Growing Pains at Grandiose Motors - Case Study Example

Running Head: Growing pains at Grandiose Motors Growing pains at Grandiose Motors [Author] [Date] [Instructor] Executive Summary The case study pertains to a fast growing Grandiose Motors which has recently bought a fourth dealership. The new dealership, unlike the other dealerships which deal in only one make of cars, deals all makes of cars. The CEO is quite excited initially but with every passing day when he reads newspaper and looks at the news regarding crashing companies, which were once name of success, due to the reason that the companies are outgrowing their policies and procedures which were absolutely not devised for future growth. The CEO asks the advisor to submit a report containing recommendations for the company to enhance and improve its purchasing function and inventory function, to devise different supply chain management and inventory management concepts for different products. To implement such policies in which there is less investment and less space requirement. The study of the case gives us brief overview of the whole situation and also contains some recommendations and suggestions for the CEO. Contents Contents 3 Overview 4 Reasons behind the success of the organization 5 Goods Which Are Dealt At Grandiose Motors 6 Services provided by Grandiose Motors 7 Grandiose Motors and Customer Relationship 8 Structuring the Purchasing and Inventory Functions 8 How might the purchasing and inventory management policies and procedures differ as the dealership purchase different types of service parts and materials (e.g., lubricants vs. GM parts)? 11 3. Using Supply-Chain and inventory Management to reduce space and investment requirements while maintaining adequate service levels 13 Conclusion and Recommendations 14 References 16 Overview CEO of the Grandiose Motors has recently acquired dealership which is the fourth Grandiose Dealership in a network that serves a metropolitan area with population of over one million and another half a million people within 45 minutes drive. This new dealership is one of its kinds as previously, each of the dealership in the network use to market a different make of car and operates autonomously and the new dealership is the first auto supermarket in the network. Auto super market differs from conventional dealership because in new dealership they sell multiple makes of cars at the same location. The new dealership sells a line of Nissans, Toyotas and Volkswagens. The CEO is very excited about the new dealership. This organization was setup 15 years back with the purchase of bankrupt Mitsubishi dealership. It has been on the sail of success and the organizations have set high standards of sales and services which include diagnosing and repairing vehicles accurately and in a speedy manner. The main purpose of the company is hassle-free buying experience and adding to it is their motto of one price-lowest price. There are few concerns and apprehensions which have aroused due to recent stories published in the news paper’s business pages that companies are failing due to non planning for the future growths and due to this reason these companies are outgrowing their existing policies and procedures which renders them to myriad problems and resulting in their inability to compete effectively. In order to address these concerns and alleviate some of the pressures, this report has been prepared which includes suggestions and recommendations for changing the existing policies and procedures that can help company maintain its repute and perform in a much better manner that will ultimately lead to increased turnover. Reasons behind the success of the organization Volume of supply at Grandiose Motors is the main reason of success. Marketing Approach of Grandiose Motors is different than other which makes this company a winning symbol. After Sale-Service is at its best and maintenance facilities are provided at Grandiose Motors round the clock for its customers. Award-winning repair facility is available due to highly skilled and trained staff ready to serve customer 24/7.The latest automotive problem recognizing technology is also used which enables the company to target the exact location of fault. This addition of technology supports the maintenance activities in much better and sophisticated manner. Better environment for the customers is the unique feature at Grandiose Customer care centers where free refreshments and children’s play area is provided to all the valued customers. In addition to this, free transport service is provided to all the valued customers in order to facilitate them in every possible way. Goods Which Are Dealt At Grandiose Motors New cars Car Buying Hold inventory based on Car selling forecast from historical data Batteries Alternators Air conditioners Inventory depends upon seasonal factors Refrigeration Fluids Antifreezes Oils Each dealer purchases its own parts and Lubricants materials. Fan Belts Services provided by Grandiose Motors Explicit Services Implicit Services Brake Services - Hassle free Buying experience Engine Service and Repair - One price-lowest Price Transmission Service and Repair - After Sale Services Electrical system service and repair - Providing right part and right time Steering and Suspension - Schedule a test drive Heating and Cooling Services - Request a rental car online Alternators, starters and ignition Service Air Conditioning system repair - Suggestion to customers regarding repair services Water pumps Fuel pumps and lines repair Organization Chart of Grandiose Motors Grandiose Motors and Customer Relationship The organization must understand what customers want, and predict when they will want it. Orders must be delivered to the customers as quickly as possible. Grandiose Motors and Supplier Relationship is also very important point and the supplier must be able to deliver what is required in a timely manner. Supplier deliveries must be efficient in order to be cost effective and above all product defects should be kept at a minimum. Structuring the Purchasing and Inventory Functions Grandiose Motors should think about a centralized corporate level Materials Management System to consolidate buying decisions for each of the 4 dealerships. This would ease greater facility with suppliers for perfect quality-control. Economies of scale can be achieved by bargaining for better product pricing through large volume of product purchasing. ( Keough,1993) While growing/ expanding the company it is mandatory that the company do not outgrow the existing policies, procedures and control system. The main concern in this regard can be lack of plan. In order to overcome this kind of situation it is recommended that the forecasting should be done outside of Grandiose Motors and local dealerships within the network. For this purpose speaking to vendors that delivers to dealerships is a better option and helps in picking up the prevailing trends. (Gadde, L-E and Hakansson ,1994). During the past few years, increasing specialization and much diversified market structure have made companies to bifurcate their purchasing functions into various organizational units to overcome the diversified demands on linking the operations within the organization with operations at their suppliers. It is strongly recommended that decentralized approach for organizing the purchasing function should be incorporated because it has become increasingly important for promoting internal interaction with other functions. Purchasing has become a more complicated task with more specialization and technical advancement. These complexities and advancements have directed the purchasing function to be more diversified working in close coordination with other units such as technical development, production and logistics function etc. In automobile industry multi functional teams including purchasing representatives, has become a vital organizational principles for managing the developments of modules. (Ellram. and Pearson, 1993) “…it is part of the total operations of the company, implying that integration with those other activities is a main concern. In the decentralized purchasing organization buyers are located together with people manufacturing and engineering rather than with other purchasers, simplifying inter- departmental interaction, but making purchasing per se less professional.” (Gadde and Hakansson 2001:108) The ways in which the purchasing function of an organization is devised also influences how it may interact with external counterparts. Inter-organizational issues have more often not been separated from intra-organizational one. (Faes and Matthyssens, 1998) Centralized purchasing structures are characterized by all purchases, being managed by a central purchasing group. In this type of purchasing functions, operating units are consulted but are not held completely responsible for their own buying.( Freeman, and Cavinato,1990). It may be an effective function but still there is a little user control and responsiveness to local needs. Since the company, individual business units manage deals with multiple purchasing departments within the organization and all purchases. In this approach, each business unit has its own autonomous purchasing function. Cross business unit coordination, if any is voluntary, adhoc and informal. There is no centralized coordination or development of policies of the firm. The organization places all responsibilities for purchasing activities at the field locations and it serves to minimize the corporate overhead. The only disadvantage of this model is that the local purchasing unit lacks managerial or operating strength to provide the group with economies and buying power that is often found in companies with centralized groups. The overall purchasing process can be divided into operational, tactical, and strategic activities. Currently these activities are carried out by one and the same department. (Gadde, and Håkansson,1994) Keep inventory with those parts that are required. This is possible by conducting a survey or by going through the record which will reveal that there are some parts,which are often required and should be kept in the warehouse e.g., batteries, fuses, belts, oil wipers, blades, antifreeze etc. Other parts can be made available from the local supplier with same day delivery. This will help in reducing the space requirement and the inventory will be kept low, as such, things won’t be stored thus reducing space requirements. (Gadde and Håkansson,2001). An automated EDI inventory management system should be incorporated which will connect the dealerships and interface with those who provide the parts. Such system will work smartly and would alert the dealership and supplier when the inventory reaches the critical level. (Wynstra,Weggeman,Weele,2003) Inventory pooling among the dealership is yet another good practice to eliminate the need of keeping the warehouse stalked. Instead, in situations of urgency parts could be exchanged between dealerships. Inventory function could become smarter if the Vendor Manager Inventory system is brought into practice as it would before hand intimate the dealership to avoid deficiency of any of the inventory items before they are over in the stock.(Gadde,and Snehota,2000) How might the purchasing and inventory management policies and procedures differ as the dealership purchase different types of service parts and materials (e.g., lubricants vs. GM parts)? The main practice that can bring about a tremendous difference is that purchasing of generic parts and materials should be made from local manufacturers and distributors. This is extremely cost effective as if you buy a part or material from a manufacturer or distributor who is not local it can lead to increased cost due to haulage, delay in supplies, quality and other such aspects. Purchasing from local distributors eradicate any such issues and one can bargain on cost as well when ordering in bulk or when the orders are placed in routine. (Lakemond, Van Echtelt and Wynstra 2001). The other good practice is that the number of suppliers in the purchasing cycle be reduced, and it would be much better if a single source distributor, for supplying different products, can be figured out. This leads to much economical purchasing as the purchasing a large volume of products ultimately leads to a reduction in cost. By reducing the number of transactions necessary to keep the required inventory levels, would let Grandiose to realize additional cost savings.( Håkansson and Ford,2002) The inventory management policy and procedures for different types of service parts and materials can be improved by using inventory management software as it helps in maintaining the stocks of different classes in a much simplified and technical manner. One of the basic concepts of inventory management in general, is that not all Inventory items are of equal importance and they don’t all need the same level of control. Therefore, what we do is classify all the inventory items. Today, as business technology is growing fast and developing day by day, it is important for the company to incorporate the inventory managing software. Inventory management software may have number of programs. Most generally, inventory management software has the record in which information can be easily handled and entered. Inventory management software also provides a central location to find out record on the entire inventory a company has. This is quite useful for Grandiose Company to know how many additional items need to be purchased. It is mandatory for Grandiose Motor to keep a certain amount of items in stock but certainly, Grandiose Motors does not want to have excess of the inventory items as it cost money and keeping excess items in stock would mean disturbing the cash flow. (Van Weele, 2005). Inventory management can make things more accurate as it will help Grandiose Motors to keep only those products in stock that is required. Inventory management policy will also help the company to keep track of what parts the company has got in stock. As Grandiose deal in different dealership, therefore, it is very important to know what the companies have in stock to offer. In a properly organized inventory management technique and concepts, unnecessary expenditure is avoided, while procuring the product from a supplier and delivering it to the consumer. A good inventory management always leads to much better customer service and it help gaining confidence of the customers; retain them and above all gaining new customers. Therefore, for a much better inventory management and improved turn over it is important to incorporate software that can manage different dealership products at the same time. (Von Corswant, 2003) 3. Using Supply-Chain and inventory Management to reduce space and investment requirements while maintaining adequate service levels With smart supply-chain management, Grandiose Motors can streamline the buying processes and maintain an efficient inventory control while reducing unnecessary inventory stalking. Grandiose would need to go through previous inventory turnover rates to know the approximate range of supplies required to be in stock in each category. The company would need to adjust inventory levels to accommodate demands during on seasons and promotional marketing periods. (Leenders and Johnson, 2000) Developing the cordial business relation with the distributors and suppliers is very important to ensure the availability of supplies necessary to maintain services that satisfy customer demand and supply. It is an important factor to maintain the cash flow. This reduces the chances of leaving the products stalked at the warehouse and one identifies that how fast product purchases are sold out. As keeping things in the warehouse can sometimes create space problems and disturb the cash flow, therefore, it is important to know the demands of peak season and promotional periods and accordingly maintain the inventories. (Wynstra, , Van Weele, and Weggeman, 2001) There are questions related to inventory management that needs requires consideration while implementing inventory management concepts. Those questions are: How many products/items do you foresee to sell out during a specific ordering period? What is the product that is most likely to sell out? How many products are ordered to the supplier, to supply at one time? How long does it take for shipment of the order from the day the order is placed? How many items are there in the stock? How many confirm orders have been placed? All such questions when addressed leads to best inventory management concepts. Conclusion and Recommendations The above discussion and recommendations lead to a conclusion that Grandiose Motors , though a winning name, yet needs to incorporate certain concepts and policies, which will help the company maintain its reputation, retain old customers, gain new customers, provide better facilities to its customers and ensure the availability of parts required with the least investment and space requirement by centralized purchase function, computer bases intelligent inventory management system by using software, by reducing the number of people in the process of procuring of part to supplying it to customer, and by utilizing the services of local suppliers will help the company maintain its repute and increase its performance in a positive and economical way. References Gadde, L-E and Hakansson H. (1994). The changing role of purchasing: Reconsidering three strategic issues. European Journal of Purchasing and Supply Management. 1 (1), 27-36. Anderson, J.C., Narus, J.A., (2004) Business Market Management: Understanding, Creating, and Delivering Value, 2nd ed., Prentice Hall:Upper Saddle River NJ. Axelsson, B. and Håkansson, H. (1984) Inköp för konkurrenskraft. Liber: Malmö. Axelsson, B., Rozemeijer, F. and Wynstra, F. (2005) Developing Sourcing Capabilities. Chichester:Wiley & Sons. Ellram, L.M. and Pearson, J.N. (1993), “The Role of the Purchasing Function: Toward Team Participation,” International Journal of Purchasing and Materials Management, 29, 3 (Summer), 3-10. Faes, W. and Matthyssens, P. (1998) “Managing purchasing co-ordination: how to build an effective intra-company relationship,” Proceedings 7th IPSERA Conference, London, 204-215. Freeman, V.T. and Cavinato, J.L. (1990) “Fitting purchasing to the strategic firm: frameworks, processes, and values”, International Journal of Purchasing and Materials Management, 26, 1 (Winter), 6-10. Gadde, L.-E. and Håkansson, H. (1994), “The changing role of purchasing: Reconsidering three strategic issues,” European Journal of Purchasing and Supply Management, 1, 1, 27-36 Gadde, L.-E. and Håkansson, H. (2001) Supply Network Strategies. Chichester: Wiley & Sons. Gadde, L.-E. and Snehota, I. (2000), “Making the Most of Supplier Relationships,” Industrial Marketing Management, 29, 305-316 Håkansson, H. and Ford, D. (2002), “How should companies interact in business networks?,” Journal of Business Research, 55, 133-139. Keough, M. (1993), “Buying your way to the top,” McKinsey Quarterly, 3, 41-62; Lakemond, N., Van Echtelt, F. and F. Wynstra (2001), “A Purchasing Professional at my table: a configuration typology for involving Purchasing specialists in product development”, Journal of Supply Chain Management, 37, 4 (Fall), 11-20. Leenders, M.R. and P.F. Johnson (2000) Major Structural Changes in Supply Organizations, Tempe, Arizona: Center for Advanced Purchasing Studies. Leenders, M.R. and P.F. Johnson (2002) Major Changes in Supply Chain Responsibilities, Tempe, Arizona: Center for Advanced Purchasing Studies. Van Weele, A.J. (2005), Purchasing and Supply Chain Management, 4th ed., Thomson Learning: London. Von Corswant, F. (2003) Organizing Interactive Product Development. Dissertation, Chalmers University of Technology, Operations Management and Work Organization, Göteborg. Wynstra, J.Y.F., Van Weele, A.J. and M. Weggeman (2001), “Managing Supplier Involvement in Product Development: Three Critical Issues”, European Management Journal, 19, 2, 157-167. Wynstra, J.Y.F., Weggeman, M., Van Weele, A.J. (2003), “Exploring Purchasing Integration in Product Development” Industrial Marketing Management. 32, 1, 69-83. Read More