For an online retailer, inventory represents a major source of cost. E

Question

For an online retailer, inventory represents a major source of cost. Every item of inventory represents an item that has not been sold and which therefore represents unrealized gains. Moreover, the greater the inventory a retailer must hold the anticipation of filling customer orders, the greater the amount of money it must have invested in something that cannot be used for other purposes. Two tenets of inventory management are to turn over inventory as quickly as possible and to hold the minimum amount of inventory necessary to fulfill tomorrow's orders efficiently. Those two challenges are related. If lower levels of inventory are needed, then less inventory will be on hand and it will be turned over more quickly. In competing with another online retailer, however, a company will be inclined to hold inventory of as many items as exist. If a particular type of item is not in stock at one retailer, a customer will turn to a competing retailer. Holding all of the possible stock items in stock adds to inventory cost. A solution to this issue has been previously for a company to have one central, monster-sized warehouse. Centralizing inventory allows a company to hold the widest possible range of items at the lowest necessary levels. But since customers also value speed of delivery time, the "monster warehouse model" has a flaw in that it involves shipping from a location which may not be as close to a customer's location as otherwise and which therefore would be vulnerable to a competitor who can deliver faster.

These considerations highlight the importance of information about consumer demand. At the basic level, knowing what items sell helps brick-and-mortar retailers determine what items to stock. In competitive online retail, companies with good data can stock minimum sufficient inventory levels. Even more significant, a national retailer that can forecast demand for specific items by region can move from the monster warehouse model to a system of regional warehouses, decreasing shipping time without increasing inventory costs.

These considerations highlight the importance of information about consumer demand. At the basic level, knowing what items sell helps brick-and-mortar retailers determine what items to stock. In competitive online retail, companies with good data can stock minimum sufficient inventory levels. Even more significant, a national retailer that can forecast demand for specific items by region can move from the monster warehouse model to a system of regional warehouses, decreasing shipping time without increasing inventory costs.   1 
 C 
 1. The passage suggests that in order for an online retailer to compete effectively with other online retailers, it must

A. turn over its inventory more quickly than its direct competitors, while holding the minimum amount necessary
B. maintain the lowest possible inventory costs without sacrificing a wide range of inventory
C. hold an inventory diverse enough to keep from losing customers to competitors
D. hold an inventory of higher-quality items than direct competitors
E. make deliveries faster than competitors do, whether from a centralized or regional warehouse system

2 
 E 
 2. The passage suggests that which of the following is true of a centralized warehouse model?

A. It was a useful model for a time to keep inventory models low, but it is now obsolete, due to the increased delivery time of shipping from one central location.
B. It allows a company to hold the widest possible range of items at the highest necessary inventory levels.
C. It is the only currently feasible inventory warehouse system that strikes a balance between inventory levels, inventory diversity, and delivery time.
D. It is most suitable for online retailers facing high levels of competition.
E. It can be used to lower standing inventory levels, but it is not necessarily the most advantageous inventory model that can be used.

3 
 A 
 3. In the context of the passage as a whole, the second paragraph serves primarily to

A. draw a further conclusion based on the information presented in the first paragraph
B. refute objections to the argument presented in the first paragraph
C. evaluate alternatives introduced in the first paragraph
D. point out one potential pitfalls of adopting the advice presented in the first paragraph
E. present information that undermines the conclusion drawn in the first paragraph

4 
 D 
 4. The passage LEAST supports the inference that one or more elements of an online retailer's business would be adversely affected by

A. stocking inventory at levels that are higher than the minimum needed
B. stocking inventory at levels that are lower than the minimum needed
C. failing to stock a particular item that a customer may seek out
D. failing to deliver faster than the industry's average delivery time
E. failing to turn over inventory quickly

5 
 A 
 5. The primary purpose of the passage is to

A. describe various factors involved in managing inventory in online retailing
B. show that online retailers frequently gain a competitive advantage from a system of regional warehouses
C. argue that online retailers often fail because of inadequate inventory management practices
D. suggest that online retail is likely to be dominated by firms that use centralized monster warehouses
E. explain how information about consumer demand is the most important factor in managing inventory in online retail

unraveled · Accepted Answer

Para 1 Summary – Author discusses what problems inventory management are for an online retailer. He/she identifies two aspects of inventory management which are related to each other. What possible mistakes an online retailer might make are also mentioned. Later, author proposes a solution to the problem in the form of centralized warehousing but cautions about its flaw.

Para 2 Summary – Considering the discussion in first para author talks about the importance of information which an online retailer can take help off to keep stock at optimum levels. Thus, online retailer would be able to forecast demand item-wise and region-wise to counter the disadvantages of centralized warehousing.

1. The passage suggests that in order for an online retailer to compete effectively with other online retailers, it must 
A. turn over its inventory more quickly than its direct competitors, while holding the minimum amount necessary – WRONG. While this may be true but to remain competitive i.e. such that customer don’t turn to competitors, the retailer must maintain a range of product available in stocks.
B. maintain the lowest possible inventory costs without sacrificing a wide range of inventory – WRONG. Cost perspective not discussed.
C. hold an inventory diverse enough to keep from losing customers to competitors – CORRECT. The lines “In competing with another online retailer, however, a company will be inclined to hold inventory of as many items as exist. If a particular type of item is not in stock at one retailer, a customer will turn to a competing retailer” in para 1 suggest that author is of the opinion that quantity won’t help a retailer but the vast range of items in stock.
D. hold an inventory of higher-quality items than direct competitors – WRONG. High-quality items not discussed.
E. make deliveries faster than competitors do, whether from a centralized or regional warehouse system – WRONG. At this point in time in the passage the author does not say so.

2. The passage suggests that which of the following is true of a centralized warehouse model? 
Marked B which is wrong. Widest range of items but not highest inventory level.
A. It was a useful model for a time to keep inventory models low, but it is now obsolete, due to the increased delivery time of shipping from one central location. – WRONG. Obsoleteness o centralzed warehouse model s not reered by author ever.
B. It allows a company to hold the widest possible range of items at the highest necessary inventory levels. – WRONG.
C. It is the only currently feasible inventory warehouse system that strikes a balance between inventory levels, inventory diversity, and delivery time. – WRONG. Author mentioned a disadvantage of the centralized system not advantage.
D. It is most suitable for online retailers facing high levels of competition. – WRONG. Exactly the opposite to what is stated in passage.
E. It can be used to lower standing inventory levels, but it is not necessarily the most advantageous inventory model that can be used. – CORRECT. Both points ‘lower standing inventory levels’ and ‘not the most advantageous’ are true in this option.

3. In the context of the passage as a whole, the second paragraph serves primarily to 
A. draw a further conclusion based on the information presented in the first paragraph – CORRECT. 
B. refute objections to the argument presented in the first paragraph – WRONG. Author never offers an opinion in the passage.
C. evaluate alternatives introduced in the first paragraph – WRONG. He/she does not evaluate but speculates only in 2nd para.
D. point out one potential pitfalls of adopting the advice presented in the first paragraph – WRONG. Though author mentions good thing about the centralized warehousing model but he/she also cautions about its disadvantage in first para so no advice as such s given.
E. present information that undermines the conclusion drawn in the first paragraph – WRONG. Author takes point discussed in 1st para and adds to it what ‘information’ as a whole could do to help online retailers.

4. The passage LEAST supports the inference that one or more elements of an online retailer's business would be adversely affected by 
Marked B but its wrong. Thought that stocking inventory lower than minimum would create problem. Still the option looks close to being correct.
A. stocking inventory at levels that are higher than the minimum needed – WRONG. Author is certainly against what is mentioned in this choice as discussed in para 1.
B. stocking inventory at levels that are lower than the minimum needed – WRONG.
C. failing to stock a particular item that a customer may seek out – WRONG. Discussed in 1st para.
D. failing to deliver faster than the industry's average delivery time – CORRECT. Failing to deliver faster hold true but a comparison with industry’s average time is not discussed.
E. failing to turn over inventory quickly – WRONG. Mentioned in passage.

5. The primary purpose of the passage is to 
A. describe various factors involved in managing inventory in online retailing – CORRECT. That’s exactly what author is doing in para 1 and support the actors with positive speculation in para 2.
B. show that online retailers frequently gain a competitive advantage from a system of regional warehouses – WRONG. Not discussed. Irrelevant.
C. argue that online retailers often fail because of inadequate inventory management practices – WRONG. True that it is possible but the option has limited scope.
D. suggest that online retail is likely to be dominated by firms that use centralized monster warehouses – WRONG. Option has limited scope.
E. explain how information about consumer demand is the most important factor in managing inventory in online retail – WRONG. Certainly its important but Customer demand is not discussed only in whole passage.

10 min 2 sec.

unraveled · Answer

How option B is wrong for Q2...!!?
Can anyone explain.

Sajjad1994 · Answer

Official Explanation

2. The passage suggests that which of the following is true of a centralized warehouse model?

Difficulty Level:   Medium

Explanation

This question asks about the centralized model, which is the  "monster"  warehouse model. In this question, again,  "suggests"  could be  "directly states"  or  "strongly implies."  What's true of the warehouse model?

Choice (A)  encourages us to consider how much opinion is in the passage, something we probably should have considered earlier. The passage is fairly low on the opinion; a bit of the author's passion edges in when he discusses the importance of information, but otherwise the passage is largely factual. The author is not decisive in calling one inventory model better than another. If and once you are convinced of this,  answer choices (A), (C), and (D)  are out as expressing too strong a judgment.

We have reason to believe that the author might actually prefer the regional model discussed at the end of the passage under certain conditions (with superior information), but even on that he is not decisive. Next,  choice (B)  is a distortion of the truth; it's close to what the passage says, but  (B)  says at the highest necessary levels, not the lowest possible levels.

The correct answer is (E).

Hope it helps

deepansh11 · Answer

Path to answer of Question 1: 
This is one of those questions where referring to the passage is very important. Does the passage DIRECTLY mention how an online retailer can compete effectively with other retailers?

In competing with another online retailer... this sentence in the message is a DIRECT mention of the subject of this question.

What does this sentence say? 
To compete, a company will, most likely, end up holding as much inventory as required.

Let's evaluate the options in this light:

A. Reject A. This is mentioned to solve the issue of inventory management. This is NOT mentioned along the lines of how an online retailer can compete with another retailer.

Remember - we need to decide only as per the passage and not the grand ways of the business world.

B. Reject B for 2 reasons.

Reason-1: This is not mentioned in the context of how an online retailer can compete with another retailer.

Reason-2: First part of the option (maintain the lowest possible inventory costs) seems correct. Second part of the option (without sacrificing a wide range of inventory) is incorrect: more inventory = high inventory cost, this is counter to the first part of the option.

C. Keep. This option is directly aligned with what is mentioned in the passage.

D. Cannot infer. No information in the passage about high-quality items.

E. Reject E. This is not mentioned in the context of how an online retailer can compete with another retailer.

C is the answer.

Path to answer of Question 2: 
A. Keep for now. However, 'obsolete' is questionable.

B. False. It allows a company to hold the widest possible range of items at the LOWEST necessary inventory levels.

C. False. Delivery time may not be faster - this is mentioned as a flaw in the last line of the 1st para.

D. Cannot infer. No info in passage.

E. Keep. Used to lower standing inventory levels = True; Not necessarily the most advantageous model that can be used = True because regional warehouses are suggested in the second para to overcome the delivery time flaw.

Therefore, All of option E is correct AS PER THE PASSAGE as compared to only one half of option A.
By POE, A is out. E is the answer.

Path to answer of Question 3:

A. Keep for now. Conclusion of the first para = inventory management is a key issue for online retailers. The online retailer with the best inventory management is the winner. 
Conclusion of the second para = how good data is key to managing the inventory of an online retailer.

B. Cannot infer. There is no refutation in the passage.

C. Cannot infer. There are no alternatives in the first para. Thus, how is the second para able to evaluate something (the alternatives) that does not exist.

D. Cannot infer. There is no advice presented in the 1st para. Thus, how is the second para pointing out a pitfall in something (the advice) that does not exist?

E. False. Conclusion of the first para = inventory management is a key issue for online retailers. The online retailer with the best inventory management is the winner. 
Conclusion of the second para = how good data is key to managing the inventory of an online retailer. 
Therefore, the second para provides a method to solve the issue pointed out in the first para.

Therefore, A is the winner.

Path to answer of Question 4: 
I thought I understood the question BUT, in reality, I did not understand the question in my first reading.

What the question is asking is: Which of these will help support an online retailer's business? 
OR Which of these options increase the business of an online retailer and are least supported by the passage?

Interesting, trap question!

Interpretation of question: 
Which of these statements are LEAST (LOWEST LEVEL OF SUPPORT) supported by the passage?

A. stocking inventory at levels that are higher than the minimum needed = this enables the retailer to win the customer; even though at a higher cost.

Does the passage support it least? Not really. The passage mentions this to be an advantage to prevent loss of customers = there is support.

Therefore, A is not the answer.

B. stocking inventory at levels that are lower than the minimum needed

The passage supports this by directly mentioning - If lower levels of inventory are needed, then less inventory will be on hand and it will be turned over more quickly..

Therefore, B is not the answer.

C. failing to stock a particular item that a customer may seek out

The passage supports this by directly mentioning - If a particular type of item is not in stock at one retailer, a customer will turn to a competing retailer.

Therefore, C is not the answer.

D. failing to deliver faster than the industry's average delivery time

The passage mentions - But since customers also value speed of delivery time
This implies that the failing to deliver slower is not supported by the passage.

Therefore, keep D.

E. failing to turn over inventory quickly

The passage mentions - 
turn over inventory as quickly as possible. 
If lower levels of inventory are needed, then less inventory will be on hand and it will be turned over more quickly.
Therefore, failing to turn over inventory quickly will adversely affect the retailer. 
Thus, this is supported by the passage. E is out (we are looking for what is LEAST supported by the passage).

D is the answer.

Path to answer of Question 5.
A. Keep A. A large part of the passage is about the various factors in inventory management.

B. Reject B. This is mentioned in the passage but is not the main (overall) purpose of the passage.

C. Reject C. There is no debate or argument.

D. Reject D. There is no suggestion in favor of any type of retailer.

E. Keep E. This is directly mentioned in the passage. It seems that the passage led to the 'information about consumer demand'.

Between A and E: Option A fits the definition of primary purpose because the problem of inventory management led to the solution in the form of "importance of information (or good data) about customer demand".
Option E only mentions a tiny aspect of the overall passage. Clearly, the passage is not just about "importance of information".

Therefore, E is out. A is the answer.

SandeepS030489 : Thank you for sending me this question. I learned a lot from this question.

RawatPrakhar · Answer

Can I get an answer to how in quetion no 5 option A is correct and E is incorrect

Sajjad1994 · Answer

Welcome to GMAT Club!

Official Explanation

5. The primary purpose of the passage is to

Difficulty Level:   Medium

Explanation

What is the purpose of the passage? Let's employ a substantial amount of willpower and summarize it ourselves before looking at the answer choices. The author describes the importance of inventory to these businesses, various factors that affect inventory cost, and how these considerations impact competitiveness as an online retailer. Our summary doesn't have to be perfect; even a mediocre summary tends to work better than nothing. On to the answer choices. What matches our prediction?  (A)  is in the ballpark of our prediction.  (B)  involves too strong a judgment... as do  (C) ,  (D)  and  (E) . Again, a sense of total weight and location of opinion in the passage goes a long way.

The correct answer is (A).

mkeshri185 · Answer

Hi i have doubt in Q3 and Q4
For Q3 you said that A is correct. A says author is drawing a further conclusion from info from the 1st para. First of all author is not drawing any conclusion he is only speculating one way to deal with the issue as said by yourself also in these discussion. So how does it mean same as drawing conclusion? Author is just saying it can be a good method. Also the later part of this answer choice says 'from the info present in para 1' but the 2nd para is about Information or Data about consumer demand which is nowhere talked about in 1st para. So how can we say 2nd para is drawing something based on info from para 1? This whole choice makes no sense

For Q4: I agree with your answer but i want to know how did you discarded B as well? You did not given any explanation for it also. The passage Never talks about D i agree but it also never talks about B. Passage never talks about what is the impact of keeping inventory below the minimum. It only talks about keeping it minimum possible to keep cost low but what will happen if it goes below minimum is also not discussed so how can we say it may have 'ADVERSE' effect?

Sajjad1994 · Answer

Official Explanation

1. The passage suggests that in order for an online retailer to compete effectively with other online retailers, it must

Difficulty Level:    Hard

Explanation

This question uses the word  "suggests,"  but this word and most similar ones can be taken to mean either  "says directly"  or  "doesn't say directly, but strongly implies."  In either case, the correct answer--the thing suggested--will usually generate a contradiction with the passage when that answer is negated. Competing retailers are first mentioned in line: if a  "particular type of item"  isn't at your store, a customer may go to a competitor. Let's keep  "particular type of item"  in mind. On to the answer choices.

Choices (A)  and  (B)  describe things that retailers want to do, according to the passage, but which have not been tied to competitors.

Answer  choice (C)  is on target, however, since  "holding inventory diverse enough"  means having a  "particular type of item." Choices (D)  and  (E)  raise issues that have not surfaced at all by the time competition is explained in the passage.

The correct answer is (C).

Sajjad1994 · Answer

Official Explanation

3. In the context of the passage as a whole, the second paragraph serves primarily to

Difficulty Level:   Easy

Explanation

This question asks us something that may not be preloaded in our mind, but which we can determine and articulate before turning to the answer choices, thus navigating with sureness and swiftness. What happens in the second paragraph? The author draws a secondary conclusion--a corollary, you could say--on a tangential topic: information about consumer demand. Also, the author shows that the monster warehouse model is not necessarily best under all circumstances. Let's look for an answer choice that captures one or both of these points.

Choice (A)  hits on the  "corollary"  idea.

Choices (B)  and  (C)  are out, because there refutations and the evaluation of alternatives don't happen--we don't reach that level of opinion.

Choices (D)  and  (E)  are related to part of what we saw in paragraph two, because they hit on the concept that the monster model is not necessarily best, but they both go too far, as the paragraph doesn't prevent  "pitfalls"  of the monster model, nor are the previous conclusions  "undermined."  A sense of the level of opinion in the passage is quite useful in this question.

The correct answer is (A).

Sajjad1994 · Answer

Official Explanation

4. The passage LEAST supports the inference that one or more elements of an online retailer's business would be adversely affected by

Difficulty Level:   Very Hard

Explanation

In this question, four statements are true, or rather, four elements are thing that we know from the passage will adversely hurt one of these businesses. The last one may be plausibly adverse, but we'll have no support that it's adverse. Questions with  "least"  or  "except"  tend to be time-consuming, since we tend to have to evaluate every answer choice thoroughly, which tends to involve checking the passage. Let's check the answers and see whether anything seems out of place.

Some of these choices express points that we have already covered. The point of the passage is that inventory represents a cost, which supports  (A) , and that it can be reduced by increasing turnover, which supports  (E) .

And we've seen that failing to have a particular item can hurt, so  (C)  is supported. We are down to  (B)  and  (D) .  Choice (B)  is supported, because it can be drawn as a conclusion from  (A) ,  (E) , and  (C)  together: companies want to hold low levels and turn them over, but then they risk running out of inventory, if levels are too low.   That leaves  (D) . We can confirm that  (D)  is not supported by the paragraph. The paragraph indicates that it can be costly to deliver slower than a competitor, but it doesn't express a need to deliver faster; on par may be good enough, according to the passage.

The correct answer is (D).

For an online retailer, inventory represents a major source of cost. E

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GMAT Reading Comprehension (RC) Questions

For an online retailer, inventory represents a major source of cost. E

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