global Value Chains and International Operations

1.1 From the value chain to the value network

A value chain describes the sequence of activities through which an organization creates value. Primary activities commonly include inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities include procurement, technology, human resources and firm infrastructure. In a global value chain, these activities are distributed across countries and connected by contracts, standards, information systems, transportation and financial arrangements.

A value network is broader than a simple chain. A firm may have multiple suppliers at different tiers, contract manufacturers, logistics providers, distributors, platforms and service partners. A disruption at a lower-tier supplier can affect the final producer even when the direct supplier appears financially sound. Consequently, managers need to understand both the visible supplier relationship and the deeper network behind it.

1.2 Why firms internationalize operations

Firms internationalize operations for several connected reasons:

• Cost efficiency: differences in wages, materials, energy, taxation and operating costs.
• Specialization: access to clusters with expertise in electronics, chemicals, textiles, engineering or logistics.
• Market access: producing close to customers may reduce delivery time and satisfy local-content requirements.
• Capacity and scale: international production can support large volumes and spread fixed costs.
• Resource access: firms may locate near agricultural, mineral, energy or knowledge resources.
• Flexibility: a network of facilities can shift production as demand, prices or regulations change.

Internationalization is not automatically advantageous. Low wages may be offset by poor productivity, high defect rates, long lead times, inventory requirements, intellectual-property risks or political exposure. A sound decision compares total system performance rather than one visible cost.

1.3 Value-chain governance

Governance concerns how activities are coordinated and controlled. Common forms include:

• Market governance: independent firms transact through prices and contracts.
• Modular governance: suppliers produce to detailed technical specifications.
• Relational governance: partners coordinate through trust, repeated interaction and shared problem-solving.
• Captive governance: a powerful buyer controls a supplier that depends heavily on that buyer.
• Hierarchical governance: activities are performed within the same corporation.

The appropriate form depends on transaction complexity, the ability to codify requirements, supplier capability and the consequences of failure. Highly sensitive technology may require internal production or tightly controlled partnerships. Standardized components can often be purchased through competitive markets.

2. Sourcing, Outsourcing and Location Decisions

2.1 Essential distinctions

Sourcing is the process of obtaining goods or services from internal or external providers. Outsourcing means transferring an activity previously performed internally to an external organization. Offshoring means locating an activity in another country; it may be performed by the firm itself or by an external supplier. Thus, outsourcing and offshoring are different dimensions.

Nearshoring relocates an activity to a geographically close country, often to reduce transport time and time-zone or coordination difficulties. Reshoring brings an activity back to the firm’s home country after it had been located abroad. Backshoring is often used in a similar sense. Insourcing means bringing an activity inside the firm, whether domestically or internationally.

A company can therefore insource abroad, outsource domestically, outsource offshore, or insource at home. These distinctions prevent inaccurate conclusions about the strategic meaning of a location decision.

2.2 Make-or-buy analysis

A basic make-or-buy comparison separates fixed and variable costs. Let:

• F_m = annual fixed cost of internal production;
• v_m = internal variable cost per unit;
• F_b = supplier’s annual fixed or contract-related cost;
• v_b = supplier variable price per unit; and
• Q = annual quantity.

Total internal cost is:

Total buying cost is:

If the two alternatives are comparable, the break-even quantity is:

This formula applies when v_m ≠ v_b and when costs are reasonably linear over the relevant volume. It excludes qualitative factors unless they are converted into monetary estimates. Managers must also consider capacity constraints, switching costs, quality, intellectual property, supplier dependence and disruption exposure.

Worked example: make or buy

A firm can manufacture a component internally for an annual fixed cost of $240,000 and a variable cost of $18 per unit. A supplier charges $25 per unit and requires a $30,000 annual tooling fee. The break-even quantity is:

At 30,000 units, both alternatives cost $780,000. Above 30,000 units, internal production is cheaper on the stated cost assumptions; below 30,000 units, buying is cheaper. The conclusion would change if internal capacity required a major investment, if the supplier’s quality were inferior, or if disruption risk were materially different.

2.3 Total landed cost

Purchase price alone is a poor basis for international sourcing. Total landed cost includes the costs necessary to bring a product to the required point of use. A simplified expression is:

where:

• P = supplier price;
• F = freight and transportation charges;
• D = duties and tariffs;
• T = taxes and border charges not recoverable by the buyer;
• C = customs, documentation and compliance costs;
• I = inventory carrying and pipeline-inventory cost;
• Q = quality-related cost, such as inspection, defects and returns; and
• R = expected cost of disruption, delay or loss.

All terms must be measured over the same quantity and time period. Some firms also include environmental externalities, carbon costs, financing costs and supplier-development expenses. The expression is a managerial accounting model, not a universal legal definition of landed cost.

Worked example: comparing suppliers

Supplier A quotes $40 per unit. Freight is $4, duty is $2, compliance cost is $1, inventory cost is $3 and expected quality cost is $1. Supplier B quotes $44, freight is $2, duty is $1, compliance cost is $1, inventory cost is $1 and expected quality cost is $0.50.

Supplier A’s total is:

Supplier B’s total is:

Although Supplier B has the higher quoted price, it has the lower landed cost. This example also omits disruption cost; including it could strengthen or reverse the decision.

3. Location and Supplier Evaluation

3.1 Location criteria

An international location decision should evaluate at least six dimensions:

1. Economic cost: wages, productivity, utilities, land, taxation, financing and logistics.
2. Operational capability: technical skills, supplier depth, quality systems and infrastructure.
3. Market factors: customer proximity, demand growth and local-content rules.
4. Institutional environment: contract enforcement, customs efficiency, political stability and corruption risk.
5. Risk exposure: natural hazards, conflict, pandemic vulnerability, cyber risk and concentration.
6. Sustainability: emissions, water use, labor conditions, waste, human rights and community effects.

A weighted scoring model can structure judgment. If w_i is the weight assigned to criterion i, and s_i is the normalized score of a location, then:

The score is meaningful only if criteria are clearly defined, scores are comparable and weights reflect decision priorities. It should support, not replace, sensitivity analysis and due diligence. A location with the highest average score may be unacceptable if it has a severe risk on a critical criterion.

3.2 Supplier selection and development

Supplier evaluation commonly considers financial health, capacity, delivery reliability, defect rates, engineering capability, cybersecurity, ethical conduct and improvement potential. Important operational measures include:

• On-time-in-full delivery (OTIF): deliveries arriving when promised and in the required quantity.
• Defect rate: defective units divided by total units received.
• Lead time: elapsed time between order placement and receipt.
• Lead-time variability: dispersion of lead times around their average.
• Capacity flexibility: ability to increase or decrease output.
• First-pass yield: proportion of output meeting requirements without rework.

Supplier relationships should be governed by contracts, technical standards, audit rights, escalation procedures and clear responsibility for quality and recalls. However, excessive audit activity without supplier development may encourage superficial compliance. Long-term partnerships, training, shared forecasts and joint process improvement can generate greater value.

4. Logistics, Inventory and Network Design

4.1 Logistics choices and trade-offs

Global logistics connects physical flows with information and financial flows. Major choices include transport mode, shipment size, consolidation, inventory location, customs arrangements, packaging and Incoterms. Air freight is fast but expensive and carbon-intensive; ocean freight is economical for large volumes but slower; rail and road occupy intermediate positions depending on geography and infrastructure.

The choice should reflect product value, urgency, reliability, size, perishability, security and emissions. A low freight rate can be misleading if it requires large safety stocks or creates frequent stockouts.

4.2 Inventory and the service-cost trade-off

Inventory protects against demand uncertainty and supply delay, but it ties up capital and creates storage, insurance, obsolescence and environmental costs. A commonly used reorder-point model is:

where d is average demand per unit of time, L is replenishment lead time in the same time units, and SS is safety stock. The first term covers expected demand during lead time; safety stock covers uncertainty.

If demand per period has standard deviation σ_d, lead time is constant, and a cycle-service target uses a standard-normal factor z, a simple safety-stock formula is:

This formula assumes independent demand periods, constant lead time, approximately normal demand during lead time, and a specified cycle-service interpretation. If lead time is variable, demand and lead time are correlated, or demand is intermittent, a different model is required. Under independent demand and lead-time uncertainty, one commonly used approximation is:

where σ_L is the standard deviation of lead time. Units must be consistent: if demand is units per week, lead time must be measured in weeks.

Worked example: reorder point

Weekly demand has a mean of 1,000 units and a standard deviation of 200 units. Lead time is constant at four weeks. For a 95% cycle-service target, use z ≈ 1.645. Then:

The reorder point is:

When inventory position falls to approximately 4,658 units, replenishment should be initiated under the model’s assumptions. This is not a guarantee against stockout; it is a policy calibrated to a stated service target.

4.3 Network design

Network design determines the number, location and role of plants, warehouses, cross-docks and distribution centers. Centralization can reduce duplicated inventory and exploit scale, whereas decentralization can shorten delivery distances and limit the impact of a local disruption. The best structure depends on demand geography, product variety, postponement possibilities, transport costs and risk correlations.

Postponement delays final configuration, packaging or customization until demand information is clearer. It reduces the need to hold every finished variant in every market. Examples include final assembly near the customer, common platforms with late-stage software configuration and generic packaging followed by local labeling.

5. Resilience and Disruption Management

5.1 Meaning of resilience

Supply-chain resilience is the capability to prepare for disruption, absorb its effects, recover operations and adapt the network afterward. It differs from efficiency. Efficiency often seeks minimum cost under expected conditions; resilience recognizes that rare events can create large losses.

Relevant resilience capabilities include:

• Visibility: knowledge of orders, inventory, capacity, transport status and lower-tier dependencies.
• Redundancy: alternative suppliers, routes, facilities or inventory.
• Flexibility: ability to change volume, product mix, transport mode or production location.
• Collaboration: coordinated planning and rapid information sharing.
• Recovery capability: tested procedures, spare capacity and crisis leadership.
• Adaptability: redesigning products, processes and networks after disruption.

Resilience is not equivalent to holding large inventories everywhere. Excess inventory can become obsolete, conceal weak processes and increase cost. Resilience is a portfolio of capabilities matched to the organization’s risk profile.

5.2 Measuring expected disruption cost

A simple expected-loss model is:

where p_j is the probability of disruption scenario j, and I_j is its financial impact under the chosen time horizon. The scenarios should be mutually exclusive and collectively exhaustive for the analysis, or probabilities must be adjusted to avoid double counting. Impacts may include lost contribution margin, emergency freight, penalties, recovery costs and reputational damage.

Suppose a single-source network has a 10% annual probability of a disruption costing $800,000 and a 90% probability of no such disruption. Its expected disruption cost is:

If a dual-source arrangement costs an additional $45,000 annually and reduces the disruption probability to 3%, with an impact of $400,000, its expected disruption cost is $12,000. The dual-source arrangement has an expected annual cost of $45,000 + $12,000 = $57,000, compared with $80,000 for the single-source disruption component. This simplified comparison favors dual sourcing, but managers must also evaluate qualification costs, quality differences, supplier coordination and correlated disruptions.

5.3 Diversification, nearshoring and reshoring

Diversification uses multiple suppliers, countries, transportation routes or production sites. It reduces dependence but may sacrifice volume discounts and complicate quality management. Diversification is ineffective if all suppliers depend on the same vulnerable sub-supplier or geographic region.

Nearshoring reduces geographic distance and may improve responsiveness, communication and regional compliance. It does not eliminate risk: neighboring countries can share weather systems, political shocks, infrastructure or supplier tiers.

Reshoring can improve control, shorten lead times and support domestic employment. It may increase labor and capital costs and may be difficult where specialized ecosystems exist abroad. Reshoring is most credible when automation, product redesign, energy availability and market proximity change the economics.

Other strategies include strategic buffer inventory, reserved capacity, alternative product specifications, supplier development, dual tooling, modular design and business-continuity agreements. The choice should be based on criticality: components that are inexpensive but essential may deserve more resilience investment than expensive items that are easy to replace.

6. Scenario Planning and Decision Processes

Forecasts extrapolate expected conditions; scenarios explore plausible alternative futures. Scenario planning is useful when uncertainty is high and probabilities are difficult to estimate.

A practical process is:

1. Map the network, including critical tier-two and tier-three dependencies.
2. Identify driving forces such as tariffs, climate events, technology, labor availability and demand.
3. Select high-impact uncertainties and construct a small set of coherent scenarios.
4. Test current sourcing, inventory, logistics and facility decisions against each scenario.
5. Identify no-regret actions, contingent actions and early-warning indicators.
6. Assign decision rights and establish trigger thresholds.
7. Rehearse response plans and update them as evidence changes.

For example, scenarios might include stable globalization, regional trade blocs, prolonged transport disruption and rapid demand decline. A no-regret action could be improving supplier-tier visibility. A contingent action might be shifting production after tariffs exceed a defined threshold. Scenario planning does not predict the future; it improves preparedness and decision speed.

7. Sustainability, Ethics and Governance

Global operations create responsibilities beyond shareholder cost. Key issues include forced labor, child labor, excessive working hours, unsafe facilities, discrimination, wage violations, environmental pollution, excessive water use and greenhouse-gas emissions. A firm may face legal, financial and reputational consequences when abuse occurs at an indirect supplier, even if the relationship was not known.

Responsible supply-chain governance requires supplier codes of conduct, risk-based due diligence, credible audits, worker grievance channels, remediation plans and transparent reporting. Audits should not become a substitute for improving purchasing practices. Unrealistic price or delivery demands can encourage suppliers to violate labor or environmental standards.

Environmental assessment should consider the product life cycle rather than only factory emissions. Transport mode, packaging, energy source, material extraction, use-phase energy and end-of-life treatment may all be relevant. Scope 3 emissions, which include value-chain emissions, are often difficult to measure but strategically important.

Regulation increasingly addresses supply-chain transparency, product traceability, carbon disclosure, forced labor and data protection. Firms must distinguish legally required disclosure from voluntary claims and avoid unsupported sustainability statements. Governance also includes cybersecurity, sanctions compliance, export controls, anti-bribery procedures and protection of intellectual property.

8. Digital Technology and Artificial Intelligence

Enterprise-resource-planning systems, transport-management systems, supplier portals, internet-of-things sensors and blockchain-based records can improve visibility. However, technology does not automatically create reliable information. Data may be incomplete, delayed, inconsistent or manipulated. Governance must define data ownership, access rights, validation rules and incident-response responsibilities.

Artificial intelligence can support demand sensing, anomaly detection, route optimization, predictive maintenance and supplier-risk monitoring. Its use requires careful attention to data quality, model drift, explainability, cybersecurity and human accountability. A model that recommends a low-cost supplier based on historical data may reproduce hidden labor or geographic biases. AI should augment professional judgment, not remove responsibility for ethical and operational decisions.

9. Applied Case: Reconfiguring the Supply Network of Meridian Appliances

The following is an illustrative case.

Background

Meridian Appliances, a fictional European manufacturer of smart refrigerators, sources compressors from one supplier in East Asia, electronic control boards from a second supplier in the same region, and performs final assembly near its main market. Its original strategy emphasized low purchase price and high plant utilization. The network operated efficiently during stable conditions.

Problem

A port closure and a regional power shortage interrupted compressor deliveries for six weeks. Meridian had only two weeks of compressor inventory. Emergency air freight was expensive, several retailers experienced stockouts, and the company discovered that both the primary and backup board suppliers depended on the same lower-tier semiconductor producer. The disruption also revealed that Meridian lacked reliable information about supplier capacity and inventory beyond its direct suppliers.

Analysis

The operations team mapped the full supply network and classified components by criticality, substitutability, lead time and disruption impact. Compressors were classified as high criticality because they were essential, had a long qualification period and few approved sources. Boards were also critical, but their design could be modularized. The team calculated total landed cost rather than comparing quoted prices and estimated expected disruption losses under alternative network designs.

A single-source compressor strategy had a lower annual purchasing cost but a high potential interruption impact. A second source in a neighboring country had a higher unit price but shorter transport distance and a partially independent energy and port profile. A third source in the home region required investment in tooling but offered the strongest control and shortest lead time.

Approach and solution

Meridian adopted a portfolio strategy:

• It qualified a second compressor supplier in a nearby country.
• It retained the original supplier but reduced dependence on it.
• It created a strategic buffer for compressors based on lead-time uncertainty and component criticality.
• It redesigned the control board so that a common architecture could accept two approved semiconductor configurations.
• It required tier-one suppliers to disclose critical tier-two dependencies.
• It established alternative transport routes and pre-negotiated emergency freight capacity.
• It introduced quarterly disruption simulations involving procurement, logistics, finance, engineering and sales.
• It included labor, environmental and cybersecurity requirements in supplier evaluations.

Outcome

The redesigned network increased annual operating cost modestly and required qualification expenditure. However, it reduced expected disruption exposure, improved recovery speed and gave Meridian greater bargaining power. The firm also discovered that postponing final software configuration until regional distribution reduced finished-goods variety and inventory. The outcome was not complete self-sufficiency; it was a more transparent and flexible network.

Learning points

1. The lowest unit price is not the same as the lowest total cost.
2. Geographic diversification is insufficient when suppliers share lower-tier dependencies.
3. Product and process design can be as important as supplier selection.
4. Resilience investments should focus on critical, difficult-to-substitute inputs.
5. Scenario exercises reveal information and coordination weaknesses before a crisis.

10. Managerial Best Practices and Limitations

Managers should begin with an accurate network map, segment suppliers by criticality, calculate total landed cost, and combine quantitative analysis with expert judgment. They should establish performance dashboards covering cost, quality, delivery, inventory, emissions, labor standards and resilience indicators. Contracts should specify service levels, audit rights, notification duties, business-continuity expectations and data-security obligations.

Decisions should be tested through sensitivity analysis. If a conclusion changes when freight rates, exchange rates, demand or disruption probabilities change slightly, the decision is fragile. Managers should identify trigger points and preserve strategic options rather than optimizing for one forecast.

Several analytical limitations require caution. Expected-value calculations can hide catastrophic low-probability events. Weighted scores can create false precision. Supplier audits may not reveal forced labor or hidden subcontracting. Historical data may not represent unprecedented events. Finally, resilience can conflict with short-term financial targets, so governance must make trade-offs visible to senior decision-makers.

Chapter Summary

Global value chains distribute value-creating activities across firms and countries, creating access to cost advantages, skills, markets and scale while also generating exposure to disruption and governance challenges. Sourcing decisions must distinguish outsourcing from offshoring, and nearshoring from reshoring. Make-or-buy analysis and total landed cost provide useful foundations, but decisions must also include quality, lead time, intellectual property, labor, sustainability and expected disruption costs.

Logistics and inventory policies balance cost against speed and service. Reorder-point and safety-stock models are useful only when their assumptions are understood. Resilience depends on visibility, redundancy, flexibility, collaboration, recovery capability and adaptation. Diversification, nearshoring, reshoring, postponement, strategic inventory and alternative routes are tools rather than universal solutions.

Scenario planning helps organizations prepare for uncertain futures without pretending to predict them. Effective global operations combine network mapping, supplier development, ethical governance, digital visibility, careful risk analysis and cross-functional decision-making. The strategic objective is a supply network that is economically viable, socially responsible, environmentally sustainable and capable of absorbing change.

Key Terms

Global value chain: Internationally distributed activities through which a product or service is created and delivered.

Value network: Interconnected suppliers, firms, logistics providers, customers and institutions involved in value creation.

Sourcing: Obtaining goods or services from internal or external providers.

Outsourcing: Transferring an activity to an external organization.

Offshoring: Locating an activity in another country.

Nearshoring: Locating an activity in a geographically close foreign country.

Reshoring: Returning an activity to the firm’s home country.

Insourcing: Performing an activity within the firm.

Total landed cost: All relevant costs of obtaining and delivering an item to its point of use.

Lead time: Time between initiating an order or process and receiving the required output.

Safety stock: Inventory held to protect against demand or supply uncertainty.

Reorder point: Inventory position at which replenishment should be initiated.

Postponement: Delaying final configuration or customization until better demand information is available.

Supply-chain resilience: Capability to prepare for, absorb, recover from and adapt to disruption.

Redundancy: Maintaining alternative resources, suppliers, facilities or routes.

Visibility: Knowledge of relevant conditions and events throughout the supply network.

Scenario planning: Analysis of multiple plausible future conditions and their implications.

Supplier diversification: Use of multiple suppliers or locations to reduce dependence.

Scope 3 emissions: Indirect value-chain greenhouse-gas emissions occurring outside an organization’s direct operations.

Postponement: Delaying product differentiation until demand or customer information is clearer.

Review Questions

Short Answer Questions

1. What is a global value chain, and how does it differ from a simple value chain?
2. Distinguish outsourcing, offshoring, nearshoring and reshoring.
3. Why is quoted purchase price insufficient for international sourcing decisions?
4. Identify four capabilities associated with supply-chain resilience.
5. What assumptions underlie the simple safety-stock formula presented in this chapter?

Long Answer Questions

1. Explain how a firm should evaluate an offshore supplier using cost, quality, logistics, risk, labor and sustainability criteria.
2. Discuss the advantages and limitations of diversification, nearshoring and reshoring as resilience strategies.
3. Analyze how postponement and network design can improve both responsiveness and inventory performance.
4. Explain how governance, contracts and supplier development contribute to responsible global operations.
5. Discuss the benefits and limitations of using digital systems and artificial intelligence in supply-chain management.

Analytical / Application Questions

1. A domestic supplier charges $52 per unit with no fixed fee. An offshore supplier charges $43 per unit, plus $4 freight, $2 duty, $1 compliance cost and $3 inventory cost per unit. Quality cost is $0.50 for the domestic supplier and $1.50 for the offshore supplier. Which supplier has the lower stated total landed cost, and what important omitted factors could change the decision?
2. A firm faces a 15% probability of a disruption costing $600,000 under single sourcing. A dual-source arrangement costs $35,000 annually and reduces disruption probability to 5%, with an expected impact of $300,000. Compare the relevant annual expected costs and recommend a strategy, stating limitations of the calculation.
3. Design a scenario-planning exercise for a company dependent on one international port. Identify three plausible scenarios, two early-warning indicators for each, and one no-regret action.

Multiple Choice Questions with Answers

Question 1

Which statement best distinguishes outsourcing from offshoring?

A. Outsourcing means buying internationally, while offshoring means buying domestically.

B. Outsourcing concerns organizational ownership of an activity, while offshoring concerns its geographic location.

C. Outsourcing always reduces cost, while offshoring always increases risk.

D. Outsourcing applies only to services, while offshoring applies only to manufacturing.

Correct Answer: B. Outsourcing concerns organizational ownership of an activity, while offshoring concerns its geographic location.

Question 2

Which item is included in a simplified total landed cost calculation?

A. Only the supplier’s quoted price

B. Only freight and insurance

C. Supplier price, logistics, duties, inventory, quality and relevant disruption costs

D. The firm’s total corporate income tax

Correct Answer: C. Supplier price, logistics, duties, inventory, quality and relevant disruption costs

Question 3

A component has annual internal fixed cost of $100,000 and variable cost of $12 per unit. A supplier charges $17 per unit with no fixed fee. At what quantity are the alternatives equal in cost?

A. 10,000 units

B. 15,000 units

C. 20,000 units

D. 25,000 units

Correct Answer: C. 20,000 units

Question 4

What is the main purpose of safety stock?

A. To eliminate all transportation costs

B. To protect against demand or supply uncertainty

C. To increase product variety automatically

D. To replace supplier qualification

Correct Answer: B. To protect against demand or supply uncertainty

Question 5

Which condition is an assumption of the simple formula SS = zσ_d√L?

A. Lead time is constant and demand periods are treated as independent

B. Demand is always zero during lead time

C. All suppliers are located domestically

D. The service target is unrelated to variability

Correct Answer: A. Lead time is constant and demand periods are treated as independent

Question 6

Which strategy delays final product differentiation until demand information is clearer?

A. Vertical integration

B. Postponement

C. Single sourcing

D. Capacity divestment

Correct Answer: B. Postponement

Question 7

Why can geographic supplier diversification fail to provide effective resilience?

A. Multiple suppliers always have identical prices

B. Suppliers may share the same vulnerable lower-tier supplier or region

C. Diversification eliminates all quality controls

D. Diversification prevents the use of contracts

Correct Answer: B. Suppliers may share the same vulnerable lower-tier supplier or region

Question 8

If a disruption has probability 0.20 and impact $500,000, what is its expected disruption cost under a simple expected-value model?

A. $10,000

B. $50,000

C. $100,000

D. $250,000

Correct Answer: C. $100,000

Question 9

Which statement best describes scenario planning?

A. It guarantees an accurate forecast of future events.

B. It examines plausible alternative futures and prepares responses.

C. It replaces supplier audits with statistical prediction.

D. It focuses only on the most likely future.

Correct Answer: B. It examines plausible alternative futures and prepares responses.

Question 10

Which practice most directly supports responsible global supply-chain governance?

A. Ignoring lower-tier suppliers

B. Using only the lowest quoted price

C. Combining due diligence, grievance mechanisms and remediation

D. Removing all contractual audit rights

Correct Answer: C. Combining due diligence, grievance mechanisms and remediation