PRODUCTION AND OPERATIONS

MANAGEMENT

MGMT 19126

ASSIGMNENT 2
TUTOR: Genevieve HEALY
STUDENT NAME: Taisei
NAKAGAWA
STUDENT NUMBER: 0193854

1
Executive summary:
This report is to address coming future problems of newly gained dealership for
Grandiose Motors for relationship to purchasing and inventory practice. It will look at
current practice using by Grandiose Motors and disadvantages and advantages about
them. Relevant academic literature and inventory management and supply chain
management concepts is also included. Basing on all of these collected information,
recommendations are giving for CEO Felix Fabulous at the end for method to improving
current purchase and inventory for the growing business of Grandiose Motors.

2
Table of content
Introduction:………………………………………………………………………….…4

1.1Background:………………………………………………….……………..4

1.2Aim:…………………………………………………………….…………....4

2.0 Current Situation:…………………………………………………….……………..4

2.1 New dealership:……………………………………………….……………..5

2.2 Inventory Management:……………………………………….……………5

3.0New Dealership……………………………………………………………………….5

3.1 Inventory…………………………………………………………….……….6

3.2 Purchase…………………………………………………………….………..6

4.0 Recommendation………………………………………………………….…………7

4.1 Supply chain...................................................................................................7

4.2 Same purchase system...................................................................................7

4.3 Inventory……………………………………………………….…….……….8

4.4 Inventory turnover.........................................................................................8

4.5 Investment.......................................................................................................9

5.0 Conclusion………………………………………………………………………..…10

6.0 Reference List……………………………………………………………………….11

3
Introduction:
1.1 Background:
Felix Fabulous is a CEO of Grandiose Motors and the new dealership was the fourth
Grandiose Motors’s dealership in a network that served metropolitan area of big
population. This is the first “auto supermarket” in his network and they sell multiple
brand cars at the same site. Fabulous focuses on high- quality service after the sale
because he believes that after sales is the most important part. His each four dealerships
purchased its own service parts and materials. They predicted demand based on historical
demand data however they did not have enough space for the huge number of different
parts but some of these parts would used car service for customers and some parts would
be sold shop over the counter. Now Felix Fabulous has got some problems which is his
company grew, is the continued availability of the right parts and materials and he
wonders what can be done in the purchasing, supply chain, and inventory area to address
some of these concerns and lessen some of the stresses.
1.2 Aim:
The aim of this report is to classify the different supply chain and inventory management
problems and to make recommendation to the purchasing function and management of
the service parts and materials flow in the supply chain. This report is confidential written
for Felix Fabulous the CEO of Grandiose Motors to advice about managing inventory
management and supply chain management.

2.0 Current Situation:

Purchasing (Supply Chain MGT)
Supply chain management is an included approach to producing, obtaining, and
delivering products and services to customers, and comprises the management of
materials, as well as information flow and cash flows (Gardiner 2008). In this case study,
Grandiose Motors purchased from different number of the car manufactures, their
certified wholesales and other suppliers. Doing multi- sourcing has advantages because
buyer can receive lower prices by using of competitive tendering. Because there is this
competition, the companies that want business with buyer will offer best, that is also the

4
great advantage. Also there is chance for buyer to collecting an extensive source of
knowledge and specialist skills. There are also disadvantages however because it is more
difficult to work out capable system of quality assurance and more difficult to achieve
economies of scale (Gardiner 2008).
2.1 New dealership:
Grandiose Motors has recently acquired the new dealership in their
automobile network. Network provide services to large city area that
has over a million residents. Furthermore, past the city area and
lesser then one hour car drive is another half a million residents, so
there are many customers toward provide service for. All Grandiose
Motors dealerships have responsibility for different cat model and
traditionally operations different from each other. But, this new
dealership is different because it was the first “auto supermarket” of
Grandiose Motors and are selling several models of cars at the same
place, like, Nissans, Toyotas and Volkswagons car.

2.2 Inventory management:

Inventory management is the process of planning and controlling physical inventory.
Inventory costs money so when a company gets hold of more inventories, they will lose
more money and the main reason for holding inventory is because of demand uncertainty
and very difficult to predict exactly what demand would occur tomorrow (Gardiner
2008). Grandiose Motors usually forecasts derived from historical demand data which
relate to seasons but they kept tremendous number of different parts in the storage. They
need to reconsider how to predict more exactly demand and use tactical theories.

3.0 New dealership

Now the new auto supermarket dealership is adding to Grandiose Motors network there
are problems. The new dealership will have more business, and in consequence lots more
of profit money but will put natural stresses on inventory space and company costs. This
is because auto supermarket dealership is different to Grandiose Motor's other dealerships
because there are multiple car models needing support at the same place. This means it is

5
become a problem of investment money and space. Auto supermarket dealerships hold
many cars so, there will be need more parts than was before, and this also means more
space is essential.

3.1 Inventory:
First biggest issue is that Grandiose Motors is right now keeping amazing amount of
service parts and materials in inventory. The case study said that such kind of amount
made buying of important parts very difficult. Moreover the parts are having different
use, like used to service cars of customers but also sold like retail shop over the counter.
Many different places had to be bought from basing on type of part. There is no regular
business with some supplier partners. Now with the new auto supermarket dealership
more and more parts and materials are needing to purchase.
For advantages, there is usually high volume of inventory stock that is being keep in the
warehouses, so customers of Grandiose Motors can choose from big selection of parts.
There is no delivering time so customers receive fast service and low cost because there
is not necessary to pay for delivery fee.

3.2 Purchases
Advantage of Grandiose Motors’s supply management is based on forecasts based from
past demand data, which considered for factors such as seasons. Sale forecasts were also
changed for service promotions and special car sales, which is meaning higher demand
for parts and materials of service and new car models. For up to present this has been
success for the company and achieved continuing high sales.

Disadvantages of Grandiose Motors’s supply management that each of the four

dealerships are always purchasing separately from multiple number of places and
suppliers. There is not existing the equal spending of money although it is one company.
There is no trust relationship between the company and suppliers, so we cannot knowing
if we are getting best quality for best price. This report will discuss recommendations
below for solving these problems.

6
4.0 Recommendations:
Keeping excellent customer service is most importance to Grandiose
Motors success. So, we have to think of ways to keep and at same
time, to be reducing investment cost and inventory space.

4.1 Supply chain:

This is issue of supply chain. For success, it is most importance for
company to recognise the company is only one piece of an extensive
chain of supply, other pieces includes customers, manufacturers and
transporters (B.S. Sahay, 2003). This means we cannot think to control
all of supply chain process. In such case, to be successful the concept
of Collaborative Supply Chains is critical. It is concentrating on making
partnerships and building good trust with the different “pieces” of the
supply chain. It is recommending to again look at supplier candidates
and making the selection limited. To have small number of trustworthy
suppliers is much better than many.

This is concept that customer satisfaction is best goal, so, it is tackle

problem of purchase and supply and at same time, not sacrificing
customer service or to wanting prices of service parts more expensive.
Working together with other parts of supply chain for same goal is
meaning that, we can decide where money is spending better because
we are choosing best partners. Consult and discussion with other
purchasing department staff of three old dealerships is important. They
can give great opinion about most trustworthy and on time suppliers,
and the suppliers that are not so good. If a company continuing to
work with partners which are keeping different goals, and think
selfishly for profit, this will harm the company (C. X. Wang, 2002).

7
4.2 Same purchase system:
To make collaborative the possible reality, it is recommended to make
a same purchasing system for all dealerships. Or, to at least level, to
have one purchasing department which oversees all work and
operations of other dealerships places. Current way is being all
dealerships with their own operations. But, if all dealerships have the
same purchasing system, everything is done the same and inefficiency
is easier to be detecting, and spending money can be much better
organised and allocate. This should be cause of reduce investment
cost. If we wish to try this method, we can use Enterprise Resource
Planning method. Because Grandiose Motors is growing in size
business and operations, it has to be considered “enterprise”. And,
because of such, a standardisof operation is better for efficient
operation and competition in the market. If we standardise, we can
also have small number of trustworthy supplier partnerships. .R.
Woolridge and B.D. Minsky (2002) make good point that sharing
information and development ideas maybe become critical for real
competitiveness, so this is meaning Grandiose Motors should receive
advantage if everyone work as team rather than separate dealerships.

4.3 Inventory:
It is most importance to have low inventory volume as best as
possible. This will save lots of money about renting cost and also, the
using of space. D.P. Koumanakos (2008) has discovered the fact of, if a
company's inventory volume is very high, the rate of return is very low.

4.4 Inventory turnover:

Concept like, Material Requirements Planning is relevant, because it
focuses about resources, inventory and the main production schedule
for demands of parts. So, it is information that is being collecting about

8
inventory which is already in the warehouse. If we plan sales and
service basing on that information, we can keeping low inventory
volume and use little space. This method was successful for DELL
Company; they had “lean” approach. Dell Computer did not have
inventory for lots of computers models, and are every day taking
customer orders. After orders, manufacturing schedule is updated and
computer parts always come fast, because of strategic supplier
partnerships (C. Wallin, M.J. Rungtusanatham, E. Rabinovich, 2006).
For making a certainty of smart inventory management, Theory of
Constraints is to continuing to develop improvement with information
based on idea that constraints guide performance. This concept is also
meaning that inventory will always be at price at start of purchases.
Sometimes there is traditional practice of adding extra prices to item,
but Theory of Constraints is for benefit of Grandiose Motor's customers.
We can keep promise of lowest price for customers, if using Theory of
Constraints and constraint of purchase price to planning sales and
service. By using Constraints' ideas we will also able to deliver great
customer service and at same time keep inside manufacturing and
service capacity.

There is practice of “vendor”. Urban (2002) says that it is long history

of such event, of displaying products on shelf has positive relationship
on sales. It is recommended to trying to sell extra inventory like this
way or to keeping high sales and then, result low inventory volume. , it
is important to remember the limits of capacity of suppliers (Sari,
2007) and open share information with each other for best customer
service.

4.5 Investment:
It is recommended to consider how money is used right now for the
company. Right now, lots of money is investing in training and

9
technology. This is very important parts for competitive, but if money
can be for using wide for inventory and renting space, this is
recommended. For correct spending of money, we must always get the
most correct information about company's inventory. Waller,
Nachtmann, and Hunter (2006) have discovered in their research
paper those inventory system mistakes are great effect on customer
service level.

Again like issue of supply chain, if we want to make less cost on

spending for inventory, we must carefully consider supplier
partnerships. It is recommended to choose only best one for our
business, who can deliver orders in fast time while we do not keeping
much inventory in our warehouse. Like issue of inventory turnover, if
just-in-time practice is using, spending money also will only spent
when time is needed.

5.0 Conclusion:
As conclusion, Grandiose Motors needs to looking again at supplier
partnerships and select most strategic businesses to have business
done. The things money is spent and invested must also be plan
carefully and think about standardization purchasing system for all four
dealerships. For inventory current practice is to keeping terrific amount
of stock and this gives customers huge choice. But it should be
considered to keep lowest possible inventory volume for money
concerns by thinking about concepts like Material Requirement
Planning. If these things are not being done, company is in danger of
growing past current capacity and competitive and performance will be
critically harmed.

10
6.0 Reference list:

 Gardiner, D 2008, Operations management for business excellence, Pearson

Prentice Hall, North Shore.

 Kazim Sari　2007, ‘Exploring the benefits of vendor managed inventory’,

International Journal of Physical Distribution & Logistics Management, Vol.37,
no.7, pp.529-545.

 B.R. Woolridge and B.D. Minsky 2002, ‘The role of climate and socialization in
developing interfunctional coordination’, The Learning Organization, vol.9, no.1, pp.
29-38.

 B.S. Sahay 2003, ‘Supply chain collaboration: the key to value creation’, Work
Study, vol.52, no.2, pp.76-83.

 Charles X. Wang and Charles X. Wang 2002, ‘A general framework of supply chain
contract models’, Supply Chain Management: An International Journal, vol.7, no.5,
pp.302-310.

 Dimitrios P. Koumanakos 2008, ‘The effect of inventory management on firm

performance’, International Journal of Productivity and Performance Management,
vol.57, no.57, pp.355-369.

 Matthew A. Waller, Heather Nachtmann and Justin Hunter 2006, ‘Measuring the
impact of inaccurate inventory information on a retail outlet’, The International
Journal of Logistics Management, vol.17, no.3, pp335-376.

11
 Cynthia Wallin, M. Johnny Rungtusanatham, Elliot Rabinovich 2006, ‘What is the
“right” inventory management approach for a purchased item?’, International Journal
of Operations & Production Management, Vol.26 no.1 pp. 50-68.

 Timothy L. Urban 2002, ‘The interdependence of inventory management and retail

shelf management’, International Journal of Physical Distribution & Logistics
Management, vol.32, no.1, pp 41-58.

12