Purpose:
The primary purpose of this assessment task is to help students develop skills in the use of Operations Management principles, theories and models in the analysis of the current operations of a service industry organization. The assignment requires you to analyze the current situation, identify the operational problems within the organization, and develop a set of recommendations that when implemented, will overcome the identified problems without creating new ones. In this assessment piece you are expected to solve the case.
The secondary purpose of this assignment is to give students the opportunity to further develop analysis and problem identification skills, as well as skills in presenting an argument for change within the framework of a business report.
Before starting this assessment please read the marking criteria (below) and Report Writing on the Academic Learning Centre (ALC) website:
Description:
Assessment task 2 requires the writing of a business report. The report should be designed as a management document that can be used to implement recommended changes. It should include a comprehensive analysis of the current situation using Operations Management theory, models and frameworks including a root cause analysis. The report should also contain recommendations and an implementation plan. Students are expected to engage in extensive research within the academic literature relating to operations management.
Some research into the industry in question might also help students develop a more robust understanding of the information in the case.
Case study: Purchasing and Inventory at Best-Buy Auto Group
Helen Harrington, CEO of Best-Buy Auto Group, has just returned to her office after visiting the company’s newly acquired automotive dealership. The new dealership was the fourth Best-Buy Auto Group 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. Harrington 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 Hyundais, Volkswagens and Cherys. This brought the total number of brands to six.
Starting 15 years ago with the purchase of a bankrupt Mitsubishi dealership, Best-Buy Auto Group had grown steadily in size and in reputation. Harrington attributed this success to three highly interdependent factors. The first was volume. By maintaining a high volume of 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 Harrington thought perhaps the most important, was the after sales service. Best-Buy Auto Group had established a solid reputation for servicing, diagnosing, and repairing vehicles correctly and in a timely manner—the first time.
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. Harrington invested in training and equipment to ensure that the trained personnel and technology were provided. What she worried about, as Best-Buy Auto Group grew, was the continued availability of the right parts and materials. This concern caused her to focus on the purchasing function and management of the service parts and materials flows in the supply chain.
Harrington 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 Best-Buy Auto Group.
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 winterize 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 vehicles; others would be sold over the counter to retail customers, whilst others (particularly genuine replacement parts) were on-sold to the trade. Some had to be purchased from the car manufacturers (genuine replacement parts and accessories), to support, for example, the “guaranteed genuine parts” promotion. 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, 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 Harrington 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. Harrington wanted a ‘whole of organization’ 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 Best-Buy Auto Group you are required to prepare a report for Helen Harrington 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 do you see as the main weaknesses of the current purchasing and inventory management practices at Best-Buy Auto Group, and how could these weaknesses be affected by the new acquisition?
3. How can supply-chain and inventory management concepts help Helen Harrington reduce investment and space requirements whilst maintaining adequate service levels?
4. What recommendations would you make to Helen Harrington with respect to restructuring the purchasing and inventory functions for the Best-Buy Auto Group dealership network?
The report should be a confidential report for the CEO, and be presented as a suitably professional document.
This assessment item involves researching your assigned topic to enhance your understanding of Operations Management concepts and utilization of academic literature. You will be expected to present information and evidence from, and cite, at LEAST twelve (12) relevant peer-reviewed, academic journal articles (minimum requirement). Refer to your recommended readings for examples of academic journals. The quality and number of citations will demonstrate the breadth and depth of the literature used to answer the questions. Your marker is interested in the analysis that you have developed from YOUR review of the literature and how well you use the literature to respond to the topic.