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Joined: 24 Aug 2009
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21 Nov 2009, 12:30
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.

my response:

The argument claims that the consolidated location of inventory will cut company's expense on warehouse rent and hence profitability is expected to go up.This claim is seriously flawed since the argument does not provide evidence on any additional cost to company or any potential impact to the inventory distribution or management due to relocation of inventory.

Firstly, it may be argued that the shift of location of warehouse directly impacts the cost of distribution of goods. If all the inventory are housed in boston, there may be a additional cost in transporting the goods to various sales/manufacturing units across the country.When LG shifted their inventory warehouse to their manufacturing head quaters in chennai, LG claimed that it had additional cost to transport their finished products to the nation wide sales units.The argument should have provided evidence that the company will not incur any additional cost of distribution of inventory due to the recolation of the inventory.

Secondly, the argument failed to provide information on the increase of staffing needs in handling and managing inventory.For instance, Rogers communication has got 7 warehouses across canada.The labour cost to manage these warehouse is not the same across all warehouses. Warehouse in Yorkmill, the greater toronto area, incur high cost compared to the warehouse in calgary.The argument may provide evidence to prove that the cost of handling and managing inventory in the new consolidated warehouse is less than or equal to those of the other 4 warehouses.

Finally, the efficiency of inventory management is a key parameter for the company's supply chain to be successful.There is no information in the argument that address on the impacts of the company's decision to relocate inventory on the efficieny of inventory management and the entire supply chain of the company.

In summary, Since the argument fails to address the key factors that will result either in direct or indirect cost to the company, the claim that the relocation of the inventory will result in profitability is just a wishful thinking. The author may consider addressing the above key factors to substantiate his claim.
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