PLEASE REwrite and do by MONday

Brant Freezer Company

BUS632 Advanced Logistics

Instructor: Francis DiFonzo

12 September 2016

Brant Freezer Company

The Brant Freezer Company manufactures industrial type freezers. Located in Fargo North Dakota they have a nationwide system of warehouses including a small warehouse in Fargo. Each warehouse reports separate numbers for units shipped and warehouse costs. Over the next few pages we will analyze the logistics of the warehouses and what areas could use improvement.

The discussion will center on the Brant Freezer Company and analyzing the financial impact of logistics on the company. The discussion will include which warehouse had the best results in 2009 and what that analysis consisted of. Then the discussion will come up with a forecast for the next six months at each warehouse based on the numbers given in the case study. Finally, recommendations on improving the return on assets (ROA) will be given.

Table here

Table 1. Brant Freezer Company 2009 Figures.

Looking at table 1, above, the warehouse with the best numbers was the Fargo warehouse. The cost per unit shipped for the year was $8.14. However, for the price the volume of units shipped was very small and not efficient. The warehouse with the large volume and a low price per unit shipped was St. Louis. The St. Louis warehouse performance resulted in $8.75 per unit shipped. This means that St. Louis is the top performer when price per unit is used as the measurement.

The price per unit and warehouse ratio helps to measure results because it directly impacts warehouse and inventory costs on the income statement. Ratios are much better than raw data from each warehouse because ratios provide a point of comparison that can provide a much better measure of performance (Pur, Jacova, & Horak, 2015). The income statement lists both warehouse and inventory carrying cost for the year. Logistics management has a direct impact on both of those numbers and cannot be overlooked when planning or making business decisions.

The 2010 fiscal year is halfway complete for the Brant company. The company would like to see the forecasted expenditures for each warehouse for the rest of the 2010. Looking at table 2, below, the forecast is a little better than last year. Using the data from 2009 and the difference in results from the first half of the year to the second, the forecast can be extrapolated. Each warehouse is forecasted to ship about the same amount of units that it shipped the previous year. However, using the first half of 2009 as a starting point the results look a little better than last year.

Table 2. Brant Freezer Company 2010 figures with forecast for the year.

Finally, how can the company improve its return on assets (ROA)? ROA is a profitability indicator relative to total assets. The ROA is a measure of how efficient management is at utilizing its assets to manage profit. ROA is net profit times asset turnover (ROA = net profit margin x asset turnover) (Hood, & Chin, 2009). Using the strategic profit model (SPM) to provide a framework for ROA there is a much better site picture of where the Brant Company can make changes to help with ROA. “The SPM provides the framework for conducting ROA analysis by incorporating revenues and expense to generate net profit margin, as well as an inclusion of assets to measure asset turnover” (Murphy & Wood, 2011, pg 49)

The strategic profit model shows that increasing net profit and or asset turnover are both viable ways to increase ROA (Stapleton, et al., 2002). At the Brant Freezer Company the best course of action seems to be an increase in asset turnover. If the company can increase its turnover from its warehouses it can increase its return on assets. Increasing asset turnover will decrease warehouse cost and inventory carrying cost. Reducing these cost means a decrease in total operation cost which equates to an increase in the net profit. As stated previously, an increase in asset turnover and net profit will yield an increase in ROA.

In conclusion it turns out that the St. Louis warehouse posted the best results for 2009. This is determined using a ratio of warehouse costs and units shipped. Ratios are a much better indicator of performance than raw numbers. The forecasts for the rest of 2010 were also extrapolated using the ratios from last year. Finally, the strategic profit model was used to recommend a strategy to improve on ROA for the company. Increasing asset turnover and increasing net profit margin are the keys to improving ROA. Working to increase warehouse turnover and keeping inventory cost low will also help with improving ROA.

Resources

Hood, G., & Chin, W. (2009). Return on assets: to the max!. InTech, (10). 24.

Pur, D., Jacova, H., & Horak, J. (2015). An Evaluation of Selected Assets and Their Impact on the Declarative Characteristic of Ratio Indicators in Financial Analyses. Ekonomie A Management, 18(4), 132-149.

Murphy, P. R., & Wood, D. F. (2011). Contemporary logistics (10th ed.). Upper Saddle River, NJ: Prentice Hall.