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19 Sep 2012, 23:04
The following appeared in a report presented for discussion at a meeting of the directors of a company that manufactures parts for heavy machinery:
“The falling revenues that the company is experiencing coincide with delays in manufacturing. These delays, in turn, are due in large part to poor planning in purchasing metals. Consider further that the manager of the department that handles purchasing of raw materials has an excellent background in general business, psychology, and sociology, but knows little about the properties of metals. The company should, therefore, move the purchasing manager to the sales department and bring in a scientist from the research division to be manager of the purchasing department.”
Discuss how well reasoned . . . etc.

The argument assumes that since the falling revenues coincide with the manufacturing delays one must be the cause of the other. Further, it also suggests that the current purchase manager should be replaced by a scientist from the research devision since the scientist will have knowledge of metals. This argument is presumptuous and based on very loosely formed theories.

First, the author of the report assumes that the delays in production are in fact the reasons for the decline in profits. While this may be one reason, it fails to consider other aspects that determine profitability. Factors such as increase in raw material cost, labour cost, power cost, and other overheads can increase the cost of production. Without a proportionate increase in prices, the profit decreases. Further, it is also possible that the machinery produced by the company is no longer demanded as much as before and thus the total sales have decreased. This would surely result in a decline in revenue.

Second, the author assumes that the delay in manufacturing is due to the poor planning in purchasing metals. It fails to consider that this delay could be caused due to turmoil within the company with regards to labour. Often labour refuses to cooperate unless their demands are met, resulting in manufacturing lapses. Further, the delay could also be caused due to innacurate reporting of inventory. Thus, as material runs out employees realise that stocks have depleted and at the last minute the purchase manager is informed of the low stock. This delay in turn causes delay in placing an order and thus procuring the same. This can only be corrected by enforcing correct and timely inventory checks and procedures.

Lastly, the author attributes poor planning to the current purchase manager's lack of relevat skills and knowledge of metals. The current manager has an excellent background in general business, psychology, sociology etc which would better suit him for a role in sale. Thus, the author recommends that a scientist from the research division be moved to the purchase department. This move would be based on the assumption that the scientist would be able to predict the supply and demand cycles and thus make a better judgement of metal procurement. This would in turn result in a smooth manufacturing process. The author fails to understand that it is more important for the purchase manager to understand and base his procurement on business dynamics, company profitability, market statistics etc than on pure knowledge of metals. The author also fails to acknowledge that a scientist in the research division is used to working in solititude and in a very different work environment than a purchase manager. This move to a completely unfamiliar environment may result in low productivity and dissatisfaction.

Hence, in order to strengthen the argument, the author must show appropriate data to support his claim that manufacturing delays cause a decline in revenue. Other reasons for this decline in revenue must be ruled out and it must be proved that manufacturing delays are in fact due to poor planning in purchasing metals. The author must also show strong proof that it is the purchase manager's inadequacies with respect to knowledge of metals that are causing him to plan poorly. The author must also cite appropriate reasons to justify moving a scientist to a purchase department and succedding there. Based on strong proof the author can attribute falling fevenues to manufacturing delays.

I am scheduled to appear for the GMAT on the 26th of September. Thank you in advance
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