Purchasing and inventory management at grandiose motors

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This report looks into the problems that are faced by Grandiose Motors in supply chain management especially in the acquisition of service parts and materials. As the company increases the lines of cars it is dealing with, it is faced with a problem of getting the service parts and materials because they have to be sourced from different suppliers. The report discusses the different ways in which Grandiose Motors can mitigate the problem of space and capital. The report proposes that Grandiose Motors should try Just-in-time model for the cars but for the service parts and materials, the company will largely depend on season predictability because service parts have to be there when customers need them.

 

Table of Contents

Title page …………………………………………………………. 1

Executive summary ………………………………………………. 2

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Table of contents …………………………………………………. 3

Introduction ……………………………………………………….. 4

Recommendations on purchasing and inventory management …… 5

Differences in purchasing and inventory management polices …… 8

Reducing investment and space requirements ……………………. 9

Conclusion ………………………………………………………… 10

List of References ………………………………………………… 12

 

Introduction

Purchasing and inventory management in a car dealership is usually a tricky issue. The basic premise of operation of car dealership is the fact that they are able to hold a large amount of inventory that need to be supported by large capital investments. This means that effective car dealership largely depend on inventory space and capital available. However, even with large space and capital, it is sometimes very tricky to hold the right inventory for consumers especially when the business deal with more than one line of motor vehicles. This is the situation that is facing Grandiose Motors. The company has opened a new branch that is dealing with three lines of motor vehicles and the manager is wary of the large space and capital that is required to keep the business going. Inventory holds capital and the more the inventory lies in the shelf without being sold, the more they are losing value and turning to dead stock. Therefore, the company must be wary of the efficiency of its inventory and management strategy because inventory has to add value rather than reduce value. The growth of the company has been mainly based on maintaining a high volume of sales and rapidly turning over inventory, which has enabled it to achieve economies of scale. The company has also excelled on a marketing concept of “hassle-free buying experience” which means comfortable buying for the customers. Grandiose Motors has also excelled by offering high-quality after-sales services, which is perhaps the most important factor that has promoted the growth of the company. Maintaining these three growth strategies, high volume of sales, hassle-free buying, and after sales service is tricky for the company as far as inventory purchasing and management is concerned, considering that the company is faced by space and capital constraints. In light of this challenge, this report looks into the best strategies that can be used by the company in purchasing and inventory management.

Recommendations on purchasing and inventory management

Since the company bought the bankrupt Mitsubishi dealership, the company has been able to maintain a high growth rate using its best management strategy. The company has four dealerships that serve more than one million customers. Grandiose Motors has based its growth on three main factors as had been mentioned in the introduction. The company has relied on sales volume and rapid inventory turnover which means at the end of sales year, the company does not have dead inventory. The company has also relied on comfortable buying in the concept of hassle-free purchasing that indicates the lowest price for the car and evades the customer the pain of dealing with nagging sales people. Finally, the company has banked on its after sales service which ensures that customers get the right spare parts for their vehicles and they are fixed in time. These can be considered to have been the main factors that have fueled the growth of the company and any strategy that interrupts these processes may have negative consequences on the company. Therefore purchasing and inventory recommendations must be made in line with these strategies.

Car dealership is a capital intensive business. The business thrives on its ability to hold large inventory of cars and parts from where the consumer can purchase. This implies that however much Grandiose Motor feels financially constrained, there has to be capital injection to ensure success of the dealership. Considering that the dealership will hold three lines of cars, there will be inventory space and capital demand.   The space available may make it difficult for the car dealer is able to provide everything the consumer wants and to maintain the quality of its services. Therefore, Grandiose Motors has to come up with strategies to mitigate this effect. The following are some of the recommendations that company can implement to reduce inventory space and capital problems.

To economize on the space, the company can try the concept of minimum inventory (Christer, 2008). Although this concept is rarely used in motor dealership, it could be revolution for the company in economizing on the space available. The company can reserve the space available for showroom purpose. This means that the space available will have only few cars that will be for the purpose of showing customers what is available and then plan for just-in-time production and delivery with the producers. This strategy has been used by car dealership in Toyota and has been a success. The concept is to produce and deliver the car within the shortest time possible for the consumer to minimize on storage space. In this case, the Grandiose Motors just need to make arrangement with producers to understand the minimum time available for the car to be manufactured and delivered to consumers. This strategy could economize the space available but the company has to convince the customer to wait for delivery of the car within the stipulated time. If the company finds this strategy queer to consumer who are used to driving their cars out of the showroom, the company can then use the strategy of minimal inventory in which the company will only purchase cars that can fit into its showroom. However, the company has to understand that there will be cost implications because it will have to make deliveries more often if the return of the inventory is quite high and this comes to added expenses. This strategy is however workable since consumer will be able to drive their car of choice from dealership rather than placing an order and waiting for it to be delivered, but it adds to the company expenses. Either of the two strategies can work for the company but the advantages and disadvantages should be carefully weighed before deciding on which strategy to adopt.

Dealing with spare parts would be the trickiest issues for Grandiose Motors. The company has excelled on after sales services and it cannot compromise on this strong point of its growth. Dealing with three lines of cars is not easy considering that all the three lines of cars require different spare parts. The company already has well trained technical staff to support after sales repair services but the challenge in accessing parts and materials for the job will remain a great challenge. The purchasing function and management of service parts will determine the continued excellence of the company. The main challenge here is the source of the service parts. The service parts are meant to support three lines of cars and they have to be sourced from different manufacturers. The problem with management function of spare parts is the fact that they are needed there and there and it will be difficult to postpone their use. They have to be available when needed because consumers cannot wait for the parts to be delivered from the manufacturer which rules out the just-in-time strategy (Strachan and Tomlinson, 2008). There are some very small parts which would not just be cost effective to be purchased one at a time or to be requested from the factor one at a time. The best strategy that can be employed by the company is the traditional strategy where it has stocked service parts depending on the season. The company should emphasize on the accuracy of estimation of parts required and perhaps increase the period of delivery for the service parts. This strategy would ensure that consumers have the services as they are needed because there are consumer who will demand same day delivery of services, and considering that time is an important factor in successful inventory management,   the company should consider the amount of time it takes for customers to get their services. If the company has to live with is concept of “hassle-free purchasing”, it should ensure there is timely availability of service parts, which means they have to be at the dealership shop when customer seeks them. Therefore, the best strategy would be through forecasting inventory demand and delivering the amount needed in the market.

Differences in purchasing and inventory management polices

The company has been in one line of car dealership and this made it easy to acquire servicing parts because they were all sourced from one producer. However, the new dealership poses a great challenge for the company because it is dealing with three lines of cars. This is a particular challenge because the company is getting service parts from different suppliers. It has to get genuine parts from the manufacture while others are just bought from any other supplier. The purchasing and inventory management policies and procedures will differ as the dealerships purchase different types of service parts and materials because they will be dealing with different types of suppliers and quality standards for different service parts. For example, the company cannot acquire lubricants and genuine parts from one supplier. It will have to get lubricants from oil companies while genuine parts will be sourced from the supplier. The supply chain used by oil companies is quite different from that used by genuine parts manufacturers which mean Grandiose Motors will be required to adopt different purchasing and inventory management policies and procedures when dealing with the different suppliers. In addition, the quality management strategy for lubricants is quite different from that of genuine parts which implies that the company may be forced to use different quality assurance procedures embedded to purchasing and inventory management policies and procedures (Sanwal, 2008).

Grandiose Motors will be required to come up with separate purchasing and inventory management policies and procedures for the different types of service parts and materials that will be required because these service parts and materials follow different supply chain. Suppliers dealing with these service parts and materials also have different terms and conditions in their supply chain and Grandiose Motors will have to align its purchasing and inventory management policies and procedures to align with the terms and conditions of these suppliers.

Reducing investment and space requirements

Supply chain and inventory management is the management of the network comprising of interconnected businesses that are involved in the provision of products and services packages required by the consumers (Amundson, 1998). It is an interconnected chain through which products and services go through before they reach to the end consumers. Supply chain management mainly spans from acquisition to the movement and storage of raw materials, work-in-process inventory, and the finished goods up to the point the goods reach the consumers. It is a systemic and strategic coordination of business functions and tactics across business functions within a given company and across businesses that forms the supply chain (Cooper, 1997). The main concepts that are emphasized in supply chain management is planning and management of all activities that are involved in procuring and supply process of goods and services including conversion and logistics management. The main concept is to bring together the supplies, intermediaries, service providers, and the customers to function as one unit. In essence, the main concept is to integrate supply and demand management within the area of operation.

These concepts can be very helpful for the company in improving the condition of Grandiose Motors and overcome the strategies that the company is currently facing. They can be employed to reduce space requirement and maintain adequate service levels to keep the consumer satisfied. Understanding the different ways in which the company can manage the supply and demand chain will enable the company to forecast inventory demand and therefore stock inventory which the market needs. For example, since the company understands the seasonal needs of service parts, it can employ principles of supply chain and inventory management to order only the inventory that is needed at that particular season and once the season is over, reduce the level order and increase other service parts and materials. This will ensure that the company satisfies supply and demand chains and keeps the consumer satisfied with services and products offered.

Conclusion

Grandiose Motor has witnessed tremendous growth over the years due to effective management. Its growth has been based on three key principles including high sales volume, “hassle-less purchase” concept, and quality after-sale servicing. The company has kept the customers satisfied with its services. After opening a new dealership that deals in three lines of cars, the company has been faced by a challenge of ensuring continuous supply of service parts and materials considering that those different parts are sourced from different suppliers. The company is faced with constrain in space and capital requirement. To overcome the challenge of space in space for cars, the company should think of just-in-time model where customers will receive their cars direct from the factor once they have placed their order or only order cars which can be taken by space available and then increase the frequency of delivery. For the service parts and materials, the company should use the forecast model and order service parts that are required for that season only. This will ensure that the company is in a position to manage the problems in the supply chain of service parts and materials.

List of References

Amundson, SD (1998) ‘Relationships between theory-driven empirical research in operations management and other disciplines’, Production Journal 3(3): 90-94

Christer Karlsson (2008) Empirical Methods in Operations Management. London: McMillan

Cooper, Lambert, (1997) ‘Supply Chain Management: More Than a New Name for Logistics’ The International Journal of Logistics Management 8, (1), pp 1–14

Sanwal, Anand, (2008) Investment Optimization. New York: AAP

Strachan, Dorothy and Tomlinson, Paul (2008) Process Design Making It Work. New York: McMillan