BM1913

I. MULTIPLE CHOICE (5 items x 2 points)

Encircle the letter of the correct answer.
1. This economic decision refers to the process of managing a broad range of procedures associated
with a firm’s need to acquire goods and services.
A. Procurement C. Outsourcing
B. Strategic sourcing D. Purchasing
2. This involves hiring a third-party external service provider to perform a business function.
A. Procurement C. Outsourcing
B. Strategic sourcing D. Purchasing
3. This benefit of outsourcing helps the business to concentrate on its core functions.
A. Cost savings C. Reduced capital expenditures
B. Focus D. Increased flexibility
4. This supply chain strategy is used to develop the ability to take a function of a supplier or a
distributor.
A. Near Sourcing C. Virtual Companies
B. Joint Ventures D. Vertical Integration
5. It is the third step in the procurement process.
A. Identify and review requirements C. Determine the right price
B. Identify and select suppliers D. Establish specifications

II. ENUMERATION (5 items x 2 points)

Identify the factors that must be considered in vendor evaluation, in any order.

When evaluating vendors, there are several factors that must be considered. These factors can help
determine if a vendor is a good fit for a company's needs and if they can provide quality products or
services. The factors to consider are:

 Quality: The quality of a vendor's products or services is one of the most important factors to
consider. A vendor's reputation for quality can impact the quality of a company's final product or
service.

 Price: The cost of a vendor's products or services is also an important consideration. A company
must evaluate whether the vendor's pricing is competitive and whether it is worth the cost.

 Reliability: A vendor's reliability is a key factor to consider, as it can impact a company's operations.
A reliable vendor should be able to deliver products or services on time and with consistent quality.

 Customer service: The level of customer service a vendor provides is important, as it can impact a
company's relationship with its customers. A vendor should be responsive to inquiries, provide clear
communication, and be willing to address any issues that arise.

 Scalability: A vendor's ability to scale up or down is another important factor to consider. A vendor
should be able to accommodate a company's changing needs, whether it is an increase in demand

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or a decrease in orders.

 Experience: The experience a vendor has in providing products or services is also important. A
vendor with experience in a particular industry or market may be better able to understand a
company's needs and provide tailored solutions.

 Location: The location of a vendor can also be a consideration, as it can impact shipping costs and
delivery times. A company may prefer to work with a vendor located nearby to reduce costs and
improve communication.

In summary, when evaluating vendors, a company should consider factors such as quality, price, reliability,
customer service, scalability, experience, and location. These factors can help a company select a vendor
that is a good fit for its needs and can provide quality products or services.

III. PROBLEM SOLVING (1 item x 10 points):

Creative Crafts Inc. distributes abaca bags in selected provinces. The company has identified that they have
a daily demand of 50,000 units for their bags. Relevant to this, Creative Crafts management is
contemplating whether to purchase an equipment worth P1,000,000 and produce the components of their
bags for P40 each or simply have their trusted supplier produce and ship the components of their bags for
P80 each. Compute for the breakeven point of abaca bags and recommend whether the company should
purchase a new equipment or simply outsource their production.

To determine the breakeven point of abaca bags, we need to consider the total cost of production and the
selling price per unit.

If Creative Crafts decides to purchase the equipment and produce the components themselves, their total
cost of production would be:

Total cost = Fixed cost + Variable cost per unit

Fixed cost = P1,000,000 (cost of the equipment)

Variable cost per unit = P40 (cost of producing one unit)

Thus, the total cost per unit would be P1,000,000/50,000 units + P40 = P60

On the other hand, if Creative Crafts outsources the production of the components, their total cost of
production would be:

Total cost per unit = P80

If Creative Crafts sells their abaca bags for P100 per unit, the breakeven point can be calculated as follows:

Breakeven point = Fixed cost / (Selling price per unit - Variable cost per unit)

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If Creative Crafts produces the components themselves, the breakeven point would be:

Breakeven point = P1,000,000 / (P100 - P60) = 25,000 units

If Creative Crafts outsources the production of the components, the breakeven point would be:

Breakeven point = 0 / (P100 - P80) = 0 units

Based on the breakeven point analysis, Creative Crafts would need to produce and sell 25,000 units of
abaca bags to cover the cost of purchasing the equipment and producing the components themselves. If
the company anticipates selling more than 25,000 units, it would be more cost-effective to purchase the
equipment and produce the components in-house.

However, if Creative Crafts expects to sell less than 25,000 units, outsourcing the production of the
components would be more cost-effective. This would allow the company to avoid the fixed cost of
purchasing the equipment and pay only the variable cost of P80 per unit.

Therefore, it is recommended that Creative Crafts should assess their expected demand and sales volume
before planning to either purchase the equipment and produce the components themselves or outsource
their production.

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