Production and Operations Management - Case Study Example

Heading: Production and Operations Management Your name: Course name: Professors’ name: Date Executive summary Viverra Motors is a company that was established 15 years ago with a procurement of a broke Mitsubishi dealership. It has just acquired a new dealership that deals in a line of Volkswagens, Cherys, and Hyundais. The firm has four dealerships that purchase their own parts and materials from different vendors. Consequently, the firm has different policies and procedures regarding its purchasing and inventory management. Explicitly, there are certain weaknesses that the company has in terms of its inventory management. Its supply chain and inventory concepts are also influential in the reduction of its space and investment. Therefore, the report is set to address the aforementioned issues, as well as provide recommendations that will help restructure the company’s inventory and purchase practices; hence, enhancement of its performance. Table of contents Executive summary 2 Introduction 5 Assumptions 5 Main body 6 How might purchasing and inventory management policies and procedures differ because the dealerships purchase different types of service parts and materials from different types of suppliers? 6 What do you see as the main weaknesses of the current purchasing and inventory management practices at Viverra Motors, and how could these weaknesses be affected by the new acquisition? 7 How can supply-chain and inventory management concepts help Llew Gwych reduce investment and space requirements whilst maintaining adequate service levels? 9 What recommendations would you make to Llew Gwych with respect to structuring the purchasing and inventory functions for the Viverra Motors dealership network? 11 Conclusion 13 References 15 Appendices 17 Appendix A 17 Appendix B 18 List of tables and figures Appendix A………………………………………………………………..16 Appendix B………………………………………………………………..17 Introduction Viverra Motors is a company that has just acquired a new auto supermarket to deal in three car lines. It presently has four dealerships that purchase different parts and materials for sale, and for servicing clients’ vehicles. Therefore, the report involves the difference of the procedures and policies of inventory and purchasing management as a result of purchasing different products from diverse vendors. It also explores some of the weaknesses of the company’s inventory and purchasing practices, as well as their effects of the new acquisition on them. It also looks at the effects of the supply chains in the reduction of its space and investment needs. Lastly, the paper provides some recommendations for the firm’s enhancement of its purchase and inventory practices. Assumptions This report is based on the assumptions that Viverra Motors company: will experience a difference in purchasing and inventory management caused by dealerships, which purchase their own service materials and parts from various suppliers will have weaknesses in its purchasing and inventory management will need high investment and space for its inventory will use its supply chain and inventory concept to minimize the space and investment needs Main body How might purchasing and inventory management policies and procedures differ because the dealerships purchase different types of service parts and materials from different types of suppliers? Since each of the company’s four dealerships buys its own service parts and materials, the company will make it hard for the firm because of the increased number of materials and parts to be handled. For instance, some of the companies will be sold, while others will be employed in the servicing of the clients’ vehicles. The company’s purchasing department should bear in mind that effective purchasing activities are determined by reduction of costs so as to aid hassle-free, one price-minimum price notion; and the provision of the right parts and materials at the right time as to aid reliable, fast after –sales services. In terms of the receiving the company’s products by the different dealerships, there will be a need for adequate space available for the proper storage of the service parts and materials. Each dealership will need to ensure that they have sufficient space for all parts and materials required in the servicing of clients’ vehicles, as well as those that will be sold. This is vital because it will minimize losses caused by theft, breakages, and other possible hazards at the dealerships. Besides, another change that will be caused by distinct purchasing by different dealerships will involve adjustments in the budget of inventory levels (Pooler, 2004, pp. 181-200). What is more, every purchasing and inventory department in the company’s dealerships must take a physical count every year so as to ascertain that correct asset value is demonstrated in the Balance Sheet Statement report, as well as the costs of materials and parts on the revenue and expense sections of the report. This counting must be done in three months before the end of the financial year, and that every department’s manager should schedule the real count, determine cutoff procedures, and monitor the process of physical inventory (Waters, 2003, pp. 200-215). Furthermore, the purchasing and inventory departments in the company’s dealerships must handle the purchases properly so as to maintain effective performance of the firm. This implies that any purchases that they intend to purchase must be done appropriately so as to avoid losses (Pooler, 2004, pp. 181-200). For instance, the relevant departments must ensure that right purchases are done at the right time, basing on the forecast information. In addition, this will require the company to ensure that the purchases made are recorded properly. For the deleted equipments in the company, as well as the newly purchased ones, there ought to be original source documents in the company records. What do you see as the main weaknesses of the current purchasing and inventory management practices at Viverra Motors, and how could these weaknesses be affected by the new acquisition? Because of its earlier availability competent service technicians; of a wide variety of technologies and tools for support of diagnosis and repairs; and presence of various materials and parts essential for timely repairs and services, the firm’s performance rapidly grew; thus triggering the need for expansion through acquisitions. Nonetheless, the acquisitions have placed great strain on the firm’s inventory and purchasing policies and procedures, since they require to be adjusted so as to cope with the changes. In fact, the firm has little space to receive, store, and manage its inventory. Therefore, the need for enough space in the company is triggered by the acquisition of the auto supermarket dealership that handles distinct car lines at the same place. Secondly, the company has a problem with its purchasing and inventory management practices that involves scarcity of funds to support its investment on materials and parts. This implies that the company has low level of financial resources that facilitate the successful investment on its inventory. This is because the company’s investment dollars got diminished. In fact, the company does not have appropriate budget that cater for all its obligations and requirements (Ingram, 2007, pp. 260-280). Therefore, it is hard for the firm to provide the right materials and parts at the appropriate time so as to enable speedy, dependable after-sales services. Another disadvantage explicit from the firm’s purchasing and inventory management practices entails receipt of too much parts and materials to contain. This implies that the firm receives more than enough supplies; hence posing a problem of ineffective management. Successful firms should receive just enough inventories to run the business so as to avoid such issues as inadequate space, poor management, theft, and wastage. Some of these inventories would be essential in the servicing of clients’ vehicles, whereas others would be sold. The increase in the company’s inventory level is brought about by the acquisition of the auto supermarket, as well as its failure to develop appropriate systems to adjust its policies and procedures as regards its purchasing and inventory management. The weaknesses perceived from the company’s purchasing and inventory management practices can be influenced by new acquisition of an auto supermarket in a number of ways. First, the new acquisition will worsen the situation in the company, as it will pose a problem of inadequate space for receiving, storing, and managing of its different car lines, as well as service materials and parts. This is because the acquisition of an auto supermarket will require the firm to purchase different materials and parts that are essential in supporting servicing of the consumers’ cars. The fact that the dealership deals in different car models also creates a financial and space problems. How can supply-chain and inventory management concepts help Llew Gwych reduce investment and space requirements whilst maintaining adequate service levels? To start with, it is explicit that supply chain management concepts have certain effects on a firm’s performance. Studies demonstrate that supply chain concepts account for more than 70% of a business’ operating costs; they naturally comprise at least half of its entire assets; and that about 80% of companies admit that supply chain plans can reduce costs, enhance efficiencies, improve customer revenues and services, and promotes their competitiveness (Toomey, 2000, pp. 1-20). Inventory is widespread in the supply chain and it includes everything that starts as raw materials to work in process, and to the finished products levels, which are held by manufacturers; distributors and retailers in the supply chain. Holding a huge volume of inventory enables the firm, or a whole supply chain to respond to fluctuations in client’s demand. Nonetheless, inventory creation and storage is a cost, and to attain high efficiency levels, the inventory costs must be kept low (Murray, 2008, pp. 1-26). There are three primary decisions that the company should make as regards inventory creation and holding. The first decision involves cycle inventory that demonstrates the quantity of inventory required in the satisfaction of the products’ demand within the time between buying of the product (Sweeney, 2011, pp. 1-20). The firm should produce and buy in huge amounts so as to achieve the benefits that economies of scale may bring. Company’s costs will result from expenses of storing, handling, ad insuring of the inventory. Secondly, Muller (2011, pp. 30-50) says that the company should make a decision relating to safety inventory, which involves inventory held as barrier against insecurity. If demand forecasting can be conducted with absolute accuracy, then the only inventory, which will be required, will be cycled inventory. Nevertheless, because each forecast bears certain extent of insecurity in it, the firm will hinder the uncertainty to a lesser or greater extent by holding surplus inventory. This is vital just in case demand grows more than the expected. Thirdly, as Patterson (2010, pp. 80-100) puts it, the company should consider having seasonal inventory, which is built up in expectation of foreseeable increases in demand that happen at particular time of the year. For instance, it is foreseeable that anti-freeze will rise in winter; hence, the firms producing it will have a fixed manufacturing rate throughout the year long and create inventory during times of low demand to cater for times of high demand that will go beyond its manufacturing rate (Accenture, 2005). The option to create seasonal inventory is to spend on flexible production facilities that may quickly transform their production rates of various products to react to demand increased. Here, the trade-off is amid the carrying costs of inventory and costs of more elastic manufacturing abilities (Roy, 2005, pp. 100-115). In order to minimize investment and space needs, at the same time maintaining sufficient service levels, the company ought to employ collaborative supply chains, which are founded on combines forecasting, planning, and replenishment. Collaborative supply chains are founded on win-win relationships, recognize the requirements of stakeholders; employ a pull strategy; aim at creating value for clients; eliminate waste through mitigation of bullwhip influence; lean logistics for utmost effectiveness; section clients and suppliers; and have network that share learning and experiences. Muller (2011, pp. 30-50) asserts that some of these supply chains have benefits that include higher information flow; minimized inventory; efficient utilization of resources; and increased receptiveness. In addition, Accenture (2005) holds that if the company engages in joint supply chains, it will benefit in that the chains emphasize on its abilities; demand motivated strategies; and reduction of product cost. This initiative will also facilitate the reduction of the firm’s cost of process. By using the joint supply chains, the company will manage to create value through increased sales and wide market share; earning of more margin dollars; and will invest in technology and process. The collaborative supply chain in the company will help in driving more productivity, as well as investing in differentiations, such as, service, price, and value (Accenture, 2005). What recommendations would you make to Llew Gwych with respect to structuring the purchasing and inventory functions for the Viverra Motors dealership network? In order for the company to achieve an effective management of its purchasing and inventory, it has to act on certain recommendations. To begin with, there is Viverra Motors Company it is vital that the firm reports demand through source. This practice is vital because it will enhance both accurate demand planning, as well as aligning of the inventory demand with business’ marketing (Direct Tech, Inc, pp.1-5). Therefore, it should carry out an audit of the whole information capture process so as to ensure it is requesting and capturing source data from its clients. In case the source is not provided by the firm’s clients, it should employ matchback processing so as to assign a source prior to posting of data to the planning systems of the inventory (Lee & Billington, 1992, pp. 65-70). Secondly, Direct Tech, Inc (pp.1-5) notes that it is imperative that the company updates its purchase order data. Several changes happen on purchase orders upon their creation. Some of these include changes in dates, updated amounts, incomplete or late deliveries, and errors in distribution centre. Additionally, it is crucial for the firm to have all its inventory expectations depend on correct purchase order data. It should also ensure that both weekly and daily processes are put in place so as to constantly revalidate and review the correctness of the information. According to Direct Tech, Inc (pp.1-5), the company should also ensure that they are timely in this purchasing and inventory matters. This is because a single day has serious effects on the firm in that it can establish whether the firm can affect the future market ruling. Therefore, there is need for it to put in place systems that will facilitate nightly demand prediction and inventory expectations. Moreover, it is vital that the company engages in budgeting for full demand. Notably, control buyers purchase inventory so as to match product forecast. It is more complicated to predict demand b product than to predict higher demand level at the firm or item class levels. The company should, therefore, use a top-down forecasts strategy at these levels to act as regulation point against bottom-up, or product level predictions. Consequently, the firm is likely to enhance its general forecasts, and improve quality of inventory bought. What is more, the Viverra Motors should employ audit reporting to flag missing information. Inventory reporting depends on a wide range of items master information, such as, cost, price, lead times, and status code among others. Thus, it is critical that the firm enforces a weekly reporting process so as to flag missing information and correct it in time before it interrupts purchasing decisions (Direct Tech, Inc, pp.1-5). According to Direct Tech, Inc (pp.1-5), another recommendation for the firm involves budgeting of inventory levels by month. This implies the establishment of inventory budgets by month so as to provide a consistent reminder to the company’s control buyers to plan buying orders when required, and avoid having undesirable safety stock. This way, the company will free the budget of the inventory dollars by boosting action upon overstocks. In addition to this, the company ought to apply forecast difference reporting. Inventory requirement reporting is only as precise as the forecast’s quality. A forecast difference report directs the firm’s control buyers to the products where real and planned demand vary significantly. Here, the control buyers may evaluate and revise all future demand arrangements by item, and assess inventory ownerships against its new, more correct demand plan. Lastly, Direct Tech, Inc (pp.1-5) holds that the firm ought to organize inventory hot lists with a correct forecast, the firm, may organize hot list reporting of those products that have too little or too much inventory. It is also necessary to include supplier lead times, and your control buyers will get to know the inventory size need, and when it will happen. Conclusion Viverra Motors has acquired a new auto supermarket, which together with other dealerships purchase different parts and materials from diverse vendors. Following this, the company’s purchasing and inventory management procedures and policies will differ. This implies that the firm will have to readjust its receiving, recording, storing, managing and handling of its inventory. Adequate space and financial resources will be required for the company’s success. In terms of its weaknesses, the firm has a short budget of inventory, inadequate space and financial resources. In order to boost its inventory and purchase practices, the firm should use collaborative supply chains. The firm should, therefore, engage in budgeting by item, budgeting by month, reporting demand by source, updating purchase order data, be timely, application audit reporting flag missing information, utilize forecast difference reporting, and organize inventory host lists, so as to effectively manage its purchase and inventory. References Accenture (2005). An overview of supply chain concepts and examples from the development sector, http://smehro.files.wordpress.com/2008/11/supplychainpresentationundp- accenture.pdf Direct Tech, Inc. 8 best practice tips for inventory management. Multi-Channel Merchandising Solutions. http://www.direct- tech.com/images/file/Tip%20Sheets/Direct%20Tech%20Inc%20presents%208%20Best %20Practice%20Tips%20for%20Inventory%20Management.pdf Ingram, R. (2007). Financial accounting: information for decisions. Mason, OH: Thomson/South-Western. Pp. 260-280. Lee, H.L. & Billington, C. (1992). Managing Supply Chain Inventory: Pitfalls and Opportunities. Sloan Management review/Spring, 33(3), 65-70. http://e3associates.com/files/Article%2520- %2520Managing%2520Supply%2520Chain%2520Inventory%2520Pitfalls%2520and%2 520Opportunities.pdf Muller, M. (2011). Essentials of inventory management. New York, NY: AMACOM. Pp.30-50. Murray, L. (2008). Policies and Procedures Property Control System. Departmental Issue. Pp. 1- 26.http://www.oswego.edu/administration/purchasing/inventory/INVENTORY_CONTR OL.pdf Patterson, J.L. (2010). Purchasing & supply chain management. Andover, Hants. NY: South- Western/Cengage Learning. Pp. 80-100. Pooler, V. (2004). Global purchasing and supply management: fulfill the vision. Boston, MA: Kluwer Academic, Pp. 181-200. Roy, R. (2005). A modern approach to operations management. New Delhi, PA: New Age International. Pp. 100-115. Sweeney, S. (2011). 101 Internet businesses you can start from home: how to choose and build your own successful Internet business. Gulf Breeze, FL: Maximum Press, Pp. 1-20. Toomey, J. (2000). Inventory management: principles, concepts and techniques, Boston, NY: Kluwer Academic Publishers. Pp. 1-20. Waters, D.J. (2003). Inventory control and management, Hoboken, NJ: J. Wiley. Pp. 200-215. Appendices Appendix A Purpose of collaboration Appendix B Supply chain management Read More