Supply Chain and Inventory Management in Lancaster Motor Group - Case Study Example

Analytical report Student’s Name: Instructor’s Name: Course Code: Date of Submission: Introduction The main purpose of this report is to assess the various strategies used by Lancaster Motor Group to manage its dealerships. The report takes into the current situation of the Lancaster Motor Group which are the purchasing policies and inventory management problems which the company is currently facing. A case study has been given so that it can provide the situation at the company which needs to be studied and make a report. Lancaster Motor Group is Company which has acquired new dealership making the number of dealerships to be four with this most recent (Harold 2012). All the dealerships have been purchasing different materials from different suppliers which made the inventory management a problem as well as setting standard purchasing policies. The above challenges of purchasing and inventory control policies have led to the study of the problem of operations and inventory management in Lancaster Motor Group therefore this report will aim at giving relevant facts which will improve the purchasing policies and the inventory management ( Kingsley 2005). Finally, this report gives the recommendations of strategies that will be used by Lancaster Motor Group to improve their dealership operations. How inventory management and purchasing differ when buying different service parts from different suppliers First and foremost the purchasing procedures will change because each dealership purchases service parts and material from different suppliers and at different seasons (Kingsley 2005). When the dealerships purchase service parts and materials from different suppliers, the likelihood is that the materials purchased are not in large quantities hence they will not need long standard procedures when buying them. This will alter the policies set by Lancaster Motor Group when acquiring materials. Purchasing materials and service parts by dealerships from different suppliers, the possibility is that techniques such as just in time inventory management will develop (William 2001). This is because purchasing of the service parts is done in low quantities which may not need storage hence the materials are purchased when they are needed for operation. For example the purchase of lubricants can be done to be used immediately so that there is no storage. This technique limits the policy of Lancaster Motor Group of getting quantity discounts by purchasing service materials and parts in large quantities. The dealerships will differ in the inventory management techniques (Travis 2013). Some dealerships will maintain zero inventories in the store whereas others will maintain some stock in the store. This is because some materials and service parts are used occasionally for example from the existing data concerning the demand for different parts and materials it was noted that alternators and batteries are needed more regularly during winter while in summer air conditioners are on high demand. These trends lead to seasonal purchasing because the materials and service parts are purchased seasonally. If all parts could have been purchased from a single supplier, Lancaster Motor Group could have negotiated for quantity discounts and purchase large quantities of materials and keep some inventory in the store. The policy of purchasing and inventory management of acquiring standard materials is change and cannot be achieved. This is because dealerships purchase materials and service parts differently from different suppliers. Each supplier has different qualities of the parts hence the policies of maintaining standard purchases are not achieved. The policy of getting the right quality of materials or parts at the right time is altered (Brent 2008). As a result of purchasing different services materials and parts from different suppliers at the exact time when they are needed for use may lead to inconveniences. Just in time purchasing sometimes cannot be effective because the parts may not be available when needed hence the materials cannot be purchased at the right time as the policy of inventory management states. Weaknesses of Lancaster Motor Group Despite Lancaster Motor Group excelling in the market in the last 15 years, it has many weaknesses which have been facing it either. These weaknesses include the following; there is a lack of space for storing materials and service parts (Emerald 2011). This is a weakness because many customers will expect to be served as they desire but you may find out that some service materials and parts are not in the store and thus needs to be purchased. This will take longer than the customers expected thus he or she may not be satisfied with the services given. The Lancaster Motor Group also has weaknesses of inadequate funds to invest in the materials. With the acquisition of the fourth dealership, the Company does not have adequate funds to support the running of the three cars in the same facility. Most of the finance has been spent in the new auto supermarket thus little funds are available for expansion and management operations. There is no adequate finance to open new places where it can store the service materials and parts. Another weakness is that there is a lack of standardization of the purchases (Harold 2012). This is because the purchasing and inventory management policies are not followed to the latter. Each dealership makes purchases on its own from different suppliers which may be of different standards. If the purchasing strategies are followed then there could be standardization of services and products. There are poor strategies for purchasing and managing inventory. Each dealership does its own purchases which does not follow the set rules and regulations (Koumanakos 2011). The system for managing inventory is not clear and that purchases are done on time when there is a need. In this regard the Company is prone to shortcomings of poor management of inventory and purchasing procedures. The Company has not been able to set and implement purchasing strategies which will lead to quantity purchasing. If the Company could be applying the strategy of quantity purchasing, then it could enjoy economies of scale. In this the Company will save some finance from the quantity discounts to expand the space for storing materials. The Company also applies ineffective forecasting techniques on the demand for inventory so that appropriate purchasing is done (Harold 2012). The Lancaster Motor Group uses historical data to forecast the future trends of the demand for the service parts and materials. Historical data may not always give a clear forecast because the trends may have changed with time. Therefore this forecasting technique may give wrong forecasts and the Company will purchase materials which may not sell as expected thus tying capital which could otherwise be useful somewhere. With the acquisition of the fourth dealership auto supermarket, the Company has been straining the more than when it had only the three dealerships. This is because there are no space and finance to manage the new auto supermarket and other dealerships. A lot of finance was used to install the new auto super market with three varieties of cars. Even before the fourth dealership the Company had inadequate finance and with the acquisition of the auto supermarket the constraints become worse. Therefore the resources are becoming more scarce because and the management of inventory and purchasing policies cannot be fully implemented. How supply chain and inventory management reduce space requirements for Lancaster Motor Group The first concept is to measure the operations of the supply chains (Robb et al 2010). Assessment and measurement of the supply chain operations should be done to know how accurate they are. When the supply chains are accurate then the orders can be made at specifies time knowing that the supply chains will not delay the service materials and parts. This will help the organization maintain a minimum level of stock of which they hope another supply is on the way. This concept also helps the organizations to know the maximum amount of stock to hold in the store. Another supply chain concept that will help Lancaster Motor Group to reduce the investment and space requirements is the ability to expedite the supply chain (Robb et al 2010). The Company should have a team of experts whose responsibility is to follow up the supply chain to ensure that the supply is accurate and will be delivered at the stated time. When the stock arrives in time then it means that it is accurate and orders will be made while using the minimum stock in the store awaiting the delivery of the order. This will reduce the investment in space because inventory arrives when it is needed. Another supply chain concept which can help Lancaster Motor Group to reduce investment in space is to increase the efficiency of the supplies (Robb et al 2010). This can be done by ensuring that the supply chains are efficient. The Company should make sure that there are no complexities in the supply chain like reducing the processes which can otherwise cause delays in the supply of service parts and materials. In this regard the Company will be assured that the materials will arrive on time hence there will be no need of storing large volumes of inventory which increases the storing costs. On the other hand inventory management concepts also can reduce the investment and space requirements is the concept of knowing what to order (Eckert 2012). The Lancaster Motor Group should be able to know what they want to purchase and place an order. By purchasing service parts and materials, the Company will not need space for storing inventory because the practice is hand to mouth. Forecasting should be used to know what the demand is likely to be then place an order of supply. This concept minimizes the tying of capital in inventory and space and therefore can be used to invest in other potential areas. The Company should also liaise with potential suppliers who can be relied upon to supply the service parts and materials. Knowing where to order from will develop a good relationship between the Company and the supplier and therefore there will few procedures involved in the purchasing of the inventory. A good relationship will lead to contractual assumptions hence an order can be made at any time because the supplier is already known hence the supply is certain when an order is placed. The Lancaster Motor Group should know when to order for the materials (Eckert 2012). Using the forecasted trends the Company should be able to project the future demand and place an order for the materials and service parts. Forecasting will help the Company to know when to order for example during winter batteries and alternators are in high demand and during summer air conditioners are in high demand. These trends will enable the organization to know what to order at what time. This concept will help the Company to minimize stock levels in the store by purchasing only materials and service parts which are needed at specific time hence less capital is tied on stock. Finally, Lancaster Motor Group should develop a delivery schedule (Adeyemi 2013). This schedule will enable the Company to know the efficiency of delivery when an order is placed. This concept helps to know the exact delivery time of the ordered items. This will help the Company to know the time place orders so that delivery will not be delayed or the materials arrive before time which will force the Company to store them of which there is no space for storage. Therefore the Company will reduce space requirements by ordering materials and service parts which will arrive the exact time they are needed for consumption. Recommendations for purchasing and inventory functions The following are the recommendations to Galena Markovic for structuring the purchasing and inventory functions; first the purchasing function needs to be centralized (Robb et al 2010). All the dealerships should not be allowed to order service parts and materials independently from different suppliers. This will enable the Company to get quantity discounts which saves some costs to be used in other operations. Centralized purchasing of materials also helps to purchase standardized materials for each of the dealerships. Another recommendation is that the Company should apply ABC analysis in the management of inventory. The ABC analysis classifies inventory into the most important, the more important inventory and the least important inventory (William 2001). This system will enable the Company to better understand what is to be purchased before the other one. The systems will enable the Company to purchase materials which are most needed so that the customer demand will be met. The Company should develop purchasing policies which should be implemented. For instance the purchasing procedures should start with the advertisement, approvals of the applications, interviews and selection of the best supplier. In this regard the Company will be able to get the most reliable and qualified supplier who will supply materials and service parts which will meet the customer demands. The Lancaster Motor Group should develop a strategy of purchasing same materials from the same supplier for all the dealerships. This will ensure the parts are standardized and also the Company will get quantity discounts. For example lubricants should be purchased from a single supplier so that the Company will enjoy the benefits of being a regular customer like after sale services which includes free transportation of the purchases. The Lancaster Motor Group should design a system which will maintain the minimum inventory levels so as to initiate another ordering process (Travis 2013). This minimum stock level will help the purchasing and supplies manager to know when to place an order of the materials so that the Company will not run out of stock which may not meet the customers’ demands when the need arises. Finally, the operations manager of the Company should match the demands with the quantities of purchases so that inventory turnover will increase. There quantity demanded should be equal to quantity ordered or slightly higher than the demand. This lowers the cost of holding inventory and increase the inventory turnover. This will be achieved by applying economic order quantity technique. Conclusion The Lancaster Motor Company is an automobile company which initially has three dealerships but has acquired the fourth dealership recently which deals with three types of cars. Despite the company growing tremendously in the past fifteen years, it has also been facing some challenges and weaknesses. The main weakness of the company is the operations management which are the purchasing policies and inventory management. This report has highlighted some of the ways in which the Company can improve its purchasing and inventory control operations so that it can continue to grow in the market. Some of these strategies include centralized purchasing, purchasing materials in large quantities, applying economic order quantity technique applying ABC analysis to purchase materials and service parts as well as maintaining minimum stock levels. By adopting these strategies the Company will be able to meet its demands for growth as well as maintain their competency in the market. References Adeyemi, S 2013, Supply Chain Management, An International Journal, Vol. 8, No. 3, pp.345- 542. Brent D & Travis, T 2008, A review of inventory management research in major logistics journals: Themes and future directions, International Journal of Logistics Management, Vol. 19, No. 2, p. 212 – 232. Emerald, K 2011, Advances in Business and Management Forecasting, International journal, Vol. 8, No. 3, p. 469-765. Eckert, G 2012, Supply Chain Management, An International Journal, Vol. 18, No. 3, p. 456- 654. Harold, E 2013, Lancaster Motor Group, viewed 30th April 2013 from http://www.countrycars.com.au/hunter/car-dealer/lancaster-motor-group Kingsley, A 2005, Lancaster Company dealerships, London, Summit books. Koumanakos, J 2011, Operations and purchasing functions, Operations and purchasing functions journal, Vol. 22, No. 3, p. 56-89. Robb, D. Johnson, E & Silver, A 2010, An in-class competition introducing Inventor Management concepts, Informs Education, Vol. 10, No. 3, p. 122-125. Travis, T 2013, Business Process Management, Business Process Management Journal, Vol. 19, No. 2, p. 1463-7154. Williams, D 2001, Production and Inventory Management Journal, The Journal of the American Production and Inventory Control Society, Vol. 42, No. 1, p. 348-524. Read More