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As Purchasing Manager for Grandiose Motors, I have endeavored towards continuous critical evaluation of the existing processes and policies that has impact on the daily operations, with the purpose of promoting efficiency, reducing costs and further improving the performance of Grandiose Motors. This report aims to give solutions to the challenges faced by Grandiose due to its growth, of purchasing and availability of service parts and materials which play a significant role in its operation and sustainability of the business. This report attempts to critically evaluate the process and submit recommendations for approval of the management. It will also highlight the significance of purchasing and inventory management policies and procedures and introduce the concept of supply chain management as solution to operation challenges and strategies as well as performance management in terms of deliverables and service levels of Grandiose Motors to its stakeholders most especially to its customers.

TABLE OF CONTENTS

Introduction

1.1 Aims

2.0 Background: Grandiose Motors

3.0 Critical Evaluation of the current Purchasing and Inventory Function for Grandiose Motors Dealership network

3.1 Restructure Processing and Inventory Function

4.0 Recommendations

TASK 1: Recommendations with respect to structuring the purchasing and inventory functions: SCM Implementation at Grandiose Motors Business Operation

Supply Chain Management

Purchasing and Inventory Management Policies and Procedures

TASK 2: Recommendations for different purchasing and inventory management policies for purchase of different types of service parts and materials

TASK 3: Supply Chain and Inventory management concepts designed to reduce Investment and space requirements and maintaining adequate service levels of Grandiose Motors

Solution to reduce Investment and Space requirements

Performance Management and Service Levels

Grandiose Motors: Operational Strategies and its Implication

SCM professionals or SCM consultant or practitioner

Using SCM ERP Packages

5.0 Conclusion

6.0 List of References

Introduction

Grandiose Motors is foreseeing that the sustainability of its successful performance and efficient service is to manage its current challenges -ensuring availability of service parts and materials and finding a solution to facilities and warehouse space requirements to accommodate the growth of Grandiose Motors’s business. To sustain the company’s growth, impending challenges for the company have been identified and the need to address them has been raised.

1.1 Aim

This report is made to critically evaluate current processes involved in the operation and suggest some recommendations to address the forthcoming challenges. An idea and the perception from industry practices that Supply Chain Management solves inventory and warehousing concern for business operations, is an option that Grandiose Motors desire to explore. This paper will provide an overview of how Supply chain can help business operations as well as solving the current challenges of the company.

2.0 Background: Grandiose Motors

Grandiose Motors was established 15 years ago, starting from one office it has grown to its fourth automotive dealership. Grandiose Motors is involved in automobile sales and after sales servicing. Managing four automotive dealerships and catering to over a million consumers requires hard work, consistency in customer service and continuous improvement to ensure sustainability of the business. The automotive dealership of Grandiose Motors operated autonomously wherein only one car make is being sold and serviced. The business was started with the acquisition of the Mitsubishi dealership; after over a decade it had already acquired two more and now it is on its fourth dealership, the company is now going beyond being synomomous with one car make. The new dealership is his first “auto supermarket” where they sell multiple car makes. This includes Nissan, Toyota and Volkswagen.

The success of Grandiose Motors is attributed to three interdependent key factors. First is volume, second is its marketing methodology “hassle-free buying experience” and lastly, its solid reputation for after sales service. These three factors are cyclic by nature, the high volume of sales pertains to availability of choices of cars and car makes, then the buying experience entices customers to make their purchases at Grandiose Motors and of course, all cars purchases are maintained to ensure its usability and this is done through after sales service- like diagnosing repairs, timely and efficient service and outstanding customer experience. Grandiose Motors is banking on these performance indicators as their solid foundation for their customers. They have gained the confidence of their buyers, thus, they are known as a reliable car sales dealer and have outstanding after sales support and servicing.

3.0 Critical Evaluation of the current Purchasing and Inventory Function for Grandiose Motors Dealership network

Currently, the purchasing and inventory function of the four dealership network of Grandiose Motors follows that they purchase their own service parts and materials. Grandiose is following decentralized purchasing policy where each dealership is buying their inventory independently. It leads to higher costs and more time for managing inventory at each dealership. Centralized purchasing policy helps in better control over inventory investment, space, quantity and cash discounts and assures uniformity in quality and reduces overlap and duplication of purchasing effort. Grandiose is not profiting from these advantages of centralized purchase policy, (Ng & Lam 1991).

Supplies forecasts are based on historical demand data since service and material requirements are based on seasonality factors. These seasonality factors are based on weather – during the winter there are high requirement for batteries while during summer there are high demands for air-conditioner parts. On the other hand, during autumn there are high requirements for antifreeze. In addition, Grandiose Motors may have seasonal promotion for vehicle sales and its services; therefore there will be demands for service parts and materials. Grandiose is not managing inventory risk associated with seasonal products effectively. By using a pull contract it can get discount on the prices as well as the inventory risk will be upon the supplier rather than the retailer during the season, whereas the risk will be with the retailer before the season (Cachon 2004).

Due to different car models and car make sold by Grandiose Motors, there is a demand for service parts and materials for each kind and model. On the other hand, there are various types that should be maintained and kept available. The supplies are used to service vehicles and some are sold to consumers over the counter. Parts suppliers are the car manufacturers and certified wholesale to maintain authenticity. There are various suppliers for oils, lubricants and fan belts. The treatment of these two types of purchasing should be different as the demand, procurement, type of suppliers and inventory and storage is totally different. For example high inventory has to be maintained for rapidly moving parts, where as small inventory for slow moving parts (Duft 2010). And also the purchasing should be centralized for products like oils, lubricants and fan belts where as for genuine spare parts it can be centralized (Bossart et al. 2007).

Grandiose is able to maintain hassle free buying experience as well as outstanding customer servicing, by ensuring lowered cost concept, service and repair using the right parts and repairs at the right time as well as reliable after-sales servicing. This key performance policy might not be sustainable in the future as the company is handling various spare parts of different automobiles and if the current policy is not changed about how it handles the procurement, inventory and storage of the different parts, cost will definitely increase because they are not using effective ways like placing the rapid moving parts in such a way that they are easily available to the employees for restocking, using mechanical means to handle and movie stock. This will decrease the labor cost and time (Duft 2010).

3.1 Restructure Processing and Inventory Function

From the above critical evaluation of the current inventory process it is apparent that Grandiose needs restructuring of its inventory processing function. Grandiose Motors is growing, the company wants to make sure that the business operation will continue through enhanced customer experience and sustainability of the company’s after-sales service and support. The proper use of storage space for inventory is also crucial because space is costly and with the new dealership acquisition investment finances, space and facility support are over stretched. In addition to this, financial resources on hand is depleted in every business investments. It can be said that restructuring and purchasing and inventory supply chain management will address these operation at constraints.

Recommendations

Based on the above critical evaluation the following recommendations are being suggested for Grandiose Inventory management with relations to the different tasks or forthcoming challenges.

TASK 1: Recommendation with respect to structuring the purchasing and inventory functions: SCM Implementation at Grandiose Motors Business Operation

Supply Chain Management.

Supply Chain Management (SCM) can solve its current challenges in space, supplies and finances. As supply chain pertains to strategic and systemic coordination of all business factions for an organization with the purpose of efficiency and long-term performance improvement, SCM is the best option for Grandiose Motors. This includes products, services, finances and information from one source to the other within the chain of operation and down to the consumer or end user. The entire purpose of SCM is to create value for the company and the consumer (Jespersen & Skjott-Larsen 2005). SCM can be used as a competitive strategy which integrates suppliers and customers; also it reduces response time and creates flexibility (Irfan, Xiaofei & Chun 2008).

Figure 1.

Source: Jespersen & Skjott-Larsen ( 2005), p. )

The above model illustrates the Supply Chain Management cycle in terms of planning specific to the requirement of the organization (Jespersen & Skjott-Larsen 2005). Following this model, the initial step is to identify the operation strategic requirements – efficiency in investment, supplies procurement and space requirements.

1. Supply Chain and Process Mapping

This is the planning part where the CEO and Grandiose Motors management team will brainstorm and define the strategies and directions. The purpose is to identify the required supply chain capabilities and gaps appropriate to solve the operation challenges. As of this time, it has been earlier identified that the challenges involve investment, supplies procurement and space requirements.

2. Data Gathering and categorization

Though meetings, discussion and interviews, data are gathered and documents are checked for the data sources; like reports, suppliers lists, demand reports, product inventory, infrastructure, warehouse distribution and expenses and others.

3. Analysis and Validation

Data gathered will be analyzed and the SCM model will be recommended. This model will include cost, warehouse, distribution and inventory for supplies and materials. Validation will be done by finance and management. Findings and results and possible issues will be identified from sample data and the model. Recommendations will be presented to get the approval of CEO and the management in order to design the solution model.

4. Solution Design and Recommendation

The Supply Chain simulation model will be presented. This is the model designed specifically to address challenges and operation of Grandiose Motors. In addition to this, an optimal chain model will present the financial impact.

5. Implementation Plan

Based on the recommendation the solution that will be implemented for Grandiose motors will be presented. Details of the task, the resources, suppliers, accountability, structure and timeline will be included. Implementation or Output will carry out a Solution Implementation Plan. This will detail out the task, the resource, the involved party or partners and the time frame. The simulation plan will present opportunities and gaps in order to come up with a specific solution. See illustrations below.

Sample Supply Chain Simulation

Figure 2.

Saurce: Jespersen and Skjott-Larsen (2005, p. )

Purchasing and Inventory Management Policies and Procedures

Purchasing and inventory management policies and procedures will differ depending on the processes and policies of the respective supplier in the Supply Chain. With the SCM, these differences can be minimized since industries and suppliers are now familiar with efficiency and systematic process. Purchasing and inventory management ensures physical control and layout of key areas of operation. This manages the different procedures with third parties and other partners essential to availability and procurement of supplies and parts. This would cover forecasting and replenishment strategies, quantity calculation and inventory systems (Muller 2003).

TASK 2: Recommendations for different purchasing and inventory management policies for purchase of different types of service parts and materials

In the case of Grandiose Motors, the four dealership networks are managing various car make and models and this would entail different suppliers for materials and parts. This would have various differences in policies and procedures like purchasing policy, delivery time, demand, schedule and methods, forecasting, order placement, payment settlement and return policies and others. With regard to servicing, Grandiose Motors is supporting genuine parts for different car makes and models are which are being supplied by authorized dealers and wholesalers. And it is also selling over the counter products like oil, lubricants and fans. Also it has certain spare parts whose demand is only seasonal. For Grandiose Motors, the company and its Purchasing department has already established a system to manage this inventory and purchasing system. However, due to the business growth, changes in operation as well ensuring continuity of supplies and parts procurement in the future, it has to reduce procuring and inventory costs by having a different policy for different products. Following are the recommendations.

1. Using a pull contract and an advance-purchase discount system for procuring seasonal parts. A pull contract has a single wholesale price, and the supplier bears the supply chain’s inventory risk because only the supplier holds inventory while the retailer replenishes as needed during the season (Cachon 2004).

Advance -purchase system will give a discounted price for inventory purchased before the season, and a regular price for replenishments during the selling season thus it has two wholesale prices. Also the risk allocation will be with the retailer for parts ordered before the season and for the parts replenished during the season risk will be with the supplier (Cachon 2004).

2. Maintaining high level of inventories for rapid moving parts like oil, lubricants and fans and low inventories for slow moving parts or genuine parts which are required only at the time of servicing (Duft 2010).

3. Decentralizing purchasing policy for servicing parts and centralizing for over the counter sales spare parts (Bossart et al. 2007).

4. Rearranging the sales area and storage area in such a way that rapidly moving parts are easily picked and restocked by the employees using mechanical means for storing and moving parts. Using storage space interchangeably, with seasonal parts (Duft 2010).

5. Using JIT -Just in time inventory for rapid moving and over the counter sales for parts like oil, lubricants and fans which are easily available and have a large number of suppliers. JIT reduces inventory cost as firms have to incur costs and interest for holding inventories (Morgan 1991)

TASK 3: Supply Chain and Inventory management concepts designed to reduce Investment and space requirements and maintaining adequate service levels of Grandiose Motors.

A. Solution to reduce Investment and Space requirements

INVESTMENT – Efficiency in savings

The solution for investment is settled through review of all processes and ensuring efficiency and eliminating redundant process. This ensures cost minimization and ensures savings for the company. Minimize paper transactions and the use of recycled papers for receiving papers and documents is recommended. This will ensure savings on office supplies costs.

SPACE REQUIREMENT – Central Warehouse

The locations of the four dealership network may have significant differences, however the company has to strategically situate a central warehouse for the four dealerships as it is more cost efficient. The 45 minute to an hour drive is better than renting expensive warehouse spaces. In addition, proper scheduling of supplies and parts replenishing will ensure that a proper inventory system is in place. The following will be involved – transportation of company – moving trucks, warehouse people and warehouse department, database in place for inventory and order system, central warehouse.

B. Performance Management and Service Levels

The above recommendations – automation, paper-less transactions, process efficiency and other cost reduction measures for Grandiose Motors will ensure savings on investment. Since there is no need to avail on expensive warehouse spaces, the company will save more to use the investment in purchasing supplies and supporting system automation and database software. The Central Warehouse may be located in one of the network dealerships or in the main office of Grandiose Motors; this will just be an additional facility and will not require additional start up investment. Service levels and performance management are measured through the company’s key performance indicators. These are measurable objectives to ensure that the performance of the company is able to attain its target and measure the savings and cost of the organization (Muller 2003). The service level for Grandiose Motors is determined by various factors such as servicing turn around time, timely availability of supplies and parts for different dealership network, sales and volume, distribution and inventory.

Below is the sample transport and packaging process model followed by Toyota Motors which illustrates the model to follow and ensures that each process is documented and all are aware of the system (Iyer, Seshadri &, Vasher 2009).

Toyota

Figure 3.

C. Grandiose Motors: Operational Strategies and its Implication

By Following SCM concepts, best sources and sustainability of the business is ensured through proper sourcing of suppliers, planning of warehouse and savings efficiency in processes to manage investment finances. The forecasted implication would be a change in operation. For effective management of inventory and to meet the changing demand and supply trends of the market, it is essential to develop a SCM which is responsive to the dynamic business environment so as to profit from the new opportunities in the market (León Peña 2008).

D. SCM professionals or SCM consultant or practitioner

Grandiose Motors should employ the services of consultants or third party professionals expert with Supply Chain management and familiar in the Automobile dealership, servicing and supply procurement. SCM can be outsourced at Grandiose Motors.

E. Using SCM ERP Packages

ERP packages are used to substitute traditional separate SCM into an integrated suite for a new business model resulting in a compact flow of information through the enterprise. It helps in automation of SCM updation, inventory control, reporting, ordering, and scheduling, (Wu & Kao ,2006).

5.0 Conclusion

Supply chain management is a system that is implemented to an organization to ensure improved performance. For organizations that are new to this model and application, this may be change that has to be managed. Management has a significant role in ensuring that the plan and implementation of the SCM model has been carried out. With the growth of a business, the entire organization should understand the direction of the company and that the quality measures through SCM and efficiency in processes should be encouraged.

This paper proposed recommendations for the improvement in terms of resolving the current challenges in investment, space and supplies procurement. In addition to this the benefits and implication to business of SCM concept has been discussed.