Llew Gwych, CEO of Viverra Motors, has just returned to his
office after visiting the company’s newly acquired automotive dealership. The new dealership was
the fourth Viverra Motors’ dealership in a network that served a metropolitan area of over
a million people. Beyond the metropolitan area, but within a 45-minute drive,
were another half a million people. Each of the dealerships in the network
marketed a different make of car and historically had operated autonomously.
Gwych 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 sold multiple makes of cars at the same location. The
new dealership sold a line of Hyundais, Volkswagens and Cherys.
Starting 15 years ago with the purchase of a bankrupt Mitsubishi
dealership, Viverra Motors had grown steadily in size and in reputation. Gwych
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 Gwych thought perhaps the most important, was the after
sales service. Viverra Motors 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. Gwych invested in training and equipment to ensure that the
trained personnel and technology were provided. What he worried about, as
Viverra Motors grew, was the continued availability of the right parts and
materials. This concern caused him to focus on the purchasing function and
management of the service parts and materials flows in the supply chain.
Gwych 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. He did not want that to happen to Viverra
Motors.
Each of the four dealerships purchased its own service parts and
materials. 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 vehicles, and
others would be sold over the counter. Some had to be purchased from the car
manufacturers, or their certified wholesalers, and to support, for example, the
“guaranteed genuine parts” promotion. Still other
parts and materials such as oils, lubricants, and fan belts 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 Gwych thought about the purchasing of parts and materials,
two things kept going through his 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
was at a premium. Gwych 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 appoi nted
Purchasing Manager at Viverra Motors you are required to prepare a report for
Llew Gwych 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 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 Viverra Motors, and how could these
weaknesses be affected by the new acquisition?
3
How can supply-chain and inventory management concepts help Llew
Gwych reduce investment and space requirements whilst maintaining adequate
service levels?
4
What recommendations would you make to Llew Gwych with respect
to structuring the purchasing and inventory functions for the Viverra Motors
dealership network?
For Quality Research Projects, Assignments, Dissertations, Theses: kojalajohn12@yahoo.com
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