Lancaster Motor Group - Supply Chain Management - Case Study Example

Abstract Lancaster Motor Group is running successfully over the last 15 years and with three dealerships. The new contract with the fourth dealer is a challenge for the company as there are three more lines sold to be added to the present dealership. The company had reached its current success by following three basic principles of volume purchases for lowering the price, hassle free customer purchasing system and the most important being the after sales services. It had a team of highly qualified and well trained staffs and technicians to assist this feature. With the purchase of the fourth dealership the focus of the CEO was shifting towards the problems due to which other companies were either dying out or failing. The company’s main concern was fund insufficient for purchasing of guarantee genuine parts for each company separately and the high costs of storing them when the space prices were running at high premium at all places. In this project we come across the different problems in the current situation for Lancaster Motor Group and also in the coming days. A list of solutions for the listed problems is also recommended. The management of the company should look to find a best combination of solutions and run its business smoothly. Table of Contents Introduction 03 Current Situation 03 Purchasing Policies 03 Suppliers Delivery Process 04 Specific Purchase 04 Financial and Storage Problems 05 Inventory Management Procedure 05 Challenges 06 Decentralising and Separate Deal Purchases 06 Supply Chain Management 07 Inventory Management 08 Recommendations 09 Conceptual Effective Supply Chain 09 Application of Proper Inventory Management 09 Centralising of All Dealership 10 Financial Planning and Its Execution 11 Conclusion 11 References 13 Introduction Lancaster Motor Group with its upcoming dealership is required to look forward to improve its business and its operations in terms of finance and storage. It was moving in a direction to develop itself as an auto supermarket creating an environment for multiple makers of car under one roof. With the theory of hassle free purchasing system for the customers the company looks to intervene the market with the upcoming form. With new dealership come new problems for the company which it should cope with some best possible ways to protect itself from any failure in the market. Current Situation The company is running as a good revenue generating unit after its takeover of the bankrupt Mitsubishi some 15 years ago. It has already being running dealership of three companies and getting into a fourth one. The company has moved into a direction to acquire the concept of auto supermarket with its upcoming dealership. The after sales services was given much more attention, than just selling of cars with latest tools and equipments and also maintain stock of spares and parts for fastest repair. The management paid attention towards purchases on a large scale to sell the spares at the minimum possible price. The motor company had built a strong reputation of quality servicing, diagnosing and repairing in the quickest possible time. 1. Purchasing Policies Lancaster Motor Company has based itself upon the strong policy of ‘hassle free’ buying. It would maintain high volume of purchase to keep the cost of purchase under control for effective low cost selling. This enables to present a large selection option to the customers and is a powerful tool for attracting users in this highly competitive market. As each of the four dealerships had a separate purchase department for themselves for purchasing tools and parts, they were required to make decisions on the previous year purchases with a comparison for rise in percentage of requirements from those of the preceding years. The seasonal factors were also to be taken in account for this very purpose a stock of requisites for every season, like air conditioning for summers, coolants for spring and antifreeze for the winter season was required. This was to be maintained in huge numbers to keep the name of the company high for its previous history of completing repairs at the earliest (Clegg & Walsh, 2004). Some problems were of basic importance for the company to look after in its purchasing department and its inventory management policy. A few of them are discussed below. 1. a. Suppliers Delivery Policy The company used to buy different products and parts from different suppliers. Of this some were to be precisely purchased from the car manufacturers or their authorised stockist and distributors to maintain the guarantee genuine of those parts. This was necessary as per the manufacturer’s clause who wanted such policies to be maintained to build up their brand value and promotion of those parts. Other parts and materials like oil, lubricant, etc. could be purchased from any supplier at competitive prices. The process of guarantee genuine parts purchase was mostly over a week or more than a week’s time. This was making the company highly dependent upon the car manufacturing companies and relies upon them to meet the market requirements. This lag in time is a great drawback for a big operating house like Lancaster Motor Group. 1. b. Specific Purchase Some specific parts, like those of genuine guarantee were to be purchased from the store itself and could not be replaced by purchasing from any individual store in case of any damage was blocking the volume of the sale of the automobiles. This policy of specific purchasing effects the allocation of funds for the purchase of parts and also the space requirement for all such parts is too allotted separately. An alternative for the decentralisation of this purchase system for the customers as well for the sellers was required to be devised. 1. c. Financial and Storage Problem With the dealership of the fourth company which sold a line of different companies the purchasing of parts and spares for after sales services and counter sales would require maintaining a huge number of stock as per the guarantee promotion of the manufactures. This was both investment blocking and space consuming for the dealer. A different strategy for maintaining the inventory system was required to help from this problem. The company is required to follow different practices and procedures according to the products and tools (Brassington & Pettitt, 2001). Thus the purchasing procedure and inventory management of Lancaster Motor Group was to be planned in a different manner for genuine parts and that for other common parts and services for the new dealership. 2. Inventory Management Procedure The current purchase system of Lancaster Motor Group is based on a concept of high volume purchase to lower the costs and make all parts available for faster fulfilment of services. But in this process the policies and procedures of the suppliers is different from that of the motor company so there are some major trouble in the inventory management system of the company. The current procedure shall not be sufficient in the operational functioning of the company with the increasing number of dealership. The company has to seriously take some managerial decisions to help its cause without damaging the name and fame it has achieved over the years (Cook & Dave, 2004). 2. a. Challenges In the current scenario the main challenge is the upcoming shortage of investment funds and the high rising prices of the storing space. These two factors were the most requisite factors to run the company smoothly under the current inventory management procedure. With the acquisition of the new company which has a line of three car companies selling unit these problems would further crop up making the scenario more difficult for the company to cater in the coming time. Also to manage the inventory was a tough ask prior to the acquisition as there were a large number of parts to be kept and dealt with both for selling and repairs. The number of dealerships would increase double fold for the company in terms of the lines sold and this would increase the work of inventory management to a tougher level. The genuine guarantee parts were required to be specifically maintained for each type of car. It is clear that the number of spare were about to multiply themselves. Although there is a bit of relief with common items like oil, lubricants, fan belts, etc. which could be common. 2. b. Decentralising and Separate Deal Purchases The company’s purchase policy till date was somewhat a decentralised type. It is required for the company to make its purchases more centralised and organised for the effectiveness of low cost policy. The company can purchase those part and tools which are common for all cars from a same supplier which shall lead to lowering of prices and also develop the goodwill of the company in the books of the suppliers thus leading to no payment pressure on every single purchase. The system of decentralisation is dying out in the business world for the purchasers. The company can also make separate consignments for its different stores at the supplier’s place and despatch can be made according to the specified destination. This will also speed up the company’s service delivery system and the inventory management system. The policy of separate deal purchase cannot be much altered as the manufacturing companies have an edge regarding the genuine guarantee parts and also its sales promotion. The separate dealing of such parts has to be carried in almost similar way with the manufacturing suppliers. The company can just make some amendments in this purchase with a common consent with the suppliers and a relief for the payment. 3. a. Supply-Chain Management Supply-chain management is becoming an important tool in the management system of any big company worldwide. The importance of supply chain is different in different fields of activity. This management system is an interrelated system which co-ordinates all level of the company from purchase to delivery of a product. Supply chain can be useful for Lancaster Motor Group for making inventory decisions like quantity, quality and location. The system helps in demand planning and forecasting of purchases, coordinate the demand forecasted with the actual demand levels and share the forecasted information with the suppliers to keep the supply as per the required levels. Forecasting the demand for the products is very necessary for the organization to maintain a steady flow of parts. In the case of under or over forecast the company may either land up with shortage or excess spares which are both harmful for the efficient running of the business. Supply chain helps to forecast the timely requirement of specific parts and also the quantity required with the use of previous demand structure and the sales of the company. This forecast can be easily compared to the earlier demand cycle and then the forecasted requirement can be shared with the respective suppliers to keep the right amount of product at the right time. This in a way shall help to company in its main concerns of blockage of funds and space after the less required products, thus helping the management to maintain adequate service levels (Czinkota & Ronkainen, 2004). 3. b. Inventory Management Inventory management aims at maintaining optimum level of inventory at any given point. The inventory should never be excess or inadequate for the company as excessive inventory means shortage of funds for other functions and inadequacy leads to dissatisfy a customer which ultimately leads to loosing the customer. Inventory management focuses on two main issues: i. Maintaining adequate inventory for smooth selling and services. ii. Minimise the investment in inventory which helps in profit maximisation and also optimum investment of funds and space allocation. The inventory management provides benefits of inventory control in the following ways: a. Helps saving from demand fluctuations. b. Supports in proving better services to customers. c. Reduces the risk of loss. d. Makes effective use of funds. e. Facilitates cost accounting. f. Avoids duplication in ordering. An effective and efficient inventory management in a supply chain plays a pivotal role in cutting down the space requirement and inventory holding cost across the entire supply system. The company having such a large number of items to be maintained in stock it becomes that much more important to follow a good inventory management policy (Chew, Cheng & Petrovic-Lazarevic, 2006). 4. Recommendations The company is required to follow a system of different steps to improve the adequate service level for the dealership network. It needs to get more organised in its entire department for efficient running of the business. A few alternatives that the group require to follow are application of supply chain and inventory management, centralising of all store, solve money matter (Luther, 2011). Presently the financial shortage and the space requirements are to be dealt with utmost care and diligence. 4. a. Conceptual Effectiveness Supply Chain Supply chain has become an important tool to accomplish the strategic goal for Lancaster Motor Group. With the application of supply chain the management can reduce working capital, take assets off the balance sheet, improving cash-to-cash cycle and improve inventory turns. Application of the best method of supply chain creates corporate value which helps in working capital reduction and cost minimization (Daniel, Charls, & Joseph, 2003) Thus, with supply chain, Lancaster Motor Group can greater their efficiency, lower costs, enhance flexibility, improve customer services, and optimize their chain value. This will help the company reduce its investment and better its space availability and also help in structuring the inventory and purchasing functions. 4. b. Application of Proper Inventory Management The demand for the products is quiet difficult to predict in advance. To do so the company can follow a good inventory management. There are a few models for the application of this management system for the company to maintain stock so that the risk of stock out is maintained. The models that can be followed are: i. The single period model: this model is used for the one time purchase system for any organisation. This is primarily used for any particular campaign or organising of any sports event. ii. Fixed order quantity model: this model is used when an item is stock is to be continuously maintained. When anything from such item is sold an order is to be placed the next time again to maintain the stock quantity. This item’s inventory is monitored till the situation of stock out risk arises and an order is to be compulsorily made. iii. Fixed time period model: this model is quiet similar to the fixed order quantity model and is used when the item should be in stock and available for sale. This model does not emphasise on getting the stock level and ordering accordingly, rather it maintains a purchasing system of ordering the item at a certain interval of time. The company can follow the best suited model of purchasing to get the smooth running of the purchasing and inventory system to maintain the cash deficit and storage problem (Ismailpour & Ghafarieashtiyani, 2002). 4. c. Centralising of all Dealership This concept can be followed for the better purchases of all types of non-guarantee goods from different suppliers. As there is no specific genuine guarantee buying problem for these kind of parts and spares the company can at a time purchase higher quantities of such requirements. This centralisation policy can be applicable for all its dealership in all its stores. With the proper inventory management and centralised purchasing system the company can send different parts to its different outlets as and when required thus helping from storing huge quantities at every store and only maintaining the quantity requisite for smooth running at the sores (Sherrington, 2009). 4. d. Financial Planning and its Execution It is very necessary for each institution to keep its finances and its planning is a best manner to meet any unforeseen circumstances. Planning for the future and growth of the company is serious agenda. With companies failing on a regular basis due to financial and unplanned growth it is very important for Lancaster Motor Company to budget its finances. The planning requires not be just sales estimation or profit maximisation. It should also see cost reduction policies, investment in stock, future requirements for growth and funds for purchase of parts at any time of the business period. A sound financial business can face any high or low market scenario. So the finances are to be organised in a similar manner. For shortage of investment in parts, the company should look for other sources of raising funds through institutional financing, loans, etc (McLaney, 2003). Lancaster Motor Group is required to look forward for the application of all these recommendations in its business exercise to bring a structure of purchase and inventory for the dealership network. With immediate required changes the company can serve its customers better and continue its name as a ‘one price- lowest price.’ Conclusion The growing competitive market is demanding for something new for every business to make better profits. For Lancaster Motor Company it has been an advantageous situation to sell such a large line of cars and its spares under the same name and room. But the cropping up problems is to be dealt with the best application of supply chain and inventory management procedures. Application of centralised dealership and solving financial issues also hold an important ground for the company. Galena Markovic should look for the complete working out of all issues to maintain lower costs and provide right parts to assist fast after sales services. 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