Full EMPOWERgmat Analysis GMAT® Official Guide 2019Practice QuestionQuestion No.:
Online test bank question number : RC00394-02 ~ RC00394-06
In corporate purchasing, competitive scrutiny is typically limited to suppliers of items that are directly related to end products. With “indirect” purchases (such as computers, advertising, and legal services), which are not directly related to production, corporations often favor “supplier partnerships” (arrangements in which the purchaser forgoes the right to pursue alternative suppliers), which can inappropriately shelter suppliers from rigorous competitive scrutiny that might afford the purchaser economic leverage. There are two independent variables—availability of alternatives and ease of changing suppliers—that companies should use to evaluate the feasibility of subjecting suppliers of indirect purchases to competitive scrutiny. This can create four possible situations.
In Type 1 situations, there are many alternatives and change is relatively easy. Open pursuit of alternatives—by frequent competitive bidding, if possible—will likely yield the best results. In Type 2 situations, where there are many alternatives but change is difficult—as for providers of employee health-care benefits—it is important to continuously test the market and use the results to secure concessions from existing suppliers. Alternatives provide a credible threat to suppliers, even if the ability to switch is constrained. In Type 3 situations, there are few alternatives, but the ability to switch without difficulty creates a threat that companies can use to negotiate concessions from existing suppliers. In Type 4 situations, where there are few alternatives and change is difficult, partnerships may be unavoidable.
Passage AnalysisThis passage gets pretty technical right from the first impression. The sentence “In corporate purchasing, competitive scrutiny is typically limited to suppliers of items that are directly related to end products” we’re left wondering what the heck it’s talking about. If you felt that way, do not take it personally---the first sentence is vague without more context---it’s not you.
BUT, sharp test-takers know to hold fast and move on without surrendering any confidence. GMAT passages always end up providing the context we need, and here, it happens in the next sentence: “With “indirect” purchases (such as computers, advertising, and legal services), which are not directly related to production”. For example, the computers an accounting firm uses. Or the advertising services purchased by a car manufacturer, or the legal services contracted out by a software company. In these cases it’s harder for a company to gain competitive scrutiny, to make sure the suppliers are being fair and honest. So now we’re given the context we need. So now, we can also make sense of the first sentence then:
“In corporate purchasing, competitive scrutiny is typically limited to suppliers of items that are directly related to end products”.
In this case, we’re referring to suppliers that factor directly in to the end result: a car company’s contract with a seat manufacturer, for example. In these cases, it’s easier for a company to gain competitive scrutiny.
OK, so we took a few seconds to make sure we understood what was going on. But can we afford to take that time? Yes. If we didn’t understand what was going on, imagine the time we’d be wasting on the rest of the passage, and the questions. With the understanding we now have, we’re also in position to score points confidently, and efficiently.
So now, let’s continue to summarize the first paragraph. For indirect purchases, companies often sign supplier partnerships that can cost them leverage and scrutiny.
The structure of the last sentence in paragraph 1 is choppy and awkward to follow (it’s a passively constructed nightmare that would never survive in GMAT Sentence Correction), but that aside, it’s saying that companies should consider two variables to evaluate the opportunity of subjecting suppliers to more scrutiny. 1) Availability of alternatives, and 2) The ease of changing suppliers.
The second describes, and makes the case for 4 different situations/types.
Type 1: Lots of alternatives and change is easy.
Type 2: Lots of alternatives but change is difficult.
Type 3: Few alternatives but change is easy.
Type 4: Few alternatives and change is difficult.
Ladder1 =/+ Direct vs indirect; For more scrutiny, consider #, and ease
2 =/+ 4 Types of situations
The four types can fit into a four quadrant matic:
Many Alts: Few Alts:
Change Easy: 1 (best) 3
Change Not Easy: 2 4 (worst)
Recommendations:
1: Frequent competitive bidding
2: Continuously test the market/Get concessions
3: Creates threat to suppliers companies can use to negotiate concessions
4: Little can be done; partnerships unavoidable
Questions below are presented in the order found in the GMAT Official Guide:OG 2019 Q438
Q 1 of 5 Which of the following can be inferred about supplier partnerships, as they are described in the passage?
A. They cannot be sustained unless the goods or services provided are available from a large number of suppliers.
B. They can result in purchasers paying more for goods and services than they would in a competitive-bidding situation.
C. They typically are instituted at the urging of the supplier rather than the purchaser.
D. They are not feasible when the goods or services provided are directly related to the purchasers' end products.
E. They are least appropriate when the purchasers' ability to change suppliers is limited.
Analysis:Inference Question
This question asks for something that can be inferred to be true from the passage regarding supplier partnerships. That means that one and only one option can be absolutely concluded based on what's in the passage.
A. The author never states that many suppliers are needed for a partnership to be sustained. The issue isn’t whether the partnership is sustainable, but rather if purchasers have leverage to try to get the best prices/concessions.
B. This is the correct choice. The author specifically states that the supplier partnerships can reduce a business’s “economic leverage” because the business can’t pursue alternative suppliers.
C. The author never states that anybody is urging for supplier partnerships, whether the urging comes from the supplier of the purchaser. All we are told is that corporations often favor these relationships.
D. The passage never rules out that for direct purchases strategic partnerships aren’t feasible, but rather they just tend not to be common. Though supplier partnerships typically affect relationships with those whose supplies are indirectly related to the end product, this does not mean that supplier partnerships can’t also apply to purchases that do directly relate to the end products.
E. In Type 4 situations, the ability to change is limited, but a partner relationship may be “unavoidable.”
:
OG 2019 Q439
Q 2 of 5 Which of the following best describes the relation of the second paragraph to the first?
A. The second paragraph offers proof of an assertion made in the first paragraph.
B. The second paragraph provides an explanation for the occurrence of a situation described in the first paragraph.
C. The second paragraph discusses the application of a strategy proposed in the first paragraph.
D. The second paragraph examines the scope of a problem presented in the first paragraph.
E. The second paragraph discusses the contradictions inherent in a relationship described in the first paragraph.
Analysis:Item Purpose
This question simply asks how the second paragraph follows from the first. Our analysis above should help.
A. The second paragraph advises on the situation in more detail. That’s totally different from providing more evidence/proof.
B. This option is the same as option A reworded. Providing an explanation of what happened in the first paragraph is another way of saying that paragraph two is providing proof, when it actually takes what was in paragraph one, and offers advice on what should be done depending on which of the 4 types an indirect purchaser finds themselves in.
C. This is the correct choice. Paragraph 2 takes what was in paragraph one, and offers advice on what should be done depending on which of the 4 types an indirect purchaser finds themselves in so that they can gain more leverage for better scrutiny and to gain possible supplier concessions.
D. The only problem mentioned in the first paragraph is the lack of competitive scrutiny. The second paragraph actually discusses possible methods to gain greater leverage against suppliers. In other words it offers possible solutions. It certainly doesn’t serve to merely further describe the problem itself.
E. There is no discussion of contradictions in the second paragraph. Yes, there’s a challenge, but that doesn’t mean there’s a contradiction, AND, as we’ve discussed, paragraph 2 serves as a set of strategic advice to overcome the challenge inherent in supplier partnerships.
Q 3 of 5 It can be inferred that the author of the passage would be most likely to make which of the following recommendations to a company purchasing health care benefits for its employees?
A. Devise strategies for circumventing the obstacles to replacing the current provider of health care benefits.
B. Obtain health care benefits from a provider that also provides other indirect products and services.
C. Obtain bids from other providers of health care benefits in order to be in a position to negotiate a better deal with the current provider.
D. Switch providers of health care benefits whenever a different provider offers a more competitive price.
E. Acknowledge the difficulties involved in replacing the current provider of health care benefits and offer to form a partnership with the provider.
Analysis:Many Alts Few Alts
Change Easy 1 (best) 3
Change Not Easy 2 4 (worst)
2: Continuously test the market/Get concessions
Inference Question
This question asks what you believe the author would recommend to a company making a health care benefit purchase. That example was mentioned in discussion of the Type 2 situation (many alternatives, but change isn’t easy).
The author specifically recommends that business making these purchases should continuously test the market to gain concessions from suppliers.
So then, which of these options can we then infer the author of the passage would agree with?
A. There is no mention or implication of getting around obstacles to replace providers. Chuck it.
B. This option is designed to punish test-takers who never invested in gaining the understanding on the difference between direct and indirect supplier situations in the first couple of sentences in the passage. You can change what Type you’re in. This option magically suggests a supplier can be both direct and indirect.
C. This is the correct choice and follows the analysis of the question above. The author advises looking continuously test the market with the mission of gaining concessions (negotiating) for a better deal.
D. Type 2 situations are defined as being not easy to change, so frequently switching providers whenever a better price comes along directly flies against the description of a Type 2 situation, thus making D a 180.
E. This option miserably misunderstands a Type 2 situation and thereby doesn’t present anything the author would remotely agree with. The author does say that change is difficult in Type 2 situations, but there is no mention of therefore offering to form a partnership with a provider. The focus is on negotiating for a better deal.
:
OG 2019 Q441
Q 4 of 5 Which of the following is one difference between Type 2 situations and Type 4 situations, as they are described in the passage?
A. The number of alternative suppliers available to the purchaser
B. The most effective approach for the purchaser to use in obtaining competitive bids from potential suppliers
C. The degree of difficulty the purchaser encounters when changing suppliers
D. The frequency with which each type of situation occurs in a typical business environment
E. The likelihood that any given purchase will be an indirect purchase
Analysis:Many Alts Few Alts
Change Easy 1 (best) 3
Change Not Easy 2 4 (worst)
2: Continuously test the market/Get concessions
4: Little can be done; partnerships unavoidable
Detail Question
This question asks for a difference between Type 2 and Type 4 situations. Our diagram helps out here immensely. As we can see in our table, a supplier change isn’t easy for both Type 2 and Type 4 situations, but the big difference is that in Type 2 there are many alternative suppliers, and in Type 4 there are not.
A. Bam, that’s it. This is the correct choice. Type 2 situations involve “lots of alternative suppliers,” while Type 4 involves “few alternatives.”
B. According to the passage, in Type 4 situations competitive bids are not even possible, but this option incorrectly suggests that the difference is a matter of which approach is best. Gone.
C. Nope, both Type 2 and Type 4 face difficulty changing suppliers.
D. We’re given absolutely nothing as to how frequent any of the 4 Types of situations are, let alone the relative occurrence of Type 2 vs. Type 4.
E. All of the 4 Types, including Type 2 and Type 4 situations ALL are discussed in regard to indirect purchases. Since both Type 2 and Type 4 both deal with indirect purchases, E is gone.
Q 5 of 5 According to the passage, which of the following factors distinguishes an indirect purchase from other purchases?
A. The ability of the purchasing company to subject potential suppliers of the purchased item to competitive scrutiny
B. The number of suppliers of the purchased item available to the purchasing company
C. The methods of negotiation that are available to the purchasing company
D. The relationship of the purchased item to the purchasing company's end product
E. The degree of importance of the purchased item in the purchasing company's business operations
Analysis:Detail Question
Our investment in understanding the intricate first two sentences of the passage enable us to swiftly make the distinction between a direct and indirect purchase situation. An indirect purchase is not directly related to a company’s end product. For example, purchasing computers by a company that doesn’t make computers so those computers would be indirectly related to the company’s end product.
A. Scrutiny of suppliers is not the distinguishing factor between direct and indirect purchasers. While the suppliers of directly related purchases are typically scrutinized, this is also possible for indirect purchases, as recommended in the second paragraph. So on top of the fact that scrutiny isn’t described as the distinguishing factor, both direct and indirect supplier relationships can be scrutinized.
B. Depending on the Type, the number of suppliers can vary wildly, so there’s no way that the number of suppliers could be used as the distinguishing factor between direct and indirect suppliers.
C. Similar to B, depending on the Type, the method of negotiation used with suppliers can vary wildly by type, so there’s no way that the style of negotiation could be used as the distinguishing factor between direct and indirect suppliers. Not only that, this option technically says that there are different methods of negotiation. That mischaracterizes what varies in paragraph 2. It’s not that there are different methods of negotiation, but rather different circumstances of when the negotiations would take place, depending on Type.
D. Bingo. This is the correct choice. An indirect purchase merely means that it is not directly related to a company’s end product.
E. The degree of importance of the purchased item is not mentioned at all and certainly the degree of importance can’t necessarily be evaluated between direct and indirect purchasers. Just because a purchase is indirect, doesn’t necessarily make it any less important. A total misfire.
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Updated on: 03 Aug 2019, 04:05
45%
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45%
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