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# Retail stores and diversified manufacturing companies

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Senior Manager
Joined: 02 Mar 2017
Posts: 262
Location: India
Concentration: Finance, Marketing
Retail stores and diversified manufacturing companies  [#permalink]

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Updated on: 27 Sep 2018, 20:03
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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.

1. According to the passage, when management assumes that its top priority is customer service, it risks

A. streamlining its logistical structure to lower fixed costs
C. weighing inventory in favor of high-margin volume products
D. customer dissatisfaction due to steadily rising prices
E. having a majority of its merchandise stuck in the “pipeline”

2. Which of the following may be inferred from the passage about traditional averaging?

A. Businesses using this pricing method will face declining market share.
B. Companies with large inventories are likely. to employ this method to reduce stock.
C. It leads to significant fluctuations in the inventory levels of specialized products.
D. It can create inconsistencies in the pricing of goods with respect to their manufacturing costs.
E. The technique is only effective for certain nonspecialized products.

3. According to the passage, a soft drink company rejected former marketing methods that included promotions and special sales because

A. stores complained about having to make special arrangements for storing the extra products
B. high-volume products such as soda are consistently overpriced
C. the company realized it had given too much attention to the gross margin of some of its products
D. the promotions and sales earned the company high profits, but when the promotions ended, the profits dropped
E. the promotions and sales created uneven demand, which continually forced the company to change its logistical operations

4. It can be inferred from the passage that which of the following might be the most profitable item to sell?

A. cassette tapes
B. big-screen television sets
C. bunk beds
D. rowing machines
E. imported wine

_________________

Kudos-----> If my post was Helpful

Originally posted by VyshakhR1995 on 22 Apr 2017, 17:31.
Last edited by workout on 27 Sep 2018, 20:03, edited 2 times in total.
MBA Section Director
Affiliations: GMATClub
Joined: 22 May 2017
Posts: 2092
Concentration: Nonprofit
GPA: 4
WE: Engineering (Computer Software)
Re: Retail stores and diversified manufacturing companies  [#permalink]

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27 Sep 2018, 20:07

+1 kudos to the posts containing answer explanations of all questions

_________________
Intern
Joined: 24 Mar 2015
Posts: 27
Re: Retail stores and diversified manufacturing companies  [#permalink]

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28 Sep 2018, 00:49
1
VyshakhR1995 wrote:
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.
GreatOne, all CORRECT.

One thing i want to tell about loaded passages with facts and data, is that targeting answers becomes much easier as it doesn't need much prethinking. Just jump to the premise where the instance was mentioned and get the answers.

Mental Map:

[prethink author might tell me about the bad stuff or might tell about the impact and solutions..]

JF: Logistics imp to validate for the same.
Pipeline: (modifier)-"where it only drains away money through transportation and storage costs;bla bla"
Traditional Avg: same price for the costly and cheap product>> retailers bad ++ price fluctuations..[the key to find answer look for modifiers...which products..]
Example: Cola Company -- promotions >> diversified custs demand dur to price.
something about managers and profits margins..

First the purpose of passage before jumping:
Explain/Highlight the Challenges faced due to Certain Assumptions that companies make...

1st Para:"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."

1. According to the passage, when management assumes that its top priority is customer service, it risks

A. streamlining its logistical structure to lower fixed costs . OPP it leads to higher fixed costs.. OUT
B. losing business to competitors. OK keep it
C. weighing inventory in favor of high-margin volume products. Not mentioned OUT
D. customer dissatisfaction due to steadily rising prices. some customer dissatisfaction but RISING PRICES not mentioned. OUT
E. having a majority of its merchandise stuck in the “pipeline”. Out of LINE

Traditional Avg: same price for the costly and cheap product>> retailers bad ++ price fluctuations..
In infer find subtle answer options..as mentioned in my previous posts..
2. Which of the following may be inferred from the passage about traditional averaging?

A. Businesses using this pricing method will face declining market share. TOO Strong and sometimes they may have an advantage.OUT
B. Companies with large inventories are likely. to employ this method to reduce stock. Not mentioned in Traditional avg and Pipelining .OUT
C. It leads to significant fluctuations in the inventory levels of specialized products. leads to is too strong but wait lets keep it and move on..
D. It can create inconsistencies in the pricing of goods with respect to their manufacturing costs. this is what looking for Trad Avg..GOOD
E. The technique is only effective for certain nonspecialized products. never mentioned .. ONLY vry strong, OUT

Example: Cola Company -- promotions >> diversified custs demand dur to price.

Straight forward diversified demands caused due to price fluctuations...

3. According to the passage, a soft drink company rejected former marketing methods that included promotions and special sales because

A. stores complained about having to make special arrangements for storing the extra products
B. high-volume products such as soda are consistently overpriced
C. the company realized it had given too much attention to the gross margin of some of its products
D. the promotions and sales earned the company high profits, but when the promotions ended, the profits dropped
E. the promotions and sales created uneven demand, which continually forced the company to change its logistical operations. Answer

High Volume -Low margin..

4. It can be inferred from the passage that which of the following might be the most profitable item to sell?

A. cassette tapes YES
B. big-screen television sets . high margin due to higher price and Movement not easy OUT
C. bunk bedshigh margin due to higher price and Movement not easy OUT
D. rowing machineshigh margin due to higher price and Movement not easy OUT
E. imported wine.high margin due to higher price ,OUT

Intern
Joined: 24 Mar 2015
Posts: 27
Re: Retail stores and diversified manufacturing companies  [#permalink]

### Show Tags

28 Sep 2018, 00:51
1
1
Tamao411284 wrote:
VyshakhR1995 wrote:
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.
GreatOne, all CORRECT.

One thing i want to tell about loaded passages with facts and data, is that targeting answers becomes much easier as it doesn't need much prethinking. Just jump to the premise where the instance was mentioned and get the answers.

Mental Map:

[prethink author might tell me about the bad stuff or might tell about the impact and solutions..]

JF: Logistics imp to validate for the same.
Pipeline: (modifier)-"where it only drains away money through transportation and storage costs;bla bla"
Traditional Avg: same price for the costly and cheap product>> retailers bad ++ price fluctuations..[the key to find answer look for modifiers...which products..]
Example: Cola Company -- promotions >> diversified custs demand dur to price.
something about managers and profits margins..

First the purpose of passage before jumping:
Explain/Highlight the Challenges faced due to Certain Assumptions that companies make...

1st Para:"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."

1. According to the passage, when management assumes that its top priority is customer service, it risks

A. streamlining its logistical structure to lower fixed costs . OPP it leads to higher fixed costs.. OUT
B. losing business to competitors. OK keep it
C. weighing inventory in favor of high-margin volume products. Not mentioned OUT
D. customer dissatisfaction due to steadily rising prices. some customer dissatisfaction but RISING PRICES not mentioned. OUT
E. having a majority of its merchandise stuck in the “pipeline”. Out of LINE

Traditional Avg: same price for the costly and cheap product>> retailers bad ++ price fluctuations..
In infer find subtle answer options..as mentioned in my previous posts..
2. Which of the following may be inferred from the passage about traditional averaging?

A. Businesses using this pricing method will face declining market share. TOO Strong and sometimes they may have an advantage.OUT
B. Companies with large inventories are likely. to employ this method to reduce stock. Not mentioned in Traditional avg and Pipelining .OUT
C. It leads to significant fluctuations in the inventory levels of specialized products. leads to is too strong but wait lets keep it and move on..
D. It can create inconsistencies in the pricing of goods with respect to their manufacturing costs. this is what looking for Trad Avg..GOOD
E. The technique is only effective for certain nonspecialized products. never mentioned .. ONLY vry strong, OUT

Example: Cola Company -- promotions >> diversified custs demand dur to price.

Straight forward diversified demands caused due to price fluctuations...

3. According to the passage, a soft drink company rejected former marketing methods that included promotions and special sales because

A. stores complained about having to make special arrangements for storing the extra products
B. high-volume products such as soda are consistently overpriced
C. the company realized it had given too much attention to the gross margin of some of its products
D. the promotions and sales earned the company high profits, but when the promotions ended, the profits dropped
E. the promotions and sales created uneven demand, which continually forced the company to change its logistical operations. Answer

High Volume -Low margin..

4. It can be inferred from the passage that which of the following might be the most profitable item to sell?

A. cassette tapes YES
B. big-screen television sets . high margin due to higher price and Movement not easy OUT
C. bunk bedshigh margin due to higher price and Movement not easy OUT
D. rowing machineshigh margin due to higher price and Movement not easy OUT
E. imported wine.high margin due to higher price ,OUT

One thing i want to tell about loaded passages with facts and data, is that targeting answers becomes much easier as it doesn't need much prethinking. Just jump to the premise where the instance was mentioned and get the answers.

Mental Map:

[prethink author might tell me about the bad stuff or might tell about the impact and solutions..]

JF: Logistics imp to validate for the same.
Pipeline: (modifier)-"where it only drains away money through transportation and storage costs;bla bla"
Traditional Avg: same price for the costly and cheap product>> retailers bad ++ price fluctuations..[the key to find answer look for modifiers...which products..]
Example: Cola Company -- promotions >> diversified custs demand dur to price.
something about managers and profits margins..

First the purpose of passage before jumping:
Explain/Highlight the Challenges faced due to Certain Assumptions that companies make...

1st Para:"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."

1. According to the passage, when management assumes that its top priority is customer service, it risks

A. streamlining its logistical structure to lower fixed costs . OPP it leads to higher fixed costs.. OUT
B. losing business to competitors. OK keep it
C. weighing inventory in favor of high-margin volume products. Not mentioned OUT
D. customer dissatisfaction due to steadily rising prices. some customer dissatisfaction but RISING PRICES not mentioned. OUT
E. having a majority of its merchandise stuck in the “pipeline”. Out of LINE

Traditional Avg: same price for the costly and cheap product>> retailers bad ++ price fluctuations..
In infer find subtle answer options..as mentioned in my previous posts..
2. Which of the following may be inferred from the passage about traditional averaging?

A. Businesses using this pricing method will face declining market share. TOO Strong and sometimes they may have an advantage.OUT
B. Companies with large inventories are likely. to employ this method to reduce stock. Not mentioned in Traditional avg and Pipelining .OUT
C. It leads to significant fluctuations in the inventory levels of specialized products. leads to is too strong but wait lets keep it and move on..
D. It can create inconsistencies in the pricing of goods with respect to their manufacturing costs. this is what looking for Trad Avg..GOOD
E. The technique is only effective for certain nonspecialized products. never mentioned .. ONLY vry strong, OUT

Example: Cola Company -- promotions >> diversified custs demand dur to price.

Straight forward diversified demands caused due to price fluctuations...

3. According to the passage, a soft drink company rejected former marketing methods that included promotions and special sales because

A. stores complained about having to make special arrangements for storing the extra products
B. high-volume products such as soda are consistently overpriced
C. the company realized it had given too much attention to the gross margin of some of its products
D. the promotions and sales earned the company high profits, but when the promotions ended, the profits dropped
E. the promotions and sales created uneven demand, which continually forced the company to change its logistical operations. Answer

High Volume -Low margin..

4. It can be inferred from the passage that which of the following might be the most profitable item to sell?

A. cassette tapes YES
B. big-screen television sets . high margin due to higher price and Movement not easy OUT
C. bunk bedshigh margin due to higher price and Movement not easy OUT
D. rowing machineshigh margin due to higher price and Movement not easy OUT
E. imported wine.high margin due to higher price ,OUT
Intern
Joined: 04 Oct 2017
Posts: 9
Re: Retail stores and diversified manufacturing companies  [#permalink]

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28 Sep 2018, 07:14
can anybody explain question 1st?
Board of Directors
Status: QA & VA Forum Moderator
Joined: 11 Jun 2011
Posts: 4382
Location: India
GPA: 3.5
Retail stores and diversified manufacturing companies  [#permalink]

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28 Sep 2018, 08:52
2
nik021 wrote:
can anybody explain question 1st?

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.

Answer lies in the first paragraph , hope this helps !!!

Further for Q.3

Fuller et al. describe a soft drink company’s decision to stop in-store promotions and special sales in favor of standard pricing becausethe inconsistent demand caused by the swings in prices necessitated variability in the manufacturing and distribution systems..

For Q. 4

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.

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Abhishek....

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Senior Manager
Joined: 24 Oct 2016
Posts: 295
GMAT 1: 670 Q46 V36
Retail stores and diversified manufacturing companies  [#permalink]

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05 Feb 2019, 17:02
Passage with too many details! Took 9:04 min in total including 4:20 min to read.

Passage Map:

1) Wrong Assumptions
2) Handling logistics requires scrutiny. Pipeline. Traditional Averaging. Cola example.
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Retail stores and diversified manufacturing companies   [#permalink] 05 Feb 2019, 17:02
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