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.
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 acompetitive-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.
OA is B. I agree that B makes sense but why not D?
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.
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 acompetitive-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.
OA is B. I agree that B makes sense but why not D?
