In corporate purchasing, competitive scrutiny is typically limited to suppliers of items that are directly related to end products. With...
GMAT Reading Comprehension : (RC) Questions
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 best describes the relation of the second paragraph to the first?
1. Passage Analysis:
Progressive Passage Analysis
| Text from Passage | Analysis |
|---|---|
| In corporate purchasing, competitive scrutiny is typically limited to suppliers of items that are directly related to end products. |
What it says: Companies usually only carefully examine suppliers that provide materials for their main products. What it does: Sets up the current/typical practice as the passage's starting point Source/Type: Factual observation about corporate behavior Connection to Previous Sentences: This is our opening - no prior context yet Visualization: Company making cars → carefully scrutinizes tire suppliers, steel suppliers, engine parts suppliers What We Know So Far: Companies focus competitive scrutiny on direct suppliers only What We Don't Know Yet: What about indirect suppliers? Is this good or bad? |
| 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. |
What it says: For non-production items like computers and legal services, companies make exclusive deals that prevent them from shopping around, which protects suppliers from competition and costs the company money. What it does: Contrasts with sentence 1 and reveals the problem the passage will address Source/Type: Author's critical analysis (note "inappropriately") Connection to Previous Sentences: This contrasts with sentence 1 - while direct purchases get scrutiny, indirect purchases don't, and this is problematic Visualization: Same car company → uses one law firm for 10 years without comparing prices to other law firms, one advertising agency without competitive bidding Reading Strategy Insight: The author gives us concrete examples (computers, advertising, legal services) to make the abstract concept of "indirect purchases" clear What We Know So Far: Companies scrutinize direct suppliers but not indirect ones; this creates problems What We Don't Know Yet: What should companies do instead? |
| 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. |
What it says: Companies should look at two factors when deciding whether to competitively evaluate indirect suppliers: how many other suppliers exist and how hard it is to switch. What it does: Introduces the author's solution framework Source/Type: Author's recommendation/prescription Connection to Previous Sentences: This builds on the problem identified in sentence 2 by providing the solution approach. The author is helping us by giving a clear, simple framework Visualization: Two-axis decision matrix: Axis 1: Many alternatives ↔ Few alternatives Axis 2: Easy to switch ↔ Hard to switch What We Know So Far: Problem identified + solution framework provided What We Don't Know Yet: How exactly does this framework work in practice? |
| This can create four possible situations. |
What it says: These two factors combine to make four different scenarios. What it does: Restates and simplifies the previous sentence Source/Type: Author's organizational statement Connection to Previous Sentences: This directly restates sentence 3 in simpler terms. Feel relieved here - this is simplification, not new complexity! Visualization: 2×2 grid = 4 boxes (situations) Reading Strategy Insight: Authors often follow complex sentences with simple restatements to help readers. This signals that examples are coming. |
| 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. |
What it says: When lots of suppliers exist and switching is easy, actively shop around and get competitive bids. What it does: Provides first concrete example of the framework in action Source/Type: Author's specific recommendation Connection to Previous Sentences: This builds on the framework from sentences 3-4 by filling in the first box of our 2×2 grid Visualization: Legal services: 50 law firms in the city, easy to switch → get bids from multiple firms annually Reading Strategy Insight: The most straightforward situation gets explained first - this is the "ideal" scenario |
| 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. |
What it says: When many suppliers exist but switching is hard (like health insurance), research other options and use that information to negotiate better deals with your current supplier. What it does: Fills in second box of framework with specific strategy and concrete example Source/Type: Author's recommendation with illustrative example Connection to Previous Sentences: This builds on Type 1 by showing what changes when switching becomes difficult. Same pattern as Type 1: situation description + recommended strategy Visualization: Healthcare benefits: 20 insurance companies available, but switching disrupts all employees → research competitors' prices annually, use findings to negotiate with current provider |
| Alternatives provide a credible threat to suppliers, even if the ability to switch is constrained. |
What it says: Even when switching is hard, just having other options gives you negotiating power. What it does: Restates and explains the logic behind the Type 2 strategy Source/Type: Author's explanation of underlying principle Connection to Previous Sentences: This explains WHY the Type 2 strategy works. The author is helping us understand the reasoning, not adding complexity Reading Strategy Insight: This explanatory sentence makes the passage easier to understand, not harder |
| 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. |
What it says: When few suppliers exist but switching is easy, the ability to switch gives you negotiating power. What it does: Provides third example following the same pattern as Types 1 and 2 Source/Type: Author's recommendation Connection to Previous Sentences: Follows exact same pattern: "In Type X situations" + description + strategy. This is Type 2 in reverse - few suppliers but easy switching versus many suppliers but hard switching Visualization: Specialized software: only 3 companies make it, but switching software is straightforward → can credibly threaten to switch during negotiations Reading Strategy Insight: Pattern recognition pays off - we can predict the structure now |
| In Type 4 situations, where there are few alternatives and change is difficult, partnerships may be unavoidable. |
What it says: When few suppliers exist and switching is hard, you might have to accept exclusive arrangements. What it does: Completes the 2×2 framework with the final scenario Source/Type: Author's acknowledgment of limitations Connection to Previous Sentences: Completes the pattern established in Types 1-3. Notably, this circles back to acknowledge that sometimes the "partnerships" criticized in sentence 2 are actually appropriate Visualization: Highly specialized factory equipment: only 1-2 global suppliers, switching requires months of downtime → partnership arrangement may be necessary Reading Strategy Insight: The passage comes full circle - the author acknowledges when the originally criticized approach actually makes sense What We Know Now: Complete framework for evaluating indirect supplier relationships based on practical constraints |
2. Passage Summary:
Author's Purpose:
To provide a practical framework for companies to decide when and how to apply competitive scrutiny to their indirect suppliers, rather than automatically using exclusive partnerships.
Summary of Passage Structure:
The author builds their argument by first identifying a problem, then offering a systematic solution:
- First, the author points out that companies typically only scrutinize suppliers of direct materials but not indirect purchases like computers or legal services.
- Next, the author identifies this as a problem because companies often use exclusive partnerships for indirect purchases, which protects suppliers from competition and costs companies money.
- Then, the author presents a two-factor framework (availability of alternatives and ease of switching) that creates four different situations companies might face.
- Finally, the author walks through each of the four situations, explaining what strategy works best in each case, from competitive bidding to negotiating with existing suppliers to accepting partnerships when necessary.
Main Point:
Companies should evaluate their indirect suppliers using a simple two-factor framework that helps them choose the right competitive strategy for each situation, rather than automatically accepting exclusive partnerships that may not be in their best interest.
Question Analysis:
This question asks us to identify the relationship between the first and second paragraphs of the passage. We need to understand what each paragraph does and how they connect to each other.
Connecting to Our Passage Analysis:
From our analysis, we can see a clear structural division:
- First paragraph (sentences 1-4): Identifies a problem with current corporate purchasing practices and introduces a solution framework
- Points out that companies scrutinize direct suppliers but not indirect ones
- Explains that exclusive partnerships for indirect purchases "inappropriately shelter suppliers" and cost companies money
- Proposes a two-factor framework (availability of alternatives and ease of switching)
- States this creates "four possible situations"
- Second paragraph (sentences 5-9): Works through the practical application of this framework
- Systematically covers all four types of situations
- Provides specific strategies for each scenario
- Includes concrete examples (healthcare benefits, competitive bidding)
- Shows how the framework works in real business contexts
Prethinking:
The first paragraph sets up a problem and proposes a strategic framework as the solution. The second paragraph then takes that framework and shows how to actually use it in practice. This is a classic "theory followed by application" structure. The second paragraph doesn't prove the first paragraph, explain why problems occur, examine scope, or discuss contradictions - it demonstrates how to implement the proposed strategy in different business situations.
Why It's Wrong:
- The second paragraph doesn't provide proof or evidence to support claims made in the first paragraph
- Instead of offering verification, it shows practical implementation
- The four types of situations are applications of the framework, not evidence that the framework is correct
Common Student Mistakes:
- Does providing examples count as \"proof\"? → Examples demonstrate application, while proof would require data, studies, or evidence showing the framework actually works
- Aren't the four situations supporting the framework? → They show how to use the framework, not that it's proven to be effective
Why It's Wrong:
- The second paragraph doesn't explain why the problematic situation (inappropriate supplier partnerships) occurs
- It doesn't address the causes or origins of the problem
- Instead, it focuses on what to do about the problem once you recognize it
Common Student Mistakes:
- Isn't discussing different scenarios explaining the situation? → The scenarios describe different contexts for applying solutions, not reasons why problems occur
- Does showing when partnerships are \"unavoidable\" explain the situation? → This describes appropriate use of partnerships, not why inappropriate partnerships happen
Why It's Right:
- The first paragraph proposes a strategic framework using two variables that create \"four possible situations\"
- The second paragraph systematically works through each of these four situations, showing exactly how to apply the strategy
- It provides specific tactics for each scenario (competitive bidding, market testing, negotiating concessions, accepting partnerships)
- The progression from framework to implementation perfectly matches this relationship
Key Evidence: \"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.\" The second paragraph then details each situation and corresponding strategy.
Why It's Wrong:
- The second paragraph doesn't examine how broad or extensive the problem is
- It doesn't discuss which industries, companies, or purchase types are affected
- Instead of analyzing scope, it provides actionable strategies for different situations
Common Student Mistakes:
- Doesn't covering four different types examine scope? → The four types show different strategic approaches, not the breadth of where problems occur
- Aren't the examples showing scope? → Examples like healthcare benefits illustrate strategy application, not problem extent
Why It's Wrong:
- The passage doesn't present contradictory relationships or internal conflicts
- The framework is internally consistent across all four situations
- Rather than exploring contradictions, it provides a unified approach to different scenarios
Common Student Mistakes:
- Isn't there a contradiction between criticizing partnerships and then accepting them in Type 4? → This shows nuanced strategic thinking, not contradiction - partnerships are inappropriate when alternatives exist, but may be necessary when they don't
- Don't the different strategies for each type contradict each other? → Different situations require different approaches; this demonstrates strategic flexibility, not contradiction