Question

Section 2 (Essay): TOPICS: Profit Leverage

What are the role and the consequences of Profit Leverage on logistics strategies and the management of other departments such as marketing, sales, and production, provide an example?

Answer 1

Solution:

Profit Leverage

• Profit Leverage means reducing operational expenses instead of increasing sales, which is more efficient. There are two types of leverage.

1. Financial
2. Operating

• Profit Leverage is important aspect for logestics. It can result in increasing efficiency and it can contribute to the development of logistics management. There are three different areas of profit leverage which are mentioned below.

1. Stratergy (where profit is generated by marketing )
2. Company can earn profit by Price hike of products
3. Cost cutting.

• In a company, logistics costs represent a significant part of the sales. a single rupee saved while purchasing is more important than increasing sales profit.

Role and Consequences of PL on logistics stratergies  and the management of other departments such as marketing, sales and production

• Logistics plays an important role to create the value of any organization. For logistics, to be cost effective, it's important to understand the concept of cost minimization and profit maximization. Cost minimization means to reduce overhead costs to the minimal value and attain the expected level of profits. Profit maximization refers to achieve maximum profits with lower operational expenses.

Lets understand it by example of Alibaba's profit model.

• Alibaba charges for services in marketing and specialized help, rather than for admission.which contribute large no. of market share of loyal customers.Alibaba's benefits principally originate from promotions and watchword bidding, which represents 57% of complete benefits.rest comes from customers big data services.
• By eliminating transitional charges and permitting dealers to enlist for nothing, Alibaba had the option to develop the online exchange propensity among Chinese clients. eBay China, then again, charges an expense for its foundation exchanges. By social occasion countless dealers, Taobao prevailing with regards to drawing in considerably more clients.
• The Alibaba platform represents more than 500 million registered users, including more than 230 million active buyers and more than 8 million active sellers, and annual orders have exceeded 11 billion, Alibaba says. Alibaba is able to leverage on the large number of customers on the platform, and also make use of advertisement, keyword bidding, and customer’s data for profit .

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