Best-Buy Auto Group - Purchasing and Inventory Control - Case Study Example

Business Report of Best-Buy Auto Group: Purchasing & Inventory Control Name Course Institution Date Introduction Effective management of business entities is achieved when customer satisfaction is met and thereafter the business is able to profit from it. In order to achieve and maintain high standards in the running of an organization, operations management skills are very critical. They enable the designing of products and maintaining of processes in the organization. The processes in an organization include the supply chain, production process, etc. (Babai& Jouini 2013, p. 135). Operations management touches on the three levels of management. These levels are tactical, strategic and operations. This implies that proper handling of operations management roles leads to a fully functional organization. In this case study, the CEO has to be involved in every process to ensure that the various processes are ongoing. This report aims at providing information to the CEO in relation to the various issues in the organization and recommendations concerning the possible solutions. The report has been compiled successfully through the contribution several writers have made over the subject. Best-Buy Auto Group is making provisions for the growth potential that has been projected. This report addresses the critical areas that have to be tightened as the company prepares for the expansion in the near future. In that regard, this report focuses heavily on the purchasing and inventory functions of the company. The complexities that surround the acquisition of the service parts present an enormous challenge. The process of identifying, evaluating and brokering contracts with suppliers may be somehow complicated in the case where the different products are sourced from different suppliers. One of the issues that will be complicated in relation to multiple suppliers is the process of screening probable suppliers (Chen & Cheng 2013, p. 3390). This entails evaluating the financial and logistic issues about the supplier. The company must have ascertained beyond reasonable doubt that the supplier is able to meet the demand timely as well as maintain the quality as agreed. The diverse nature of the requirements in Best-Buy Auto Group Company implies that the supplier has to be well vetted on whether he meets the requirements. This is based on the reality that might befall the company if shortages are encountered. One of the major concerns raised by the CEO, Helen Harrington is to maintain the availability of right parts and materials. Another concern related to the same is the issue of quality of products. If the supplier is not in a position to maintain quality car tires and other products, it will ruin the business when customers come to the knowledge of it. In regard to the issue of supplier screening, the process will indeed change in the case of multiple suppliers. The intention is to ensure that in spite of the fact that different suppliers are being used, quality is maintained. The costs that are incurred on supplier selection are quite enormous (Bala 2008, p. 546). The process of screening the potential suppliers in order to be sure of their capability to meet the basic supplier requirement is not only time consuming, but expensive as well. This is too complex when it comes to using multiple suppliers. The management must be ready to travel to distant places to interview and interrogate the potential suppliers just to be aware of the kind of suppliers the company is dealing with. At the same time, to ensure prudence in the entire process, the company may request for samples for the various products from different suppliers to be sure that there is conformance with the company’s needs. For instance, the selection of suppliers of genuine parts of the car, there is a need to ensure the supplier has the production plant that will meet the demand of the company. What set genuine car parts from the fake ones are the engineers who undertake the design process. In this company, there must be a meeting with the engineers who designed the various car parts required just to be sure that indeed they understood the critical components required for genuine car parts. In relation to management of stock, the company will have to be very careful to ensure supply is maintained. The management of stock when dealing with different suppliers requires programs to be put in place to ensure that maximum and reorder levels are accurately determined (Larson 2009, p. 230). Such indicators must be identified in order to design means of ensuring that the company is in a position to meet the demand for various products. This must be done while factoring the needs in terms of preferences of consumers. The most important products must never miss from the stock. For instance, the company must ensure that the supply of genuine parts of the car is in continued supply. The company must put the appropriate stock management techniques in place in order to achieve this. The determination of reorder levels, maximum stock levels, minimum levels, lead time and order quantity must be done for every product and the various suppliers notified accordingly. The Current Supply & Inventory Management Situation It is very clear thatBest-Buy Auto Group has a lot of potential to outgrow the current limits. This company has done extremely well to get to where it is right away. Nevertheless, as the company aims to attain new growth heights, it is good to address some weaknesses that may turn out to be real impediments to the growth of the company. It is therefore good to evaluate and seek possible remedies to the problems that have been identified. The company is on an expansion path. It has to ensure that it overcomes the prevailing challenges that are affecting the productivity of the company before initiating the expansion plan. Considering where the company has reached, the greatest weakness is space. The new deal that has been brokered by the company will imply expansion in relation to the space to accommodate the new dealership. In order to deal with this issue, the company has to seek for more space to accommodate new deals. As a result, the company requires a lot of funds to make this a possibility. In this regard, finance turns out to be the greatest weakness. This is because availability of funds will facilitate solving of the other problems by acquiring new space. From the knowledge that the CEO already has, the business is likely to fall if it outgrows its potential. When profitable business opportunities are too overwhelming, the company must take precaution by channeling the required resources to be utilized or else the business may fail. Best-Buy Auto Group has gained a brand new deal that ought to be well implemented in order to reap the targeted benefits. Failure to provide the required resources because of the financial constrains may affect several aspects of the business. If the business is going to operate on the limited space even after incorporating the new deal, it is likely to suffer frequent stock outs. In essence, working with limited space will impact on several aspects of purchasing and inventory management practices. This is because such practices are set based on the available resources in terms of storage facilities for the inventory (McHugh 2011, p. 38). This is part of the inventory management policies and must be carefully evaluated in line with the company’s primary goals. Failure to effectively address such issues may turn out to cost the company very severely. In the situation where the company fails to source for finances to address the issues emanating from the expansion policies, there are a number of consequences that the company may be forced to deal with. The limited space for storage will imply that the organization has to lower the reorder quantity below the optimal level (McHugh 2011, p. 40). Lowering the reorder level below the optimal quantity means the company has to incur more costs in sustain the stock. When the company is forced to make frequent orders as caused by the storage limitations, the carriage costs will increase. All the costs related to transporting the products to the company’s warehouse will escalate. This will be very strenuous to the company. The success of the strategy of increasing ordering frequency to adequately deal with the increased demand will be determined by the lead periods of the various products being acquired. The different products being sourced from different suppliers can proof to be an enigma to this company. The capacities of the various suppliers in relation to complying with their contractual agreements definitely differ and this must be adequately addressed (Chae & Olson 2013, p. 15). There are those suppliers whose supply may take considerably longer time. This may be influenced by logistical challenges. Some suppliers may be offering a better deal but they are many miles away from the company. The company has a challenge of addressing all these challenges provided there are no funds to expand the warehouses. In line with the current situation in the company, the company must put into place a strategy that will evaluate the costs that the company may be forced to incur if it will be forced to operate with the limited space as it is. At the same time, the costs that are supposed to be incurred by expanding the warehouses must also be brought into the limelight. The two main costs must be weighed analytically and critically. The two must be compared and a trade-off laid based on a minimization strategy suitable for the company. The company is committed to minimizing the overall operation costs and therefore it must be willing to choose the less costly option (Bala 2008, p. 248). This may force the company to embrace external funding in order to meet the financial needs of the company. This must be done based on the returns on investment of the new dealership that the company has brokered. This is to ensure that the company does not incur more costly financing option to facilitate a deal that is worth less than the cost. This is to maintain the financial sobriety of the company while making some investment decisions. Dealing with the Issue of Space There ways through which the company can be able to address the issue of space without necessarily acquiring a lot of space that may turn out to be very costly to the company. This is by ensuring efficient supply-chain management policies are practiced. At the same time, the appropriate inventory practices must be appropriately applied. One of the inventory management practices that can provide a solution to this company in the current situation is proper shelving plans. Proper shelving is useful in ensuring optimization in the use of space in the inventory stores. The various car parts must be arranged in various shelves in a way that will make the optimum use of space in such a setting. That preferred shelving plan must be able to support the movement of stock in and out of the warehouse (Roach 2011, p. 150). This means that the plan must be suitable to the inventory valuation model as well. For instance, if the FIFO model is adopted, it must put into consideration the stocking plan that has been used. More so, proper shelving plan allows efficient inspection of the stock where necessary. This is meant to act as an internal control factor and must be strictly adhered to. At the same time, the company can employ efficient approaches to supply-chain management to meet the demand for the various products appropriately. One way of addressing this is embracing technology in the management of supply-chain. One common tool for undertaking such functions in organizations in the 21st century is the ERP. This is commonly known as the Enterprise Resource Planning tool. This is software that has been designed to assist business owners and managers undertake key business management tasks. These may include project planning, marketing, sales and many other functions. The software seeks to synchronize all functions of the organization into one computer system (Hamilton 2002, p. 135). The system handles most of the processes that entail management of a business. The system has a shared database that gives it the ability to support various functional units of the business. This tool will effectively evaluate the needs of the company and relay the information to the relevant department within the company. This is a very useful management tool that is used in many organizations. The company can be in a position to effectively deal with demand for the various products that Best-Buy Auto Group is dealing in. This system enables the company to effectively forecast the demand and therefore make the appropriate arrangements to ensure that the demand is met. Using such a tool ensures high degree of efficiency (Hamilton 2002, p. 138). The company will only place orders for the stock that is needed right away by the consumers. This indeed will ensure that the little space the company has is meeting the demand. In dealing with inventory management issues, the key factor is to ensure that the stocks do not unnecessarily fall below the minimum stock levels. The business ought to calculate the stock safety levels on regular basis. To achieve this, the issue of budgeting is important. The company must ensure that budget is made on a regular basis. Preparation of budgets on regular basis reduces the variances. The variances arise because the actual stock used or sold during the period is different from the budgeted stock. Reducing the period within which this budgeting is undertaken implies that the variances will also reduce considerably. Reducing variances in budgeting is a significant step in moving closer to achieving accuracy in demand forecasting (Roach 2011, p. 147). This will imply that the business is able to effectively deal with the stock that has been purchased during the period. Poor budgeting techniques have cost many organizations in many ways. Poor budgeting techniques leads to poor projections that can affect the company in twofold. One, the company may budget for more than what is required and therefore forced to incur extra storage costs unnecessarily. On the other hand, poor budgeting skills may also lead a business entity into purchasing less than what is actually required making the company to suffer losses on the account of running out of stock. In order for Best-Buy Auto Group to deal with the issue of space even with limited resources, the budgeting process must be undertaken with the required expertise (Chen & Cheng 2013, p. 3395). This is to ensure that policies and guidelines have been provided to ensure that the company is able to store what is required within a reasonably short period of time. In order to effectively achieve the budgeting function that has been discussed, there is a need to institute the Forecasting and Ordering unit within the Budgeting function. This is entirely for the sake of dealing with the various effects of experiencing extreme variances. Purchasing more products than actually required, apart from increasing the level of inconveniency on the storage space, it also reduces the cash flow (Lancaster 2000, p. 8). This is because a lot of funds could be unnecessary tied up in the inventory. Moreover, the chances of finding spoiled products are high. It is also likely to compromise on the quality if not well managed. Accurate forecasting ensures that the company has put into place appropriate inventory control strategies. This is significant considering the priorities that this company has been emphasizing. In addressing this issue, one must appreciate the complexities that are involved in trying to meet best inventory control measures (Lancaster 2000, p. 8). For instance, the entire process of supply-chain management is very critical. More often, the reception of goods has been ignored in the process of ensuring effective stock controls. At reception, it is good to verify that indeed only the ordered goods have been delivered. There is a huge possibility of receiving more than what was ordered by the company and never notice. When such stock is returned after some time, it will have served as an unnecessary cost to the company already. Such plans in setting appropriate stock levels must put into consideration the various fluctuations that have been noted. For instance, the movement of some car parts is quite seasonal in nature. The trends in purchasing of some products denote some variations in seasonality. The air-conditioner parts have been observed to have great demand during summer seasons. Likewise, the coolants have great demand during autumn while antifreeze exhibit high demand during autumn to winterize cars. These are some of the trends that when appropriately utilized will have a significant impact on the size of the space required for this company. The company ought to utilize this information to design policies that will effectively utilize such fluctuations in order to utilize the limited space. This is the role of the Forecasting and Ordering unit who in turn is expected to feed the budget unit with the information.That is supposed to be applied to all commodities that have peak seasons. Recommendations The supply chain management and inventory management systems are very critical to the success of the organization. Without an effective supply chain and inventory management systems, even the innovative ideas can be wasted in an organization. Therefore, appropriate strategies must be put into this company to ensure that resources are well managed to the benefit of the customers. There are several ways that can be used to improve the performance of the supply chain and inventory management systems. One, the CEO must appoint a manager in charge of purchasing and inventory management. The manager in charge must put in place parameters that will be used evaluate the performance of purchasing and inventory management function of the organization (Larson 2009, p. 230). Such indicators will portray the trend of the company in terms of managing its purchases and inventory. One of the indicators that could be used is the cost of placing an order. Literally, the lower the cost of placing an order implies efficiency in the supply chain. The main aim is to ensure that the company uses performance indicators to evaluate its progress over time. This will ensure that Best-Buy Auto Group is constantly monitoring its progress in relation to inventory management. Another focus in restructuring the purchasing and inventory management system in Best-Buy Auto Group is introducing the appropriate information management system. The current trending in the management of businesses involves using current technologies to manage the operations of the business. In this case, this company ought to use information technology to make it more efficient (Hamilton 2002, p. 136). In this case, there is need for the company to introduce the stock management software/system in order to provide accurate data of the flow of goods from the store. The information management system enables proper management of stock in order to provide ways for decision making process in the organization. This system must be in line with the chosen stock valuation methods. Such methods include LIFO and FIFO. In this company, one of the recommended software is Enterprise Resource Planning (ERP). This tool will facilitate sharing of data to the respective departments depending on the needs of each department. Management information system facilitates data integration and communication within the organization. The most important thing in the inventory management program is to facilitate availing of information that helps address the issue of uncertainties. Uncertainties will affect the planning of inventory in the organization if precaution is not taken. The uncertainties in an inventory management perspective refer to emergency in relation to running out of stock. This may be caused by several factors including disasters like fire. This may lead the business entity to run out of stock completely and force the company to stop functioning for some time to allow adequate time for replenishing of stock (Potocan & Mulej 2012, p. 495). The programs put in place in the organization must be able to have provisions that ensure that business continuity is guaranteed under all circumstances. One way of facilitating such a plan is ensuring that there are adequate provisions in the inventory planning system to allow buffer stocks in the company. Such stock will enable the company continue running after an unfavorable event has taken place. When all these factors are implemented effectively, the company’s inventory management program will be very efficient. Conclusion This report has touched on several aspects of Best-Buy Auto Group in relation to its purchasing and inventory management functions of the company. From the information that has been provided about the company, the company is on a critical growth path. The success of the company is dependent on the decisions that are undertaken by the CEO and the other Managers relating to the challenges facing the company. The dealership that the company has agreed will only benefit the company if the various structures are put in place to support the expansion needs.This report has provided most of the recommendations that can benefit this company if they are appropriately implemented. The various recommendations have been made depending on the current situation of the company. In doing this, the significance of purchasing and inventory management function must be emphasized. The ultimate goal of such organizations is customer satisfaction. An effective supply chain will help ensure that the needs of customers are adequately satisfied. Having understood, the company ought to commit the required funds to ensure that this arm of the company is functioning well. 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