02 Do you think Cheung should change his supplier? Justify your answer. [6]

[BASEL Moderator]

Cheung owns a small retail shop in the city centre selling fashion clothing for children. As it is a competitive market, Cheung knows market research is important. Cheung is worried about the effect of an increase in shop rent on his costs. Cheung said: ‘I will have to pay this higher rent as it is a good location. I need to increase revenue or reduce other costs.’ Cheung buys all his supplies from a wholesaler located in a nearby town. He is thinking of buying directly from a clothing manufacturer in another country.

02 Do you think Cheung should change his supplier? Justify your answer. [6]

Possible KN Points:
• Build relationship with supplier
• Wholesaler offers choice OR variety OR feedback
• Wholesaler breaks bulk
• More time OR paperwork
• Cheaper to buy direct
• Purchasing economies of scale OR buy in larger quantities when buy direct
• Quicker access to inventory (stock)
• Not able to check quality