Grandiose Motors - Production and Operations Management - Example

PRODUCTION & OPERATIONS MANAGEMNT. (REPORT ON GRANDIOSE MOTORS) STUDENT: XXXXX Executive Summary. This report discuses the rapid growth and expansion of Grandiose Motors which has caused management, the Chief Executive Officer ( CEO) ,Mr. Felix Fabulous seek solution for impending future problems due to lack of space and capital fund for investment. The report has highlighted some of the problems as that one of operating as autonomous. This has proved to be very costly to operate and the report has recommended the CEO to centralize all the dealers under one management. This has been seen having many advantages as compared to individual operations. Some of the notable advantages include economies of scale, coordination of activities and the company will be able to adopt stock mountainous models to help in minimizing stock cost and create space due to expansion. Due to supply chain management structure, (Lysons .K & Farrington B.2006) to be adopted, the report has advised the management of Grandiose to make a strategic decision where the company will outsource (Lysons .K & Farrington B.2006) the small parts and materials on request and retain the genuine part due to customer reliance and at the same time create the space due to the rapid growth rate of the company. There are many advantages of supply chain management the company can benefit. There is proper utilization of materials and costs are minimized and also the space is created when there are integrations of all the dealers under one management. The report has concluded by advising the management Grandiose Motors to centralize there operation and outsource small parts to create space and adopt economic order quantity to manage their stock effectively. This will help the management to reduce cost of operations and increase savings. Introduction Grandiose Motors has experience steady growth. They have been operating as autonomous with other dealers though under a CEO Mr., Felix Fabulous .The growth rate made the management look for alternative to solve the problem of space and minimize cost in order to have investment capital. Since the company had not been following any supply chain management due its previous set up, now the management wishes to adopt the supply chain management in order to be proactive and alleviate the problems. It is important for a company to improve its operation when there is increased growth as most companies collapse after expansion. Strategic decisions are supposed to guide the management so as to adopt important policies and procedure which are future based. According to the necessity of the issue the management of Grandiose Motors is supposed to centralize their operation in order to save costs. They are supposed to be keen on stock management and adopt the models such as the economic order quantity to save stock costs and also create space for future expansion. Generally where the company deals with parts and materials, stock cost is crucial. Stock can hold a lot of company money. Applying economic order quantity models helps the company to minimize most of the costs associated with stock like holding costs, insurance costs and also wastes of materials. The company only orders for new supplies when the order time reaches at its minimum level. (Drury C, 2004) TABLE OF CONTENTS. 1.0 …………………………....Centralized purchasing 1.1…………………………….Economies of scale 1.2…………………………….Coordination of activities 1.3…………………………….Control of activities. 1.4... …………………………..Economic order Quantity 2.0……………………………..Make or buy decision 3.0……………………………..Benefits of supply chain concept 4.0……………………………..conclusion & recommendation Grandiose Motors has grown tremendously with improved dealership network and a big market share .According to the management ,the CEO Mr. Felix Fabulous ,the expansion and growth has been greatly welcomed but the future of the company may be at risk due to insufficient capacity of the availability of right parts and materials . According to Avila A, Mass J N, Turchana M. P, 1995,growing too fast for the company may be followed by a steep decline due to poor strategies taken by the senior management. Grandiose Motors holds most of its business parts and materials hence the need to restructure purchasing function in order to achieve efficient in the supply chain management. According to Hull daily mail, 2009, Prof. Christopher emphasis the importance of supply chain management to be adopted in order for the company to remain competitive in the market. Supply chain management is the network of organization that are involved through upstream and down stream linkages (Lysons .K and Farrington B.2006) in different processes and activities that produce value in the form of product and services in the hands of the final consumer. (Lysons .K and Farrington B.2006).companies who over look supply chain management ends up investing in reach but ideally disruption of supply chain can effect delivery of products which can also affect sales down wards. 1.0. Centralized purchasing. However Grandiose Motors have been operating independently meaning all the operation of the organization was done according to its individual dealers though under the same company. This makes management difficult and even measuring the performance of the organization may be hard. Due to these complexities, the management of Grandiose should adopt centralized purchasing processes to ensure proper and more coordinated functions of the organizations goals and objectives may be achieved. To hold a full range of products in a decentralized distribution systems are costly and hard to manage. Supply chain management aims at integrating (Guarnieri P., Pagani R. N. & Resende L. M., Hatakeyama K, 2006) the logistics activities of the company of the purchasing up to the final destiny with their customer. This will mean that purchases can be conducted at the company headquarters or other divisional levels and will help in proper co-ordination across the organization and has many advantages as compared with single dealership operating on its own. 1.1 Economies of scale. Some of the most notable advantages of centralized purchasing function include the economic of sale. Centralized purchasing enables the organization to get a discount on big quantities bought. Accurate and reliable forecast can be prepared out of the total quantity of the material and parts required in a particular period of time. Centralized purchasing ensures efficiency, accountability and professionalism is observed across the entire organization at large (Lysons .K & Farrington B, 2006). Suppliers are normally motivated to compete because of big orders. Cheaper prices can also be offered since suppliers may spread costs. Specialized staff can be employed for each category of type of purchase and can become expert in special areas of procurement and also leads to lower administrative costs cheaper to place an order and process them (Baily P, Farmer D, Jessop D. and Jones D, 1998). 1.2 Coordination of Activities As a principle in management coordination of activities (Lysons .K & Farrington B, 2006) is very important in purchasing and supply chain. This will help Grandiose Motors to have uniform policies which can be used throughout the company. It helps the purchasing function have a uniform purchasing procedures and competition among departments or divisions is reduced. It is also easy to effect standardization that is uniform both in products and services. Staff training and development is easily coordinated and can conduct purchasing research with ease. Suppliers find it is easier to deal with one central purchasing department or a division rather than individual ones. 1.3 Control of Activities. Purchasing when centralized can become a separate cost and a profit centre just like other department and this means that budgetary control and accounting records are maintained (Drury C, 2004). Prices also assist in costs standardization and control of inventories can be checked ensuring minimum obsolesces and wastage is reduced to a manageable level which reduces excess working capital to be tied in huge stock. 1.4 Economic Order Quantity In order to control the parts and materials and maintain the to the demand level, the management should adopt quantitative models (Drury C, 2004) for planning and control of stocks. According to Drury C, 2004, investment in stock represents major assets of the organization hence proper and efficient management is required. If large amount of stock is kept unnecessary, just incase the customer may want them, causes negative impact to the supply chain management (Autry, Chad W, 2001). The aims of such models are to ensure sufficient stocks are available to meet the growing demand and sales. Again such models helps in alleviating stock that are unwanted and can easily become obsolete. It is a cost-effective which helps managers to solve major problems associated with stock and stock control and increased efficiency (Dave P, 2001). These models are normally referred to as economic order quantity which a mathematical calculation is applied to get the required results. However such models operate under certain assumptions in order for it to be applicable. These models help the organization maintain the right levels of materials required at times as the orders is placed according to the level at which the purchased goods have reached . It helps the organization avoid unnecessary worries that the parts and materials may not meet the growing demand, unlike when the management were used to purchasing based on past data, this is more reliable and can help eliminate the risk of stock being obsolete or having insufficient stock to meet the demand. (Lysons .K & Farrington B, 2006). Proper planning contributes to a high production which in return economics of scale is achieved hence costs are also reduced .The model helps to reduce storage costs as it pertains to store and store keeping. This due to the fact that holding a lot of stock occupies a big space which is also a major concern for the management of Grandiose motors. In essence it will save a lot of unnecessary space for those goods which could be slow to move. Keeping information on inventory policies (Ohta H. Ikena R.Rahim A. M, 2009) is important both for the organization, buyers and supplies and expected operation costs are kept to a minimum. 2.0 Make or buy Decisions Due to the growth and complexity of the dealership operations, the management of Grandiose Motors should take a decision where they may buy some of the parts from outside and retain the genuine parts so as to maintain their customers and improve their confidence. Outsourcing is regarded as part of company strategies (Alex J.Torres R., Mahmoodi F, 2008) aimed at cutting production failure costs and other unnecessary expenses and helps the organization to concentrate more on their core business. Since centralization of the purchasing chain is adopted it is easier for the management to vet out the materials and parts which they can buy from outside. This is one of the organization strategic decisions in order to achieve its goals and obligation. Already the company has moved from the traditional function towards managing a set of integrated processes which involve several key function of the business. This is clear to its current classic new auto supermarket in their network (Lysons .K & Farrington B, 2006). There are many parts and materials needed by the consumers and it is almost impossible for the dealer to keep entirely everything. It is ideal to buy some of the small parts from outside and this will also create more space for the organization and this will reduce inventory storage costs as well as insurance( Lysons .K & Farrington B, 2006). Once the organization decides on buying the small parts, the risk of obsolescence is also spread and the ability to control quality of parts and materials is observed. Most of these items, the decision to buy will help since the management of Grandiose Motors have limited capital available for investment. Space is also a limiting factor due to rapid growth and expansion (Drury C, 2004) the strategic decision to buy will help reduce the amount of capital required because the management may not need to store the parts. However Grandiose should retain the genuine parts as this is the major area where customers need much attention. Grandiose management may also take the advantage of partnering with another partner in order to become competitive. This will reduce keeping small parts which the company may not enjoy the economies scale (Lysons .K & Farrington B, 2006). 3.0 Benefits of supply chain concept to Grandiose Motors The concept of supply chain & inventory management may help reduce investments and space requirement in several ways. Once purchasing and supply is centralized, the duplication of roles is reduced. Better corporate plans are achieved as everything now is integrated. Through internal integration, supply integration customer integration (Boon-itt S, 2009); the company is able to be able to remain competitive and successful. Also once the buy and make decision is reached out, it leaves Grandiose Motors with a choice of buying from outside and the cost of such items is kept at a minimum. The introduction of economic order quantity models contributes a lot when it comes to cost reduction on keeping excess stock, storage cost and insurance cost is reduced to a great deal. Wastage of materials and other parts is reduced, stock out cost is kept at the minimum and this will give an organization a competitive edge since the customers always are able to get what they want at the right time for the right price and they will be cost effective (Drury C, 2004). This builds customer confidence and reliability for the dealer in the organization operations. Once the space reduction of number of stocks to be kept is kept at minimum, it means a lot of working capital which could be tied in stock is reduced hence the company is able to save maximize its profit and eventually improve its capital base (Drury C, 2004). The various administration expenses for running the company is also kept at the minimum because once centralized purchasing has been adopted only the key staff will head each particular department and this leads to improved efficiency and effectiveness of the personnel (Drury C, 2004). The cost of administration is kept at its lowest point, thus increased savings. Use of computers and application of modern techniques to improve purchasing chain is needed so as to ensure data shared across the entire network of the dealership shops. It also helps Grandiose Motors specialize in a narrow range of activities with improved (Baily P, Farmer D, Jessop D. and Jones D, 1998) quality in their operations. This means the cost of communication is lowered as most of the information of whatever nature is needed from any dealership shop can be accessed online as long as the whole process is integrated. 4.0 Conclusion & Recommendation Grandiose Motors is facing a rapid growth and expansion which the management may not cope with if important matters not well addressed. Of great concern is the way management of Grandiose Motors has been operating the dealership in an autonomous. The cost of operating the dealership as individual is very high. Integrating the network dealership with a centralized purchasing chain supply is ideal to reduce a lot of operations cost which could be shared and minimized. Centralized purchasing has many advantages as compared to them operating individually. There are economies of scale, better coordination of activities and control as well as applying stock control models like economic order quantity to reduce stock cost and crate space. Keeping small parts and materials is also difficult and expense so, the management should take a strategic decision whether to buy them from outside and retain the genuine due customer demand. It has been observed that if Grandiose Motors adopts the recommendations given, the company will save a lot on investment and also on the space. Recommendations. It is recommended that the management of Grandiose Motors should centralize their management operations and also adopt the stock models to help them minimize stock costs and create a space for expansion. Grandiose Motors should also buy small parts and retain the genuine parts due to customer confidence and reliability. Reference: Guarnaieri P. Pagani N. R & Resende M.L, Hatakeyama K, 2006. Journal of Technology. Management & Innovation. Ohta H. Ikena R., Rahim A. M., 2009.Utility of the inventory information sharing in a Supply chain, international journal of integrated supply management vol.5. Hull Daily Mail, 2009. Delegate at business week, academic to give supply chain talk at Event ;( AN U2SU2S4022177852. Alex J. Torres R. mahmoodi F, 2008. Outsourcing decision in manufacturing supply Chains considering production failure and operating costs Boon-itt S, 2009. Effects of internal & external supply chain integration on product Quality & innovation. International journal of integrated supply management, vol.5 Dave P, 2001, optimizing economic control order quantity (inventory) Avila J. A, Mass J. N, Turchan. M. P, 1995. Is your growth strategy your worst enemy? The Mckinsey Quarterly, No.2? Autry, Chad W, 2001, Journal of business logistics, the impact of organizational Structure. Baily P ,Farmer D,Jessop D & Jones D,1998,Purchasing Principles & management 8th edition Drury C, 2004, Management & Cost accounting, 6th edition Lysons K. & Farrington B, 2006, Purchasing & Supply Chain Management Read More