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Define ROI

LOGISTICS AND DISTRIBUTION

Answer all the questions

Question one:

A} what is meant by return on investment {ROI}?

B} Describe five ways logistics management can effect the ROI of an organisation.

C} can you think of any disadvantage of using ROI to measure inter -organisational performance.

Question Two:

Why is customer service an essential element in business today? Explain in details with reference to a company of your choice.

Solution Preview

Question one:

A} what is meant by return on investment {ROI}?

Return on Investment or ROI is a performance measurement tool that evaluates the efficiency of an investment via the following formula:

ROI= (Gain from Investment- Cost from Investment)/ Cost of investment.

In layman terms, it is the percentage return on amount invested. It is a popular performance metric because it is easy to calculate and simple to understand. Two alternative investment opportunities can be easily compared by looking at the potential ROI on both and the one that presents a higher ROI is selected.

B} Describe five ways logistics management can affect the ROI of an organization.

Logistics management has evolved as a key tool for obtaining strategic advantage or competitive advantage in today's business world. Its impact on the overall ROI of an organization can be understood from different angles. First of all, an effective logistics management goes a long way in reducing the supply chain related costs of an organization, which eventually improves the operational efficiency or operating margins and thus, improves return on investment. Logistics management does this by reduces inefficiencies such as excessive inventory costs, inefficient procurement policies, reduced transit and warehousing costs, etc.

Further, logistics management contributes to ROI by providing much needed supply of goods and procurement of raw materials in a timely manner during peak demand seasons, thereby providing much needed support to the sales team to achieve higher levels of sales and thus, improve ROI. Logistics management adds to the competitive advantage by providing goods and services to global locations of large entities on a timely and efficient basis, thereby ensuring that an organization's product reaches the right place at the right time.

Effective Logistics management reduces unnecessary investment needs on inventory, warehousing and other related costs and thus, helps in improving revenues on small asset or investment base and thus, contributes to ROI.

As businesses have become global and companies are not only trying to exploit new market opportunities in emerging nations such as India and China, but also trying to obtain cheapest raw material and finished products from distant location with under developed logistics and transport infrastructure, an effective logistics management helps in overcoming such problems and allow organizations to capitalize on comparative advantage offered by such nations. Therefore, it contributes to the overall ROI by opening several new opportunities in front of the company.

Another way in which logistics contributes to ROI is via improved customer service due to timely delivery of goods. Logistics management ensures that problems faced by customers in receiving products in a timely manner is eliminated or minimized, thus, improving customer satisfaction levels which indirectly contributes to revenue and thus, ROI.

To maximize profit in any company, it becomes a must to know and understand all the processes that it is involved in from the very start of the supply chain right down to its end. This is precisely why there is a need to implement effective logistics ...

Solution Summary

In layman terms, it is the percentage return on amount invested. It is a popular performance metric because it is easy to calculate and simple to understand.

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