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.
The argument states that by consolidating the 4 different warehouses to a single location in Boston will increase the profit of the company because the rent will be halved. The argument is flawed and unconvincing as it assumes many unwarranted situations. I am summarizing the flaws in the argument in the following paragraphs.
First, the manager assumes that the operation cost of the company will not increase by decreasing the 4 warehouses located at strategic locations. The warehouses are so located that the deliveries to the company's prime customers are made in minimum logistics cost. By consolidating the warehouse the company will increase its logistics cost to such an extent that the company will incur losses in its operation.
Secondly, the other effects of closing down the strategically located warehouses are overlooked by the manager. Since the warehouses stock the most demanding items of the company's customers at strategic locations, the customers are happy. They get their deliveries in time. If the company starts making deliveries from single warehouse, the company's customers will become dissatisfied because of late deliveries.
Thirdly, we all know that we are living in cut throat competition, where our competitors are eyeing each and every opportunity to upset the company's position as market leader. Our competitors are using shared warehouses at the exact locations where we are planning to shut them down. Our competition will gain on our customers who will shy away from us because of late deliveries.
To reduce the rent of the warehouses, The manager should consider sharing of warehouses as our competitors are doing . By sharing warehouses the company will not lose the advantage of the strategic locations of the company's warehouses. The company can share the warehouses with its competitors also. Sharing the company's warehouses with competition will not hamper its business as the company's customers are still loyal to the company.
Hence, it can be concluded that the manager has taken unwarranted assumption that the operations cost will not increase by closing down warehouses and overlooked the possibility of sharing rents with other companies to reduce rental liabilities of the company. The argument is weak and is susceptible to criticism as outlined in the previous paragraphs. The manager should have considered these options before coming to his conclusion.