The following memo was circulated by the management team of a retail company:
"We are very pleased to announce that the relocation of our inventory, which had been located in four different warehouses throughout the country, to a single new warehouse near Company headquarters in Boston. This consolidated location will cut the company’s expenses for warehouse rent in half. As a result we expect our monthly profitability to go up by this amount."
Discuss how well reasoned you find this argument. Point out flaws in the argument's logic and analyze the argument's underlying assumptions. In addition, evaluate how supporting evidence is used and what evidence might counter the argument's conclusion. You may also discuss what additional evidence could be used to strengthen the argument or what changes would make the argument more logically sound
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The argument concludes that monthly profitability will increase because of the decrease in warehouse expenses. The management team assumes that by decreasing warehouse expenses, total monthly profitability will increase.
The team assumes that most of the expenses will be reduced if the inventories are relocated near the Boston headquarter. Even though the costs of storing the inventory in the warehouse are reduced, the costs of transporting the inventory to consumers might increase. This can lead to even greater increase in expenses, and not necessarily increase monthly profitability. If most of the company's sales transactions take place around the Boston headquarter, then there is a possibility of decreasing expenses. The team cannot assume that the amount saved in warehouse rent expense translates automatically to increase profitability.
The costs of transporting all the inventory from the four different locations to the warehouse near headquarter may increase monthly expenses. Even though this is not relevant throughout the entire year, it does affect the current monthly profibility. If there is an increase in expenses, profitability will decrease. This does not lead to the expected conclusion that profitability will increase by the amount saved in warehouse rent expense.
When the management team of a the retail company relocated its inventory, it assumed that by decreasing warehouse rent expense, it would increase profiability by exactly the same amount. There are other expenses that can affect the profitability fuction as well.
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- cindyqtran
- JadranLee
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Hi Cindy,
Par 1 - The intro paragraph should do more than summarize the argument. It should also indicate your view of the argument, giving the reader a preview of the objections that you will be raising. By the way, your summary of the argument leaves out a key detail - that the memo claims that profitability will rise by the same amount that is saved in warehouse rent.
Par 2 - You should start this paragraph by announcing its main idea. The main idea seems to be in the last sentence of the paragraph. This idea should be given more emphasis, and its relevance to the the memo's argument should be stated more clearly. You might, for instance, begin the paragraph by saying -
"The argument assumes that the amount saved in warehouse rent expense will translate automatically to increase profitability. However, ..."
Par 3 - This paragraph does not appear to make a new point distinct from the one you made in Par 2. To avoid repeating the same idea in 2 of your body paragraphs, spend 5 minutes at the start of your half-hour brainstorming.
Par4 - You're right that the last paragraph should summarize what you have said. However, it's a good idea to use "signpost words", such as "thus", "however", "nevertheless", "therefore", etc. to show how your ideas are related to one another. Without such a signpost word, the reader has to figure out how last sentence of your essay relates to the argument described in the sentence before it.
-Jad
Par 1 - The intro paragraph should do more than summarize the argument. It should also indicate your view of the argument, giving the reader a preview of the objections that you will be raising. By the way, your summary of the argument leaves out a key detail - that the memo claims that profitability will rise by the same amount that is saved in warehouse rent.
Par 2 - You should start this paragraph by announcing its main idea. The main idea seems to be in the last sentence of the paragraph. This idea should be given more emphasis, and its relevance to the the memo's argument should be stated more clearly. You might, for instance, begin the paragraph by saying -
"The argument assumes that the amount saved in warehouse rent expense will translate automatically to increase profitability. However, ..."
Par 3 - This paragraph does not appear to make a new point distinct from the one you made in Par 2. To avoid repeating the same idea in 2 of your body paragraphs, spend 5 minutes at the start of your half-hour brainstorming.
Par4 - You're right that the last paragraph should summarize what you have said. However, it's a good idea to use "signpost words", such as "thus", "however", "nevertheless", "therefore", etc. to show how your ideas are related to one another. Without such a signpost word, the reader has to figure out how last sentence of your essay relates to the argument described in the sentence before it.
-Jad
- itsme.vineet84
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Re: Analysis of an Arugment: GMAT CAT #2
My RESPONSE: (Please provide tips how can I improve on this)
The management team of the retail company in their memo concluded that the monthly profitability of the company is going to go up by the same amount the company will save on rent on four different warehouses as it has decided to relocate the inventory from four different warehouses throughout the country to a single new warehouse near the Company headquarters in Boston. Unfortunately the argument presented by the management is not cogent because of the following faulty assumptions.
Firstly, the management team incorrectly assumes that moving the entire inventory from different warehouses to a single warehouse might not affect transportation costs of the inventory to the company’s retail outlets. If the retail outlets of the company were spread all across the length and breadth of the company, then in such a case, having the inventory consolidated at one place may result in higher transportation costs for the company, which will eat into the savings from rent the company hopes to achieve by shutting other warehouses. Similarly, if the concerned company only has retail outlets near Boston, in such a case the transportation costs of the inventory will decrease resulting in increase in savings of the company apart from the rent savings. In both the scenarios, the company profitability will not be the same as the amount it saves on rent.
Secondly, the management fails to consider factors such as maintenance costs, taxes, electricity costs which might also play an important role in determining how much rent saving will eventually add up to the profits of the company. If the maintenance costs and electricity costs for the single warehouse facility turn out to be more than what the company was shelling out earlier for its four warehouses (could be because of labor costs and electricity costs are higher for an area like Boston), the actual rent savings of the company will diminish, thus making the conclusion of the management false.
Finally, company’s profitability is net result of many activities undertaken by the company, the most significant of which is its sales revenue. Unfortunately, if the company’s sales were to fall in the future owing to fall in the quality of its product or due to an economic crisis, the company’s profitability will also take a serious hit. In such a scenario, any saving made on warehouse rent would not help improve the profitability of the company by a similar amount.
Hence, the argument presented by the management team of the company is logically flawed. To strengthen its argument, the management team should precisely state that any costs incurred by the company in its day to day operations are not expected to change other than the rent because of its decision to shift the inventory to a single warehouse. It would be beneficial if a disclaimer stating that the argument in its originality will stand only if all other factors that affect the company’s profitability for ex. Economic conditions do not fluctuate much from their current state.
The management team of the retail company in their memo concluded that the monthly profitability of the company is going to go up by the same amount the company will save on rent on four different warehouses as it has decided to relocate the inventory from four different warehouses throughout the country to a single new warehouse near the Company headquarters in Boston. Unfortunately the argument presented by the management is not cogent because of the following faulty assumptions.
Firstly, the management team incorrectly assumes that moving the entire inventory from different warehouses to a single warehouse might not affect transportation costs of the inventory to the company’s retail outlets. If the retail outlets of the company were spread all across the length and breadth of the company, then in such a case, having the inventory consolidated at one place may result in higher transportation costs for the company, which will eat into the savings from rent the company hopes to achieve by shutting other warehouses. Similarly, if the concerned company only has retail outlets near Boston, in such a case the transportation costs of the inventory will decrease resulting in increase in savings of the company apart from the rent savings. In both the scenarios, the company profitability will not be the same as the amount it saves on rent.
Secondly, the management fails to consider factors such as maintenance costs, taxes, electricity costs which might also play an important role in determining how much rent saving will eventually add up to the profits of the company. If the maintenance costs and electricity costs for the single warehouse facility turn out to be more than what the company was shelling out earlier for its four warehouses (could be because of labor costs and electricity costs are higher for an area like Boston), the actual rent savings of the company will diminish, thus making the conclusion of the management false.
Finally, company’s profitability is net result of many activities undertaken by the company, the most significant of which is its sales revenue. Unfortunately, if the company’s sales were to fall in the future owing to fall in the quality of its product or due to an economic crisis, the company’s profitability will also take a serious hit. In such a scenario, any saving made on warehouse rent would not help improve the profitability of the company by a similar amount.
Hence, the argument presented by the management team of the company is logically flawed. To strengthen its argument, the management team should precisely state that any costs incurred by the company in its day to day operations are not expected to change other than the rent because of its decision to shift the inventory to a single warehouse. It would be beneficial if a disclaimer stating that the argument in its originality will stand only if all other factors that affect the company’s profitability for ex. Economic conditions do not fluctuate much from their current state.
- RiyaCracks800
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Re: Analysis of an Arugment: GMAT CAT #2
The argument claims that relocation of inventory to a single warehouse from four different warehouses would save rent and increase the profit by that amount. However, the argument stands on several assumptions that have not been supported by it.
First, the argument assumes that there would be no increase in maintenance cost in the new warehouse. This assumption is a stretch because, for example, the cost of electricity for the bigger warehouse could be more than the sum of electricity costs in the four earlier warehouses. Moreover, the argument ignores the fact that electricity costs in Boston could be higher than the earlier four locations. Like electricity, there could be other costs involved, such as use of more forklift trucks due to the warehouse being bigger.
Second, the argument assumes that there would be no additional transportation costs involved in delivering products to its outlets at far off locations. Earlier, when the inventory was at four different locations, each warehouse could deliver to the towns and cities close to it. However, now, with the inventory being in one location, Boston, additional transportation costs would be involved in delivering products to places that would have been, otherwise, closer to one of the earlier locations.
Third, the argument fails to explore the inventory management costs that would be incurred with having a larger inventory at one place. For example, the company might need to use a complex, and costly, inventory management software to manage its inventory.
Although the retail company will save rent, it must factor in the above costs before concluding what amount will the profits increase by. The argument leaves out several pieces of vital information such as data about maintenance cost in the warehouse, data about transportation costs and data about possible inventory management costs, and is, therefore, debatable.
First, the argument assumes that there would be no increase in maintenance cost in the new warehouse. This assumption is a stretch because, for example, the cost of electricity for the bigger warehouse could be more than the sum of electricity costs in the four earlier warehouses. Moreover, the argument ignores the fact that electricity costs in Boston could be higher than the earlier four locations. Like electricity, there could be other costs involved, such as use of more forklift trucks due to the warehouse being bigger.
Second, the argument assumes that there would be no additional transportation costs involved in delivering products to its outlets at far off locations. Earlier, when the inventory was at four different locations, each warehouse could deliver to the towns and cities close to it. However, now, with the inventory being in one location, Boston, additional transportation costs would be involved in delivering products to places that would have been, otherwise, closer to one of the earlier locations.
Third, the argument fails to explore the inventory management costs that would be incurred with having a larger inventory at one place. For example, the company might need to use a complex, and costly, inventory management software to manage its inventory.
Although the retail company will save rent, it must factor in the above costs before concluding what amount will the profits increase by. The argument leaves out several pieces of vital information such as data about maintenance cost in the warehouse, data about transportation costs and data about possible inventory management costs, and is, therefore, debatable.
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