Halloran Metals

Halloran Metals

Q.3) What economic risks are implicit in Halloran¶s logistics choices? How has the firmendeavored to reduce these? How successful have they been?Halloran¶s logistics strategy is to cater to small orders in the minimum amount of timei.e. one day. It is involved in Stage one processing which requires modest equipment.Intermediate processing needs large investments in equipment. Halloran operates fromseven warehousing locations and carries excess inventory in all the locations at alltimes. This is a part of their logistics and marketing strategy of not turning down a singleorder or customer regardless of its size. Due to which it runs different economic risks ina market which is price competitive and growth-oriented at the same time. Moreover, inorder to increase customer goodwill, it extends credit terms to their loyal customersbeyond the usual 30 days period and results increasing the risk of recovering accountsreceivable. Referring to Exhibit 1, the income statement section shows that theoperating expenses are high-particularly the cost of warehousing which limit operatingprofit. Under liabilities section, it shows that the company is highly leveraged and isshowing high accounts payable figures depicting high default and liquidity risks. If acompany fails to perform well in future years, it can default in making payments to itscreditors which will consequently affect overall operations and limit company¶s ability toborrow in future. It can also face problems in securing capital for capital expenditureand, thereby, running liquidity risk. To further emphasize on this point, we compareHalloran and Allied¶s quick ratios. Quick ratio is a measure of company¶s ability to meetits short-term obligations.Quick Ratio = (Current assets-Inventories)/Current liabilitiesHalloran (2001) = (51,438-30,980)/29,752= 0.68 Allied (2001) = (45,518-19,364)/22,710

(Figures from Exhibit 6)

 =1.15High quick ratio means that a company is more capable of meeting its short-termobligations and has strong financial condition. Quick ratio analysis shows that Allied is ina better position to cater to increased customer demand in future and to bringoperational efficiency. Due to lower quick ratio, Halloran faces problems in bidding for bulk-buying and making large investments in equipment. It also faces certain difficultiesin expanding its operations due to its highly leveraged and inventory-intensive nature. Acomplete analysis of ratios is given in