THE EFFECT OF PRODUCTION NEED, DISTANCE, AND PRICE DISCOUNTS

ON BULK PURCHASE BEHAVIOR FOR CARTON SHEETS OF

MANUFACTURING COMPANIES

A Mini-thesis

Presented to the

Faculty of the Senior High School

Basic Education

University of San Carlos

Cebu City, Philippines

In Partial Fulfillment

of the Requirements for

Senior High School -

Accounting, Business and Management Strand

By:

DANUCO, JUSTINE CHLOE N.

ESGANA, XENNIE MARIE R.

FERNANDO, RYAN C.

MONTALBO, KLOUIE C.

RESUERA, JERI LEIGH J.

March 2018

i
 APPROVAL SHEET

This thesis, entitled “THE EFFECT OF PRODUCTION NEED, DISTANCE, AND

PRICE DISCOUNTS ON BULK PURCHASE BEHAVIOR FOR CARTON
SHEETS OF MANUFACTURING COMPANIES” submitted by JUSTINE CHLOE
DANUSO, XENNIE MARIE ESGANA, RYAN FERNANDO, KLOUIE MONTALBO,
and JERI LEIGH RESUERA in partial fulfillment for Senior High School –Accountancy,
Business and Management Strand has been examined and accepted for
ORAL EXAMINATION

THESIS COMMITTEE

MR. DON ALI P. JUREDINI, MBA

Adviser

MS. MANICEL PESONS MR. KENNETH REPUNTE, MBA

Member Member

MS. JOYCE NATALIE YANG

Chairman

PANEL OF EXAMINERS
Approved by the committee on Oral Examination with a grade of PASSED

MS. JOYCE NATALIE YANG MR. KENNETH REPUNTE, MBA

Chairman Member

MR. CHRISTOPHER C. BACUNGAN, MA Econ MS. QUENNIE YPANTO

Member Member

Accepted and approved in partial fulfillment of the requirement s for RESEARCH 03-B.

Comprehensive Examination PASSED: February 9, 2018

Date of Oral Examination PASSED: March 9, 2018

MR. DON ALI P. JUREDINI, MBA

Adviser

ii
 ACKNOWLEDGMENT

The accomplishment of this study was only made possible through our Almighty

Father, who has blessed us with learning experiences and provided us with wisdom,

fortitude, and determination to finish the research.

We express our deep gratitude towards the following significant contributors as well:

Our family, most especially to our parents: Mr. and Mrs. Danuco, Mr. and Mrs.

Esgana, Mr. and Mrs. Fernando, Mr. and Mrs. Montalbo, Mr. and Mrs. Resuera for their

unwavering support and encouragement;

Our classmates, batchmates, and friends, whom we express gratitude for their

cooperation and assistance in the completion of this research study;

Our school, the University of San Carlos, and the Accountancy, Business, and

Management (ABM) strand faculty members for imparting the knowledge we have

acquired during our Senior High School years and for giving us the opportunity to apply

our learning through this marketing research;

Our panelists, Mr. Joemel D. Dakay, Ms. Vanessa P. Delos Santos, Mr. Kenneth

Repunte, Ms. Quennie Ypanto, Mr. Christopher Bacungan, and Ms. Joyce Natalie Yang,

for giving comments and suggestions that helped us improve our research paper;

Our research teacher, Mr. Don Ali P. Jureidini, for guiding and supporting us

throughout the duration of making our research paper;

Our chosen company, Ma-Vill Recycling Corporation, for giving us the

opportunity to study the nature of their business;

iii
 Our respondents for giving us their time and effort for answering genuinely and

for providing us, not just the needed information for this project, but also advice and life

lessons which we can apply in the real world;

And lastly, to Mr. Michael Mancio and Ms. Emmy Torreon for always welcoming

us into their office, and helping us by imparting with us the information necessary for the

completion of our Marketing Research.

DANUCO, JUSTINE CHLOE N.

ESGANA, XENNIE MARIE R.

FERNANDO, RYAN C.

MONTALBO, KLOUIE C.

RESUERA, JERI LEIGH J.

iv
 ABSTRACT
The study evaluated the effects of production need, distance, and price discounts
on the bulk purchase behavior for carton sheets by the customers of Ma-Vill Recycling
Center Corporation. Bulk purchase behavior is measured by the amount of purchase
price. The relationship between the three independent variables of the study and bulk
purchase price was studied.
Review of related literature was made with the following topics; i) raw materials;
ii) bulk purchasing; iii) inventory systems; iv) production demands or needs; v) distance
of customer to the supplier; and vi) price discounts. The theoretical framework utilized
for this study was the model for factors and criteria affecting purchase decision of
manufacturing companies made by Gao and Tang in their 2003 study: a multi-objective
model for purchasing of bulk raw materials of a large-scale manufacturing plant.
Data about the existing clients of Ma-Vill Recycling Center Corporation was
gathered by visiting the company and interviewing the operations manager and head
officer for customer relations of the company. The survey was performed on 10 existing
clients of Ma-Vill around Cebu City and Mandaue City, with the help of the agents of the
company. Data gathering method used was through personal interviews and
questionnaires. Additional time-series data was gathered from the database of Ma-Vill
containing the quantity and amount of purchase of each respondent for 30 months.
The study revealed that productions needs and price discounts have a moderate
and strong positive correlation with bulk purchase price, respectively (Pearson r =
0.5611, and r = 0.7689, respectively). On the other hand, distance from the customer to
its supplier was found to have a weak negative correlation (r = -0.2709). Furthermore,
among the three variables, production need were found to have the greatest impact on
bulk purchase price.
The study concluded that production need or the number of raw materials that a
company consumes for a specific period of time and price discounts have a favorable
effect on both bulk purchase price and purchase behavior of the customers of Ma-Vill
Corporation. Distance has little impact to purchase decisions in buying raw materials in
bulk.
The study recommends pricing-related strategies for Ma-Vill Center Corporation,
which is the main beneficiary of the study. The strategies involve increasing selling price
for clients with high production need, expanding market size, sticking to original selling
price when bargained from distant clients, offering price discounts to customers with high
purchasing power and to potential and new customers at strategic times, and utilizing
time-series trends.

Keywords: Bulk Purchasing, Raw Materials Production Need, Distance, Price Discounts,
Purchase Price

v
 TABLE OF CONTENTS

Page
TITLE PAGE i
APPROVAL SHEET ii

ACKNOWLEDGMENTS iii
ABSTRACT v

TABLE OF CONTENTS vi
LIST OF TABLES viii
LIST OF FIGURES x
Chapter
1 INTRODUCTION
Rationale of the Study 1
Industry Analysis 3
THE PROBLEM
Statement of the Problem 12
Statement of Assumptions 13
Statement of Hypothesis 14
Significance of the Study 15
Scope and Limitation of the Study 16
DEFINITION OF TERMS 17
2 THEORETICAL BACKGROUND
Review of Related Literature 18
Theoretical Framework 45
Conceptual Framework 49
3 RESEARCH METHODOLOGY 51
Research Environment 52
Research Respondents 54
Research Instruments 55
Research Procedures
Gathering of Data 57

vi
 Treatment of Data 58
Page

4 PRESENTATION, ANALYSIS, AND

INTERPRETATION OF DATA 62
Pricing Methods of Ma-Vill Corporation 62
Effects of Production Need, Distance, and Discounts
on Purchase Price and Behavior 64
Greatest Impact on Purchase Price Among Three Factors 96
Pricing-Related Strategies for Ma-Vill Corporation 99
Socio-Economic Impact of the Business 103
5. SUMMARY, FINDINGS, CONCLUSIONS,
AND RECOMMENDATIONS
Summary 105
Summary of Findings 106
Conclusions 108
Recommendations 109
BIBLIOGRAPHY 112
APPENDICES
A Transmittal Letter 119
B Research Instrument 120
C Curriculum Vitae 123

vii
 LIST OF TABLES

Table Title Page

1.1 Characteristics of an oligopolistic market structure 3

4.1 Carton Sheets Needed by Respondents 64

4.2 Mean and Standard Deviation for Quantity of Carton 65

Sheets Needed
4.3 Carton Sheets Purchased by Respondents 66

4.4 Mean and Standard Deviation for Quantity of Carton 67

Sheets Purchased
4.5 Comparison of Quantity Carton Sheets Purchased and 68
Quantity of Carton Sheets Needed
4.6 Relationship between Production Need and Bulk 69
Purchase Price
4.7 Importance of Production Need on Bulk Purchase Price 70

4.8 Distance of Respondents to Ma-Vill Corporation 71

4.9 Relationship between Distance and Frequency of Orders 72

4.10 Relationship between Distance and Bulk Purchase Price 71

4.11 Importance of Distance on Bulk Purchase Price 74

4.12 Trade Discount Received by Respondents in Percentage 75

and Pesos
4.13 Mean and Standard Deviation for Trade Discount (in 76
Pesos)
4.14 Relationship between Trade Discount and Bulk Purchase 84
Price
4.15 Comparison of Quantity Carton Sheets Purchased and 85
Quantity and Quantity of Carton Sheets Needed
4.16 Relationship between Production Need and Bulk 86
Purchase Price
Table Title Page

4.17 Importance of Production Need on Bulk Purchase Price 88

viii
4.18 Distance of Respondents to Ma-Vill Corporation 89

4.19 Relationship between Distance and Frequency of Orders 90

4.20 Relationship between Distance and Bulk Purchase Price 91

4.21 Importance of Distance on Bulk Purchase Price 92

4.22 Average Monthly Trade Discount Received by 93

Respondents in Percentage and Pesos
4.23 Mean and Standard Deviation for Trade Discount (in 94
Pesos)
4.24 Relationship between Trade Discount and Bulk Purchase 94
Price
4.25 Importance of Trade Discount on Bulk Purchase Price 95

4.26 Mean and Standard Deviation for Bulk Purchase Price 96

4.27 Comparison of Correlation Coefficient of the Three 97

Independent Variables
4.28 Which among these factors affect the purchase decision 97
of the company the most?
4.29 Weighted Means for the Level of Importance of the 98
Three Variables on Purchase Price
4.30 Time Series Data Trends 101

5.1 Summary of Price-Related Suggestion to Ma-Vill 111

Corporation

ix
 LIST OF FIGURES

Figure Title Page

Stages of decision-making process for manufacturing
2.1 46
companies (Gao & Tang, 2003)
Criteria of supplier selection and purchase decision of
2.2 47
manufacturing companies (Gao & Tang, 2003)
Theoretical Framework of the Study; Factors and criteria
2.3 affecting purchase decision of manufacturing companies 48
(Gao & Tang, 2003)
2.4 Conceptual Framework of the Study 50
Geography of Cebu City and Mandaue City; Courtesy of
3.1 53
Google
3.2 Flowchart of the research process 61
4.1 Quantity of Carton Sheets Purchased by Companies D-J 77
4.2 Bulk Purchase Amounts of Companies D-J 78
4.3 Quantity of Carton Sheets Purchased by Companies B
80
and C
4.4 Bulk Purchase Price of Companies B and C 80
4.5 Quantity of Carton Sheets Purchased by Company A 82
4.6 Bulk Purchase Price of Company A 82

x
 Chapter 1

INTRODUCTION

Rationale of the Study

Since the late 1960s, different purchasing issues of raw materials have been

tackled and discussed by enterprises and researchers since it is regarded as a strategic

management decision as well as an important competitive weapon (Reck & Long, 1988;

Browning et al., 1983; Anthony & Buffa, 1977). As suppliers and dealers of raw

materials like the Ma-Vill Corporation, it is indispensable to understand these issues and

purchasing behaviors of manufacturing companies. The cost of purchasing raw materials

and components accounts for a significant portion of the production and manufacturing

industry. (Gao & Tang, 2003). Raw materials not only mark the beginning of all

production and operation activities, but also is the major part, about 60-80% (Bender et

al., 1985), of the production cost for an enterprise. The question for manufacturers as to

how to make effective purchasing policies and for dealers of raw materials as to how to

develop effective pricing strategies has come to have many new characteristics in the

recent 20 years because of the trend of globalization of markets and development of

supply chains. (Virolainen, 1998; Gunasekaran, 1999; Jahnukainen and Lahti, 1999).

In the national context, there is an inadequate study about the supplier-client

relationship of buying and selling of raw materials. According to Mancio (personal

communication, December 27, 2017), operations manager of Ma-Vill Corporation, there

is limited competition in the supply of raw materials even though its demand is very high.

This situation is attributed to the lack of understanding of Filipino entrepreneurs of the

needs and purchasing issues of raw materials by manufacturing companies. Hence, there

1
is a necessity for research and knowledge in this field of selling and buying of raw

materials.

In a market where manufacturers experience a great need or demand, the suppliers

have a greater influence on the prices of raw materials, and thus can also have higher

gains on the prices (Bowley, 1928). This study aims to capitalize on the favorable

demand, insubstantial competition, and pricing power on the supply of raw materials on

local and national markets. Since raw materials are always purchased in bulk, this

research will be focused on understanding the bulk-buying preferences of raw materials,

with carton sheets as the main example, by manufacturing companies, and formulating

suggestions and strategies for bulk-pricing based on their preferences. In this study, bulk

purchase behavior will be measured primarily in terms of the purchase price of the bulk

orders. The factors affecting bulk purchase price that are taken into account are

production need of a manufacturing firm, distance of buyer to the dealer, and bulk price

discounts.

This research intends to begin bridging the gap of understanding of the dealers

and market of raw materials in the local scene, and to specifically help the chosen

business, Ma-Vill Recycling Corporation, develop a competitive edge on its local and

national business operations. The current status, customers, and capacity of the

corporation will be assessed, as well as the pricing methods being used. Effects of

selected factors affecting bulk purchase price will be examined. Lastly, effective pricing

strategies, which can be immediately used and strategically applied by the company, will

be formulated based on the results of this study.

2
Industry Analysis

A. Prevailing Market Structure

The prevailing market structure of the industry being studied in our research is

oligopoly. Oligopoly is defined as a market structure in which there is few and limited

competition in such a way the sellers have significant power on the market factors

(Federal Trade Commission, 2015). The characteristics of oligopoly are as follows:

Table 1.1
Characteristics of an oligopolistic market structure
Characteristics Description
Profits There is profit maximization. Firms under oligopolistic
structure have abnormal profits in the long run and the high
barriers to entry that prevent small businesses from entering
the market mean these firms get excess profits.
Pricing Ability Oligopolistic sellers are price setters rather than price takers.
Competition The market is controlled by a few powerful sellers wherein
there is usually a market leader. Competition is very limited.
Entry and Exit There are high barriers to entry such as economies of scale,
complex technology, strategic actions by firms, government
licenses and regulations.
Products Products may be differentiated or homogeneous.
Non-Price Competition Competition under oligopolies tends to be on terms other than
price such as loyalty, marketing schemes, and advertisement.

Ma-Vill is one of the only few recycling companies situated here in Cebu and

Mandaue city making it qualified to have an oligopolistic market structure. There are

only three major companies situated within the city of Cebu or Mandaue that sells

recyclable raw materials such as carton sheets and plastic namely; Ma-Vill, the subject of

our study, Trash for Goods Center, and Codie’s Recycling Shop. Thus, the competition in

this industry only belongs to these three firms. Even the operations manager of Ma-Vill

Corporation, Mr. Michael Mancio, said in an interview that there is a high demand for

3
their products and the competition in the industry is very limited (Personal

communication, December 23, 2017). Entry of new businesses to compete against these

firms is almost impossible since most of the customers and clients in the market are

already captured by one of these firms. Furthermore, Mr. Mancio said that their

customers value more the reliability of their supplier rather than the amount of selling

price they set. This is an example of a non-price competition happening in this industry.

Overall, all these traits mentioned qualify Ma-Vill Corporation as an oligopolistic firm.

B. Prices Charged to Products

The price of the carton sheets in Ma-Vill Corporation with single-sheet thickness

ranges from 5 to 10 pesos, and 10 to 15 pesos for cartons with double-sheet thickness.

The prices vary to the size of the carton sheets. Although the unit price of their carton

sheets is small, their materials are bought in bulk and they have a minimum order

quantity of 500 pieces. The freight charges are added depending on how far the customer

is and the mode of transportation. Ma-Vill has provided prices of its carton sheets similar

to the prices set by the company’s competitors as mentioned above.

C. Market Share

Ma-Vill Recycling Corporation is a business firm which consists of an

oligopolistic market structure. This means that the recycling industry here in the

Philippines, specifically within Cebu City area, is composed of only a few firms.

Furthermore, this also suggests that Ma-Vill Recycling Corporation only has a few

competitors to consider. Trash for Goods Center and Codie’s Recycling Shop are two of

the few recycling firms in Mandaue City, Cebu which Ma-Vill competes with. As a result

of this oligopolistic structure wherein only a few firms dominate the industry, a medium

4
to high concentration ratio is expected. Thus, Ma-Vill Recycling Corporation and other

recycling firms are expected to have an estimated market share ranging from 50 % - 80 %

in terms of sales volume. Although each firm differs in terms of their sales volume, they

share roughly the same high percentage of market share when computing for the

concentration ratio of the recycling industry. Being an oligopolistic business firm implies

that Ma-Vill Recycling Corporation, as well as its competitors (Trash for Goods Center

and Codie’s Recycling Shop), greatly influence the products and services provided in the

market. Since each firm already comprises a large part of the market share, this implies

that there is no true dominant firm in the industry. However, this type of market structure

still consists of leading brands, and one of this includes the Ma-Vill Recycling

Corporation which is considered to be one of the top competitors amongst the recycling

industry.

D. Product Differentiation

As mentioned above, Ma-Vill Recycling Corporation exhibits an oligopolistic

market structure since there are only a few competitors in the recycling industry here in

Cebu. Some of its competitors include Trash for Goods Center and Codie’s Recycling

Shop, which are both recycling corporations located in Mandaue City, Cebu. Under this

type of market structure, it is advisable for the products to be highly differentiated. This

is done in order for a company to gain a competitive edge by offering unique features and

services in line with its products. Consequently, Ma-Vill Recycling Corporation practices

product differentiation in their operations.

Although it is not explicitly shown, product differentiation of the Ma-Vill

Recycling Corporation is prevalent due to the following factors. First, Ma-Vill is being

5
differentiated from its competitors through the products it offers to the public. Unlike

other recycling corporations, Ma-Vill is one of the few which focus its main product line

towards carton sheets and other paper-related wastes. Furthermore, once the carton sheets

have already been processed, they are being packaged with either the logo of Ma-Vill or

the customized print of the customer. By doing so, Ma-Vill Recycling Corporation is able

to differentiate its product through its packaging.

Second, Ma-Vill ensures product differentiation through its pricing strategies.

Unlike its competitors, Ma-Vill implements its own prices which are based on the carton

sheet’s thickness and size. For a single sheet thickness, a carton sheet’s price ranges from

₱5 – ₱10. For a double sheet thickness, a carton sheet’s price ranges from ₱10 – ₱15. Ma-

Vill also offers price discounts to its customers who prefer to purchase by bulk. Through

these, the corporation is able to differentiate its product by its pricing strategies.

The third factor to consider is the quality of Ma-Vill’s products. This is very

significant since this is basically what differentiates Ma-Vill’s products from its

competitors. Ma-Vill Recycling Corporation is known for its high-quality products which

are made after thoroughly processing the raw materials, which are paper cartons collected

from junk shops and other suppliers. It ensures consumer satisfaction through the quality

of the products which it offers to the public.

It is also important to note the type of product differentiation used, which are both

the horizontal and vertical differentiation. Ma-Vill exhibits horizontal differentiation

since its products differ in terms of packaging, design, quality, and other physical

attributes which makes the consumers willing to purchase through Ma-Vill despite

several factors such as distance. On the other hand, Ma-Vill also exhibits vertical

6
differentiation by implementing its own pricing strategies which influence the customers

to choose Ma-Vill versus its competitors.

These are just some of the factors which prove the practice of product

differentiation within the Ma-Vill Recycling Corporation. As a result of these practices,

Ma-Vill has been consistently considered as one of the most stable local recycling

corporations compared to its competitors. Furthermore, Ma-Vill continuously reaches out

to its loyal customers by finding ways to strengthen its product differentiation.

Indeed, product differentiation is a factor which could aid the Ma-Vill Recycling

Corporation in maintaining its position in the industry as an oligopolistic business firm.

E. Barriers to Entry

Considering that the Ma-Vill Corporation belongs to an oligopoly type of market

structure, promising businesses, who are interested in entering the industry due to its high

profits and increasing demand, are expected to encounter high barriers. These barriers

prevent entry of new firms in the market in order to limit competition and often increase

the profit earned by existing firms in the marketplace (Karakaya, 2002). These are the

barriers to entry:

a.) Economies of Scale

One barrier to entry is the economies of scale. This refers to the decrease in

costs per unit due to the increased total output of the product. Ma-Vill is a big

business that caters to thousands order of its customers as well as its competitors.

Because of the huge total output of its products, the costs (e.g. electricity for

machineries) would decrease since the products were made all at once. This would

7
allow the incumbents to decrease their selling price per unit in order to attract and

increase the purchase intention of its customers.

In order to gain customers, new entrants would need to consider the proposed

price of its competitors. Due to the reason that they are still new with fewer

customers and orders, their total output production would be small, thus increasing

production costs. They would not be able to match their selling price with those of

the corporations since their production costs are higher and it would result in a loss

rather than profit.

b.) Network effects

Since 1982, Ma-Vill Corporation has already begun its operation. Through

those years, the corporation was and is still able to gain the loyalty of its customers

and entice potential customers. Putting this into consideration, a business interested

in entering the market will likely have a hard time snatching the current customers of

the corporations nor gain new customers considering that compared to its

competitors, it’s still new and unknown to the market.

c.) Ownership or control of a key scarce resource

Ma-Vill Corporation has already built strong connections with various

suppliers of carton sheets raw materials. This will put potential entrants in a

disadvantage since they will need to match with the amount of money that the

incumbents offer to the suppliers and their huge orders that would likely decrease the

supply of the suppliers. This would leave them with lack of resources necessary for

their operations. With the limited number of junk shops in Cebu, finding enough

resources for a new business’s operations would be quite difficult.

8
d.) High set-up costs

High set-up costs deter initial market entry. Setting up a business that can

compete with the Ma-Vill Corporation and other incumbents could be costly. Just

from the place of operations, machineries for processing of carton sheets, supplies,

labor etc., a potential entrant would need a huge amount of capital in order to start its

operations. The business will also need to consider marketing and advertising costs

that are significant in catching up with the pace of the incumbents.

e.) Government laws and regulations

In the Philippines, there are various laws and regulations that must be

followed before entering a specific market especially is it’s an oligopoly. Some of

these include business registration, licenses, business permits, etc. that would

complicate the entrance of the business to the industry and creates additional

expenses.

f.) Switching costs

Switching costs are costs that consumers incur in switching from a supplier to

another. Before switching suppliers, consumers take these costs into consideration

and if these costs are high, it is less likely the consumer would. This deters entrance

because it increases the expenses the potential firm needs to take into account.

g.) Advertising

These are sunk costs that will force new entrants to match in order to compete

in the market. This is considered in order to prevent the advertisements of existing

recycling corporations from making a new entrant’s advertisement seem like

9
 nothing. This is also necessary for creating an effective impact on the customers and

to be able to compete in the market.

h.) A strong brand

Through years of operations, Ma-Vill Corporation has built a strong brand in

the local and national market, even in international countries, same goes to the other

recycling corporations. This kind of brand locks in existing customers and deters the

entrance of the new business. This would be quite an obstacle for potential entrants

since a strong brand is an enormous task and would take a long time to establish

especially there are large and known firms to compete with.

F. Factors that Change Demand

The factors that are expected to change demand over the short run are:

a.) Price of Related Goods

Over the short run, the price of related goods can be expected to change the

demand for the carton sheets sold by Ma-Vill Corporation. Some of these related

goods are honeycomb boards which are substitutes of carton sheets. If the price of

these substitutes were to decrease, consumers are expected to buy more of these

substitutes and fewer carton sheets. But if the price of these substitutes were to rise,

consumers are expected to buy more carton sheets and fewer honeycomb boards.

b.) Income of consumers

A rise of income of consumers increases the purchasing power of buyers.

The more purchasing power, it is expected that buyers will be able to buy more

10
 carton sheets thus increasing demand. But if their income were to decrease, they

would have less purchasing power, thus decreasing demand.

c.) Expectation of future prices

If people expect the price of carton sheets to increase next week, they are

expected to buy more products before that certain week thus increasing demand.

But if it is expected that the price of the carton sheets would fall in the following

week, they are expected to buy less today and more in that week.

The factors that are expected to change demand over the long run are:

d.) Number of Buyers

If the number of buyers increases within Mandaue City, Cebu, Philippines

or international countries that are within the coverage of Ma-Vill, the demand for

carton sheets is expected to increase. But if buyers of the product were to decrease,

the demand for carton sheets will also decrease.

e.) Taste or Preferences of Consumers

Carton sheets are raw materials used in making carton boxes which are used

in packaging. If a time were to come that consumers would prefer other types of

packaging (e.g. packaging using plastics) instead of carton boxes, the demand for

carton sheets are expected to decrease. On the other hand, if consumers were to

place more value in using carton boxes, the demand for carton sheets are expected

to increase. Since taste and preferences change over time, the demand is affected in

the long run.

11
 THE PROBLEM

Statement of the Problem

This study aims to investigate bulk purchasing behaviors for carton sheets of Ma-

Vill Corporation’s customers, which are manufacturing businesses in Cebu City and

Mandaue City, in order to develop pricing strategies for bulk orders of raw materials.

Specifically, the study aims to answer the following questions:

1. What are the current pricing methods and strategies of Ma-Vill Corporation for

bulk orders of raw materials?

2. What are the effects on bulk purchase behavior in buying raw materials of these

specific factors:

2.1 Production Need

2.2 Distance

2.3 Price Discounts

3. Which among the three factors has the greatest impact towards the purchase

behavior of manufacturing companies when ordering raw materials in bulk?

4. What appropriate pricing strategies and suggestions can be offered to Ma-Vill

Corporation and other dealers of raw materials regarding the bulk purchasing

preferences of manufacturing companies?

12
Statement of Assumptions

This study is anchored on the effects of production need, distance, and price

discounts on bulk purchase behavior for raw material, specifically carton sheets, of Ma-

Vill’s clients. Bulk purchase behavior is measured through the purchase price of bulk

orders. The researchers have a certain assumption for each of the factor being examined.

Distance will greatly impact the purchase price that companies will spend for raw

materials. This is because the researchers believe that clients that are far from their

suppliers are more likely to consider buying a huge bulk of raw materials during their

orders to lessen the costs and hassle each time they order and transport the goods. Lesser

orders would mean greater amount and purchase price for each order. In the case of

production need, the researchers believe that the higher the needs of raw materials for

production, the less they would mind changes in a price increase of the materials. This

presumes that even though there will be slight to an average increase in the prices of raw

materials, the manufacturers will still purchase the same amount of goods. Moreover,

they may also likely increase the quantity or amount that they would like to purchase in

relation to their demand. Lastly, for price discounts, the researchers assume that the

number of discounts offered would have a substantial effect to the number of raw

materials to be purchased in bulk such that the higher the discount, the higher the number

of raw materials in bulk the customers would purchase. Considering this statement, it is

also presumed that the common practice of selling goods in bulk is through tier-pricing.

Tier pricing is a form of pricing that encourages customers to buy larger quantities of a

product by applying discounts based on the quantity ordered such that the higher the

quantity ordered, the higher the price discount would be.

13
Statement of Hypotheses

Ma-Vill Recycling Corporation is a recycling/manufacturing business which

produces raw materials, specifically for carton sheets. The business’ major consumers are

manufacturing businesses who prefer to purchase in bulk. In this research, it focuses on

the relationship of production need, distance, and price discounts on bulk purchase

behavior, which is measured through the purchase price of bulk orders, in buying raw

materials of manufacturing companies. In examining these factors, the researchers

formulated the following hypothetical statements:

H01. There is no significant relationship between production need and bulk purchase

price of raw materials.

H11. There is a significant relationship between production need and bulk purchase

price of raw materials.

H02. There is no significant relationship between price discounts and bulk purchase

price of raw materials

H12. There is a significant relationship between price discounts and bulk purchase

price of raw materials

H03. There is no significant relationship between the distance of client to the supplier

and bulk purchase price of raw materials

H13. There is a significant relationship between the distance of client to the supplier

and bulk purchase price of raw materials.

H4. Distance from the client to the supplier has the greatest impact on the amount of

bulk purchase price of raw materials a consumer purchases.

14
Significance of the Study

Through this study, the researchers intend to contribute improvements in the field

of marketing research. Consequently, this proposal can provide various contributions to

the following sectors which are involved in the bulk selling and buying of raw materials:

Ma-Vill Recycling Corporation. The results of this marketing proposal will mainly aid

the corporation in developing its pricing strategies for bulk orders of raw materials. Since

the key objective of this study is to provide Ma-Vill with these strategies and methods,

once applied, this could help the business improve its understanding of the clients and

thus, increase sales and efficiency in its trading.

Manufacturing companies. Businesses which accept bulk orders could gain new

insights from this research paper. The findings of this study could also be utilized in

considering the purchasing strategies of their own company.

The Public and Consumers. This paper allows the general public to be made aware of

their purchasing behavior and how it affects the budget which they are willing to spend

for bulk orders of goods. Furthermore, since the majority of the clients of Ma-Vill

Corporation are various companies as well, they will also be mindful of how the bulk

purchasing price of raw materials affects the total cost of goods to be sold in the market.

Future Researchers. This study could serve as a reliable reference to future researchers,

including students, who wish to explore and examine the related literature for this

marketing research.

15
Scope and Limitation of the Study

This study is conducted to specifically gather data about the bulk purchasing

behaviors for raw materials, specifically on carton sheets only, of manufacturing

companies. The main basis of this study is the bulk pricing methods of Ma-Vill

Corporation. The subjects of this research are manufacturing companies that are based in

Cebu City and Mandaue City who purchase carton sheets from Ma-Vill Corporation for

production purposes. Due to time constraint and limited availability of manufacturing

companies, the comprehensiveness of data gathered is compromised. The researchers will

only be able to grasp a small sample population of 10 manufacturing companies which

are chosen clients of Ma-Vill Corporation. Furthermore, the interview questions or

questionnaire will only be succinct because of information reservations of the company.

This study would also like to note that the data gathering for the 10 clients of the Ma-Vill

Corporation will be done with the help of the agents of the Ma-Vill Corporation due to

confidentiality purposes. Lastly, in gathering time-series data of the quantity and amount

of purchase of each of the client that are respondents of this study, the data will only be

limited to 30 months of purchases from July, 2015 to December, 2017.

16
 DEFINITION OF TERMS

Bulk Purchasing. The purchase of goods in huge quantity or volume by a manufacturing

company. A bulk purchase means a single purchase of a large volume of materials.

Bulk Purchase Price. This refers to the price offered by the suppliers of raw materials

when customers buy in bulk, usually with a reduced or negotiated price through trade

discounts.

Bulk Purchase Behavior. This represents the preferences of consumers when they buy

materials or items in bulk. In this study, it is measured by the purchase price that clients

spend for bulk orders.

Raw Materials. These are raw materials which are consumed or processed in the

production of finished products by a manufacturing company. In the case of this study,

the basis for raw material is carton sheet, which one of the main products of Ma-Vill

Recycling Center Corporation.

Production Need. This refers to the need of the manufacturing companies for raw

materials to be used and consumed for the production of finished products in a specific

span of time.

Distance. This refers to how far apart are the suppliers to their clients and vice versa.

Price Discount. Refers to the price incentive or the reduction of the purchase price by

suppliers to its clients for purchasing materials in bulk.

17
 Chapter 2
THEORETICAL BACKGROUND

Review of Related Literature

Research works, related studies, journal articles, and dissertations that give

knowledge, insights, and comprehension to the main concepts of this study, which are

raw materials, bulk purchasing, inventory systems, production need, store distance, and

price discounts, are reviewed and examined in order to establish a theoretical foundation.

This review of numerous related literature is subdivided into six sections, one for each

key concept of the study. Topics under each section are also identified in order to

scrutinize and organize properly the related studies. An overview of raw materials, bulk

purchasing, and inventory systems is given first. This is then followed by the in-depth

related studies of the three main variables of the study that affect bulk purchase behavior

for raw materials of manufacturing companies.

Section I: Raw Materials

Raw Materials: An Introduction

Inventory is any stock of an item that a company keeps to be used for the

company’s output (Cheng, 1991), and raw materials are one of the major inventories of

any manufacturing corporation. Inventory is classified into three, namely: raw materials,

work-in-progress and finished products (Stevenson & Hojati, 2007). Raw materials are

materials used in the company production or manufacturing of goods.

The final product made by a particular company has to be manufactured from a

mix or blend of different raw materials. Kingsman (2014) states that “the choice of which

materials to use in what quantities is complicated by the situation that the materials are

18
only partially substitutable for each other. This means that if a decision is made not to use

a particular material, this cannot be replaced directly by the same quality of an alternative

material.” To simplify the statement, it emphasizes that some alternative materials can’t

suffice the expected quality of a certain product that was made with the originally used

raw material. This serves as an advantage for all those companies who supply raw

materials preferred by manufacturing companies.

Raw Materials: Changes in Price

The prices of most basic raw materials, such as copper, tin, sugar, cocoa, cereals,

vegetable oilseeds etc., are outside the control of any individual buyer or supplier

(Kingsman, 1986). They are determined by the interaction of all producers and sellers,

usually on a worldwide basis, via a continuing market. Prices are continually changing,

fluctuating up and down in an uncertain pattern. This applies both to materials for

industrial use and materials for human consumption. In the end, the price of the finished

product or raw materials really depends on how the consumers of such materials or

services react to it. If the consumers prefer to use a certain product which uses a specific

raw material for it to be made, then the companies can decide on increasing the price.

Raw Materials: Purchasing Decisions

The cost of raw materials and component parts purchased from external vendors

is significant for most manufacturing firms (Weber, C. & Current, J. 1991).” For

example, the cost of components and parts purchased from external sources by large

manufacturers may total more than half of the revenues. There are two basic decisions

that need to be made by the buyers. First, the buyer must decide which vendor to choose

and must determine the appropriate order quantity for each vendor chosen. In that case,

19
manufacturing companies are more willing to buy raw materials from suppliers who offer

a much lower price than the other suppliers but without compromising the quality of the

material. Purchasing and deciding on which vendor to choose is driven by more than one

objective since the vendor selection is often an inherently multi-objective one. “For

example, Dickinson (1966) identified 23 different criteria evaluation in the vendor

selection process. In that article, quality was seen as being of extreme importance while

delivery, performance history, warranties and claim policies, production facilities and

capacity, price, technical capability and financial position were viewed as being of

considerable importance in the vendor selection process.” But frequently, the objectives

might come into conflict. For example, the vendor with the lowest price might not have

the best quality compared to a material produced by another vendor with a higher price.

That’s why there’s a need for a deep analysis before buying and selling raw materials.

When purchasing raw materials, delivery and warranty expenses aren’t the only

thing a manufacturing company should keep in mind. Most raw materials are

deteriorating items such as volatile liquids, blood banks, medicines, electronic

components and fashion goods (Yang, 2002). The company should also consider the

inventory costs like the holding cost and deterioration cost of each material. However, in

this research study, the suppliers and manufacturers that will be examined are those that

buy and sell carton sheets wherein deterioration is negligible. This is mainly because the

business under consideration, Ma-Vill Recycling Corporation, supplies recyclable

materials which almost neglects rate of deterioration like plastic and paper.

It’s a major objective for every firm to present a product that is of high quality

and at a minimum cost. In developing and manufacturing products, it’s very important to

20
put in mind the suitable set of raw materials to be used. At the development stage of a

new product, the firm must already decide on what starting raw materials are to be used,

together with the formulation in which to combine them, and the process conditions in

manufacturing the desired product (Muteki & MacGregor, 2008). Aside from the

selection of different raw materials due to its manufacturing purposes, the firm should

also consider these points in purchasing and deciding which raw materials are best for

their product. For example, new materials become readily available in the marketplace

that may offer a cost and quality advantage. In this case, the firm is encouraged to branch

out to different materials that may have a higher possibility to make their current product

even better. Another example is the replacement of materials due to discontinuation.

Some raw materials, as mentioned before, have a high deteriorating rate, may no longer

be available and are discontinued due to seasonal factors. It’s important to take notes on

these factors before finalizing the content of each finished product because this will

surely affect the manufacturing process and the output of the product. Unless the firm has

another alternative product to substitute the discontinued product.

In achieving the common goal for most manufacturing businesses to minimize

cost, and maximize the purchase of raw resources, bulk-buying can be considered. Bulk

purchasing is a strategic purchase, and common practice among manufacturing firms to

buy great volumes of materials to avail for big trade discounts. (Browning et al, 1983).

Section II: Bulk Purchasing

Bulk Purchasing: Introduction to the Concept of Customer-Supplier Relationship

In the business aspect, both suppliers and customers share an important

relationship in maintaining the business cycle. The customer-supplier relationship is

21
considered a vital aspect of supply chain management processes wherein huge

corporations thoroughly research, receive, understand, and practice the said interaction

(Matsoso & Benedict, 2014).

In the March 2014 issue of Harvard Business Review, Simons defined “customer”

to be one of the most elastic terms in management theory. Furthermore, he explained that

one’s customers include all the people and entities who purchase a company’s products

and services; thus, supplying the company’s revenue. Ultimately, the list comprises any

number of actors in a company’s value chain: consumers, wholesalers, retailers,

purchasing departments, etc.

On the other hand, suppliers are being defined by Oregon Laws (2015) as any

manufacturer or agent who enters into or is a party to any wholesale distribution

agreement with a wholesale distributor. In simple terms, suppliers pertain to those

vendors or sellers of goods to consumers.

Bulk Purchasing: Difference of Bulk and Retail

 Suppliers and customers have the freedom to choose between retail or bulk

purchasing and selling. Traditionally, retailers are those suppliers whose role is to offer a

variety of product selections in small quantities only, through locations accessible to the

consumers (Varley, 2014). Contrary to this, bulk purchasing, in the context of this

research, is the purchase of goods in huge quantity or volume by a manufacturing

company. A bulk purchase means a single purchase of a large volume of materials.

Furthermore, a bulk purchase price is referred as the price offered by the suppliers of raw

materials when customers buy in bulk, usually with a reduced or negotiated price through

trade discounts.

22
 There is a distinct difference between retail and bulk purchasing and selling

models. Bohi & Palmer (1996) stated that “In the retail model, where individual

consumer preferences are more likely to be served, the contract market is likely to work

more efficiently, the array of products and services will be greater, and technological

innovation will be faster. In the wholesale model, transaction costs are likely to be lower

and investment in transmission capacity is more likely to take place.” This suggests that

bulk buying indeed allows consumers to save more resources due to the lower cost of raw

materials as compared to retail purchasing.

Bulk Purchasing: Purchase Intention

Today’s competitive market requires companies to be able to determine their

customers’ purchase intention in order to maintain their reputation and goodwill.

Ultimately, this serves as a factor towards achieving customer loyalty (Younus et al.,

2015). Purchase intention is defined as the consumer’s preference to buy a certain

product or service wherein it has another aspect of a consumer purchasing a product after

he/she has thoroughly evaluated it. Various factors affect the intention of the customer

while he/she is selecting the product; however, the final decision depends on the

consumers’ intention with huge external factors (Keller, 2001). Furthermore, there are

various factors which could affect a customer’s purchase intention which includes the

brand name, product quality, price, packaging, and advertising as independent variables

on customers’ purchase intention. (Mirabi et. al., 2015) This proves that the price of raw

materials, most especially if bought by bulk, greatly affects the purchase intention of

consumers. Consequently, the researchers can help Ma-Vill in maintaining its already

stable brand name and product quality to ensure purchase intention of its customers.

23
 According to Applebaum (1981), there are several factors which affect the

amount of each item which the customer purchases. The most important ones include:

number of consumers intended for the product, item’s perishability, available facilities

and storage requirements, and most importantly are the purchasing power, ready cash,

unit of sale, and the item’s price. This implies that consumers have various considerations

before deciding to buy raw materials by retail or bulk, and this includes the number of

resources which they are willing to spend. The lower the price and the higher the

discount, the greater the probability for the buyer to purchase a certain product in bigger

quantities.

Section III: Inventory Systems

Inventory Management System: An Introduction

Inventory management is defined as a science-based art of ensuring that just

enough inventory stock is held by an organization to meet demand (Coleman, 2000; Jay

& Barry, 2006). Inventory is the availability of any resource used in business for its daily

operations. An inventory system is the set of standards and policies implemented in order

to control and monitor inventory levels of a business and determine what level should be

maintained, how large orders should be made and when stock should be replenished.

Inventory control is the supervision of the storage, supply, and accessibility of items to

ensure an adequate supply without excessive oversupply (Miller, 2010).

Inventory control means availability of stocks or supplies whenever required by

stocking adequate number and kind of stocks (Claycomb, et al., 1999). Inventory

management refers to the total sum of those related activities essential for the

procurement, storage, sales, disposal or use of the material. Inventory managers have to

24
stock-up supplies when required and utilize available storage space resourcefully so that

available storage space is not exceeded. Their main responsibility is maintaining

accountability of each inventory assets. They have to meet the set budget and decide

upon what to order, how to order and when to order so that stock is available on time and

at the optimum cost (Benedict and Margeridis, 1999). Therefore, Inventory management

involves planning, organizing and controlling the flow of stocks and materials from their

initial purchase unit through internal operations to the service point through distribution

(Smaros, et al., 2003).

Inventory management is also about specifying the size and placement of stocked

goods It is required at different locations and departments within a facility or within

multiple locations of a supply network to protect the regular and planned course of

production against the unwanted shortage of materials or goods. The scope of inventory

management also concerns the fine lines between replenishment lead time, carrying costs

of inventory, asset management, inventory forecasting, inventory valuation, inventory

visibility, future inventory price forecasting, physical inventory, available physical space

for inventory, quality management, replenishment, returns and defective goods and

demand forecasting (Claycomb, et al., 1999). Balancing these competing requirements

leads to optimal inventory levels, which is an on-going process as the business needs shift

and react to the wider environment (Ghosh and Kumar, 2003).

Inventory is a stock of goods that is maintained by a business in anticipation of

some future demand as defined by Ghosh & Kumar (2003) in their study. This definition

was also supported by Brag (2005) who stressed that inventory management has an

impact on all business functions, particularly operations, marketing, accounting, and

25
finance. He established that there are three motives for holding inventories, which are

transaction, precautionary and speculative motives. These transaction motives occur

when there is a need to hold stock to meet production and sales requirements. A business

might also decide to hold an additional amount of stocks of raw materials to cover the

possibility that it may have underestimated its future production and sales requirements

(Claycomb, et al., 1999). This represents a precautionary motive, which applies only

when future demand is uncertain. The speculative motive for holding inventory might

entice a firm to purchase a larger quantity of materials than normal in anticipation of

making abnormal profits. This causes the business to purchase a certain amount of raw

material on each transaction in order to supply the needs of the inventory system.

Therefore, the inventory systems which a business implements in daily operations affect

the quantity which the business purchase of raw materials but it does not affect the

quantity needed for production.

Inventory Systems: Just-In-Time Inventory System (JIT)

Just-In-Time Inventory System integrates the entire supply chain's marketing,

distribution, customer service, purchasing, and production functions into a single

controlled process (Gomes and Mentzer, 1988; Sadhwani et al., 1985). The fundamental

objective of JIT requires production and delivery of a specific product at the exact

quantity needed at the precise time required and conforming to quality specifications

every time while minimizing total supply chain cost by eliminating waste from the

delivery and production systems of supply chain members (Gomes and Mentzer, 1988).

Ideally, JIT is the ultimate time-based pull logistics strategy coupled with total supply

chain cost minimization (Germain et al., 1994).

26
 The fundamental objective of JIT is simply straightforward, but obtaining its

objective is extremely complex and difficult (Zipkin, 1991). “A specific product in the

exact quantity needed” means dependable transportation modes and integrated

communication (both internal and external to the firm) that allow the delivery of products

within narrow time windows with minimization of materials handling and storage

(Gomes and Mentzer, 1988). Unlike traditional distribution systems where parts and

products are pushed through the system at large quantities in order to avoid shortages, the

JIT system concentrates on avoiding the manufacture or delivery of parts and products

before they are needed (Selto et al., 1995). The JIT pull approach prohibits any work on

or movement of parts or products until the next process signals that it is ready to receive

them.

“At the precise time required”, this means that customers get exactly what they

want or need at the exact time they want it or need it. JIT is illustrative of a time

compression strategy that permits businesses to effectively compete on waste elimination

by taking time and inventory out of the entire system (Germain and DroÈge, 1995; Stalk

et al., 1992). The essence of JIT is the timely acquisition of materials, components, and

products as the need arise in the supply chain. This keeps inventory at a minimum and

relies on the ability of suppliers and carriers to consistently deliver appropriate quantities

of materials, parts, and products within a fixed time frame or schedule (Daniel and

Reitsperger, 1996).

Finally, it is “conforming to quality specifications every time”. This implies

having continuous quality improvements with the goal of zero defects and no variances.

Perfectionism is sought because defects consume time, money, and inventory of the

27
business, irritate customers, and reduce margins. While knowing implementing zero

defect policy is costly, a fundamental principle of JIT is that quality is less costly than

fixing defects (Germain et al., 1994). With minimal or zero buffer or safety inventory,

production stops when quality parts and products are not available for the next stage,

resulting in a search for solutions to fix poor quality (Davy et al., 1992). Thus, Quality

facilitates JIT because poor quality is among the main reasons for maintaining “just-in-

case” levels of inventory (Dean and Snell, 1991).

In summary, JIT is a strategic, time-based initiative that implies fundamental

changes in the way business conducts both internally and across firms' boundaries. It

promotes conditions necessary to manufacture high-quality products to meet market

demand with relatively small levels of inventory and high levels of productivity. The

objective of JIT is to eliminate waste of all kinds from the supply chain processes. In

theory, the product must conform to the customer's specification every time and be

delivered when needed in the exact quantity needed. In conclusion, Just In Time

inventory system limits the purchase of safety stocks and approximately purchases the

amount needed for a single production cycle. Therefore, these in no or minimal

difference quantity purchased on each transaction and quantity needed in each production

cycle.

Economic Order Quantity (EOQ) Model

A basic inventory management device is the economic order quantity (EOQ). An

EOQ strategy minimizes the total cost of ordering and carrying cycle stocks. EOQ is the

number of units that a company should add to inventory with each order to minimize the

total costs of inventory—such as holding costs, order costs, and shortage costs (Bassin,

28
1990). The EOQ is used as part of a continuous review inventory system in which the

level of inventory is monitored at all times and a fixed quantity is ordered each time the

inventory level reaches a specific reorder point (Silver & Peterson, 1985). In addition,

Bassin also mentioned in his study that EOQ provides a model for calculating the

appropriate reorder point and the optimal reorder quantity to ensure the instantaneous

replenishment of inventory with no shortages. It can be a valuable tool for small business

owners who need to make decisions about how much inventory to keep on hand, how

many items to order each time, and how often to reorder to incur the lowest possible

costs.

The EOQ model assumes that demand is constant, and that inventory is depleted

at a fixed rate until it reaches zero (Bassin, 1990). At that point, a specific number of

items arrive to return the inventory to its beginning level. Since the model assumes

instantaneous replenishment, there are no inventory shortages or associated costs.

Therefore, the cost of inventory under the EOQ model involves a tradeoff between

inventory holding costs (the cost of storage, as well as the cost of tying up capital in

inventory rather than investing it or using it for other purposes) and order costs (any fees

associated with placing orders, such as delivery charges) (Silver, E.A. and Peterson, R.,

1985). Ordering a large amount at one time will increase a small business's holding costs

while making more frequent orders of fewer items will reduce holding costs but increase

order costs. The EOQ model finds the quantity that minimizes the sum of these costs.

“Quantity that minimizes the sum of these costs”, this means that EOQ is the

quantity that minimizes both holding and order cost. EOQ finds the quantity that puts

holding cost and order cost at equilibrium. This quantity makes ordering and holding a

29
product attainable and profitable for a business. In conclusion, Economic Quantity Model

affects the quantity being purchased by a company but it does not affect the quantity

needed in its daily production cycle. Therefore, there is a difference in the quantity

purchased by a business in each transaction to the quantity needed by a business on it

normal production cycle.

Reorder Point

According to Fangruo Chen (1998), The reorder point (ROP) is the level of

inventory which triggers an action to replenish that particular inventory stock. It is a

minimum amount of an item which a firm holds in stock, such that, when the stock falls

to this amount, the item must be reordered. Whereas, the quantity associated with safety

stock protects the company from stock-outs or backorders. It is normally calculated as the

forecasted usage during the replenishment lead time plus safety stock. Safety stock is also

known as a “buffer”. In the EOQ (Economic Order Quantity) model, it was assumed that

there is no time lag between ordering and procuring of materials. Therefore the reorder

point for replenishing the stocks occurs at that level when the inventory level drops to

zero and because instant delivery by suppliers, the stock level bounce back.

Despite knowing the minimum amount of stock to replenish an inventory, the

production need may vary since a business may opt to store more stocks and other

conditions may reduce the minimum amount for re-ordering. In conclusion, the re-order

point inventory system affects the quantity of materials a business purchase in each

transaction, but it does not affect its needs to produce a product. Therefore, there is a

difference in the quantity purchased by a business in each transaction to the quantity

needed by a business on it normal production cycle.

30
 Section III: Production Need

Production Need: An Introduction

It is essential for marketers and entrepreneurs to identify prevalent types of

consumer needs in targeted or segmented consumer markets and to understand how these

needs affect their purchase behaviors. Identifying the needs of selected markets can help

in developing effective marketing strategies that would appeal to the specific needs of

these markets. (Kim, 2002). In the market for manufacturing companies, the most

obvious needs for these clients are their inventories and materials for the production of

their finished products.

Raw materials mark the beginning of all production and operation activities, and

it is only proper that it comprises 60-80% of the production cost for an enterprise.

(Bender et al., 1985). According to Bhat and Reddy (1998), goods that are designed to

deliver functional value or are used for operations satisfy the practical needs of

customers, and in the manufacturing field, these raw materials are the practical needs of

the companies. Production need, in the context of this research, are raw materials solely

consumed, converted, or processed for the daily, weekly, or monthly production of

finished products. Raw materials which are not processed and are only held as stocks or

reserves are not part of production need.

Production Need: Behaviors for Needs Fulfillment

Cheng (2007) states that holding of inventories of raw materials is very useful for

contingencies in the production system, yet keeping a high level of inventory may be a

costly exercise. This proves that manufacturing companies have different behaviors in

buying raw materials – others buy just for production need, while others maintain a

31
certain high level of stock raw materials. These different behaviors toward their needs

fulfillment can vary the amount of bulk, which consequently affects the bulk purchase

price.

The cost of buying raw materials and components is responsible for a significant

portion of the production and manufacturing industry. (Gao & Tang, 2003). It is of

utmost importance that these dealers and suppliers of raw materials will be able to

understand the purchase behaviors, preferences, and production need of their customers.

Knowing the amount and type of needed materials of manufacturers can give them a

competitive edge in pricing their raw materials when selling it to their clients.

Production Need: Relationship of Consumption and Purchase Behavior

Another perspective in looking at how the amounts of needs for raw materials

affect purchase behavior of manufacturing companies is by considering the statement of

Ji and Wood in their 2007 study that “purchase and consumption behaviors are closely

linked together.” Thus, it is only natural that the number of raw materials consumed, or

processed, affect the bulk purchase price that manufacturing companies are willing to

spend. Specifically, this implies that the more raw materials to be consumed for the

production of a company’s product, the more amount they would spend for these

materials, and consequently may lead to increase the price to be paid for a single bulk

order of raw materials. In the 1998 study of Homer and Kahle, it is mentioned that needs

to be met through consumption of materials are measured in activities, interests, and

opinions. This suggests that production need is linked to production activities of a firm.

The extent to which customers use the products they’ve paid for determines their

purchase behavior (Gourville & Soman, 2002). The purchase price would have an effect

32
on the needs and demands of a product, and in addition, there is a statistically significant

correlation between a decreasing unit price and an increasing consumption (Black, Gill &

Chick, 2011). When buying goods in bulk, it is only imperative that discounts are given

based on the volume of goods that is bought. This is a very common practice for sellers to

discount the prices of bulk orders in order to attract customers to buy larger quantities

and increase sales volume (Walker et al., 2008). Basically, when materials are purchased

in bulk, the unit price of each good is reduced because the total price is discounted.

Considering these variables, relationships are established such that higher production

need encourage higher quantity of raw materials to be purchased and consequently,

higher volume of goods to be bought leads to greater price discounts that ultimately

increases the bulk purchase price.

Production Need: Deterioration of Raw Materials

The amount and quantity of raw materials needed by a certain enterprise may also

be affected by the rate of spoilage. In the two decades, numerous research has been made

studying different inventory models for deteriorating items (Sachan, 1984; Harriga, 1996;

Teng et al., 1991). In general, when price discounts for bulk purchases are provided or

when the raw material under consideration is seasonal such as an output of harvest,

manufacturers may purchase more goods more than what can be stored in its own

warehouse, meaning more expenditure for bulk orders (Yang, 2004). Yang further

mentions that these excess quantities may be stored in a rented warehouse (RW). In

compensating with this, it will be economical to consume the goods of the rented

warehouse at the earliest in order to reduce inventory costs. The result of this is that while

firms store goods in an owned warehouse before renting, they clear their raw materials

33
stocks in the rented warehouse first (Benkherouf et al., 1997; Bhunia and Maiti, 1998;

Sarma, 1987). In the framework of this research, the suppliers and dealers of raw

materials being examined are those who provide carton sheets wherein spoilage is almost

negligible. Still, it is worth noting for future researchers that rate of deterioration is a

relevant variable affecting bulk purchase price and behavior, however, in this thesis, only

suppliers of non-deteriorating goods will be considered.

Production Need: Economics’ Perspective

From an economics point of view, production need are similar to demand which is

measured in terms of quantity demanded. In the concept of demand, there is a theory of

elasticity, which Hayes (2003) defines as the degree to which demand or supply reacts to

a change in price. Hayes further mentions that elasticity varies on different types of

products and this is due to the reason that some products may be more essential to the

consumer than others. It is known that demand for products that are considered to be

necessary or a primary need is less sensitive to changes in price changes in such a way

that costumers will still continue to buy these products despite price increases. This

situation is called inelastic demand, which is defined by Becker (2015), as a situation

where consumer reaction to a change in price is small, and this occurs on highly-

demanded or needed products with few or no substitutes. According to Mancio (personal

communication, December 27, 2017), operations manager of Ma-Vill Corporation, there

is very little competition on suppliers for recyclable raw materials in the Philippines. This

results in raw materials being highly demanded by most manufacturing companies in this

setting which, as mentioned, makes the demand curve of raw materials to be inelastic. In

all cases of inelastic demand, price increases will increase total revenue on the seller

34
(Becker, 2015). Thus, when production need of manufacturing companies are known to

be high, the price increase on bulk orders can capitalize their price insensitivity.

Production Need: A Summary

Overall, the production need or the raw materials needed to be used and

consumed for the production of finished products in a specific span of time can affect

bulk purchasing behavior of manufacturing businesses. Based on the related studies

regarding this topic, production need are likely to have a favorable effect on the quantity

or volume of raw materials to be purchased and may consequently increase the price that

companies are willing to spend for bulk orders, which is intensified by added price

discounts. The rate of consumption and spoilage affect production need, however in this

study, the rate of spoilage will not be considered as suppliers being examined are those

that provide carton sheets which do not deteriorate for a long time. The rate of

consumption is related to the purchase price of materials in such a way that greater

consumption leads to purchase intention for a lesser unit price of an item. Lastly,

production need also have a good correlation with a company’s price sensitivity,

especially in the Philippine setting, because raw materials are considered necessities and,

as what has been mentioned, necessary goods tend to establish an inelastic demand.

Section IV: Distance

Distance: An Introduction to the Concept of Business Environment

Understanding the Environment of which the business is going to operate is very

important for running a business unit successfully at any place. The environmental

factors are key influencers of every aspect of a business, may be its nature, its location,

the prices of products, the distribution system, or the personnel policies. The

35
environment, according to Macro and Micro Economic Factors Researchomatic (2012),

is a complex combination of the economic system, political system, legal restraints,

society, industry, labor relations, customer expectations, markets, competition,

technology, culture, history, infrastructure, state of the economy, shareholder demands,

natural environment, labor conditions, and so on (Eze, Odigbo, & Ufot, 2015). The

business environment includes all the external factors that affect an organization

specifically which it cannot control. The most important factors of a business

environment include the economic system, the industry in which the organizations choose

to work and the market that it serves. Despite having the fact that an organization cannot

control any of these, it can opt to choose the location in which it works and it particularly

wants to choose an attractive industry and stable market. The business environment can

be classified into five categories- the physical environment, political and legal

environments, economic environments, socio-cultural environments, and technological

environment (Waters, 2014)

The term “business environment”, based on the National Institute of Open

Schooling (2008), simply means external influences, factors, and institutions that cannot

be controlled by the business and which provides a significant impact on the operations

of the business enterprise directly or indirectly. The business environment is composed of

customers, competitors, suppliers, government, the social, political, legal and

technological factors and many more.

Distance: Location of Business and its Importance

Location of a business is one key component of an Environment of a business

(John et al., 2015). Some may connect both ideas as one but they are two different

36
concepts. The location of a business simply refers to where a business is located. It is the

physical space wherein the business exists. This is where it carries out its daily operations

and this has something to do with the specific physical environment in which the business

finds itself. Moreover, store location is a business’ most costly and long-term marketing-

mix decision (Fox et al., 2007). It is the first key factor that a business considers before

implementing other marketing decisions. Thus, the location of the business affects mainly

the business operations, other marketing decisions and its corresponding results.

It is essential for business operators to put location at the top of their minds. If

you're preparing to open any business, putting your business in the proper location might

be considered the most important factor during startup. Despite having the need of a

winning product, a business must consider the question “how will anyone know about

that product unless you get them through the door?” Hence, the three most important

decisions you'll make are: “location, location, and location," as affirmed by Overbo

(2014). Careful determination and identification of new sites are critical for most retail,

consumer service and direct manufacturing businesses (Spaeder, 2014).

Location of the store is also measured by its accessibility to its customers (Kotler

et al., 2010). Stores located in the center of a city benefit from their next door to remote

customers (Finn A., 1996). Therefore, distance from home and distance from workplace

would have a relationship with the amount of purchase they ought to buy from a store

(Chaiyasoonthorn, 2011).

Distance of Business Location to customers

Locations of retailers must be accessible to the potential target group of customers

(Kotler et al., 2010). Consumers tend to prefer stores that are easily accessible to them

37
(Eppli et al., 1996). Thus, a far distance has a negative effect on the selection of a store

through reducing frequency of customers visiting a store and businesses with highly

accessible locations are more likely to have more consumers. Therefore, the distance to

where they will purchase their goods and supplies will affect the number of times a

consumer will visit the store to purchase.

Despite the advantages of having an accessible location, some contend that

instead of emphasizing location since consumers seek to optimize their “total shopping

costs” (Ailawadi et al., 2004).  This suggests that in some instances; consumers may pay

more consideration to other factors (e.g., price promotions and bulk shopping) than the

location in determining the store of purchase (John et al., 2015). For example, when raw

material consumers of sugar for production need to travel to the supplier, the consumers

consider the amount of raw material they purchase in order to limit the total shopping

cost (e.g. transportation). This means that the consumer may weigh in and opt to choose

which is more favorable to the business and can benefit the business positively.

Distance: Relationship with Store Location, Price discounts and Repeat Purchases

The factors which Jere, Babatunde, and Albertina (2014) identify as important

influencers of store patronage are Store image, product, price, promotion, and location.

Focusing more on the influence of location, they assert that for consumers, the location of

and access to the business are important factors in the store choice decision. The location

which is mainly perceived in terms of time and distance is a particularly compelling value

proposition that retailers offer low-income consumers who tend to shop more frequently

and make small purchases because of their limited and unstable cash flows. Consumers

tend to prefer stores that are easily accessible to them (Eppli et al., 1996). While some

38
authorities argue that location is a major determinant of the success or failure of retail

stores (Ownbey et al., 1994).

Similarly, in a multiple regression analysis to assess the importance of the

predictors of customer satisfaction, Jere, Babatunde, and Albertina (2014) report that only

location (place) was found to be a significant predictor. This finding implies that it is

important for retailers catering for in low-income consumers to make placement

decisions that meet customer expectation; particularly distance and attractiveness and

hygiene. Moreover, a study on the importance of the predictors of store loyalty shows

that three of the six independent variables; store image, promotion, and location; are

significant predictors. Therefore, to encourage customer satisfaction retailers to need to

focus on location, but to encourage loyalty and repeat purchases they need to emphasize

location, store image, and promotion as well.

In another article, Bell, Ho, and Tang (1998), the found that location no longer

explains most of the variance in store choice decisions. Rather, store choice decisions

seem to be consistent with a model where consumers optimize their total shopping costs,

effort to access the store location being one component of their fixed cost of shopping.

That is not to say that location is no longer important. But, consumers’ store choice may

be based on different criteria depending upon the nature of the trip. For instance, small

basket, fill-in trips are very unlikely to be made to distant or inconvenient locations. And,

retailers in some formats, like convenience, drug, or supermarket have less flexibility in

their location decision than mass merchandisers or warehouse clubs. This implies that

consumers may take into consideration other key factors rather than the location in

determining the store of purchase and adjust in order to limit the cost. Therefore,

39
consumers consider the amount of purchase whenever they buy supplies because of the

distance of the business since other factors are favorable.

Distance: A Summary

Generally, the distance or how apart the business is to the consumers of raw

materials can affect bulk purchasing behavior of manufacturing businesses. The

implication of all of these studies is that aside from the obvious economic benefits of

convenience and low transportation costs, consumers of raw materials, take for example

the customers Ma-Vill Recycling Corporation, will be affected more by distance to their

suppliers when other favorable factors are also presented, like brand image and

promotional price discounts. Therefore, consumers tend to adjust to the distance of the

store when other factors (e.g. production need, price discounts and etc.) are favorable.

Section V: Price Discounts

Price Discounts: An Introduction to Sales Promotion

In today's economy, businesses continue to sprout everywhere. Due to this,

competition between them increasingly intensifies. In order to develop a competitive

advantage, business and researchers began studying the attitude and behavior of

customers towards purchasing as well as the activities that would affect their purchase

intention. One result of this is sales promotion.

Sales promotions, according to Iheukwumere (2016), have been taken into

practice by businesses and marketers since the 18th or 19th century or long before that.

They were used in marketing their products or services to their customers. Sales

promotion techniques are instruments that seek to increase the sales of products and

brands, usually in a short time (Wierenga & Soethoudt, 2010), because they act in the

40
consumer’s mind as a benefit to it, thus generating a consumer behavior. Also, it extends

control and is less costly than advertising while causing fast responses from customers

(Familmaleki et. al., 2015).

In a 2013 study conducted by Neha and his colleague, it is concluded that sales

promotion depicts an important role in the purchase decision of customers. They found

out that the use of these promotions and the proper combination of these greatly

influenced customers’ purchase decision. This is supported by other studies stating that

its effect on consumers' buying behavior is crucial and favorable (Ahmad et. al., 2015).

Sales promotion has various incentive tools that are utilized in order to entice customers

to the immediate purchase of the goods/services offered and to increase quantities of sale

(Kolter and Armstrong, 2010). Some of these are coupons, free gifts, rebates, contests,

and price discounts.

Price Discounts: Effect on Purchases

According to Fill (2002), price discount is "a well-known tool for offering a good

discount in buying price." Furthermore, Chao and his colleagues (2016) stated that price

discounts are one of the most significant features of a business. They also found out that

it can directly affect the purchase intention of customers. Another 2017 study by

Brimblecombe and company found out that using price discounts greatly increased the

purchases of goods by 12.7%. But when the price discounts were removed, the quantity

purchase dropped down to its original level.

In a 2016 study by Shamout, it is concluded that there is a significant relationship

between price discounts and consumer buying behavior during sales discounts. In the

41
data gathering stage of their study, their respondents were asked questions about

discounts such as:

 "If a brand offers price discount that could be a reason for me to buy it.”

 “When I buy a brand that had a discounted price, I feel I am getting a good buy.”

 “Price discount has allowed me to buy another brand which I do not regularly

buy.”

 “I have favorite brands, but most of the times I buy a brand that gives good offers.”

With this, it can be deduced that price discounts greatly influence customers'

purchase intention. The discounts became the reason why consumers buy a product, sees

them as a good buy and the reason to switch brands (Al-Salamin et. al, 2016). This is

supported by a 2007 study by Lin wherein she found out that the higher the discount

price, the stronger product becomes subject to purchase intention.

Bulk Price Discounts

It is believed that price discounts, such as bulk price discounts, has a positive

influence on the purchase intention. This is supported by a 2009 study conducted by Teng

that states that when price discounts are given to customers who buy in large quantities or

in bulk, it encourages them to purchase more. Another 2009 study conducted by Palazon

and her colleagues, found out that price discounts generate higher purchase intentions

than premiums because they are more effective.

When suppliers provide price discounts for bulk purchases or when the item under

consideration is a seasonal product such as the output of harvest, the client may purchase

more goods that can be stored in its own warehouse (Yang, 2002). For example, when

42
mangoes are in season and price discounts applied by different suppliers, the consumers

consider the amount of raw material they purchase in order to take advantage of the

discount they get since it lessens the shopping cost. Hence, the price discounts that the

consumer get may affect the amount of the bulk purchase price of the raw materials.

Price Discounts: The Negative Implications

A contrasting study by Grewal et al. (1998) found out that price discounts have

negative effects on the perceived quality and the internal reference price of the customers.

Business people usually want their customers to perceive the products they offer to have

high reference price or to think that the product was originally more expensive than its

current discounted price (Faryabi et. al, 2012). That is why it is recommended to

business to use words such as "sale" or "special" or semantic price claims so that

customers would believe that the sale is temporary and may stimulate their interests

(Norberg et. al., 2013). It can also prevent customers from thinking that the product is of

poor quality is the reason why it is discounted. Furthermore, it is also researched that the

use of these phrases can enhance the effectiveness of price discounts. In order to be able

to use price discounts to its limits, it is also crucial to know the promotions and type of

price discounts the customers prefer and value.

Price Discounts: Effectiveness of Quantity (Bulk) Discounts

Price discounts have six types namely: quantity discounts, trade/functional

discounts, promotional discounts, seasonal discounts, cash discounts, and geographical

discounts. According to Iyengar et. al. (2011), these types of discount are commonly used

by companies. Its key characteristic is that when the purchase quantities of customers

increase, the marginal price decreases. Among the abovementioned types of discounts,

43
quantity discount is found to be more effective in influencing a customer's bulk purchase

intention.

In a 2013 study of Peng and Zhou, they found out that quantity discount can

promote a manufacturer’s ordering quantity of raw materials. This shows that this type of

discount would be effective to companies that sell products or raw materials in bulk. It is

where a customer receives an advantage or benefit for bulk purchases (Ndayamukama et.

al., 2015)

Price Discounts: A Summary

All in all, price discounts can affect the bulk purchasing behavior of

manufacturing businesses specifically quantity discounts. The use of price discounts is a

necessity, but it is recommended to use it with great moderation and to use semantic price

claims in order to enhance the effects of price discounts.

44
Theoretical Framework

The several related studies concerning the effect of production need, distance, and

price discounts all give contributions and insights that they indeed affect the purchase

price that manufacturing companies spend in buying raw materials in bulk.

Production need affect bulk purchasing behavior of manufacturing businesses in a

way that it gives a positive effect on the quantity or volume of raw materials needed to be

purchased. A higher quantity of needed materials tends increases the price that companies

are willing to spend for bulk orders, and this is even amplified by the effect of quantity

discounts. Production need also indirectly affect purchase through the rate of

consumption. Greater consumption of raw materials to be processed leads to higher

purchase intention for a lesser unit price of an item, which can be achieved through the

bulk orders. Lastly, production need which are considered necessities are likely to

establish an inelastic demand such that an increase in price by the supplier barely affects

the amount that clients are willing to spend.

Distance or how far the suppliers of raw materials are to their clients affect the

bulk purchase prices and behaviors of manufacturing companies due to the positive

effects of saving transportation costs and convenience. Moreover, the distance will be of

more consideration and effect to the clients when other favorable factors (e.g. production

need, price discounts and etc.) are presented along with it.

Bulk price discounts on high-volume orders have a significant effect on buying

behavior of manufacturing businesses specifically quantity discounts. Promotions

through price discounts are imperative, but it is recommended to use it with great

moderation and to use semantic price claims for enhancing its effects.

45
 Abovementioned are the key points for the effect on purchase behavior in buying

raw materials in bulk of each of the three variables being examined by this study. These

are founded upon several different studies that contribute to the knowledge of each

concept, however, the researchers believe that all of these are strung and related in the

2003 study of Gao and Tang.

Gao and Tang (2003) have made a multi-objective model for purchasing of bulk

raw materials of a large-scale manufacturing plant which deals with the main problem of

companies in purchasing raw materials. The challenge, according to their research, is

how to make purchasing decisions in order to obtain required raw materials while

considering a lot of factors such as price, quality, quantity, due date, and so on. Gao and

Tang (2003) assert that these criteria mentioned above are in connection with three kinds

of decisions, i.e., (2003) items or raw materials decision, quantities decision, and vendor

selection decision, and all of these lead to the firm’s purchase decision. These decision-

making processes are in chronological order and a diagram representing these processes

is presented below.

Quantity
Raw Material Supplier Purchase
Selection Requirement
Selection Decision
Decision
Figure 2.1 Stages of decision-making process
for manufacturing companies (Gao & Tang, 2003)

For any manufacturing company, the first thing they would do in the production

process is to decide appropriate items and raw materials to be processed. Second is to

decide the quantities required for the making of the finished product. In determining the

quantities, the proportionality of each raw material to the other must be considered.

46
Lastly, manufacturing plants will choose a supplier. Every offer differs from vendor to

vendor and consequently, the supplier-selection decision is regarded as a crucial

consideration as it will greatly affect the item, quality, price decision, etc. Vendor

selection is a complex process, and there are many objectives for purchasing decision, but

the most important three criteria regarded by the decision maker are quality, price, and

due date (Weber et al., 1991). A figure describing this relationship is shown below.

Price

Supplier Purchase
Due Date
Selection Decision

Figure 2.2 Criteria of supplier selection

Quality and purchase decision of manufacturing
companies (Gao & Tang, 2003)

In considering the criteria that decision-maker undergoes in generating purchase

decision, one has also to consider factors that affect these criteria. In the same study of

Gao and Tang (2003), they have identified 5 constraints or factors that affect the criteria

for purchase decision-making process. The following factors and how three of these

factors have been adopted by this research paper are listed below:

 Purchasing Budget – The purchase price for a bulk order of raw materials ought to

satisfy a firm’s purchasing budget. In this research, this is where bulk price discounts

are considered since they offer a significant effect on reducing the purchase price.

 Production Demand - The raw materials purchased must satisfy demands in items,

quality, and quantities in a given time period. In the context of this study, this is

similar the variable “production need” that is focused on the item’s quantity.

47
 Inventory Capacity Constraints – The amount of raw materials inventory bought

should satisfy the warehouse capacity and also consider holding a safe-stock at a

certain level which is necessary.

 Technology Constraints – This factor is about considering the proportionality

relations among a variety of raw materials to be produced.

 Vendor Resource constraints – The different geographical places, resource situations,

transportation conditions, etc. for each of the supplier are considered by companies.

This is adopted by the study through the variable distance, which is how far the

supplier is to its client in terms of location.

Combining together the factors and criteria that affect supplier selection which

ultimately leads to purchase decision of manufacturing companies for raw materials, the

framework by Gao and Tang (2003) serves as a foundation for this research, and the

specific variables utilized from their study are highlighted in yellow.

Purchasing Supply Planning
Purchasing Supply Planning
Price Fluctuation Purchasing
Purchasing Supply Planning Budget
Price Discounts
Purchasing Supply Planning
Item
Purchasing Supply Planning Production
Quantity Demand
Purchasing Supply Planning
Price
Quality
Purchasing Supply Planning
Inventory Due Supplier Purchase
Capacity Date Selection Decision

Quality
Technology
Constraints
Geographical Places
Purchasing Supply Planning
Resource Situations
Figure 2.3 Theoretical Framework of the Study;
Purchasing Supply Planning
Supplier Factors and criteria affecting purchase decision
Resource
Transportation Conditions of manufacturing companies (Gao & Tang, 2003)
Purchasing Supply Planning Constraints
Distance
Purchasing Supply Planning

48
Conceptual Framework

Based on the theoretical foundation and related studies on factors that affect bulk

purchasing behavior of manufacturing companies when buying raw materials, the

researchers came up with a conceptual framework specifically designed to test the

hypotheses of this study, which is presented through a diagram at the end of this section.

In the diagram, the current pricing methods of Ma-Vill Corporation will be used

as basis for formulating new strategies by incorporating the results and findings on the

study the three chosen factors of purchase price in this research. The study focuses on the

effects of price discounts, production need (quantity) and distance of a client to the

supplier on the bulk purchase price, which both affects and measures the purchase

decision of manufacturing companies. Price discounts, quantity needed for production,

and client-supplier distance are specific factors that are under purchasing budget,

production demand and supplier resource constraints, respectively, in the framework by

Gao and Tang (2003).

the diagram presumes that production need and price discounts have a

relationship on bulk purchase price, such that when production need of the company and

the price discounts of the raw materials increase, the purchase price that companies

would spend for a single bulk order will also increase, and vice versa. Furthermore,

distance is also assumed to have a relationship with purchase price, and it suggests that

the higher the distance or the farther the client is to its supplier’s location, the lesser the

number of raw materials the company will purchase in a such a way that it reduces the

Ma-Vill’sprice of each of its order. Lastly, the diagram depicts that bulk purchase
purchase
Current
Pricing can be measured by the amount of bulk purchase price that a company spends
behavior
Methods
49
for orders of raw materials, and bulk purchase price affects bulk purchase behaviors of

companies. After determining the relationship of each factor and the bulk purchase

behavior of companies, the researchers will suggest pricing strategies based on the

findings of the study. Shown below is the diagram for the conceptual framework of the

research.

Production
Need

Bulk Bulk
Pricing
Distance Purchase Purchase
Behavior Strategies
Price

Price Figure 2.4 Conceptual Framework of the Study

Discount

50
 Chapter 3
RESEARCH METHODOLOGY

This chapter outlines the research methods used in order to gather data about the

effect of the factors namely: distance, price discounts and production need, on the

purchasing behavior on raw materials, specifically carton sheets, of manufacturing

companies, which are the clients of Ma-Vill Recycling Corporation. It is a quantitative

type of research, specifically a correlational study, in which we determine the correlation

and relationship of the three variables mentioned to purchase price, and purchase

behavior with each other. In order to attain such information, a survey that tackles about

the purchasing decisions of manufacturing companies considering the three variables is

made, and the results are summarized, analyzed, and interpreted.

The first section of this chapter describes the research environment and the

geographical location of the scope of the research, as well as Ma-Vill’s clients, is

presented. The second section discusses who are the respondents for this study, and the

third one describes elaborately how the research instruments are prepared and used to

gather data for the study. In the final section, the process taken by the researchers in

gathering and treatment of data are presented in the text. The information of each section

is explained in details in this chapter.

At the end of this chapter, a flowchart is presented regarding the research process

done during the course of this study. (see Figure 3.2)

51
Research Environment

The location of the business being focused on this research, Ma-Vill Recycling

Corporation, is in Upper Canduman, Canduman, Mandaue City, Cebu. This is where the

business conducts its main operations and where their office is situated. However, even

though the location of the main beneficiary of the research is just in Mandaue City, the

setting of the study, where the research respondents are located, extends to the vicinity of

both Mandaue City and Cebu City. Manufacturing businesses situated in the areas of

Cebu City that purchase carton sheets from Ma-Vill Recycling Corporation in bulk will

be the ones participating in the study.

Cebu City, which is also known as Dakbayan sa Sugbu in Cebuan, is a highly

urbanized city in the province of Cebu which belongs to Region VII, Central Visayas, in

the Philippines. As reported by the 2015 census, it has a population of 922,611, making it

the fifth most populated city in the nation and the most populous city in the Visayas.

(Philippine Statistics Authority, 2015). On the other hand, the City of Mandaue

(Cebuano: Dakbayan sa Mandaue; Filipino: Lungsod ng Mandaue) and often referred to

as Mandaue City, is also as highly urbanize as Cebu City. In fact, it is one of three highly

urbanized cities on Cebu island and forms a part of the Cebu Metropolitan area. It is only

natural that this Metropolitan area is the center of commerce and trade in the Visayas.

Cebu Metropolitan’s economy has been rapidly developing since the 1990s

(Fajardo, 2013). In the field of bulk purchasing, shipbuilding companies in Cebu have

manufactured bulk carriers of up to 70,000 metric tons deadweight (DWT) and double-

hulled fast craft as well. This industry made the Philippines the 4th largest shipbuilding

country in the world. (Manila Bulletin, 2013) With the given advantage of the

52
shipbuilding industry here in Cebu City, it is only natural that it is home to manufacturing

companies who buy, import, and export materials in bulk through the carriers.

The Metropolitan area of Cebu remains as a major hub for industrial operations

(Lorenciana, 2017). To support this statement, the assessment on Cebu's industrial market

as of 2016, Pinnacle Real Estate Consulting Services rated Metro Cebu's industrial

market to be very healthy, which in fact, the industrial zones in the metropolitan were

filled up more than four years ago, well ahead of their counterparts in the other parts of

the Philippines.

Overall, the manufacturing sector is thriving here in Metropolitan area of Cebu,

which comprises of Cebu City and Mandaue City. This makes the setting a very

conducive environment for research about the purchasing and pricing of raw materials of

manufacturing businesses. The geographical maps of the two cities are shown below:

MANDAUE CITY

CEBU CITY

Figure 3.1 Geography of Cebu City and

Mandaue City; Courtesy of Google

53
Research Respondents

This study has a total of 10 manufacturing companies, which are existing clients

of Ma-Vill Corporation in Cebu, specifically in Cebu City and Mandaue City, as its

respondents. The researchers believe that having a sample size of 10 manufacturing

businesses as respondents is sufficient to represent the small total population of

manufacturing companies in these cities.

The qualified respondents are companies which purchase carton sheets in bulk for

manufacturing or production purposes from Ma-Vill. The researchers believe that these

respondents would be able to provide sufficient information regarding bulk purchasing

behaviors for raw materials.

The respondents will be chosen through a non-probability sampling technique

called convenient sampling since the researchers would have to consider the accessibility

of information, time constraint, limited resources, as well as the convenience of Ma-Vill

Corporation, and its clients. Convenient sampling is a sampling method where subjects

are selected because of their convenient accessibility and distance to the researcher.

Furthermore, due to confidentiality, the agents of the Ma-Vill Corporation will be the

guiding the researchers in during the data gathering stage.

54
Research Instrument

The researchers make use of researcher-made survey questionnaires (see

Appendix A) as the main tool for data gathering. The researchers, however, consider

personal interview as another option for surveying the respondents with the use of

recording devices depending on the respondent’s convenience and preference. When the

interview is chosen as the means for data gathering, the questions reflected in the

questionnaire will serve as a guide during the survey.

A letter, containing details about the research and the survey questions, is attached

to each questionnaire, to give respondents a formal introduction and provide them an

overview of the details of the survey. In the questionnaire, general instructions are

provided and the first part aims to gather general information about the respondent’s

name, relationship to the business, the business name, location, and its finished products.

This aims to validate the qualification of the chosen respondent.

The second part of the research questionnaire is the survey proper which contains

the main questions that give insight about the correlation of the factors being studied,

namely: production need, distance, price discounts, bulk purchase price, and bulk

purchase behavior. It is specified in the instructions for part two that only carton sheet as

raw material shall be chosen. This is for the purpose of uniformity and valid comparison

of the amounts and quantities being stated.

There are four types of questions in this second part of the questionnaire, namely:

value-based questions (e.g. Question 1, 3, and 4), multiple choice questions (e.g.

Question 2, 5, and 9), Likert-scale questions (Question 6, 7 and 8) and lastly, open-ended

question (e.g. Question 10). Questions 1, 4, and 5 are designed to give insights about the

55
preferences of the companies based on the three factors leading to purchase price, which

is the production need, distance and price discounts. Question 2 aims to validate the

related studies that higher distance may encourage to decrease the bulk orders of

manufacturing companies and consequently increase the purchase price of each order to

reduce additional transportation costs. Question 4 asks about the purchase price that

companies spend or budget for a bulk order of a raw material. The amount of purchase

price will be used to measure the effectiveness of the variables. In questions 6-8, the

importance of each of the three variable affecting purchase decision is being weighed,

and question 9 compares which among the 3 factors has the greatest effect on the amount

of purchase price that companies allot for buying a raw material in bulk. Lastly, question

10 is an optional question devised to gather additional information about purchase

behavior not mentioned by the preceding questions. All these 10 questions provide data

on the bulk purchase behaviors of manufacturing businesses that consider the variables of

this study.

The questionnaire will be pre-tested for validity and reliability through reviews

and examinations by a research teacher, and professionals with knowledge and

background regarding bulk purchasing and purchase policies of companies, especially

manufacturing or production companies. Furthermore, the questionnaire will be pilot-

tested by allowing the operations manager of Ma-Vill to answer the question since he is

knowledgeable in the field of selling raw materials to manufacturing companies.

56
Research Procedures

Gathering of Data. The researchers personally visited Ma-Vill Recycling

Corporation in order to conduct an interview with the business being the focus of this

study. Before they started their interview, the researchers sent a letter, undersigned by

their research teacher, asking permission of the Officer-in-Charge of the company to

allow them to conduct an interview to the operation manager about the company. After

gaining the permission, the interview happened in the manager’s office where the

researchers introduced the purpose of the interview and achieved the objective of the

interview, which was to gain information about the company’s daily operation, clients

and its current status for potential topics for marketing research.

After gaining the company’s background, the operation manager assigned an

agent or contact person in order to accommodate the researchers for follow-up questions.

The agent is also responsible for guiding the researchers for the distribution of

questionnaires and gathering of data for Ma-Vill’s current clients. When the survey

instrument is already prepared, the researchers, with the help of the agent will contact the

10 chosen clients and will give a letter made by the researchers. The researchers will be

asking permission to conduct a survey of the clients. After gaining permission, the

researchers will give a questionnaire to each of the clients, along with a letter that ensures

the purpose and confidentiality of the gathered data. Another option that the researchers

consider, aside from handing out questionnaires, is to conduct a personal interview with

the companies depending on their convenience and preference of survey method. Lastly,

the quantity and amount of monthly purchases of each of the respondents will be obtained

from the database of Ma-Vill Corporation.

57
 Treatment of Data. After gathering data through interviews and questionnaires,

the collected data will be summarized, analyzed, and applied with statistical treatment.

Both descriptive and inferential statistics will be used.

1. Outlier tests will first be performed to detect abnormal values in the data. Iglewicz

and Hoaglin’s modified z-score outlier test (Iglewicz and Hoaglin, 1993) will be

performed to detect all outliers. The formula for performing the test is:

0.6745(x i−~
x)
M i= such that all values M i≥ 3.5 are identified as outliers
MAD

Tukey’s test for detecting outlier using quartiles will also be performed in

order to detect extreme outliers (Tukey, 1986). The formula is presented below:

UB = Q3 + 3(IQR); LB = Q1 – 3(IQR) such that all values that fall outside the

values of upper bracket (UB) and lower

bracket (LB) are extreme outliers

If a value is detected as an outlier by the Iglewicz and Hoaglin test but not

considered as an outlier by the Tukey’s test for extreme outliers, then the value is

recognized to be a mild outlier.

2. Respondents having consistent outliers on the values of quantity of carton sheets

needed, quantity of carton sheets purchased, and amount of purchase price, shall

be interpreted. There will be no outliers that will consider these values to be very

low since there will be no negative values for these amounts and 0 which

indicates a non-purchase will not be considered as an outlier. If the values for

quantity needed, quantity purchased, and amount of purchase price of a certain

company are consistent mild outliers, then those companies are considered to be

have high production demand and high purchasing power. If the same values are

58
 consistent extreme outliers, then the company is considered to have very high

production demand and very high purchasing power. Companies having

consistent non-outlier values are considered to be the clients with average

production need and purchasing power. A table is shown below in order to

summarize these interpretations:

Table 3.1
Interpretation for consistent outliers on selected values
Scenarios for ___Interpretation___
Quantity Quantity Purchase
consistent Production Purchasing
Needed Purchased Amount
outlier values Need Power
Scenario 1 Mild Mild Mild High High
Scenario 2 Extreme Extreme Extreme Very High Very High
Scenario 3 Mild Extreme Extreme High Very High
Scenario 4 Extreme Mild Mild Very High High

3. Studentized weight adjustment method designed by Kim (2013) will be performed

on datasets with outliers in order to treat the outliers properly when calculating

measures of central tendencies. The general formula is w f = w x f such that w is

the design weight (default value is 1) and f is the outlier weight adjustment.

Weight adjustment formulas are shown below:

Method 1. For extreme outlier, the assigned weight will be 0. (f = 0)

for extreme outliers

for non-outliers

Method 2. For mild outliers, the assigned weight will be 1 (f = 1)

for mild outliers

for non-outliers

59
4. In treating question 1, daily quantity needed will be multiplied by the number of

working days in a month based on the official calendar of the Republic of the

Philippines, in order to have an estimation of the company’s monthly

consumption (Official Gazette of the Philippines, 2017). Quantity of carton sheets

purchased will be adjusted to monthly purchase by multiplying quantity of carton

sheets per purchase by the frequency of their purchase per month. Furthermore,

the mean differences of monthly quantity needed and monthly quantity purchased

will be calculated to have an estimation of clients’ safety stock preferences.

5. Pearson correlation coefficient and coefficient of determination will be calculated

for the following variables: (i) quantity needed (question 1) and bulk purchase

price (question 3); (ii) distance (question 5) and bulk purchase price (question 3);

(iii) distance (question 5) and frequency of ordering (question 2); and (iv) trade

discount (question 4) and bulk purchase price (question 4). The correlation and

determination test aims to find out the correlation, relationship strength, and

determination of the independent variables to its corresponding dependent

variable. Pearson Australia’s (2009) guidelines for interpreting the correlation

coefficient will be adopted. Below are the guidelines and Pearson r formula:

Formula:

Guidelines:

Negative Correlation Positive Correlation

r = -1 Perfect r=1 Perfect
-1 < r ≤ -0.8 Very Strong 0.8 ≤ r < 1 Very Strong
-0.8 < r ≤ -0.6 Strong 0.6 ≤ r < 0.8 Strong
-0.6 < r ≤ -0.4 Moderate 0.4 ≤ r < 0.6 Moderate
-0.4 < r ≤ -0.2 Weak 0.2 ≤ r < 0.4 Weak
-0.2 < r < 0.2 = No Correlation

60
 6. Frequency distribution table and weighted mean will be on Questions 6 to 8 since

these are Likert-scale questions. The interpretation system for the weighted mean

that will be used is the system developed by NIH Scoring System:

Table 3.2
Interpretation for Weighted Means
Range of Score Interpretation
4.51 – 5.00 Very Important
3.51 – 4.50 Important
2.51 – 3.50 Moderately Important
1.51 – 2.50 Slightly Important
1.00 – 1.50 Not Important
7. Measures of central tendencies such as mean and standard deviation will be

calculated on the answers of questions 1, 3, 4, and 5.

8. Question 10, which is an open-ended question, will only be used to give

additional insights to the researchers. The answers to this question will only be

summarized in the findings of the study.

Schematic Diagram of the Research Process

Figure 3.2 Flow chart of the research process

Contacted the
Preparation of the
Interview with Ma- company regarding 10
questionnaires
Vill Corporation of their current
customers

Treatment,
Interpretation and Data Gathering and
Making of Results
analysis of the Collection
and Conclusions
gathered data

61
 Chapter 4
PRESENTATION, ANALYSIS, AND INTERPRETATION OF DATA

This chapter comprehensively presents the results and findings of the study. The

gathered data were summarized, tabulated, analyzed, and interpreted. The interpreted data

were then used to answer the research problems. There are five sub-headings in this

chapter based on the four research objectives and socio-economic impact of the business.

Section I
Pricing Methods of Ma-Vill Corporation For Carton Sheets

The researchers conducted a personal interview with Mr. Michael Mancio,

operations manager, and Ms. Emielda Torreon, the head officer for customer relations for

Ma-Vill Recycling Center Corporation in order to gain insights about the pricing methods

that the company uses for carton sheets. Generally, the price of carton sheets varies

according to size and thickness of each sheet specified by the client. Furthermore, the

company sets a minimum quantity of carton sheets to be purchased which is 500 pieces.

This is for an economic purpose of saving freight cost and delivery expenses.

In setting prices for each variation of the carton sheet, the interviewee said that a

lot of factors are considered. The first consideration made is the cost of production of the

materials: all the direct materials, direct labor, indirect materials, and other expenses

involved in operations. Second, an assumption is made regarding the number of units that

can be sold for a certain price under a specified amount of time. An example is

considering how many carton sheets can be sold if the price is ₱10 per sheet. The last

major consideration taken into account is comparing the proposed selling price to the

prevailing market price and the price of competitors. In addition to these, the company

gives sales discounts like trade and cash discounts to its customers for many reasons: to

62
reward and influence customer loyalty, to give incentives for the high purchase price, to

encourage prompt payment, and to improve the relationship with the client.

Based on the information gathered, it can be interpreted that Ma-Vill Corporation

uses a combination of three pricing strategies which are cost-based pricing, contribution

margin-based pricing, and competitive pricing. Cost-plus pricing is a pricing method

wherein the selling price is determined by adding a certain amount markup to a product's

unit cost which, in terms of manufacturing, is composed of direct materials, factory

overhead, and indirect materials (Jain & Sudhir, 2006). Contribution margin-based

pricing is a pricing method based on the 2012 study of Coenenberg, Fischer, and

Günther. It capitalizes the profit derived from a product based on its contribution margin

per unit (selling price minus variable cost), and the seller's assumptions on the

relationship between the selling price and the number of units that can be sold at that

price. Lastly, competitive pricing is a well-known strategy that occurs when a company

includes in its decision making for selling price the price charged by its rivals and the

market leader which usually dictates the prevailing price in the market.

Cost-based pricing is exhibited when the company considers the all the costs

related to the production of the carton sheets and contribution margin-based is shown

when the business makes assumptions on the number of units that will be sold for each

certain price. Competitive pricing is seen when Ma-Vill compares their selling price with

the market and the competitors’ prices. Moreover, the company incorporates sales

promotion techniques by giving trade and cash discounts to their clients. These are the

current pricing strategies used by the company. The findings of the study aim to gather

new data in order add value to the current pricing strategies and suggest new ones.

63
 Section II
Effects of Production Need, Distance, and Discounts on Purchase Price and Behavior

The respondents of the study are 10 existing clients of Ma-Vill Corporation which

purchase carton sheets as a raw material in bulk. The names of the ten companies are

respondents are given, however, in order to protect the confidentiality of the transactions

of the clients of Ma-Vill Recycling Center Corporation, the respective company name for

each set of answers in the questionnaire will not be disclosed. The names of the ten

respondents will be labeled as Company A, Company B, and so on. Here are the names

of the respondents in no particular order:

1. Cebu Furnitech Marketing Inc. 6. Kevin Crafts & Home Furnishings

2. Corbox Corporation 7. GT Industrial Development Inc.

3. Gannetworks Inc. 8. Blue Crash Company

4. Quicksilver Health Products Industry 9. CT Business Printers

5. Lami Food Products Corporation 10. Asturias Farm Inc.

Production Need, Purchase Quantities and Purchase Amounts

Table 4.1
Carton Sheets Needed by Respondents
Respondent Daily Quantity Needed (pcs.)
Company A 80,000**
Company B 2,000*
Company C 1000*
Company D 150
Company E 150
Company F 80
Company G 50
Company H 50
Company I 30
Company J 5
*
Values marked with asterisks are identified as outliers using the Iglewicz
and Hoaglin’s test for multiple outliers while values with double asterisks
are identified as extreme outliers using Tukey’s outlier test.

64
 Table 4.1 shows the answers of the respondents regarding the quantity of carton

sheets needed for their daily operations. The daily needs are multiplied by the number of

working days per month in the time-series data based on the official calendar of the

Republic of the Philippines. Sundays and non-working holidays are the not considered as

part of working days. The monthly data is needed so that it can be compared to the

monthly quantity purchased by each company in order to gain insights into their

purchasing behavior regarding production need and safety stock preferences.

Iglewicz and Hoaglin’s outlier test have identified Companies A, B, and C values

to be outliers and Tukey’s test have identified Company A’s values to be extreme

outliers. The data values for Company A tend to give abnormally high values for quantity

of carton sheets needs because it is a large nationwide manufacturing company and its

main operations is buying of carton sheets as raw materials, converting them into carton

boxes, and selling them in large quantities to its clients.

Table 4.2
Mean and Standard Deviation for Quantity of Carton Sheets Needed Daily
Without Adjustment (pcs.) Outliers Adjusted (pcs.)
Mean 8,369 378.29
Std. Dev. 25,176.73 644.35

The mean and standard deviation for quantity of carton sheets needed daily, with

and without the outlier adjustment method, is presented in Table 4.2. This study mainly

used the values in the outlier-adjusted method so that the sample population data can

represent the data for the total population better. Based on the results, the local clients of

Ma-Vill Recycling Center have an average daily usage or consumption of 378 pieces of

carton sheets. However, it has a high deviation of 644 pieces so the average range of

carton sheets to be consumed by the clients daily may range from 0 to 1,022 pieces.

65
Table 4.3
Company A Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 2,080,000 2,075,300 9,478,500
Aug 2015 1,920,000 2,069,400 9,451,600
Sep 2015 2,000,000 2,066,200 9,437,000
Oct 2015 2,080,000 2,072,600 9,466,200
Nov 2015 1,760,000 2,093,000 9,559,400
Dec 2015 1,840,000 2,119,400 9,680,000
Jan 2016 1,920,000 2,105,200 9,615,100
Feb 2016 1,840,000 2,062,600 9,420,500
Mar 2016 2,000,000 2,070,700 9,457,500
Apr 2016 2,000,000 2,068,100 9,445,600
May 2016 1,920,000 2,067,900 9,444,700
Jun 2016 1,920,000 2,094,500 9,566,200
Jul 2016 2,000,000 2,070,600 9,457,100
Aug 2016 2,080,000 2,068,700 9,448,400
Sep 2016 1,920,000 2,069,100 9,450,200
Oct 2016 1,920,000 2,073,800 9,471,700
Nov 2016 1,920,000 2,085,600 9,525,600
Dec 2016 1,760,000 2,106,300 9,620,100
Jan 2017 1,920,000 2,086,000 9,527,400
Feb 2017 1,920,000 2,066,900 9,440,200
Mar 2017 2,160,000 2,070,900 9,458,400
Apr 2017 1,760,000 2,073,000 9,468,000
May 2017 2,080,000 2,072,300 9,464,800
Jun 2017 1,920,000 2,070,800 9,458,000
Jul 2017 2,080,000 2,069,300 9,451,100
Aug 2017 2,000,000 2,068,700 9,448,400
Sep 2017 1,920,000 2,075,500 9,479,400
Oct 2017 2,000,000 2,070,400 9,456,200
Nov 2017 1,920,000 2,098,600 9,585,000
Dec 2017 1,840,000 2,104,000 9,609,600
b
Mean 1,946,667 2,078,847 9,494,730
b
Std. Dev. 101,483 14,902 68,069
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

66
Table 4.4
Company B Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 52,000 50,500 376,800
Aug 2015 48,000 50,200 374,600
Sep 2015 50,000 51,300 382,800
Oct 2015 52,000 50,800 379,000
Nov 2015 44,000 53,100 396,200
Dec 2015 46,000 54,500 406,700
Jan 2016 48,000 54,000 402,900
Feb 2016 46,000 50,900 379,800
Mar 2016 50,000 50,800 379,000
Apr 2016 50,000 51,100 381,300
May 2016 48,000 49,600 370,100
Jun 2016 48,000 53,300 397,700
Jul 2016 50,000 51,900 387,300
Aug 2016 52,000 52,300 390,200
Sep 2016 48,000 51,500 384,300
Oct 2016 48,000 51,200 382,000
Nov 2016 48,000 53,400 398,400
Dec 2016 44,000 53,700 400,700
Jan 2017 48,000 55,300 412,600
Feb 2017 48,000 50,700 378,300
Mar 2017 54,000 51,200 382,000
Apr 2017 44,000 51,300 382,800
May 2017 52,000 52,100 388,700
Jun 2017 48,000 52,500 391,700
Jul 2017 52,000 51,900 387,300
Aug 2017 50,000 51,600 385,000
Sep 2017 48,000 51,000 380,500
Oct 2017 50,000 51,800 386,500
Nov 2017 48,000 52,500 391,700
Dec 2017 46,000 54,800 408,900
b
Mean 48,667 52,027 388,193
b
Std. Dev. 2,537 1,425 10,632
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

67
Table 4.5
Company C Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 26,000 30,000 508,800
Aug 2015 24,000 29,900 507,200
Sep 2015 25,000 29,800 505,500
Oct 2015 26,000 29,900 507,200
Nov 2015 22,000 32,700 554,600
Dec 2015 23,000 32,100 544,500
Jan 2016 24,000 32,400 549,600
Feb 2016 23,000 29,700 503,800
Mar 2016 25,000 30,000 508,800
Apr 2016 25,000 29,800 505,500
May 2016 24,000 29,900 507,200
Jun 2016 24,000 30,000 508,800
Jul 2016 25,000 29,800 505,500
Aug 2016 26,000 29,700 503,800
Sep 2016 24,000 30,000 508,800
Oct 2016 24,000 30,100 510,500
Nov 2016 24,000 31,900 541,100
Dec 2016 22,000 33,300 564,800
Jan 2017 24,000 32,200 546,200
Feb 2017 24,000 29,800 505,500
Mar 2017 27,000 30,000 508,800
Apr 2017 22,000 30,100 510,500
May 2017 26,000 29,900 507,200
Jun 2017 24,000 29,900 507,200
Jul 2017 26,000 30,000 508,800
Aug 2017 25,000 30,200 512,200
Sep 2017 24,000 29,700 503,800
Oct 2017 25,000 30,200 512,200
Nov 2017 24,000 30,800 522,400
Dec 2017 23,000 30,400 515,600
b
Mean 24,333 30,473 516,880
b
Std. Dev. 1,269 1,042 17,663
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

68
Table 4.6
Company D Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 3,900 3,700 14,060
Aug 2015 3,600 3,500 13,300
Sep 2015 3,750 3,800 14,440
Oct 2015 3,900 3,700 14,060
Nov 2015 3,300 4,000 15,200
Dec 2015 3,450 4,400 16,720
Jan 2016 3,600 4,200 15,960
Feb 2016 3,450 3,600 13,680
Mar 2016 3,750 3,700 14,060
Apr 2016 3,750 3,600 13,680
May 2016 3,600 3,700 14,060
Jun 2016 3,600 3,900 14,820
Jul 2016 3,750 3,800 14,440
Aug 2016 3,900 3,800 14,440
Sep 2016 3,600 3,500 13,300
Oct 2016 3,600 3,600 13,680
Nov 2016 3,600 4,000 15,200
Dec 2016 3,300 4,300 16,340
Jan 2017 3,600 4,100 15,580
Feb 2017 3,600 3,500 13,300
Mar 2017 4,050 3,700 14,060
Apr 2017 3,300 3,700 14,060
May 2017 3,900 4,400 16,720
Jun 2017 3,600 3,900 14,820
Jul 2017 3,900 3,600 13,680
Aug 2017 3,750 4,000 15,200
Sep 2017 3,600 4,000 15,200
Oct 2017 3,750 3,800 14,440
Nov 2017 3,600 4,300 16,340
Dec 2017 3,450 4,300 16,340
b
Mean 3,650 3,870 14,706
b
Std. Dev. 190 278 1,057
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

69
Table 4.7
Company E Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 3,900 3,700 23,330
Aug 2015 3,600 3,800 23,960
Sep 2015 3,750 3,900 24,590
Oct 2015 3,900 3,800 23,960
Nov 2015 3,300 4,000 25,220
Dec 2015 3,450 4,500 28,370
Jan 2016 3,600 4,300 27,110
Feb 2016 3,450 3,900 24,590
Mar 2016 3,750 4,100 25,850
Apr 2016 3,750 4,000 25,220
May 2016 3,600 3,900 24,590
Jun 2016 3,600 3,800 23,960
Jul 2016 3,750 4,000 25,220
Aug 2016 3,900 4,100 25,850
Sep 2016 3,600 4,100 25,850
Oct 2016 3,600 3,800 23,960
Nov 2016 3,600 4,000 25,220
Dec 2016 3,300 4,300 27,110
Jan 2017 3,600 4,300 27,110
Feb 2017 3,600 3,600 22,700
Mar 2017 4,050 4,300 27,110
Apr 2017 3,300 4,100 25,850
May 2017 3,900 3,900 24,590
Jun 2017 3,600 4,100 25,850
Jul 2017 3,900 3,900 24,590
Aug 2017 3,750 3,600 22,700
Sep 2017 3,600 4,100 25,850
Oct 2017 3,750 3,700 23,330
Nov 2017 3,600 4,600 29,000
Dec 2017 3,450 4,400 27,740
b
Mean 3,650 4,020 25,346
Std. Dev.b 190 255 1,607
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

70
Table 4.8
Company F Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 2,080 2,130 10,220
Aug 2015 1,920 2,100 10,080
Sep 2015 2,000 2,030 9,740
Oct 2015 2,080 2,080 9,980
Nov 2015 1,760 2,370 11,380
Dec 2015 1,840 2,170 10,420
Jan 2016 1,920 2,040 9,790
Feb 2016 1,840 1,970 9,460
Mar 2016 2,000 1,970 9,460
Apr 2016 2,000 2,160 10,370
May 2016 1,920 2,110 10,130
Jun 2016 1,920 1,970 9,460
Jul 2016 2,000 2,070 9,940
Aug 2016 2,080 2,000 9,600
Sep 2016 1,920 2,110 10,130
Oct 2016 1,920 2,070 9,940
Nov 2016 1,920 2,300 11,040
Dec 2016 1,760 2,170 10,420
Jan 2017 1,920 2,150 10,320
Feb 2017 1,920 1,970 9,460
Mar 2017 2,160 1,970 9,460
Apr 2017 1,760 2,300 11,040
May 2017 2,080 2,170 10,420
Jun 2017 1,920 1,970 9,460
Jul 2017 2,080 2,120 10,180
Aug 2017 2,000 2,130 10,220
Sep 2017 1,920 2,010 9,650
Oct 2017 2,000 2,020 9,700
Nov 2017 1,920 2,330 11,180
Dec 2017 1,840 2,270 10,900
b
Mean 1,947 2,108 10,118
b
Std. Dev. 101 116 558
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

71
Table 4.9
Company G Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 1,300 1,300 13,720
Aug 2015 1,200 1,320 13,930
Sep 2015 1,250 1,300 13,720
Oct 2015 1,300 1,320 13,930
Nov 2015 1,100 1,380 14,560
Dec 2015 1,150 1,450 15,300
Jan 2016 1,200 1,300 13,720
Feb 2016 1,150 1,200 12,660
Mar 2016 1,250 1,300 13,720
Apr 2016 1,250 1,390 14,670
May 2016 1,200 1,380 14,560
Jun 2016 1,200 1,340 14,140
Jul 2016 1,250 1,300 13,720
Aug 2016 1,300 1,310 13,830
Sep 2016 1,200 1,400 14,780
Oct 2016 1,200 1,300 13,720
Nov 2016 1,200 1,400 14,780
Dec 2016 1,100 1,500 15,830
Jan 2017 1,200 1,450 15,300
Feb 2017 1,200 1,200 12,660
Mar 2017 1,350 1,200 12,660
Apr 2017 1,100 1,330 14,040
May 2017 1,300 1,380 14,560
Jun 2017 1,200 1,310 13,830
Jul 2017 1,300 1,300 13,720
Aug 2017 1,250 1,320 13,930
Sep 2017 1,200 1,360 14,350
Oct 2017 1,250 1,320 13,930
Nov 2017 1,200 1,420 14,990
Dec 2017 1,150 1,550 16,360
b
Mean 1,217 1,344 14,187
b
Std. Dev. 63 81 851
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

72
Table 4.10
Company H Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 1,300 1,400 26,380
Aug 2015 1,200 1,400 26,380
Sep 2015 1,250 1,300 24,500
Oct 2015 1,300 1,300 24,500
Nov 2015 1,100 1,500 28,270
Dec 2015 1,150 1,400 26,380
Jan 2016 1,200 1,200 22,620
Feb 2016 1,150 1,400 26,380
Mar 2016 1,250 1,300 24,500
Apr 2016 1,250 1,200 22,620
May 2016 1,200 1,400 26,380
Jun 2016 1,200 1,200 22,620
Jul 2016 1,250 1,400 26,380
Aug 2016 1,300 1,200 22,620
Sep 2016 1,200 1,300 24,500
Oct 2016 1,200 1,200 22,620
Nov 2016 1,200 1,400 26,380
Dec 2016 1,100 1,400 26,380
Jan 2017 1,200 1,400 26,380
Feb 2017 1,200 1,200 22,620
Mar 2017 1,350 1,300 24,500
Apr 2017 1,100 1,200 22,620
May 2017 1,300 1,300 24,500
Jun 2017 1,200 1,300 24,500
Jul 2017 1,300 1,400 26,380
Aug 2017 1,250 1,300 24,500
Sep 2017 1,200 1,300 24,500
Oct 2017 1,250 1,200 22,620
Nov 2017 1,200 1,300 24,500
Dec 2017 1,150 1,400 26,380
b
Mean 1,217 1,317 24,814
b
Std. Dev. 63 87 1,644
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

73
Table 4.11
Company I Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)
Jul 2015 780 840 10,500
Aug 2015 720 820 10,250
Sep 2015 750 820 10,250
Oct 2015 780 820 10,250
Nov 2015 660 1,220 15,250
Dec 2015 690 870 10,880
Jan 2016 720 850 10,630
Feb 2016 690 720 9,000
Mar 2016 750 820 10,250
Apr 2016 750 720 9,000
May 2016 720 820 10,250
Jun 2016 720 820 10,250
Jul 2016 750 840 10,500
Aug 2016 780 850 10,630
Sep 2016 720 720 9,000
Oct 2016 720 820 10,250
Nov 2016 720 850 10,630
Dec 2016 660 1,240 15,500
Jan 2017 720 870 10,880
Feb 2017 720 720 9,000
Mar 2017 810 820 10,250
Apr 2017 660 820 10,250
May 2017 780 720 9,000
Jun 2017 720 840 10,500
Jul 2017 780 850 10,630
Aug 2017 750 820 10,250
Sep 2017 720 830 10,380
Oct 2017 750 720 9,000
Nov 2017 720 910 11,380
Dec 2017 690 1,270 15,880
b
Mean 730 855 10,689
b
Std. Dev. 38 141 1,769
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

Table 4.12
Company J Time-Series Data: Quantity Needed, Quantity Purchase, Purchase Amount
Month Quantity Needed (pcs.)a Quantity Purchased (pcs.) Amount of Purchase (₱)

74
Jul 2015 130 760 3,700
Aug 2015 120 0 0
Sep 2015 125 0 0
Oct 2015 130 0 0
Nov 2015 110 0 0
Dec 2015 115 795 5,900
Jan 2016 120 0 0
Feb 2016 115 0 0
Mar 2016 125 0 0
Apr 2016 125 0 0
May 2016 120 0 0
Jun 2016 120 780 5,800
Jul 2016 125 0 0
Aug 2016 130 0 0
Sep 2016 120 0 0
Oct 2016 120 0 0
Nov 2016 120 0 0
Dec 2016 110 810 6,000
Jan 2017 120 0 0
Feb 2017 120 0 0
Mar 2017 135 0 0
Apr 2017 110 0 0
May 2017 130 750 5,600
Jun 2017 120 0 0
Jul 2017 130 0 0
Aug 2017 125 0 0
Sep 2017 120 0 0
Oct 2017 125 780 5,800
Nov 2017 120 0 0
Dec 2017 115 0 0
Meanb 122 146 1,093
Std. Dev.b 6 298 2,254
a
Daily quantity needed multiplied by number of working days per month
b
Measures of central tendencies are rounded to the nearest integer

Tables 4.3 – 4.12 show the time-series data of quantity of carton sheets needed,

quantity of carton sheets, and bulk purchase price of Companies A-J for a 30-month

period from July 2017 to August 2018. The values for quantity of carton sheets needed

are only derived from the amount of daily quantity needed of the respondents multiplied

75
by the number of working days per month. The values for quantity purchased and

purchase price is derived from the database of Ma-Vill Corporation.

Iglewicz and Hoaglin’s outlier test have identified all the values for quantity

needed, quantity purchased, and purchase amounts of Companies A, B, and C to be

outliers and Tukey’s test have identified all of the time-series data values of Company A

to be extreme outliers. Thus, Companies B and C’s time series values are considered to

be mild outliers and Company A’s values are extreme outliers. Company A is classified

as a company with very high purchasing power, and very high production need, while

Companies B and C are classified as companies with high purchasing power and high

production need. All other companies are classified as companies with average

purchasing power and production need. Shown below is the table to summarize the

classification of companies according to production need and purchasing power.

Table 4.13
Classification of Companies According to Production Need and Purchasing Power
Average High Very High
Company D, E, F, G, H, I, J B, C A
Time-series line graphs are made for each classification in order to show the

trends of the purchasing amounts of the companies. The time-series graphs are separate

for each classification in order to show clear movement of values because the range of

values of all companies as a whole is large enough to compress the y-axis values.

76
 Fig 4.1 Quantity of Carton Sheets Purchased by Companies D-J
4,800
4,700
4,600
4,500
4,400
4,300
4,200
4,100
4,000
3,900
3,800
3,700
3,600
3,500
3,400
3,300
3,200
3,100
3,000
2,900
2,800
2,700
2,600
2,500
2,400
2,300
2,200
2,100
2,000
1,900
1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
Oc -15

Ja 15

M -16
Ap -16
M r-16
Ju 16

Oc -16

Ja 16

M -17
Ap -17
M r-17
Ju 17

Au -17

Oc -17

17
Au -15
Se 15

No -15
De 15

Fe 16

Ju 16
Au -16
Se 16

No -16
De 16

Fe 17

Ju 17

Se 17

No -17
De 17
c-

c-

c-
g-

v-

n-

n-

g-

v-

n-

n-

g-

v-
ay

ay
p

p
ar

ar
t

t
l

l
Ju

D Quantity E Quantity F Quantity G Quantity

H Quantity I Quantity J Quantity

77
 Fig 4.2 Bulk Purchase Amounts of Companies D-J

28,800
28,000
27,200
26,400
25,600
24,800
24,000
23,200
22,400
21,600
20,800
20,000
19,200
18,400
17,600
16,800
16,000
15,200
14,400
13,600
12,800
12,000
11,200
10,400
9,600
8,800
8,000
7,200
6,400
5,600
4,800
4,000
3,200
2,400
1,600
800
0

D Amount E Amount F Amount G Amount

H Amount I Amount J Amount

78
 Figures 4.1 and 4.2 show the time-series line graph of the quantity of carton

sheets purchased and amount of bulk purchase price respectively of Companies D-J.

These companies the ones classified as clients with average purchasing power and

average production need. As seen on the figures, the areas shaded in green show a

unanimous uptrend wherein all or almost all of the clients purchase higher than usual.

This happens on the months of November to January. Conversely, the areas shaded in

orange show a downtrend wherein all or most of the clients’ purchases are low. This

happens on the months of August to October, and February. The areas that are unshaded

show an average or random fluctuation in the purchases of carton sheets, generally.

The implication that there are high amounts of purchases on the months of

November to January may be due to the reason that the clients of Ma-Vill Corporation

want to keep a high amount of ending beginning inventory for the year-end, or beginning

inventory at the start of the year. Another scenario that might explain the uptrend is that

companies want to achieve their desired ending and beginning inventory levels, but only

realize in the months of November to January their lack of inventory to satisfy their

forecasted inventory for the current or next year. This may be because they incorporate

periodic system where physical counting is done on the months of October to December.

According to Ms. Torreon, an office of Ma-Vill Corporation, the company limits

their selling of carton sheets on February in order to avoid out-of-stocks in their supply of

carton sheets because of the high purchases from preceding months. This explains the

downtrend of purchases in February. The low purchases on September to October may be

79
attributed to the rainy season of the country which impedes delivery of carton sheets,

gathering of dry recyclable cartons to be processed for production, and production days.

80
55,000 Fig 4.3 Quantity of Carton Sheets Purchased by Companies B and C
53,500
52,000
50,500
49,000
47,500
46,000
44,500
43,000
41,500
40,000
38,500
37,000
35,500
34,000
32,500
31,000
29,500
5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7
l-1 g-1 -1 t -1 v-1 c-1 -1 -1 r-1 r-1 y-1 -1 l-1 g-1 -1 t -1 v-1 c -1 -1 -1 r-1 r-1 y-1 -1 l-1 g-1 -1 t -1 v-1 c -1
J u Au Sep Oc No De J an Feb Ma Ap Ma J un J u Au Sep Oc No De J an Feb Ma Ap Ma J un J u Au Sep Oc No De

B Quantity C Quantity

81
 Figures 4.3 and 4.4 reflect the time-series data values for quantity of carton sheets

purchased and amount of bulk purchase respectively of Companies B and C. These

companies are classified as clients with high purchasing power and high production need.

Similar to the preceding figures, the areas shaded in green show a unanimous uptrend

while the areas shaded in orange show a downtrend of purchases. The uptrend happens in

the months of November to January, which is the same with the pattern for figures 4.1

and 4.2. On the other hand, the downtrend occurs on the months of September, October,

and February. Lastly, the areas that are unshaded generally show either an average or

random fluctuation in the amount and quantity of purchases.

The reason for the are high amounts of purchases on the months of November to

January may be similar to the assumptions for companies with average purchasing power

and average production need regarding satisfaction of inventory levels. Thus, it can be

deduced that Ma-Vill’s clients with average and high buying power and production

demand both have similar characteristics when it comes to buying of carton sheets.

The downtrend on the purchases of carton sheets are also similar with figures 4.1

and 4.2. They occur during February wherein Ma-Vill limits the selling of carton sheets

due to stock-outs and the rainy season of September to October. This gives additional

proof that the low purchases on September and October may really be due to external

environment factors such as the wet climate, and not on internal factors such as the

clients’ own demand and purchasing power. Furthermore, this finding also gives more

strength to the similarity of the characteristics of the two classifications of Ma-Vill

clients: the clients with average demand and budgets, and the clients with high demand

and budget.

82
2,119,000 Fig 4.5 Quantity of Carton Sheets Purchased by Company A
2,116,000
2,113,000
2,110,000
2,107,000
2,104,000
2,101,000
2,098,000
2,095,000
2,092,000
2,089,000
2,086,000
2,083,000
2,080,000
2,077,000
2,074,000
2,071,000
2,068,000
2,065,000
2,062,000
5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7
l-1 g-1 -1 t -1 v-1 c-1 -1 -1 r-1 r-1 y-1 -1 l-1 g-1 -1 t -1 v-1 c -1 -1 -1 r-1 r-1 y-1 -1 l-1 g-1 -1 t -1 v-1 c -1
J u Au Sep Oc No De J an Feb Ma Ap Ma J un J u Au Sep Oc No De J an Feb Ma Ap Ma J un J u Au Sep Oc No De

A Quantity

83
 Fig 4.6 Bulk Purchase Price of Company A
9,670,000
9,656,000
9,642,000
9,628,000
9,614,000
9,600,000
9,586,000
9,572,000
9,558,000
9,544,000
9,530,000
9,516,000
9,502,000
9,488,000
9,474,000
9,460,000
9,446,000
9,432,000
9,418,000
Au 1 5

Oc 15
No -1 5
De 1 5

Fe 1 6
M -16

M 6
Ju 16
Ju 6
Au 6

Oc 1 6
No -16

Fe 1 7
M -1 7

M 7
Ju 17
Ju 7
Au 7

Oc 17
No -1 7
De 1 7
Se 1 5

Ja 15

Ap 16

Se 1 6

De 16
Ja 16

Ap 17

Se 1 7

17
1
r-1

1
l-1

r-1

l-1
-
l-
g-
p-

v-

n-

n-

p-

v-
c-
n-

-
n-

g-
p-

v-
c-
c-

g-
ay

ay
b
ar

b
ar
t

t
Ju

A Quantity

84
 The time-series data for Company A, which is the only local client of Ma-Vill

Corporation identified to have both very high production need and purchasing power is

shown in figures 4.5 and 4.6. Just like in the preceding figures, the areas marked in green

show a unanimous upward movement and peak of purchases while the areas shaded in

orange show a downward movement and lowest point of purchases. Same as the other

companies, the uptrend happens in the months of November to January, while the low

purchases occur on the months of August to October, and February. Lastly, the areas that

are unshaded generally show a random fluctuation in the purchases of carton sheets by

Company A.

With this finding, it is safe to say that all the three classifications of the clients of

Ma-Vill Corporation according purchasing power and production demand have similar

characteristics and timings when it comes to bulk-buying of carton sheets with only very

slight deviations and differences. The reason for the very high amounts of purchases on

the months of November to January may be similar with the reasons of the other

companies as well – to have high ending inventory or to achieve desired ending inventory

for the current year and beginning inventory for the succeeding year.

The low purchases on the same months as the other companies may also mean

that they have the same reasons and behaviors on why they buy low generally on the

months of August to October. However, the only month wherein we can assure

explanation for the low purchases is the month of February because it is the practice of

Ma-Vill, itself, to limit selling of a lot of carton sheets to its clients in order to cope up

with their own supply of materials.

85
 Table 4.14
Average of Means for Quantity of Carton Sheets Purchased Monthly
Average Monthly Quantity Purchased
Company A 2,078,847**
Company B 52,027*
Company C 30,473*
Company D 3,870
Company E 4,020
Company F 2,108
Company G 1,344
Company H 1,317
Company I 855
Company J 146
Unadjusted Mean 217,501
Unadjusted Std. Dev. 654,235.31
Outlier-Adjusted Mean 9,811.14
Outlier Adjusted Std. Dev. 17,400.22
*
mild outliers; **extreme outlier

Table 4.14 presents the means and standard deviations of the average monthly

quantity of carton sheets purchased by Ma-Vill’s clients, with and without the outlier

adjustment method. Iglewicz and Hoaglin’s outlier test have identified Companies A, B,

and C values to be outliers and Tukey’s test have identified Company A’s values to be

extreme outliers. Weight adjustment method is performed on outliers in order to treat the

data properly in calculating the measures of central tendencies

The findings show that the average quantity of carton sheets purchased by

customers monthly is 9,811 pieces. Taking into account its high deviation, the monthly

purchase of the customers may go as high as 27,211 pieces. Thus, it is suggested that Ma-

Vill Recycling Corporation produces at least 9,000 up to 28,000 pieces of carton sheets

monthly to cope up with the demand with Companies B to J. Since Company A’s values

are extreme outliers, it is given special treatment and Ma-Vill must individually consider

its purchase quantities in order to cope with the very high demands of Company A.

86
Table 4.15
Comparison of Quantity Carton Sheets Purchased and Quantity of Carton Sheets Needed
Average Monthly Average Monthly
Respondent Difference
Quantity Purchased Quantity Needed
Company A 2,078,847** 1,946,667** 132,180
Company B 52,027* 48,667* 3,360
Company C 30,473* 24,333* 6,140
Company D 3,870 3,650 220
Company E 4,020 3,650 370
Company F 2,108 1,947 161
Company G 1,344 1,217 127
Company H 1,317 1,217 100
Company I 855 730 125
Company J 146 122 24
Total 2,175,007 2,171,390 142,809
Unadjusted Mean 217,501 203,220 14,281
Adjusted Mean 9811.14 8732.19 1,078.95
*
mild outliers; **extreme outlier

Table 4.15 compares the monthly quantity of carton sheets purchased by the

clients against their monthly quantity of carton sheets needed or used. The difference

gives a rough estimation of the amount of safety stock or extra inventory of carton sheets

that the company has per month. It can be seen from the table that most companies (D, E,

F, G, H, I, J) prefer to have little to almost zero safety stock. The safety stocks of these

companies are less than roughly 400 per month and thus, it is likely that they consume

almost all their purchased carton sheets during the month. these companies are likely to

use just-in-time (JIT) inventory systems and economic order quantity (EOQ) model since

it minimizing material handling and storage (Gomes and Mentzer, 1988; Bassin, 1990).

Some companies like B and C have an intermediate amount of safety stock (3,360

and 6,140 pieces, respectively) while Company A has a very high amount of safety stock

inventory per month (5,200 pieces). This may be attributed to their large purchases as

well. These high safety stock estimations may signify that these companies have some

87
weeks wherein they stop purchasing in order to use up the accumulated extra stock of

carton sheets and stop adding more safety stock inventories to their warehouses, or they

have some months wherein they have very high demands that they use all the safety stock

inventory that they accumulate. Moreover, it could also mean that they just have high

desired levels of ending inventory which is up to the preference of the management of

these companies. The other companies are likely to purchase from Ma-Vill Corporation

regularly since they use up almost all of the carton sheets they purchase for the month.

The unadjusted mean difference between the monthly quantity of carton sheets

purchased and monthly quantity of carton sheets needed is 14,281 pieces, and the

difference between the adjusted means is 1,079 pieces. This implies that, on average, the

clients of Ma-Vill Corporation keep very little amount of safety stock, such that they

consume and use most of the carton sheets they purchase in a month. It supports the

statement of Cheng (2007) that keeping high levels of inventory or safety stock can be a

costly exercise. With this, it can be inferred that production need are a major factor that

affects greatly the quantity of carton sheets purchased by companies because most of

these companies mainly purchase for needs and buying for safety stock purposes is

almost negligible or it is only practiced by a minority of their clients.

Table 4.16
Relationship between Production Need and Bulk Purchase Price
Respondent Test Values
Sample Size, n 210*
Correlation, r 0.5611
Determination, r2 0.3148
Interpretation Moderate Positive Correlation
*
outliers are removed in calculating the coefficient values

88
 The Pearson correlation coefficient between the quantity of carton sheets needed

and the bulk purchase price of the respondents is 0.5611. Following the Pearson

Australia’s (2009) guidelines of correlation coefficient interpretation, the positive

relationship between the two variables is moderate since it falls within the 0.4 ≤ r < 0.6

range. Having a positive relationship signifies that an increase in the quantity of carton

sheets needed or production need is likely to lead also to an increase in bulk purchase

price. Furthermore, the interpretation implies that strength of the relationship between the

two variables is moderate. Therefore, the first alternative hypothesis of the study that

there is a correlation between production need and bulk purchase price is correct.

The reason for the moderate correlation between production need and purchase

price justifies the 2007 study of Ji and wood that consumption and purchase behaviors are

closely linked together. As seen on the time-series data, companies with high amounts of

production need, which means that it also has a high consumption of the material

purchased, consequently have high expenditures and budget for purchasing. However, the

correlation may only be moderate and not very strong because in the context of this

study, production need only considers quantity. The quality and size of the material

demanded may affect the purchase price that a client spends on carton sheets. These two

factors may be the reason why some companies have higher purchase price than other

companies with the same amount of quantity purchase. Different quality and size of

carton sheet means a different unit price.

The coefficient of determination between the two variables is 0.3148. This means

that 31.48%, which is a relatively small amount, of the variance of bulk purchase price

can be predicted from the quantity of sheets needed. Furthermore, this may also imply

89
that there is a large 68.52% error of prediction in using the quantity of carton sheets

needed to predict purchase price under the simple linear regression model.

Table 4.17
Importance of Production Need on Bulk Purchase Price
Choices Frequency (f) Percentage (%) Interpretation
1 (Not Important) 0 0
2 (Slightly Important) 0 0
3 (Moderately Important) 0 0
4 (Important) 7 70
5 (Very Important) 3 30
Total 10 100
Weighted Mean 4.3
Remarks Important
Table 4.17 shows the level of importance of production need in considering the

amount of purchase price the company spends for a single bulk order of raw material by

the respondents. Almost all of Ma-Vill’s customers considered it important (f=7, %=70).

The weighted mean of the answers is 4.3 and according to the NIH Scoring System, its

implication is that it is important. Therefore, the clients of Ma-Vill Corporation find

production need to be important in considering the price that they will spend or budget

for the bulk purchase of raw material.

The respondents’ high importance on production need in considering purchase

price has an implication on the type of demand that it has for raw material which is carton

sheets. Becker (2005) stated that it is known that demand for products that are considered

to be necessary or a primary need is less sensitive to changes in price changes in such a

way that costumers will still continue to buy these products despite price increases. Thus,

this implies that Ma-Vill’s clients have an inelastic demand for carton sheets.

90
 Although there is a moderate correlation between purchase price and bulk

purchase price, the clients of Ma-Vill Corporation still consider production need as an

important factor for bulk purchase decision.

Distance

Table 4.18
Distance of Respondents to Ma-Vill Corporation
Respondent Distance (km)
Company A 4.9
Company B 5.4
Company C 7.5
Company D 3
Company E 7.8
Company F 13.6
Company G 9
Company H 4.7
Company I 4.8
Company J 8
Range 10.6
Mean 5.3
Std Dev. 3.0255

It is presented in Table 4.18 the distance in kilometers of the respondents to their

supplier of carton sheets, which is Ma-Vill Corporation that is located in Upper

Canduman, Canduman, Mandaue City. The company with the farthest distance to Ma-

Vill is Company C with a distance of 13.6 kilometers and its opposite is Company D with

the least distance of 3 kilometers. It can be inferred from this that the range of the

distance of the customers from Cebu City and Mandaue City to Ma-Vill Corporation is

10.6 kilometers. The average distance of the clients to Ma-Vill is 5.3 kilometers with a

standard deviation of 3.055. The standard deviation means that, on average, the distance

of each customer to its supplier deviates around 3.0255 of the mean distance which is 5.3.

This implies that the average range of distace is from 2.2745 km to 8.3255 km.

91
 It is mentioned in the statement of assumptions that businesses that are far from

their supplier tend to lessen the orders of their raw materials and increase the amount of

each of their order in bulk. This is tested by calculating the correlation coefficient

between distance and frequency of purchase of each company. The calculation is shown

below in Table 4.19.

Table 4.19
Relationship between Distance and Frequency of Orders
Frequency of Number of Orders
Respondent Distance (km) Test Values
Order per Month
Company A 4.9 once a week 4
Company B 5.4 once a week 4
Company C 7.5 once a week 4
Company D 3 twice a month 2
Company E 7.8 twice a month 2
Company F 13.6 once a month 1
Company G 9 once a month 1
Company H 4.7 once a month 1
Company I 4.8 semi-annually 1/6
Company J 8 twice a month 2
Correlation, r -0.2198
Determination, 0.0483
r2
Weak Negative
Interpretation
Correlation

A Pearson correlation test was performed and the strength of the relationship

between the distance from client to supplier and the number of orders that a client makes

to the same suppler. The results yield a weak negative correlation since it belongs to the

-0.4 ≤ r < -0.2 range. Furthermore, it can be observed the correlation coefficient is very

near to the upper limit of 0.2 which means that the relationship of the two factors is

almost negligible. Lastly, the coefficient of determinations gives a value of 0.0483 which

means that only 4.83% of the variance of the frequency of order per month can be

predicted by the distance of the customer to the supplier. It has a high error of prediction

92
of 95.17%. Therefore, the assumption that distance of the customers of Ma-Vill to their

supplier is a very weak basis of the number of orders that they will have per month. There

is no relationship between the two variables.

Table 4.20
Relationship between Distance and Bulk Purchase Price
Test Values
Sample Size, n 210*
Correlation, r -0.2709
Determination, r2 0.0734
Interpretation Weak Negative Correlation
*
outliers are removed in calculating the coefficient values

The Pearson correlation coefficient between distance in kilometers and the bulk

purchase price of the clients of Ma-Vill Corporation is -2.709. This correlation is almost

negligible and according to Pearson Australia’s (2009) guidelines of correlation

coefficient interpretation, it is a weak correlation between the two variables because it

falls within the -0.2 ≤ r < 0.2 range. The second alternative hypothesis of the study is

rejected and consequently, its corresponding null hypothesis that there is no significant

relationship between the two variables is accepted. Furthermore, when the correlation is

very weak, the coefficient of determination is also insignificant. As seen on the results, it

has a very high prediction error of 92.66% in using distance to predict purchase price.

These calculations imply that distance of the customers to Ma-Vill Recycling

Corporation does not affect the price of their bulk purchase.

This finding is supported by the study of Bell, Ho, and Tang (1998) where it was

found that location no longer explains most of the variance in store or supplier choice

decisions. Rather, supplier choice decisions seem to be consistent with a model where

consumers optimize their total costs, and effort to access the store location is one

93
component of their fixed cost of purchasing. However, this does not conclude that

location is no longer important, but it suggests that customers’ choice for a supplier may

be based on different criteria other than its proximity.

Table 4.21
Importance of Distance on Bulk Purchase Price
Choices Frequency (f) Percentage (%) Interpretation
1 (Not Important) 3 30
2 (Slightly Important) 3 30
3 (Moderately Important) 3 30
4 (Important) 1 10
5 (Very Important) 0 0
Total 10 100
Weighted Mean 2.2
Remarks Slightly Important

It is presented in Table 4.21 the level of importance of distance in considering the

amount of purchase price spent for a bulk order of raw material. Most of Ma-Vill’s

customers range their answers from “not important” to “moderately important” (f=3,

%=30). These result in a weighted mean of 2.2 which is interpreted as slightly important.

This finding is consistent with the lack of correlation between distance and bulk purchase

price. Ultimately, these imply that clients of Ma-Vill Corporation find distance to be just

slightly important in considering their amount of raw materials to be purchased in bulk.

The slight importance can be explained by the same study of Bell, Ho, and Tang

(1998) that customers just tend to adjust to the distance of the store when other factors

such as price discounts, brand image, and reliability, are favorable. Thus, it can be

inferred that the customers may have seen other advantages and benefits from Ma-Vill

Corporation that outweigh their decision or preference of choosing a closer supplier. It is

also possible that the customers may have criteria in choosing a supplier for carton sheets

which gives little importance to distance.

94
 Price Discounts
Table 4.22
Average Monthly Trade Discount Received by Respondents in Percentage and Pesos
Respondent Trade Discount (%) Mean Purchase Price (₱) Trade Discount (₱)a
Company A 5 9,494,730.00** 474,736.50
Company B 3 388,193.33* 11,645.80
Company C 2 516,880* 10,337.60
Company D 5 14,706.00 735.30
Company E 3 25,346.00 760.38
Company F 0 10,020.33 0.00
Company G 2 14,187.33 283.75
Company H 2 24,813.67 496.27
Company I 0 10,297.33 0.00
Company J 3 1,093.33 32.80
a
Trade Discount in pesos = percent trade discount multiplied by the average amount of purchases in pesos
*
mild outliers; **extreme outliers

Table 4.22 shows the average monthly trade discount that respondents, which are

buyers of carton sheets from Ma-Vill Corporation, in terms of percentage and pesos. The

percent trade discount is multiplied to the amount that a company spends or budgets for a

single bulk order of carton sheets in order to have a proper estimation of the amount of

trade discount that they receive in terms of money per order. Companies A and D receive

the highest discount in percentage (5%) while Company A receives the highest discount

in terms of amount (₱ 474,736.50). It can also be observed that Ma-Vill sometimes gives

no discounts and examples for these are Companies I and F.

Iglewicz and Hoaglin’s outlier test have identified Companies A, B, and C values

to be outliers and Tukey’s test have identified Company A’s values to be extreme

outliers. Weight adjustment method is performed on outliers. As seen in the data,

Company A has the highest trade discount in terms of percentage and has a very high

discount in terms of money. This may be attributed to the very large amount order that

the company places every time it purchases carton sheets.

95
 Table 4.23
Mean and Standard Deviation for Trade Discount (in Pesos)
Without Adjustment Outliers Adjusted
Mean 49,902.84 2,462.17
Std Dev. 141,914.94 4,296.58
Presented above in Table 4.23 are the mean and standard deviation of the amount

of trade discounts that the clients of Ma-Vill Corporation receive using both the

unadjusted and outlier-adjusted method. It can be observed from the data that Ma-Vill

gives an average of ₱2462.17 trade discount on their customers for carton sheets. This

mean trade discount has a high deviation of ₱4,296.58 which means that the average

trade discount that the customers may receive range from ₱0 to ₱6,758.75.

Giving of price discounts is a simple sale promotion technique which aims to

increase sales (Wierenga & Soethoudt, 2010), and based on the result shown in the table

above, Ma-Vill Corporation has a good practice of giving fair discounts to its customers

in order to encourage more orders from them, or place higher amounts on their orders.

Table 4.24
Relationship between Trade Discount and Bulk Purchase Price
Test Values
Sample Size, n 210*
Correlation, r 0.7689
Determination, r2 0.5912
Interpretation Strong Positive Correlation
*
outliers are removed in calculating the coefficient values

Pearson correlation coefficient test between the quantity of trade discount and the

bulk purchase price of the respondents returned a value of 0.7869. In accordance with the

Pearson Australia’s (2009) guidelines of correlation coefficient interpretation, there is a

positive relationship between the two variables and its strength is strong because the

value is within the 0.6 ≤ r < 0.8 range. The positive relationship implies that an increase

96
in the trade discount is would most likely lead to an increase in the amount of bulk

purchase price also. Moreover, the strength of the significant relationship between the

two variables signifies that an increase or decrease in the trade discount is a strong

indicator of an increase or decrease in the bulk purchase price, as well. Thus, the third

alternative hypothesis of the study is accepted and there is a correlation between the

amount of trade discount with bulk purchase price.

The strong positive correlation is supported by numerous studies mentioned in the

related literature of the study. Neha and his colleagues in the 2013 study concluded that

sales promotion such as price discounts greatly influenced customers’ purchase decision.

In addition to it, this is also supported by other studies stating that the effect of price

discounts on buying behavior is crucial and favorable (Ahmad et al., 2015).

Table 4.25
Importance of Trade Discount on Bulk Purchase Price
Choices Frequency (f) Percentage (%) Interpretation
1 (Not Important) 2 20
2 (Slightly Important) 1 10
3 (Moderately Important) 0 0
4 (Important) 5 50
5 (Very Important) 2 20
Total (n=10) 10 100
Weighted Mean 3.4
Remarks Moderately Important
It is observed in Table 4.25 the level of importance of trade discount in

considering the amount of purchase price that the customers of Ma-Vill spend for a single

bulk order of raw material by the respondents. Half of the respondents considered it

important (f=5, %=50). Moreover, the weighted mean of the answers is 3.4 which is

interpreted as moderately important. Therefore, the clients of Ma-Vill Corporation find

production need to be moderately important in considering their amount of raw materials

97
to be purchased in bulk. This supports the statement by Chao et al. (2016) that price

discounts can directly affect purchase intention.

Bulk Purchase Price

Table 4.26
Mean and Standard Deviation for Bulk Purchase Price
Without Adjustment Outliers Adjusted
Mean 1,050,026.73 101,988.93
Std Dev. 2,825,155.42 178,266.15

The mean bulk purchase price that the clients of Ma-Vill Corporation spend on

buying carton sheets is shown above in Table 4.27. The average price that the

respondents spend or budget for bulk purchase of carton sheets is ₱101,988.93.

Moreover, it may also go as high as ₱280,255.08 on average because of its standard

deviation. These averages hold true except for Company A because Company A’s

purchases are extremely high values, which is to be examined independently from most

of the clients of Ma-Vill Corporation.

Section III
Greatest Impact on Purchase Price Among Three Factors

The fourth hypothesis of the study assumes that distance of the client to the

supplier has the greatest impact on the amount of bulk purchase price of raw materials

that a consumer spends. This is tested by comparing the correlation coefficient of the

variables, the respondents’ answers to the question which among the three independent

variables (production need, distance, price discounts) affect purchase decision the most,

and the Likert-scale results on each variable’s level of importance to purchase price.

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Table 4.27
Comparison of Correlation Coefficient of the Three Independent Variables
Coefficient Production Need Distance Trade Discount
Correlation, r 0.5611 -0.2709 0.7689
Determination, r2 0.3148 0.0734 0.5912
Interpretation Positive (Moderate) Negative (Weak) Positive (Strong)
Table 4.27 compares the Pearson correlation coefficient of the three variables

being tested by the study that affects bulk purchase price and purchase decision. It is

observed that distance is has a weak correlation with purchase price (r = -0.2709), and

thus, it does not give a significant impact on a customer’s purchase price. The fourth

hypothesis is then rejected, and the answer to which among the three factors has the

greatest impact on purchase price is left between production need and trade discount.

Both production need and trade discount have a significant (moderate and strong,

respectively) positive correlation with bulk purchase price, but trade discount has a

stronger relationship and coefficient for determination than of production need. This

means that trade discount and purchase price have a stronger correlation, and because it

has a high coefficient of determination, the amount of trade discount is likely to predict

the amount of purchase price. However, under a conservative approach, it is established

that correlation is insufficient prove causation (Aldrich, 1995). Therefore, the strength of

the relationship between the two variables does not necessarily prove its impact.

Table 4.28
Which among these factors affect the purchase decision of the company the
most?
Choices Frequency Percentage
Distance 0 0
Price Discounts 7 70
Production Need 3 30

99
 Table 4.28 reports the answers of the respondents to the question, “Which among

these factors affect the purchase decision of the company the most?” with choices being

the three independent variables of the study. None answered distance and this is

persistent to the lack of correlation of distance to purchase price. The highest response to

the question is price discounts (f=7, %=70). which is followed by production need (f=3,

%=30). Based on the survey, price discount is the main consideration of the purchase of

Ma-Vill’s clients which is followed by their production need. Thus, it can be inferred that

price discounts have more impact than the production need of the company on the

purchase decision-making of the customers of Ma-Vill. However, this still does not

exactly verify the answer to which among the three factors has the highest impact on

purchase price, because the question asks for the effect on purchase decision which is not

the same as purchase price.

Table 4.29
Weighted Means for the Level of Importance of the Three Variables on Purchase Price
Production Need Distance Trade Discount
Weighted Mean 4.3 2.2 3.4
Interpretation Important Slightly Important Moderately Important

The comparison of the derived weighted means from the Likert-scale questions on

the level of importance of the variables to bulk purchase price is shown in Table 4.29.

Still, the results are consistent that distance has the least impact on the bulk purchase

price and behavior of Ma-Vill’s clients. Furthermore, it is observed that this time,

production need have the highest weighted mean for its level of importance which is

followed by trade discount. It can also be seen that there is a high difference between the

weighted means which results in production need being important and trade discount

being only moderately important in considering bulk purchase price.

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 Based on these results, the impact of the variables on purchase price can be

measured through its level of importance. Production need have the highest level of

importance, therefore, production need have the highest impact on the amount of

purchase price that a company spends for bulk purchase of raw materials.

Section IV

Pricing-Related Strategies for Ma-Vill Corporation

Various suggestions for pricing can be derived based on the results, findings, and

time series data of the study. Here are pricing-related suggestions to be considered by

Ma-Vill Recycling Center Corporation and their corresponding explanations:

1. Identify customers and clients with the highest consumption of a specific raw

material. Capitalize the lack of sensitivity of changes of price of these consumers.

Market to them the products with high selling price or increase unit price of the

materials sold to them.

Explanation: Based on the results of the survey, production need and bulk purchase

price has a moderate positive correlation. It can be observed on the data that the

clients with the highest consumption for a raw material are those with the highest

production need as well, which consequently means that they spend and budget more

for their purchases. Furthermore, these companies with high production need have an

inelastic demand to their needed raw materials because they are considered to be a

necessary or a primary need to their operation and thus, they are less sensitive to price

changes in such a way that costumers will still continue to buy these products despite

price increases. Becker (2015) describes this as a situation where consumer reaction

101
to a change in price is small, and this occurs on highly-demanded or needed products

with few or no substitutes.

2. Expand market area and reach out to distant potential customers. It is

advisable to stick to selling price when bargained by distant customers.

Explanation: Distance and purchase price have shown to have no correlation or

relationship with each other. Based on the survey results, the clients of Ma-Vill

Corporation considered distance to be only slightly important. Furthermore, when the

respondents were asked which among the three independent variables of the study

affect their purchase decision the most, none answered distance. According to Bell,

Ho, and Tang (1998), consumers consider adjusting to distance to the supplier when

other factors are favorable. All of these imply that distance does not impact much the

supplier selection and purchase decision of buyers of raw materials, and because of

this, it is encouraged for Ma-Vill to expand its market size and stick to their selling

price when being bargained by a distant customer.

3. Identify customers with high purchasing power or budget. Offer higher trade

discounts to clients with high purchasing power on strategic times.

Explanation: Customers with high purchasing power are those that have high

production need, and in return, they allocate a large amount of budget in their

purchases. Trade discounts are shown to have very strong positive correlation with

the amount of purchase price. Moreover, trade discounts are the top answer when

respondents were asked which among the three independent variables of the study

affect their purchase decision the most. These data imply that trade discount has a

significant impact on purchasing decision and purchase price of companies. When a

102
 customer has high purchasing power, it is a good strategy to offer sales discounts in

order to influence the client to spend most of his budget or purchase more goods from

the company. As to when to give price discounts, it will be discussed in the 5 th

suggestion.

4. Win new and potential customers by offering price discounts.

Explanation: Most of Ma-Vill’s clients answered trade discounts when asked which

among the three factors affect their purchase decision the most. This suggests that

trade discounts give favorable effect to a customer's purchase decision or intention.

This supported by the related literature of the study that sales promotion techniques

such as price discounts are effective instruments that increase sales of products,

usually in a short time (Wierenga & Soethoudt, 2010), because they act in the

consumer’s mind as a benefit to it, thus generating a consumer behavior. Moreover,

the offering of discounts is a marketing activity that is less costly than advertising.

5. Utilize the trends in the time series data. The trend for the time series data is

shown below in Table 4.30.

Table 4.30
Time Series Data Trends
Months Trend
November Uptrend, High Purchases
December Peak
January Peak
February Lowest Point (Limitations)
March – July Random Fluctuations
August – October Downtrend, Low Purchases

Strategies:

 Slowly start to increase price on November as the demand starts to go to an

uptrend. Realize the high increase in price in December and January as the

103
 demands go very high and peak. Increasing price may lead to decrease in demand,

but it will also avoid stock-outs in the succeeding month which is February which

helps avoid the need to limit the sales of materials

 Begin to normalize the prices in February as the demand starts to decrease. This is

a good chance to offer discounts if the stocks of materials are still enough for an

average demand of carton sheets

 Analyze the trend of each company separately from March to July in order to gain

insights on their independent fluctuations for these months.

 Offer trade discounts on the months of August to October in order to encourage

purchases from clients to offset the decline in the demand. This is also good time

to market to distant and new clients since it is discount-giving period.

 Produce more carton sheets starting October in order to cope with the demand as

November starts to reverse the downtrend into an uptrend.

6. At the last part of the survey, the respondents were asked regarding their

comments on what to consider when purchasing materials in bulk. Here is a

summary of their answers:

 A better client-supplier relationship  Better service when accommodating

 Shipping the right number of items customers

 Preserve the cost savings  Offer price discounts

 Reliability is the key factor  Accommodate small orders

These answers by the respondents of the study are also helpful in considering

effective pricing and sales strategies of the business. The researchers suggest

104
 considering these comments from the respondents in formulating new strategies or

adding value to the current pricing strategies of Ma-Vill Recycling Corporation.

Section V

Socio-Economic Impact of the Business

As a veteran corporation belonging to an oligopolistic market structure, Ma-Vill

Recycling Center Corporation has made various impacts to different sectors of the

society. Some of impacts that the corporation have made are socio-economic impacts.

These refer to how an entity has affected a particular group’s or socioeconomic class’

behavior within the society including their actions as consumers or buyers of products or

services.

1. The corporation exports carton sheets. These sheets are bought by companies that

process them to produce carton boxes, corrugated boxes, and the like. Considering

the distance of the business to some of its clients, some companies would have

higher freight cost in buying from Ma-Vill than buying from nearer corporations.

The cost of the boxes that the client produced will include the freight cost and will

be considered as an increase in the formulation of an effective selling price. These

boxes will then be bought by companies and will use them as packaging (e.g. pizza

boxes, ice cream boxes, candy boxes) of their products. Since the packaging is part

of the expenses in making a product, this again increases the selling price. The

increase affects the purchase price of the retailers and cause them to increase their

selling price in respect to the expenses they incurred. This selling price now affects

the budget and expenditures of the people or the end-users. On the other hand, it

would be a positive impact for the clients who are near the corporation since it

105
 would free them from the trouble of finding nearby firms that sell carton sheets. It

lessens their expenses and prevents the chain reaction of price build-up.

2. When buying raw materials from suppliers, especially junk shops, one of the main

concerns of the corporation is the improper segregation of these materials. Cartons

get too wet and smelly due to improper segregation and that excludes them from

being bought. This lessens the possibility of the cartons to be recycled and a huge

percentage of these materials go to waste. This is a problem for the corporation

since it decreases the potential materials that the corporation can buy. It is also one

of the propaganda of the corporation to help in protecting the environment even just

through proper segregation. In order to solve this problem, Ma-Vill encourages and

convinces junk shops and the people to properly segregate the wastes they

collected. The corporation tries to educate them on the proper collection and

segregation of wastes and how they can help increase the value of these wastes and

the possibility of them to earn money through selling recyclable materials. Also,

they join programs and groups that promote these practices. These junk shops

would then require households to segregate their trashes before selling these to

them. This makes a beautiful impact to the behavior of the junkshops and the people

and to the condition of the environment. Furthermore, this retains the original value

of scraps and its price in the market.

3. Just from being in operation, Ma-Vill is able to give more job opportunities to the

people. Considering that Ma-Vill is a corporation, this guarantees that it could offer

more job opportunities than smaller businesses. This makes a huge impact on the

lives of their employees as well as their families who depend on their income.

106
107
 Chapter 5
SUMMARY, FINDINGS, CONCLUSIONS, AND RECOMMENDATIONS

SUMMARY

The study evaluated the effects of production need, distance, and price discounts

on the bulk purchase behavior for carton sheets by the customers of Ma-Vill Recycling

Center Corporation. Bulk purchase behavior is measured by the amount of purchase

price. The relationship between the three independent variables of the study and bulk

purchase price was studied.

Review of related literature was made with the following topics; i) raw materials;

ii) bulk purchasing; iii) inventory systems; iv) production demands or needs; v) distance

of customer to the supplier; and vi) price discounts. The theoretical framework utilized

for this study was the model for factors and criteria affecting purchase decision of

manufacturing companies made by Gao and Tang in their 2003 study: a multi-objective

model for purchasing of bulk raw materials of a large-scale manufacturing plant.

Data about the existing clients of Ma-Vill Recycling Center Corporation was

gathered by visiting the company and interviewing the operations manager and head

officer for customer relations of the company. The survey was performed on 10 existing

clients of Ma-Vill around Cebu City and Mandaue City, with the help of the agents of the

company. Data gathering method used was through personal interviews and

questionnaires. Additional time-series data was gathered from the database of Ma-Vill

containing the quantity and amount of purchase of each respondent for 30 months.

The study revealed that productions needs and price discounts have a moderate

and strong positive correlation with bulk purchase price, respectively (Pearson r =

108
0.5611, and r = 0.7689, respectively). On the other hand, distance from the customer to

its supplier was found to have a weak negative correlation (r = -0.2709). Furthermore,

among the three variables, production need were found to have the greatest impact on

bulk purchase price.

The study concluded that production need or the number of raw materials that a

company consumes for a specific period of time and price discounts have a favorable

effect on both bulk purchase price and purchase behavior of the customers of Ma-Vill

Corporation. Distance has little impact to purchase decisions in buying raw materials in

bulk.

The study recommends pricing-related strategies for Ma-Vill Center Corporation,

which is the main beneficiary of the study. The strategies involve increasing selling price

for clients with high production need, expanding market size, sticking to original selling

price when bargained from distant clients, offering price discounts to customers with high

purchasing power and to potential and new customers at strategic times, and utilizing

time-series trends.

SUMMARY OF FINDINGS

Current Pricing Strategies of Ma-Vill Corporation

The current pricing strategies of Ma-Vill Recycling Center Corporation is a

combination of three major pricing methods: (i) cost-plus pricing, (ii) contribution

margin-based pricing, and (iii) competitive pricing. In setting a unit price for a material,

the company first considers the cost of production such as direct materials, labor, and

operating expenses. Second, the company assumes a number of units that can be sold for

a proposed selling price. Third, the proposed selling is then compared with the prevailing

109
market price and the selling price of their competitors. Furthermore, the company also

incorporates sales promotion techniques by providing cash and trade discounts to

customers. This is done in order to establish a better customer relationship, to encourage

prompt payments, to increase sales, and to give incentives for customer loyalty.

Production Need

The average daily and monthly quantity of carton sheets consumed or used for the

production of the clients of Ma-Vill are 378. and 8732 pieces, respectively. The average

quantity of carton sheets purchased monthly is 9,811 pieces. The clients usually purchase

once a week, once a month, and twice a month. The average safety stock inventory that

they hold per month is 1,079 pieces. Most of them, however, keep little amount of safety

stock inventory. It was found out that production need have a moderately positive

relationship with bulk purchase price. This maybe because aside from the quantity of

carton sheets needed, purchase price is affected by differences in unit price caused by the

variety of quality and size of items ordered. Furthermore, production need is important

for customers of Ma-Vill in considering the bulk purchase price of raw materials and it

has the highest level of importance in considering purchase price among the three factors

examined. Lastly, the clients consider production need to be the second most important

factor in considering purchase decision.

In the time series trends of the purchase of Ma-Vill Corporation clients, most of

the clients purchase high on the months of November, December, and January. There is

an uptrend on demand ofthese months. Clients tend to purchase low on February because

the Ma-Vill limits their selling on this month to prevent stock-outs, and on the months of

110
August to October, most likely because how the rainy season affects the production and

distribution of carton sheets.

Distance

The average distance of the customers to Ma-Vill Corporation is 5.3 kilometers.

Although it is mentioned in the related studies that a far distance may cause a lesser

amount of orders, there is a weak negative correlation between distance and the

frequency of ordering. Moreover, there is no relationship or correlation between distance

and the amount of bulk purchase price that companies spend for raw materials. Ma-Vill’s

clients considered distance to be only slightly important in considering purchase price,

and negligible in purchase decision.

Price Discounts

The average price that the clients of Ma-Vill Corporation spend or budget for a

bulk purchase of raw material is ₱101,988.93, and the average trade discount that they

receive is ₱2,462.17. Price discounts and bulk purchase price have a strong positive

correlation with each other, and among the variables, price discounts have the strongest

relationship with bulk purchase price. Furthermore, the clients found price discounts to be

moderately important in considering the amount that they will spend in buying raw

materials in bulk. However, when considering purchase decision, the customers find price

discounts to be the most important factor among the three variables.

CONCLUSIONS

The study concludes that the pricing methods incorporated by Ma-Vill Recycling

Center Corporation is cost-plus pricing, contribution margin-based pricing, and

111
competitive pricing. Furthermore, the company also use sales promotions by giving price

and cash discounts to its customers.

The findings and results conclude that there is no significant relationship between

distance from customer to a supplier and bulk purchase price, while there is a moderate

positive relationship between production need, and bulk purchase price. Lastly, there is

also strong positive relationship between price discounts and bulk purchase price, and

this relationship has the highest strength among the three relationships.

Production need was found to be the factor with the greatest impact to the amount

that a company budgets or spends for a bulk order of raw materials.

Pricing-related suggestions are offered to Ma-Vill Corporation based on the

findings of the study. These suggestions include: (i) identifying clients with high

production need and selling them units starting at a high unit price (ii) expanding market

size and sticking to original selling price when making bargains with distant clients; and

(iii) offering trade discounts to customers with high purchasing power on strategic times

(iv) winning potential and new customers with trade discounts (v) utilizing time series

trends when increasing price and offering discounts.

RECOMMENDATIONS

The findings and results of the study were thoroughly analyzed and the

researchers came up with the following recommendations. The first three

recommendations are for Ma-Vill Corporation, while the fourth recommendation is for

future researchers. A table is presented after the third recommendation to summarize

suggestions of the researchers under each factor being studied.

112
1. The researchers recommend Ma-Vill Corporation to conduct a profiling of their

customers, in order to find out which among them has high purchasing power and

high demand for a specific raw material. This can be done by analyzing past

transactions and historical records of the customers. Customers with high

purchasing power and high demand for products allocate large budget for

purchasing raw materials and have an inelastic demand for items. Consequently,

less price sensitive to the increases in price. This can be capitalized by Ma-Vill

Corporation. The researchers also advise to give high trade discounts to these

clients because trade discount is an important consideration of a client’s purchasing

2. The researchers suggest for Ma-Vill Corporation to expand market size to new and

potential customers in distant places if possible. Distance to the supplier is of little

importance to the customers of Ma-Vill Corporation, and thus, they are more likely

to adjust to distance if other factors are favorable such as reliability of the firm, and

sales promotion. Furthermore, researchers advise to win new and potential

customers by offering them trade discounts. This is because manufacturing

businesses value trade discounts in their purchase decision when buying raw

materials in bulk.

3. The researchers strongly recommend to capitalize the time-series trends of the

purchases of the company. It suggested to start increasing the price of carton sheets

during the month of November as the demand starts to from an uptrend and realize

the full proposed increase in unit price during the months of December of the

current year and January of the following year. If the increase in prices leads to

decrease in demands and there is still enough stocks of carton sheets for sale in

113
 February, avoid limiting the selling of said product. Offer trade and price discounts

on the months of February, August, September, and October where the demand is

low in order to encourage clients to buy more during these months.

Table 5.1
Summary of Price-Related Suggestion to Ma-Vill Corporation
Production Need
• Identify clients with high
production need and
purchasing power. Increase
their selling price without
affecting their price sensitivity
during the months of January,
November, and December.
• Offer trade discounts to
customers with high
production need to encourage
more purchase during the
months of February, August,
September, and October.
Distance Price Discounts
• Retain selling • Offer trade discounts to
price when being customers with high demand and
bargained by purchasing power when demand
distant customers. is declining during months of
February, August, September,
• Expand market
and October.
size to distant
customers. This is • Offer price discounts to win
best done in new and potential customers. It
discount-giving is best to market to new
period on February, customers during discount-
August, September giving period as mentioned.
and October.
• Offer price discounts purchases
of a certain company is starting
to have a downtrend in the
amount of purchases.

4. The researchers highly recommend future studies that aims to expand the current

findings and results of this study to increase the number of respondents, expand

research respondents to other manufacturing businesses and not just clients of Ma-

Vill Corporation, and to collect more data from sales and purchases of different

companies in order to have a more statistically reliable data for discounts, and

purchases.

114
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 APPENDIX A – TRANSMITTAL LETTER

December 15, 2017

To: MA-VILL Recycling Center Corporation

Upper Canduman, Canduman,
Mandaue City, 6000 Cebu

Greetings of peace and solidarity! We are Grade 12 students of the University of San
Carlos Senior High School that are taking up Research 03B under the Accountancy,
Business, and Management (ABM) strand as part of the Senior High School curriculum
mandated by the Department of Education. In line with this, we are tasked to make a
marketing research based on a chosen company.

Ma-Vill Recycling Center Corp. is one of the leading waste management and recycling
facility in Cebu. With this, we are deeply interested in studying your company as subject
for our marketing research. We would humbly like to know if your company would be
available in imparting basic company information for our research through an interview
or survey questionnaire in the next weeks to come. Rest assured, the data gathering
methods will be according to your utmost convenience and sensitive information will be
kept confidential.

For easier dissemination of information on your part, we would like to ask a contact
person, with his/her contact number and/or e-mail, from your company can guide/assist
us, the students, during the surveys.

In anticipation of your favorable confirmation, we convey our sincerest gratitude. We

hope that our final output of marketing research would be of some help to your company.

Should you have further questions/clarifications, you may contact our logistics member
Ryan C. Fernando through his mobile 0956-839-3443.

Respectfully yours,

Ryan Fernando Klouie Montalbo Xennie Marie Esgana

USC SHS ABM student USC SHS ABM student USC SHS ABM student

Justine Danuco Jeri Leigh Resuera

USC SHS ABM student USC SHS ABM student

Noted by:

Mr. Don Ali Jureidini

Research Instructor
USC SHS ABM
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 APPENDIX B – RESEARCH INSTRUMENT

Informed Consent Form for Research Survey

Dear Sir/Ma’am:

Good day! We are Grade 12 students of the University of San Carlos in the Accountancy,
Business, and Management strand. As a requirement for our strand, we are currently
conducting a marketing research about the effects of production need, distance, and price
discounts on bulk purchase behavior for raw materials of manufacturing companies.

The respondents for this study are manufacturing businesses that are based in the area of
Cebu City. In accordance with this, we have chosen you to be one of our respondents
who are knowledgeable in this field. The researchers hope that you will spare a few
minutes to answer the following questions.

Your response and participation to this survey would very much be appreciated. The data
that will be gathered will be beneficial in giving the manufacturing businesses industry
additional insights on bulk purchase behaviors on raw materials that would prove to be
useful in making effective purchase decisions. The researchers assure that all data
gathered will be treated with confidentiality and will be used for academic purposes only.

Kindly affix your printed name and signature below if you have understood the details of
the study, and agree in answering the questionnaire. Thank you very much for your time!

I have understood the details of the research and the survey, and I consent in answering
this survey:

_____________________________________________ __________________
Respondent’s Name and Signature Date

123
General instructions: Kindly fill in the blanks with the necessary information or check
the box of your corresponding answer to the question. Check only one box for each
question unless otherwise specified. Your participation is greatly appreciated. Thank
you!

Part I:
Respondent’s Name (Optional): _______________________________________
Position/Relationship to the Business: __________________________
Name of Business: ___________________________________
Location/Address of the Business: ____________________________________________
Finished product/s being produced: __________________________

Part II: In answering the following questions, kindly consider only carton sheets as the
raw material needed by the business.

1.) How many carton sheets does the company consume/need for its daily production,
and how many does the company buy for that carton sheets every time it makes a
purchase?

Quantity needed (daily): _________ Quantity bought (every purchase): _________

2.) How often does the business purchase the raw material?

 Once a week  Twice a week  Once a month  Twice a month

 Every two months  Quarterly  Semi-annually  Annually
 Others (Kindly specify: ___________________)

3.) How much does the company spend or budget for a single bulk order of raw material?

₱ ________________ (You may specify a specific amount or a range of amounts)

4.) How much trade or price discounts does business receive every purchase?

₱ ________________ (You may specify a specific amount or a range of amounts)

5.) Where is the supplier of the business for the raw material located? If known, you may
also specify the distance (in kilometers) from the place of business to the supplier.

_____________________________________________________________________

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6.) In a scale of 1 to 5, how important is the amount of trade/price discounts in
considering the amount of purchase price that the company spends for a single bulk
order of raw material?

 1 (Not important)  2 (Slightly Important)  3 (Moderately important)

 4 (Important)  5 (Very Important)

7.) In a scale of 1 to 5, how important is the quantity needed of a raw material for daily
production in considering the amount of purchase price the company spends for a
single bulk order of raw material?

 1 (Not important)  2 (Slightly Important)  3 (Moderately important)

 4 (Important)  5 (Very Important)

8.) In a scale of 1 to 5, how important is the distance of the location of the supplier in
considering the amount of purchase price of a raw material the company spends for a
single bulk order?

 1 (Not important)  2 (Slightly Important)  3 (Moderately important)

 4 (Important)  5 (Very Important)

9.) Which among these factors affect the purchase decision of the company the most?

 Distance (how far supplier is to the company)

 Price Discounts (the amount of price reduction received when ordering in bulk)
 Production Need (the amount of raw material to be consumed in daily production)

10.) What additional information does the company consider when purchasing raw
materials in bulk? (Optional)

________________________________________________________________________
________________________________________________________________________

125
 APPENDIX C – CURRICULUM VITAE

Personal Information

Name: Justine Chloe N. Danuco

Date of Birth: May 30, 2000

Address: Ladies Pink Dormitory, Pelaez Street,

Cebu City, Cebu

Educational Background

 Graduated Elementary as 8th honorable mention at Academia del Christifidelis, G.

Pepito Street, Tayud, Liloan, Cebu

 Completed Junior High School as Valedictorian at Academia del Christifidelis, G.

Pepito Street, Tayud, Liloan, Cebu

 Currently studying as Senior High School student taking up Accountancy,

Businesses, and Management (ABM) strand under the Academic Track at

University of San Carlos – Downtown Campus, P. Del Rosario St., Cebu City,

Cebu

Relevant Work Experience

 Research and Marketing Plan, A.Y. 2016 - 2017

“The study on the role of convenience, service quality, product quality and store

image in achieving customer satisfaction towards customer loyalty”

 Business Plan, A.Y. 2017 - 2018

“ONE CAR-reta Multi-Purpose Glow in the Dark Pencil Case”

126
Personal Information

Name: Xennie Marie R. Esgana

Date of Birth: December 12, 1999

Address: 93-C Telen Compound, Katipunan St.,

Labangon, Cebu City, Cebu

Educational Background

 Graduated Elementary as 1st Honorable Mention at Sacred Heart School – Ateneo

De Cebu, H. Abellana St., Mandaue City, Cebu

 Completed Junior High School at Cebu Normal University - Integrated

Laboratory School, Osmeña Blvd, Cebu City, Cebu

 Currently studying as Senior High School student taking up Accountancy,

Businesses, and Management (ABM) strand under the Academic Track at

University of San Carlos – Downtown Campus, P. Del Rosario St., Cebu City,

Cebu

Relevant Work Experience

 Research and Marketing Plan, A.Y. 2016 - 2017

“The study on the role of convenience, service quality, product quality and store

image in achieving customer satisfaction towards customer loyalty”

 Business Plan, A.Y. 2017 - 2018

“ONE CAR-reta Company: Multi-Purpose Glow in the Dark Pencil Case”

127
Personal Information

Name: Ryan C. Fernando

Date of Birth: May 31, 199

Address: 329-D dela Victoria Compound, Tres de

Abril St., Labangon, Cebu City, Cebu

Educational Background

 Graduated Elementary as Salutatorian at University of San Carlos – South

Campus, J. Alcantara St., Cebu City, Cebu

 Completed Junior High School as Valedictorian at University of San Carlos –

South Campus, J. Alcantara St., Cebu City, Cebu

 Currently studying as Senior High School student taking up Accountancy,

Businesses, and Management (ABM) strand under the Academic Track at

University of San Carlos – Downtown Campus, P. Del Rosario St., Cebu City,

Cebu

Relevant Work Experience

 Research and Marketing Plan, A.Y. 2016 - 2017

“Effect of apparel product’s usefulness, price and perceived quality on customers’

satisfaction which leads purchase intention”

 Business Plan, A.Y. 2017 - 2018

“Prospero Company: Be Immune with Cimmune”

128
Personal Information

Name: Klouie C. Montalbo

Date of Birth: October 29,1999

Address: Casa Nuestra Subdivision. Bankal,

Lapu-lapu City, Cebu

Educational Background

 Graduated Elementary at Cebu Normal University

 Completed Junior High School at Cebu Normal University

 Currently studying as Senior High School student taking up Accountancy,

Businesses, and Management (ABM) strand under the Academic Track at

University of San Carlos – Downtown Campus, P. Del Rosario St., Cebu City,

Cebu

Relevant Work Experience

 Research and Marketing Plan, A.Y. 2016 - 2017

“Influence of Product Kind, Price and Location toward the Preferences of

Consumers of Snacks Vending”

 Business Plan, A.Y. 2017 - 2018

“B-MACE Company: Click Photobooth”

129
Personal Information

Name: Jeri Leigh J. Resuera

Date of Birth: March 26, 1999

Address: 1169 PC Compound Fulton St., Apas,

Cebu City, Cebu

Educational Background

 Graduated Elementary as 4th Honorable Mention at Lahug Christian School

 Completed Junior High School at University of San Carlos – North Campus,

General Maxilom Ave., Cebu City, Cebu

 Currently studying as Senior High School student taking up Accountancy,

Businesses, and Management (ABM) strand under the Academic Track at

University of San Carlos – Downtown Campus, P. Del Rosario St., Cebu City,

Cebu

Relevant Work Experience

 Research and Marketing Plan, A.Y. 2016 - 2017

“Effect of apparel product’s usefulness, price and perceived quality on customers’

satisfaction which leads purchase intention”

 Business Plan, A.Y. 2017 - 2018

“Prospero Company: Be Immune with Cimmune”

130