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Retail stores and diversified manufacturing companies have operated un

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Retail stores and diversified manufacturing companies have operated un  [#permalink]

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New post 24 Apr 2017, 03:30
1
Retail stores and diversified manufacturing
companies have operated under a set of traditional
assumptions that warrant challenge.The
most basic assumption that company managers
make is that their companies should provide a
high level of service to all their customers. However,
acting on this assumption can lead to loss of
market share, less value for some customers, and
maintenance of unwieldy structures for distributing
products, which ensures higher fixed costs.
According to Joseph Fuller, James O’Connor,
and Richard Rawlinson, one area that needs
particular scrutiny is the way in which companies
handle logistics, including transportation costs,
handling costs, management of inventory, storage
costs, and order processing. Different customers
often have entirely different needs: designing a
logistical structure that provides every customer
with the same level of service is wasteful and
inefficient. Fully one-third of a company’s product
may be stuck in the “pipeline” between manufacturer
and customer, where it only drains away
money through transportation and storage costs;
if a particular customer does not need certain
products to be available immediately, a company
does not need to spend money to ensure that all
its merchandise is on hand. Another problem is
traditional averaging, in which products that cost
the manufacturer relatively little to produce are
given prices similar to those of products that are
expensive to produce. While this means that the
retailer is able to move more low-volume products
out of inventory, high-volume products tend to be
overpriced, and more specialized products are not
delivered speedily enough and may be underpriced.
Fuller et al. describe a soft drink company’s
decision to stop in-store promotions and special
sales in favor of standard pricing because the
inconsistent demand caused by the swings in prices
necessitated variability in the manufacturing and
distribution systems. Many retail managers tend to
overlook logistics out of a concern for gross margin;
that is, they are swayed by the gross profit made by
the sale of a specific item, instead of looking at the
net profit that remains after logistics costs have
been subtracted. Low-volume, high-margin products
may not ultimately be as profitable as high-volume,
low margin products that are easy to move around,
such as T-shirts or calculators.

The primary purpose of the passage is to:

a) discuss the impact of logistics on profitability

b) challenge the belief that retail and manufacturing businesses must provide similar levels of service to all customers

c) question the adoption of standard pricing by retailers seeking to sell high-margin products

d) fault retail managers who pay undue attention to gross profit rather than focusing on net profit

e) argue that retail businesses should abandon the sale of low-volume, high-margin products in favor of high-volume, low-margin products


:? :? Which of the above should the right answer? :? :?

Please answer. Thanks in advance. :-D

Can anybody please explain why 'A' should not be correct answer choice?
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Re: Retail stores and diversified manufacturing companies have operated un  [#permalink]

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New post 30 Aug 2018, 10:45
Discussed here https://gmatclub.com/forum/retail-store ... 38705.html
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Re: Retail stores and diversified manufacturing companies have operated un &nbs [#permalink] 30 Aug 2018, 10:45
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