Lundquist Transport provides a specialist service, designing logistics systems for companies around Scandinavia. It also runs a fleet of long-distance trucks from its headquarters outside Copenhagen. The company wants to expand this fleet and take advantage of the growing trade between Scandinavia and central and Eastern Europe, where the amounts of goods moving to Poland, Hungary, the Czech Republic, and beyond are increasing rapidly. Lundquist recently examined their revenues and costs. Costs do not rise linearly with demand, as the company can get substantial economies of scale and can adjust operations to meet demand in different ways. Revenues are also not linear, as they give discounts for larger orders and longer distances. The actual figures are confidential, but to allow comparisons and discussion Lundquist illustrates them in terms of ‘standard’ values shown in the following table.

Table:

The current volume of business is described as ‘1.0’ and the operations managers think that this is putting too much pressure on them. In the long term, any expansion by Lundquist will need major changes in the way that they work – particularly buying new facilities and employing more people. In the short term, it may be better to keep the same operations and make adjustments to the volume of business. It is fairly easy to do this in such a competitive market, simply by changing the price structure. Lundquist have done no detailed calculations on this, but the commonly accepted rule is that a 5% increase in price reduces demand by 10%.
Both of these options – long-term expansion and short-term adjustment – involve some risk. The expansion relies on forecasts of long-term trends in an area of continuing economic uncertainty. Short-term adjustments might harm their reputation and encourage competitors to develop new operations.

What would you advise the senior managers of Lundquist to do? Prepare a report which describes the current situation, analyses available information, discusses alternative policies, and recommends a best option.

Transcribed Image Text:

Volume of business Revenues Costs 0.25 3,250 4,500 4,750 4,570 4,000 3,420 2,250 3,375 3,000 2,875 2,895 3,000 3,120 3,375 0.5 0.75 0.85 1.0 1.1 1.25 Volume of business Revenues Costs 0.25 3,250 4,500 4,750 4,570 4,000 3,420 2,250 3,375 3,000 2,875 2,895 3,000 3,120 3,375 0.5 0.75 0.85 1.0 1.1 1.25

Answer rating: 100% (QA)

Current situation Currently Lundquists operations remain in category 10 which gives them optimal ret... View the full answer