Major Concerns of Grandiose Motors - Case Study Example

An Analytical Report on the Growing Pains at Grandiose Motors Table of Contents Executive Summary 2 Introduction 3 Recommendations to Felix Fabulous 3 Purchasing and Inventory Management Policies and Procedures 5 Measures for Reducing Investment and Space Requirements 7 Conclusion 8 References 10 Bibliography 12 Executive Summary This report aims at alleviating the worries of Mr. Felix Fabulous – CEO, Grandiose Motors – that have arisen largely from the area of operations management. Analysis of the case study has revealed that the major concerns of the company are the functions associated with purchasing and inventory management. It has also been observed that the company is strangulated by constrains of fund and space. Investable funds have become scarce because of the primary reason that the company had to spend substantially to bag a dealership contract. However, the report has successfully come up with suggestions as to how Grandiose must streamline its operations in order to minimise the requirement of disposable funds and at the time optimise the available space. Tenets of inventory management have been cited throughout the report in order to reinforce the recommendations. It has been suggested that Grandiose should undertake an extensive consumer research in order to envision the demands that it may face in the near future and hence plan its inventory accordingly. Simultaneously, it should also create long lasting associations with the automobile manufacturers and make use of the fact that manufacturers are enhancing their participation in supply chain relationships with dealers and customers. Introduction Grandiose Motors have turned a new leaf in its corporate history by becoming an auto supermarket wherein it will sell multiple brands of automobiles at the same location. The new dealership will be selling a line of Nissans, Toyotas and Volkswagens – premium cars that have been luring customers for years. However, it has been observed that the company is strained by woes pertaining mostly to operational constraints such as deployable funds, space and seasonality of purchase items. Based on a case study that describes the operations management at Grandiose, this report will aim at recommending to its CEO, Mr. Felix Fabulous the structural aspects that will help in bettering the purchasing as well as inventory functions in the context of the company’s dealership network. The report will also make attempts to outline the differences that may arise between policies and procedures pertaining to purchasing as well as inventory management. This area is found to be vital because automobile dealers characteristically purchase different types of materials and service parts. Finally, the report will try to throw light upon the areas of inventory management and supply chain management to evaluate how these may reduce the investment as well as space requirements and yet help Grandiose maintain its services at adequate levels. Recommendations to Felix Fabulous Prior to make any recommendations it is important to properly identify the problems first. Analysing the present operational model of Grandiose Motors, it can be said that the major problems regarding purchasing process are volatile nature of demand of the parts, types of the parts and the huge number of parts that need to be kept. On the other hand problems regarding inventory are lack of space and the required financial resources. As far as the demand of various parts is concerned the company’s decisions are made on the basis of the historical demand related data. Some general assumptions are made e.g. demand of air-conditioner parts will be high in summer and demand of parts related to batteries will be high in winter. In order to properly deal with the problems related to the demand of parts it is recommended that the company should conduct a consumer research. An extensive research of consumer demand and an in depth analysis of the findings of this research is likely to help the management to make more efficient and effective decisions regarding the purchasing of parts (Bidgoli, 2010). Effective decisions regarding the demand of the parts are likely to ease the inventory management process. Different types of parts starting from oil and lubricants to air-conditioner parts are generally purchased by the company from the car manufacturers and wholesalers. In order to properly handle different types of parts, different persons should be allocated to each of the type. For instance a team of two people can be given responsibility of handling the purchasing process of oil and lubricants, whereas another similar kind of team should be formed to take care of the purchasing process of air-conditioner parts. The problem regarding the number of parts can actually be handled by implementing an effective inventory management process. The aim of this new system should to be minimising the inventory of each and every types of parts. The inventory related problems like lack of space can be solved simply by reducing the volume of inventory (Poirier, 2003). This can be done by implementing concepts like Just-in-Time which is practiced by Toyota and some other automobile giants. Being a smaller company, Grandiose Motors can use this concept in a small scale. In addition to the minimisation of inventory, the company should also improve its efficiency in space utilisation. In fact Grandiose should focus on the optimum utilisation of the available space. Making fresh investment in purchasing the new space will not be a wise decision to make as the company has recently taken over a new dealership and it is not expected to be in a great financial shape. However the company can certainly try to expand the space of the existing premises. New floors can be built or existing floors can be expanded. Position of cars can also be changed in order to take out new space. Space related problems can also be solved by centralising the inventory operation (Tompkins & Smith, 1998). Instead of having separate inventory management system for each of the dealership, the company can create one inventory management system for all. In this central inventory management system there will be one storage facility where all the parts and materials will be stored. These parts will be supplied from this central store to the dealership premises which will keep only that amount of stock that is expected to be sold in a day. This new store can be set up in any of the existing premises of the company based on the transportation facility between it and the other three dealership premises. Purchasing and Inventory Management Policies and Procedures After the recent acquisition of a new dealership, Grandiose Motors is now a company that has a network of four car dealerships. More than a million people who are living in a metropolitan area are served by these four units. In addition to that there is another half a million people who are living outside of this metropolitan area are also served by the company. So overall it can be said that Grandiose is a medium sized company. According to Stonehouse et al. there are three types of purchasing policies (Stonehouse et al., 2009). Among them autonomous purchasing policy is applied in Grandiose so far. In such a policy each of the dealerships is responsible for purchasing the parts and materials that are required to fulfil their own demand. However problems are likely to arise due to the different types of materials and parts. These problems are expected to be in relation with uniformity of the service, uniformity in effectiveness and cost management. The problems can be solved by changing the purchasing policy and adopting a centralised purchasing policy where purchasing decisions will be made by the company itself and these decisions will be applied to each of the dealerships. If purchasing process is controlled centrally then it can be expected that materials and parts will be of same quality as they will be purchased from the same suppliers and the process may be bettered through supplier quality assurance (SQA) schemes (Rowbotham, Azhashemi & Galloway, 2007). Both purchasing and inventory management procedures and policies are expected to differ with different nature of service materials and parts. Genuine parts like air-conditioner parts and battery related parts are likely to be purchased from the car manufacturers. On the other hand oil and lubricants are not generally manufactured by the car manufacturing companies; as a result they are expected to be purchased from other suppliers who manufacture them. Inventory management is also likely to be different for different types of materials (Mercado, 2007). Genuine parts can be stored under normal condition, whereas oils and lubricants might require special condition for being stored. Costs involved in storing oils and lubricants are expected to be more as compared to the costs associated with genuine parts. Moreover oil and lubricants cannot be stored beyond a certain period of time whereas parts related to air-conditions and batteries can be stored for a long period of time. If both purchasing and inventory management systems are made centralised, materials and parts can be better handled in spite of their different natures (Wisner, Tan & Leong, 2008). This is mainly because in the centralised operation materials and parts for all the dealerships will be purchased from a single supplier and they will be stored in a single storage facility. Measures for Reducing Investment and Space Requirements It has been observed that Grandiose has a stupendous volume in terms of sales and space. In order to maintain its position as a competent car dealer, it has materialised a new concept known as auto supermarket. Quite understandably the large scale of operations at Grandiose represents a costly affair and the main areas wherein it has pumped in the investment dollars are the acquisition of the dealership, purchase of parts as well as materials, and training and equipment that ensure the provision of trained personnel and technology. It has been observed that in the recent past the numbers as well as the scales of operations of independent car dealers have gone up substantially, thereby giving the manufacturers a greater scope to focus on marketing strategies. However, it must be noted that “the automobile manufacturers are well aware that there images are based on customer expectations of not only quality but also service” (Toomey, 2000), owing to which manufacturers are enhancing their participation in supply chain relationships with dealers and customers. Grandiose must make use of this development in order to procure funds that may be utilised in the strategic areas of employee training as well as technology. This way, the auto dealer may take care of its fund requirements at least to some extent. As far as the seasonality of materials and parts is concerned it may be noted that inventory planning plays a vital role in the operations of grandiose. The case study has revealed that the failure rate of alternators and batteries goes up during winter. While the demand for air-conditioner parts rise during summer that for coolant becomes acute during spring. Moreover antifreeze is needed during the season of autumn. Quite obviously, no auto dealer can probably stock every item optimally as such a decision will lock up a lot of useful funds as well space. Under such circumstances, “a priority output development program will have to be instituted immediately” (Meredith & Shafer, 2009). This in turn will help Grandiose to plan for the comparatively low volume as well as shorter life cycle of these items. Coming to the element of space, Grandiose must optimise its usable space in such a way that the different models and/or brands of cars may get preferential exposure to the customers, i.e. they must be placed according to their general demand. Public warehousing may prove to be a feasible alternative in this context as such warehouses “may offer a competitive edge by (1) Reducing overhead and thus freeing up corporate capital for investment in other areas, (2) Allowing companies to concentrate on their specific strengths.... (4) Enabling companies to strengthen their bottom lines and obtain optimum logistics efficiency” (Bowersox & Closs, 2000). By adopting such a strategy Grandiose may achieve both its strategic objectives, viz. reducing investments as well as space requirements. However, being a major vendor for the major automobile companies, Grandiose should also maintain healthy relationships with them to alleviate the problems that generally arise in terms of logistics especially pertaining to genuine parts. This may also help in reducing the capital requirements by enhancing possibilities for credit purchase. It must employ the tenets of just-in-time (JIT) in its operations to reduce the necessity of storage that will not only free up capital but also useful space. These may be used for successfully optimising the operations. Conclusion It has been observed through the case study that Grandiose must strategise effectively in order to strike a balance between its purchasing and inventory functions; factor out the contradictions that arise between purchase and inventory management; and reducing its requirements pertaining to investment as well as space. Through the research it has been found that Grandiose should undertake an extensive consumer research in order to envision the demands that it may face in the near future and hence plan its inventory accordingly. The research has recommended that such an extensive research or a chain of researches addressing to more specific queries will help the management make decisions that are more efficient as well as effective and thus the company will face lesser hassles while purchasing parts and materials. Moreover, it will also help the management take effective decisions regarding the demand of the parts and thus ease the inventory management process. Creating long lasting associations with the automobile manufacturers will help Grandiose in managing its inventory to a greater extent. Simultaneously, the company should also make use of the fact that manufacturers are enhancing their participation in supply chain relationships with dealers and customers, and this may of substantial use in procuring funds for meeting the needs related to brand specific training of personnel. On a whole, the company must take a holistic approach towards inventory management while utilising the tenets of just-in-time (JIT). References 1. Bidgoli, H. The Handbook of Technology Management: Supply Chain Management, Marketing and Advertising, and Global Management. John Wiley and Sons. 2010. 2. Bowersox, J. D. & Closs, J. D. Logistical Management. Tata McGraw-Hill. 3. Mercado, C. E. Hands-On Inventory Management. CRC Press. 2007. 4. Meredith, R. J. & Shafer, M. S. Operations Management for MBAs. 3rd ed. Wiley-India. 2009. 5. Poirier, C. C. The Supply Chain Manager's Problem-Solver: Maximizing the Value of Collaboration and Technology. CRC Press. 2003. 6. Rowbotham, F., Azhashemi, M. & Galloway, L. Operations Management in Context. 2nd ed. Butterworth-Heinemann. 2007. 7. Stonehouse, G. et al. Global and Transnational Business: Strategy and Management. 2nd ed. Wiley-India. 2009. 8. Tompkins, A. J. & Smith, D. J. Warehouse Management Handbook. 2nd ed. Tompkins Press. 1998. 9. Toomey, W. J. Inventory Management: Principles, Concepts and Techniques. Springer. 2000. 10. Wisner, D. J., Tan, K. & Leong, K. G. Principles of Supply Chain Management. 2nd ed. Cengage Learning. 2008. Bibliography 1. Agarwal, R. D. Organization and Management. Tata McGraw-Hill. 1983. 2. Blanchard, D. Supply Chain Management Best Practices. John Wiley and Sons. 2010. 3. Bose, D. C. Inventory Management. PHI Learning Pvt. Ltd. 2006. 4. Jespersen, B. D. & Larsen. T. S. Supply Chain Management: In Theory and Practice. Copenhagen Business School Press DK. 2005. 5. Lambert, D. M. Supply Chain Management: Processes, Partnerships, Performance. Supply Chain Management Institute. 2008. 6. Mentzer, J. T. Supply Chain Management Volume 2000. SAGE. 2001. 7. Monczka, R. M., Handfield, R. B. & Giunipero, L. Purchasing and Supply Chain Management. Cengage Learning. 2008. 8. Müller, M. Essentials of Inventory Management. AMACOM. 2003. 9. Weele, A. V. Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice. Cengage Learning EMEA. 2009. 10. Wild, A. & Wild, T. Best Practice in Inventory Management. Butterworth-Heinemann. 2002. Read More