CLGN Supply Chain: Financial Impacts of Logistics Changes Analysis

This report analyzes the financial challenges faced by CLGN Book Distributors, focusing on declining profit margins and shareholder concerns. It identifies four key supply chain decision areas impacting Return on Assets (ROA): channel structure management, inventory management, order manage...Read More

Running head: LOGISTIC AND SUPPLY CHAIN
Logistic and Supply chain
Name
Institution

2
Question One: The concerns of shareholders and executives at CLGN.
Both the executive and shareholders are concerned with the decreasing profit margin
trend. The company’s profit had increased between 2002 and 2015 before starting to drop
from 2015 onwards. CLGN reported a net profit margin of 10.3% and 9.1% in 2013 and 2014
respectively. The management are under contractual agreement with the shareholders’ to
maximize the wealth of the latter. With the reducing profit, the shareholders are losing
confidence on the executive (Christopher, 2016).
Question Two: Four common types of supply chain decisions that impact an organization’s
ROA
There are four common supply chain strategies that impact an organization’s Return
on Asset (ROA). First, Channel structure management help the management decide on
whether or not to outsource, improve the channels followed by inventories, and improve the
flow of information. Second, Inventory management is used to ensure that a company
optimizes availability of required inventory, obsolete or excess inventory has been eliminated
and improved stock safety (Ross, 2016).
Third, order management help an organization to choose the most appropriate
ordering system. And fourth, transport management helps a company to enhance on time
delivery, improve the flow of information between stakeholders. All the four supply
management strategies have a direct impact on the ROA. Considering that organizations rely
on inventory to earn profit, an increase or decrease in inventory performance, increase or
decrease profitability level which subsequently affect the ROA as well. In the case of CLGN
the management should closely monitor the impact of decisions made concerning the four
areas. Close involvement of internal stakeholders in making such decisions is important
(Habib, 2011).

3
Question Four: The process change that will deliver the greatest savings
CLGN’s supply chain activities revolves around transportation, inventory
management and warehousing. In order to determine the type of cost that would lead to
greater savings when reduced we have to determine the savings under each costs when they
are reduced by 5%. A reduction of the transportation cost by 5% would decrease the cost to $
5,700,000 from the original cost of $ 6,000,000. The company would save at least $ 300,000
from such reducing transportation cost be 5 percent. Likewise, during the 2015 financial year,
CLGN incurred a warehousing cost of $ 3,000,000. A reduction of the inventory carrying
cost by 5% would decrease the cost to $ 2,850,000. The company would save at least $
150,000 by reducing warehousing cost by 5 percent. Lastly, during the 2015 financial year,
CLGN incurred a Inventory Management cost of $ 1,500,000. A reduction of the
warehousing cost by 5% would decrease the cost to $ 1,425,000 leading to a savings of
75,000.
Based on the analysis, CLGN will save $300,000, $150,000 and $ 75,000 from
transportation, warehousing and inventory carrying respectively. Therefore, the company
should focus more on reducing the cost incurred on transportation because by doing so it
would save more.

4
References
Christopher, M. (2016). Logistics & Supply Chain Management. Pearson: London.
Habib, M. (2011). Supply Chain Management (SCM): Theory and Evolution. American
International University - Bangladesh (AIUB).
Ross, D. F. (2016). Introduction to Supply Chain Management Technologies. New York:
CRC Press.