Assignment: Logistics Policy
Case number 3 WORKING (BETA)
Overview of Logistics and Supply Chain
How submitted.
*** Post your answer to the Canvas assignment box. Do NOT send to the rest of the class.
*** Your answers are due according to the class schedule & the policy on self-selected late submissions.
It is usually possible to include ALL your answers in one file. That includes the memo.
*** Be sure to label each answer with the correct question number (or otherwise indicate which question is being answered) so that the CEO (or other reader such as the grader!) can easily find the answer.
*** For essay- or narrative-type questions use MS Word or compatible. There is usually no need to go to a universal format such as PDF. But you can use PDF if you desire with no penalty.
*** Be sure to show your work. For more complex calculations you can use Excel or compatible; or manual and scan the pages into your answer file. Just be sure that the CEO or other reader can find and interpret the answers.
You can use basically any file name that you want EXCEPT please include your last name (a) somewhere in the file name; and (b) at the top of the first page inside each file. That helps me identify whose work I am looking at grading, etc.
Note: As noted earlier, the basic LUML scenario is used throughout the course for the cases. Additional information is provided for each case as needed.
There are THREE parts to this case.
Be sure to submit the answers for ALL THREE parts!
Case 3
Light Up My Light, Inc.
The basic scenario for LUML continues.
Case 3, Part 1 (Warehouse/shipping performance)
In working cases, we typically want much more information than is presented in the case. Of course, even in the "real world" we do not always have all the information (and time) that we would like. Basically, stick to the information in the case. If you need to make any assumptions, then be sure to make these clear in your answers.
It is now mid-2017.
During the last weekly review, the CEO (still Elise Ennis) expressed some concerns about the warehousing operations. She has no real feel for the efficiency of the warehouses. The operations "strike her" as being somewhat expensive. And her impression is that "the cost for each warehouse is sort of all over the place."
The CEO asked if it would be possible to do a quick analysis of the warehousing function. [Of course, that was a rhetorical question. As you might expect, the answer from Tom Perkins the VP/head of logistics was "sure we can do an analysis for you".]
The CEO said that she would send over some more specific questions after the meeting.
As a logistician for the company you are to play a key role in doing the analysis and reporting the results to the CEO.
In preparation for the analysis you asked the Comptroller for some financial information. The Comptroller provided the financial statements (income statement & balance sheet) for 2017, the most recent complete year. These are attached.
You also asked the VP who oversees warehousing operations for some data. The manager of warehouse operations sent over the most recent data that was available. The VP explained that LUML has been using the number of shipments as a key metric for warehousing. No distinction is made between an incoming shipment or an outgoing shipment. They believe that the work effort for either type of shipment is about the same. The shipment information is also attached.
You ask if there is any other information that you should know -- any peculiarities of warehousing operations for LUML? The VP mentions a few things that he says are not so obvious.
#1. The Melbourne warehouse is co-located with the Melbourne manufacturing plant & the company's headquarters.
#2. All manufacturing is done in-house in Melbourne.
#3. All the warehousing facilities are in leased buildings (including the one in Melbourne). So that aspect is standard for all 8 warehouses.
#4. The Melbourne facility is "company operated". As the original warehouse, the warehouse staff are all employees of LUML.
#5. As the need arouse for other warehouses/shipping centers, the VP at that time decided to try what was then a relatively new concept.
The work at these other sites was contracted out to local operators at each site. The contractors follow basic LUML policies, etc. These operations are what was to become known as 3PL (third party logistics). [Note: If you want to read more on 3PL in our book, then check in the index. However, for this case all that you basically need to realize is that these warehouses are each operated by a separate local operator under contract to LUML.]
#6. Shipments tend to be relatively homogeneous over all the sites. A typical shipment has one to three fixtures. Even the shipments from Melbourne fit this model because of the specialty nature of most of the fixtures.
#7. As might be expected, most shipments form Melbourne are outgoing to customers or to the other warehouses.
You thank the VP and head back to your office.
When you arrive, you find a note on your desk from Tom Perkins. This is forwarding the questions that the CEO had promised to send over.
[Your name]
Here are the questions from the CEO.
Prepare a written memo to reply. Mrs. Ennis is a "data freak" and so likes to look at the backup numbers and analysis. Be sure to include the basic work that was done. Simple calculations might be in the narrative; more complex might need to be in an attachment.
Thanks,
Tom
Tom Perkins
VP for Logistics
Tom Perkins
Logistics
Tom,
Ref the weekly briefing. Here are the things that jumped into my mind as the topic was being discussed and when I thought about it later in the day. Of course, we are very interested in efficiency and effectiveness. I think that I also mentioned that it seems to me that we have a pretty wide range of warehousing costs over our 8 warehouses.
I'd like the memo per our schedule. Thanks.
Elise
#1. Comparing performance during the first five months of 2017 with 2016, which warehouse shows the best improvement in performance? What criteria did you use? Briefly explain why you used that criteria.
#2. Comparing performance during the first five months of 2017 with 2016, which warehouse shows the poorest change in performance? What criteria did you use? Briefly explain why you used that criteria.
#3. Comparing all eight warehouses, which warehouse is doing the "best job"? What criteria did you use? Briefly explain why you used that criteria.
#4. One possibility might be to terminate one of the current contracts and to engage a new contractor. Some have commented that this might offer the possibility for better performance and/or reduced cost at that location. Also, there may be a "spillover effect" to help "motivate" the other contractors to reduce costs.
If one contractor is to be changed, which one do you recommend? Briefly explain why.
#5. The year 2017 is close to being half over. How much is LUML likely to spend for warehousing for the rest of the year? How much for the full year? Is this better or worse than budgeted? I'd like to see this information for each warehouse; and, the total for all our warehousing operations). Briefly explain your work and answers. [Hint: did you make any assumptions that the CEO should know about?]
#6. Using the 2016 financial statement, what would our Strategic Profit Model (SPM) look like? Briefly interpret the results. Briefly interpret two of the key items that most relate to logistics.
#7. I'd like to reduce shipping costs. Holding all other information constant, what would be the effect on ROA if our warehousing/shipping costs declined 10 percent? Explain. [Hint: It should be obvious that the CEO is not looking for a simple answer --- ROA increases/does not change/decreases. Best to compute and explain the actual change?]
#8. I do not expect the costs to be identical for all warehouses. But is there too great a range in costs per unit between the warehouses? Explain.
#9. What is your overall analysis and recommendation (or recommendations) to help us to achieve our objectives? Briefly explain.
#10. I have heard a bit about logistics and a logistics chain. How can warehouse operations be an activity in the logistics channel? Please provide a short explanation.
#11. The Comptroller told me that there is probably a bit of money that could be put into our information systems. How can IS/IT be applied in warehousing operations at LUML? [Hint: recall that we looked at many types of IS/IT. You might include whether each type likely has the potential to help meet the CEO's goal to reduce warehousing expenses and reduce the range.]
Your mission? Prepare a memo to the CEO with the answers to her questions. Remember that you also need to send your supporting analysis. The material should be organized as you would send to a senior official. And you should also be sure to cite any material used that is not your own.
The reason that we do this type of analysis is to help manage better, to solve problems, and the like. Interpreting the information in relation to the business situation is important.
Keep in mind
#1 the answer to each question needs to be easily identifiable. The CEO is almost certainly not going to remember the details of each question that she asked. There is at least a week between the question being asked and reply expected. And she is unlikely to "go looking" for the answer somewhere in a document. [On the other side of the coin, for your purposes, you want to make sure that you answered each of the questions.]
#2 in most cases the CEO has asked you to explain your answers. So, each answer needs to have the answer plus the supporting rationale. However, that does not mean that each answer/explanation needs to be pages long! Some of the backup work might be a bit lengthy, but most of it is very brief. The answer itself and the rationale will usually only be a couple of sentences.
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Light Up My Light, Inc.
Income Statement 2016
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Sales
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$4,003,450
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Cost of goods sold
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$937,000
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Gross margin
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$3,066,450
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Transportation cost
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$657,322
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Warehousing cost
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$735,982
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Inventory carrying cost
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$567,987
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Other operating cost
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$345,876
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Total operating costs
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$2,307,167
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Earnings before interest and taxes
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$759,283
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Interest
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$110,000
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Taxes
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$69,000
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Net income
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$580,283
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Light Up My Light, Inc.
Balance Sheet as of December 31, 2016
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Assets
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Cash
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$706,034
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Accounts receivable
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355,450
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Inventory
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1,590,435
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Total current assets
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$2,651,919
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Net fixed assets
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803,056
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Total assets
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$3,454,975
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Liabilities
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Current liabilities
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$1,678,589
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Long term debt
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398,060
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Total liabilities
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$2,076,649
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Shareholders' equity
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1,378,326
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Total liabilities and equity
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$3,454,975
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Here is the information that you asked for. We have been using the number of shipments as a basic metric. That seems to have served us well over the years. At first blush, given the CEO's questions and areas of interest, you may need to revise the metric being used.
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Light Up My Light, Inc.
Warehouse operations performance data (special run)
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2016
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2017
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Units shipped
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Warehouse expense
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Units shipped
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Warehouse expense
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Location
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Actual
Jan-Dec
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Actual
Jan-May
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Actual
Jan-Dec
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Actual
Jan-May
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Projected
Jan-Dec
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Actual
Jan-May
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Budgeted
Jan-Dec
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Actual
Jan-May
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Akron
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12,437
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4,080
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$156,803
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$35,890
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15,000
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4,035
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$178,000
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$40,228
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Buffalo
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6,920
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3,061
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$63,417
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$27,915
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7,200
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3,119
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$73,000
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$29,416
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Melbourne
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32,104
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14,621
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$246,315
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$131,618
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38,000
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15,230
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$305,000
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$141,222
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Detroit z
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3,021
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1,005z
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$28,019
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$8,600z
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3,100
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1,421
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$31,000
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$14,900
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Cleveland
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2,016
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980
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$16,411
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$8,883
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2,000
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804
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$17,000
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$9,605
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Los Sanna
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12,491
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11,431
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$151,975
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$109,690
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17,000
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9,444
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$176,000
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$93,280
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Portland
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8,333
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4,028
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$73,015
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$36,021
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9,000
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4,600
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$85,000
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$42,616
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St. Louis
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5,921
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2,331
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$51,819
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$23,232
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8,000
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2,116
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$56,000
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$19,191
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Note z: In March 2016, the warehouse was closed for two weeks due to a strike.
Case 3, Part 2
Given the analysis and results in part 1, how might the issues raised tie in with the various organizational and managerial issues in logistics?
You should be able to write a great deal about this. But I am targeting for very nice coverage in about 2 single spaced pages. Sometimes tables or figures can help, but they do need some basic explanation.
PS. Remember that we are targeting to use 12 pitch type. Not 10 or 8 (or, gulp, even smaller). Going the other way, not 16, 18, 20, 24, etc.!
Case 3, Part 3
Light Up My Life, Inc.
During the weekly meeting, the topic of "Supply Chains" and "Supply Chain Management" came up.
The CEO asked if she could get some information on the following:
#1 What, indeed, is a supply chain?
#2 How does logistics fit into a supply chain model?
#3 In general, should LUML be looking at the possible use of Supply Chain Facilitators?
** If yes, then from a general management perspective, what types of facilitators might be considered?
** If yes, then from a logistics perspective, what types of facilitators might be considered?
** If yes, then what might be some key considerations on how a facilitator could be used?
Tom, our VP, says that he will have a memo sent to the CEO in a few days with the information. After the meeting he asks you to write up the memo.
[You are not restricted on the length, but a very nice answer can be prepared in -- say -- one page -- or even less -- per question. Remember that the CEO is asking this, so she must not be very familiar with these concepts.
Sometimes a good figure can help a great deal. But very few figures are "stand alone" in their own right. Most figures also need some explanation.]