Outsourcing is the practice of obtaining from an independent supplier

Question

Outsourcing is the practice of obtaining from an independent supplier a product or service that a company has previously provided for itself. Vernon, Inc, a small manufacturing company that has in recent years experienced a decline in its profits, plans to boost its profits by outsourcing those parts of its business that independent suppliers can provide at a lower cost than Vernon can itself. Which of the following, if true, most strongly supports the prediction that Vernon's plan will achieve its goal? (A) Among the parts of its business that Vernon does not plan to outsource are some that require standards of accuracy too high for most independent suppliers to provide at a lower cost than Vernon can. (B) Vernon itself acts as an independent supplier of specialized hardware items to certain manufacturers that formerly made those items themselves. (C) Relatively few manufacturers that start as independent suppliers have been able to expand their business and become direct competitors of the companies they once supplied. (D) Vernon plans to select the independent suppliers it will use on the basis of submitted bids. (E) Attending to certain tasks that Vernon performs relatively inefficiently has taken up much of the time and effort of top managers whose time would have been better spent attending to Vernon's core business. Similar Question: outsourcing-is-the-practice-of-obtaining-from-an-independent-supplier-173474.html

DmitryFarberMPrep · Answer

We know that Vernon plans to outsource tasks that another company can do more cheaply, and we're told the tasks in E are being performed "relatively inefficiently." We're not told what this inefficiency is relative to, but if it's to other companies, then these tasks would fit into the outsourcing plan. If it's just relative to other tasks that Vernon performs, that would still mean that if Vernon is looking for inefficient operations to outsource, these would be more likely than most to fall under consideration. In any case, we have no reason to assume that the information in E is unknown to the company, so this could actually boost the likelihood that these particularly costly operations get outsourced. For our purposes, that still makes it more likely that the company will increase profits through outsourcing, since they can achieve savings in more than one way.

StandardizedNerd

eyunni

I would have agreed with (E) but the choice stops short of mentioning that those inefficient tasks are indeed the tasks which are outsourced.

How can I assume the above without the argument mentioning it?

Any comments are greatly appreciated.

Experts :
KarishmaB, GMATNinja, GMATNinjaTwo, MarkSullivan, AjiteshArun , EMPOWERgmatRichC , mikemcgarry, DmitryFarber, chetan2u, sayantanc2k

This is a good question. Can u pls throw some light? Thanks

waytowharton · Answer

DmitryFarber   KarishmaB

Can you help me with option (C) Relatively few manufacturers that start as independent suppliers have been able to expand their business and become direct competitors of the companies they once supplied.

Why is this option wrong? If we negate option C then that would weaken the conclusion that is if competitors increase then profits might decay.

Thanks in advance!

DmitryFarberMPrep · Answer

waytowharton

First, I'd caution you against using the negation test on anything other than Assumption questions. This test works for identifying necessary assumptions because if the argument fails without some element, then that element was clearly necessary for a successful argument. But we shouldn't expect the negation of a strengthen/weaken to go the opposite direction, and the answers to strengthen questions are rarely necessary assumptions.

As for the specific content of C, this doesn't do much for our argument. We don't really care how many independent suppliers go on to become competitors. We want to know whether this specific business decision will lead to increased profits. Sure, C tries to reassure us about a potential risk, but it doesn't really tell us what is likely to happen. Specifically, it doesn't address whether the independent suppliers that Vernon might work with are any more or less likely to become competitors once this plan is in place. In general, I can't assess changes in risk with mere quantities. For instance, I might be glad to know that few people are bitten by sharks. But that doesn't tell me if I am more likely to be bitten by a shark if I swim toward it rather than swim away.

(I should add that Karishma has already addressed this answer choice--it's up top as "Most Helpful Expert Reply.")

PReciSioN · Answer

E-"Attending to certain tasks that Vernon performs relatively inefficiently    has taken up much of the time and effort of top managers    whose time would have been better spent attending to Vernon's core business." 
Isn't the bolded part the same as saying that the cost to Vernon for these tasks is more (than the indep. suppliers) and so is somewhat a restatement of the premise? If they outsource these high cost tasks to other suppliers, naturally their workforce would be redirected to other tasks. I feel that this choice isn't adding anything new.

C - "Relatively few manufacturers that start as independent suppliers have been able to expand their business and become direct competitors    of the companies they once supplied."  
Is it really okay to say that this is independent of whether Vernon chooses to outsource or not? It is quite possible that these independent suppliers are unable to expand independently, but if you outsource some aspects of your business to them, they are able to replicate the other remaining aspects and become competitors. C gets rid of that possibility.

GMATNinja   KarishmaB

mayankdgmat · Answer

I also fall for trap choice (C). Here is my take on it:

Suppose Total Revenue for company is 100 and cost is 30 right now.

Now suppose it has 2 products one is major contributor to Revenue and other is negligible.

So if company decide to outsource certain part which contribute let us say 2% to overall revenue. Now will my profit will increase from 70, yes may be but it will be miniscule.

Now see what choice (E) says if management remove inefficency by outsourcing they will focus on core business which will be major needle mover for company revenue and cost will decline though slightly but overall profit will boost due to incraese in core revenue. I hope this helps!

Gemmie · Answer

(A)  Not supportive:  This highlights tasks Vernon won't outsource, which might still be high-cost activities. It doesn't address cost reduction through outsourcing.

(B)  Not relevant:  Vernon's experience as a supplier doesn't directly impact their ability to benefit from outsourcing specific tasks

(C)  Not relevant:  This talks about future success of suppliers, not the immediate cost savings Vernon might achieve.

(D)  Somewhat supportive:  Selecting suppliers based on bids suggests Vernon aims to find the most affordable options. However, it doesn't guarantee the lowest cost compared to their in-house production.

(E)  Strongly supportive:  This directly addresses the inefficiency that outsourcing aims to solve. By outsourcing tasks top managers struggle with, Vernon can potentially free up their time and effort, leading to cost savings and potentially increased focus on core business activities.

GMATNinja · Answer

I feel your pain on this one. (E) feels a little too obvious, right?

But here's the thing: answers are never wrong because they're too obvious. They're incorrect either because they don't address the conclusion the way we need them to, or because there's a better alternative.

So let's break the argument down. The conclusion is that by outsourcing to lower-cost suppliers, Venon can increase profits. Pretty straightforward.

(C) doesn't seem terribly relevant, does it? Imagine you're a manager at Vernon trying to decide if it makes sense to outsource some portion of the business. If someone on your team said, "Hey, there's little risk that an independent supplier will eventually compete with us," why would that move the needle for you? How would that impact whether Vernon's decision to outsource would increase profits? If you're getting stuff for a lower cost, your profits should go up now irrespective of what happens to suppliers  in the future, right?

Now go back to (E). The part you bolded isn't really a restatement of what's in the argument. If part X costs Vernon $100/unit to produce, but costs $75/unit to obtain from an independent supplier, that doesn't tell us anything about how management is spending its time, does it? But if instead of worrying about those annoying $100/unit parts, management can now devote its energy to improving some other aspect of the company... well, that's another nice benefit.

So it's not exactly an earth-shattering revelation, but it's another point in favor of the idea that outsourcing improves profitability. And because no other answer choice is better, we're stuck with (E).

I hope that helps!

av722 · Answer

(A) Among the parts of its business that Vernon does not plan to outsource are some that require standards of accuracy too high for most independent suppliers to provide at a lower cost than Vernon can.
The plan is that outsourcing will boost profits. We want to strengthen this argument. This choice mentions what Vernon 'does not plan to outsource,' so it has no effect on the conclusion. Out.

(B) Vernon itself acts as an independent supplier of specialized hardware items to certain manufacturers that formerly made those items themselves.
This may be construed as a strengthener because it might seem like because Vernon is an independent supplier he will increase profits. But this choice has no effect on the plan-- that  outsourcing  will increase profits.

(C) Relatively few manufacturers that start as independent suppliers have been able to expand their business and become direct competitors of the companies they once supplied.
The conclusion is about Vernon's plan-- will outsourcing increase profits? We have no idea if Vernon's company is an independent supplier. Secondly, even if Vernon's company was, this introduces a separate idea about expanding business and becoming a direct competitor of the company they once supplied, which is never mentioned.

(D) Vernon plans to select the independent suppliers it will use on the basis of submitted bids.
While Vernon will likely pick the  lowest  possible bid, we don't really know what prices the suppliers will quote. The could quote an extremely high price which could be higher than Vernon's current costs, which means that his profits might actually decrease. Thus, we have no way of knowing what effect this choice would have.

(E) Attending to certain tasks that Vernon performs relatively inefficiently has taken up much of the time and effort of top managers whose time would have been better spent attending to Vernon's core business. 
By outsourcing these tasks, Vernon's top managers can now 'better spend' their time attending to Vernon's core business. This supports the idea that Vernon will be able to increase profits by outsourcing.

sulimanov · Answer

(E): ...  tasks that Vernon performs relatively inefficiently... 
I interpreted this as if Vernon performs those certain tasks inefficiently compared to other tasks Vernon performs, not compared with independent suppliers. Plus, as many have already mentioned, how can we make a direct connection between tasks that Vernon doesn't do well and the tasks that are planned to be outsourced?

agrasan · Answer

Hi experts  KarishmaB   MartyMurray   GMATNinja   IanStewart

I read explanations on the thread but I am still not very clear on option C to eliminate it.

Option C = "Relatively few manufacturers that start as independent suppliers have been able to expand their business and become direct competitors of the companies they once supplied."

My reasoning is option C says that there are minimal manufacturers who will become competitors for companies being outsourced. This is a good thing right? As competition by those independent suppliers can lead to revenue loss for Vernon. Let's say Vernon has 10 clients before any outsourcing, once it outsources a supplier and that supplier becomes a competitor then naturally, Vernon's clients may reduce to <10, which will lead to the loss in revenue and profits, thus, Option C becomes a Strengthener as it eliminates this possibility.

Please let me know what is off in the reasoning here.

RetaketheGMAT · Answer

Eliminating C:

One of the hardest test-taking skills to build for CR success is learning to eliminate answers that seem related but are actually not relevant to the strength of the specific argument.

In this case, the specific argument is about Vernon boosting its profits not whether there will be long term risk to its revenues from suppliers. That's what makes C less relevant to the immediate goal of boosting profits than E which directly speaks to key management focusing on the core business.

KarishmaB · Answer

What we are considering in the argument is whether taking a certain action will improve Vernon's profit.

Option (C) talks about the potential success of independent suppliers. Is that relevant to us? Whether Vernon gives them the business or not will not change their future potential. Option (C) is a discussion of that group as a whole - what they are able to achieve and what not. Vernon's action will not change it. If they will compete with Vernon in future, they will. If they won't they won't. One company's business will not change the fortune of that group. Hence (C) is irrelevant.

ekanshgoyal · Answer

But how do i ensure option E is talking of outsourcing only. What is those ineeficent tasks are not outsourced and are still being handled by the company itself?

DmitryFarberMPrep · Answer

We don't know that for sure, but we know that these tasks are outside the company's core business and are not being handled efficiently. That makes it very likely that an outside vendor could perform them at lower cost. (Efficiency is not solely about cost, but that's a big part of it.) Remember that our answer doesn't have to prove the conclusion correct; it just has to make it more likely!

ekanshgoyal

But how do i ensure option E is talking of outsourcing only. What is those ineeficent tasks are not outsourced and are still being handled by the company itself?

Presha123 · Answer

IMO D

(D) Vernon plans to select the independent suppliers it will use on the basis of submitted bids.

Makes sense. If the company selects the supplier offering the lowest rate, the profits would increase.

(E) Attending to certain tasks that Vernon performs relatively inefficiently has taken up much of the time and effort of top managers whose time would have been better spent attending to Vernon's core business.

Even if the top managers have nothing better to do with their time, isnt it still beneficial to outsource the parts which are expensive and which increases the cost? Its not directly connecting to the link

Presha123 · Answer

IMO D

(D) Vernon plans to select the independent suppliers it will use on the basis of submitted bids.

Makes sense. If the company selects the supplier offering the lowest rate, the profits would increase.

(E) Attending to certain tasks that Vernon performs relatively inefficiently has taken up much of the time and effort of top managers whose time would have been better spent attending to Vernon's core business.

Even if the top managers have nothing better to do with their time, isnt it still beneficial to outsource the parts which are expensive and which increases the cost? Its not directly connecting to the link

DmitryFarberMPrep · Answer

E has been pretty thoroughly discussed above, so I'll leave that be unless you have follow-up questions.

As for D, I see why it makes sense, but the problem is that we don't actually know that using bids is a way to reduce cost. What if none of the bids are very low? What if this new approach leads to additional costs? We can't assume that this detail will have any effect on profitability without some more explicit assurance from the text.

SajalBatwara · Answer

in E its written inefficiently but ineffciently doesn't mean costly....

DmitryFarberMPrep · Answer

We can't always expect a precise language match. It's still reasonable to figure that if the company is performing certain tasks inefficiently, these tasks might be done more cheaply by someone else. In any case, we're not trying to prove that the tasks will be cheaper. We're trying to support the idea that IF the company outsources tasks that can be done more cheaply, it will achieve its goal of increasing profits. E suggests that the company could benefit from shifting its resources to more important tasks, so it strengthens the plan.

shreyans4757583 · Answer

Premise - Outsourcing is the practice of obtaining from an independent supplier a product or service that a company has previously provided for itself. Vernon, Inc, a small manufacturing company that has in recent years experienced a decline in its profits,

Plan - plans to boost its profits by outsourcing those parts of its business that independent suppliers can provide at a lower cost than Vernon can itself.

Gap Analysis -

1) No guarantee for outsourcing firms to provide at that cheaper price.

2) Some other company might acquire them and jack their prices.

3) Consumers may distrust the product if it has inputs from some third party.

4) Boosting profit and lowering costs are two very different things both of which might not be achieved together or independently.

Which of the following, if true, most strongly supports the prediction that Vernon's plan will achieve its goal?

(A) Among the parts of its business that Vernon does not plan to outsource are some that require standards of accuracy too high for most independent suppliers to provide at a lower cost than Vernon can.

- Irrelevant to the conclusion

(B) Vernon itself acts as an independent supplier of specialized hardware items to certain manufacturers that formerly made those items themselves.

- Irrelevant to the conclusion

(C) Relatively few manufacturers that start as independent suppliers have been able to expand their business and become direct competitors of the companies they once supplied.

- Slightly strenghtens as it eliminates a future downside after implementation.

(D) Vernon plans to select the independent suppliers it will use on the basis of submitted bids.

- Irrelevant to the conclusion

(E) Attending to certain tasks that Vernon performs relatively inefficiently has taken up much of the time and effort of top managers whose time would have been better spent attending to Vernon's core business.

- Relatively inefficiently here implies that the task compared to other manufactures. So these operations once outsourced will allow Vernon top managers to focus on core business which will indeed help the chanes of profitability. Correct Answer

Outsourcing is the practice of obtaining from an independent supplier

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Outsourcing is the practice of obtaining from an independent supplier

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