GMAT Essays (AWA)

ESSAY QUESTION:
The following memo was circulated by the management team of a retail company:

"We are very pleased to announce 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.

YOUR RESPONSE:
The argument exposed at the memo circulated by the management team of this retail company is not well reasoned. It has some significant flaws, assumes important information and lacks of supporting evidence to the conclusion.

The main conclusion states that because the company will now have 1 unique warehouse close to headquarters instead of 4 distributed around the country, it will save 50% of the monthly rent and that as a result, the company's monthly profitability will also increase 50%. The first flaw in this argument is that there is no direct relation between the saving on rent and the increase of the profitability. The monthly rent of the warehouses could represent a lot less than 50% of the actual profits, so the increase in profitability would be less than 50%, maybe even much less. Another flaw (and also an assumption) that I can see is that they are not considering that maybe having 1 warehouse instead of 4 distributed along the country, may be less effective in transportation costs. It could happen that transportation costs to distribute the merchandise around the country increase, because they no longer have their warehouses all around. If transportation costs increase, then profitability may not increase as much as they think for saving money in rent, and it could even get reduced. They are clearly assuming this will not happen, or at least they are not providing enough supporting evidence to disprove it. Actually, the only supporting evidence to the conclusion here is that the rent will be reduced in half, and this is clearly not enough to draw the conclusion.

Maybe some good additional evidence to support the conclusion would be that the amount of money saved on rent is exactly 50% of the monthly profits, and that the transportation costs will not increase because for some reason it is more cost effective to have only one warehouse right next to the company's headquarters. With this information we would have a much stronger and well reasoned argument, but as it does not, the argument is very weak.