Operations Management principles and theories

Referencing Styles : Harvard Assessment task 2 requires the writing of a business report. The report should explain what the current situation is, what problems are in evidence and how those problems should be addressed. As a business report it should be concise, accurate and actionable. At the same time, the report should be founded on appropriate Operations Management principles and theories, and be supported by appropriate evidence and discussion from relevant academic literature. Details The assessment item is based on the case study titled Laney Collins Motors (a fictitious company). You should read, and carefully analyse, the case and respond to the issues presented at the end of the case study within the context of a short business report. The objective of the case study is to provide an operations management situation that can be studied and analysed. You will need to put yourself in the role of a management professional who is asked by the organisation to identify the nature of the problem(s), why or how the problem happened or evolved, and make recommendations that will resolve it. Case study: Purchasing and Inventory at Laney Collins Motors Laney Collins, CEO of Laney Collins Motors, has just returned to her office after visiting the company’s newly acquired automotive dealership. The new dealership was the fourth Laney Collins Motors dealership in a network that served a metropolitan area of over two million people. Beyond the metropolitan area, but within a 45-minute drive, was another half a million people. Each of the dealerships in the network marketed a different make of car and historically had operated autonomously. Collins was particularly excited about this new dealership because it was the first “auto supermarket” in the network. Auto supermarkets differ from traditional car dealerships in that they sell multiple makes of cars at the same location. The new dealership sold a line of Daewoos from Korea, Mahindras from India and Cherys from China. This brought the total number of brands sold by the group to six. Since the purchase of a bankrupt Mitsubishi dealership 15 years ago, Laney Collins Motors had grown steadily. As the city was relatively small, it was difficult to expand within a single brand, so eventually Collins purchased a rundown Mazda dealership, and shortly afterwards, a small Hyundai dealership as well. Under her direction, all three dealerships saw rapidly improving sales figures and the Laney Collins Motors network grew in strength and reputation. Collins attributed this success to three highly interdependent factors. The first was volume. By maintaining a high volume of vehicle sales and turning over inventory rapidly, economies of scale could be achieved, which reduced costs and provided customers with a large selection. The second factor was a marketing approach called the “hassle-free buying experience.” Listed on each automobile was the “one price—lowest price.” Customers came in, browsed, and compared prices without being approached by pushy salespeople. If they had questions or were ready to buy, a walk to a customer service desk produced a knowledgeable sales person to assist them. Finally, and Collins thought perhaps the most important, was the after sales service. Laney Collins Motors had established a solid reputation for servicing, diagnosing, and repairing vehicles correctly and in a timely manner—the service division’s motto was “do it once, do it right”. High-quality service after the sale depended on three essential components. First was the presence of a highly qualified, well-trained staff of service technicians. Second was the use of the latest tools and technologies to support diagnosis and repair activities. And third was the availability of the full range of parts and materials necessary to complete the service and repairs without delay. Collins invested in training and equipment to ensure that the fully trained personnel and the latest technology were available at all sites. What she worried about, as Laney Collins Motors grew, was the continued availability of the right parts and materials. She knew there was a fine line between too much and too little stock. With the new dealership, the complexity of inventory control had increased dramatically. This concern caused her to focus on the purchasing function and management of service parts, accessories and materials flows at both a supply chain level, and as an internal function. Collins thought back on the stories in the newspaper’s business pages describing the failure of companies that had not planned appropriately for growth. These companies outgrew their existing policies, procedures, and control systems. Lacking a plan to update their systems, the companies experienced myriad problems that led to inefficiencies and an inability to compete effectively. She did not want that to happen to Laney Collins Motors. Each of the four dealerships purchased its own service parts and materials. Each location had its own purchasing officer and parts manager. Purchases were based on forecasts derived from historical demand data, which accounted for factors such as seasonality. Batteries and alternators had a high failure rate in the winter, and air-conditioner parts were in great demand during the summer. Similarly, coolant was needed in the spring to service air-conditioners for the summer months, whereas antifreeze was needed in the autumn to winterise cars. Forecasts were also adjusted for special vehicle sales and service promotions, which increased the need for materials used to prepare new cars and to service other vehicles. One thing that made the purchase of service parts and materials so difficult was the tremendous number of different parts that had to be kept on hand. Some of these parts would be used to service customer MGMT19126 3 Term 1, 2015 vehicles, others would be sold over the counter to retail customers, whilst others (particularly genuine replacement parts) were on-sold to wholesale trade customers. Some had to be purchased from the car manufacturers (genuine replacement parts and accessories), to support, for example, the “guaranteed genuine parts” promotion or because that was the only source of supply. Non-genuine replacement parts and accessories were purchased from a variety of suppliers and other parts and materials such as oils, lubricants, fan belts and other generic service parts and materials, could be purchased from any number of suppliers. The purchasing department had to remember that the success of the dealership depended on (1) lowering costs to support the hassle-free, one price—lowest price concept, and (2) providing the right parts at the right time to support fast, reliable after-sales service. As Collins thought about the purchasing of parts and materials, two things kept going through her mind: the amount of space available for parts storage and the level of financial resources available to invest in parts and materials. The acquisition of the auto supermarket dealership put an increased strain on both finances and space, with the need to support three different car lines at the same facility. Investment dollars were becoming scarce, and space across all the locations was at a premium. Collins wanted a ‘whole of organisation’ approach, and wondered what could be done in the purchasing, supply chain, and inventory areas to address some of these concerns and alleviate some of the pressures. Task As a newly appointed Purchasing Manager at Laney Collins Motors you are required to prepare a report for Laney Collins that addresses the following questions: 1. How might purchasing and inventory management policies and procedures differ because the dealerships purchase different types of service parts and materials (e.g. lubricants, non-genuine parts versus genuine parts) from different types of suppliers? 2. What appear to be the main weaknesses of current purchasing and inventory management practices at Laney Collins Motors, and how could these weaknesses be affected by the new acquisition? 3. How can supply-chain and inventory management concepts help Laney Collins reduce investment and space requirements whilst maintaining adequate service levels? 4. What recommendations would you make to Laney Collins with respect to restructuring the purchasing and inventory functions for the Laney Collins Motors dealership network?

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