In this research paper, it is found out that there are certain facets which are overlooked by the management especially when purchasing and inventory management decisions are performed. According to this research, it is found out that a combination of both departmental and centralized forms of decisions are needed if effective and efficient management of the needed supplies are to be met.
According to this research, it is found out that the Company did somehow accomplish their growth strategies without first analyzing their respective capabilities of expanding the already strained resources of finances and space. It is therefore safe to indicate that Vivierra Motor Dealership was somehow reluctant to carry out extensive research concerning there growth decisions. The move by the dealership to invest into the “auto supermarket” bore potential risks of exhausting working capital resource which could have lead to a possible closure of most of the firm’s operations.
However, with its desire for wanting to establish its business expansion facility, it had to conform to certain principles of operational management which include introduction of models like VMI (Vendor Managed Industry) and EOQ (Economic Order Quantity) to minimize the utilization of space in the facility. In order to effectively conduct cost effective business operations, the whole of the dealership was supposed to centralize its activities as well as embark on using other ways of determining purchasing decisions rather than relying on the probabilistic mode of utilizing historical data.
It is with great concern that the Company took to expound without prior planning for the quantity of resources to be used in both the establishing and growth of the dealership. It is a reasonable fact to indicate that the Vivierra at some point overlooked the need to adhere to the different principles of operational management altogether. It is safe to indicate that the Company neglected the principle of operational management attributed to organizational design and structure. It is rather reasonable for any company to apply both departmental and centralized policies of purchasing and not rely solely on a single approach in order to catapult efficiency and effectiveness altogether (Bozarth & Hadfield 2006).
The fact the four car dealerships were established to perform independently from each other meant that their consolidated management perceived the difficulty which could have resulted from conducting the business under a single line of car make. Under the design structure of organizational activities, it is a fundamental requirement that the firm take to minimize the number of products or rather service provided or in some other cases, the number of suppliers of the raw materials as well as finished products ready for resale, to a few high-quality and effective ones.
This means that multiple levels of production and supply in that matter only acts to complicate steps needed for growth. It is also a reasonable fact to indicate that with the establishment of the dealership, the overall management failed to notice the need to adhere to another of the crucial principles of management which postulates problem solving and control in that matter (American Production and Inventory Control Society 1997). The fact that the company took to expand its activities to include a variety of multiple production processing meant that it was counter-reacting to the policies which requires organizations to minimize both the transactional as well as reporting costs.
In doing so, the company was therefore channeling most of its resources to the controlling of the causes of the problems rather than on the symptoms which had already been established. The paper will therefore attempt to examine the various principles of operational managements which the Vivierra Motors overlooked in its desire of achieving goals attributed to its operational growth (Thomson Reuters Journal Citation Reports 2011).
The real purpose of any given Company undertaking its purchasing activity is attributed with transacting businesses with a sole supplier. The management policies which govern purchasing and inventory policies and procedures obligates the firm to adhere to the services of the sole supplier, who had been, unanimously selected for the purpose of achieving product quality and also making it easier for the Company to retrace fault parts and materials incase of any. The sole purpose of maintaining a definite supplier is also for the simple fact that the Value for Money (VfM) is reached and thus high quality (University of Iowa 2012).
There is also the risk of loosing confidentiality within the supply management chains in the sense that multiple suppliers are complicated to control. Leaking of information which may include the amount of materials supplied can be easily accessed by competitors and thus render the whole activity inappropriate.
The fact that the different dealerships purchase different types of service parts as well as materials from different suppliers implies that the purchasing and inventory management policies and procedures will differ in certain ways, firstly, the difference exists within the processing of costs involved in the sense that the costs for tendering, contracting and selection will be much higher than when the activity is conducted by the whole of the dealerships as a single unit.
This means that the purchasing and inventory policies should be centralized altogether to cut the aforementioned costs. Secondly, the differences exist in terms of execution time frame so that these different dealerships take to conduct their purchasing activity from their suppliers at different points in time (Blackburn 2010). This creates a challenge especially when the firm needs to take the overall record of the purchasing activities. The resultant effect is chaos and confusion especially within the departments concerned with the execution of these policies.
Thirdly, there is likelihood that the necessary facets which a firm requires in order to take care of issues such as exorbitant amount of costs as well as quality will be neglected all the same. The process of selecting or rather recruiting suppliers is rather a delicate procedure in the sense that the wrong choice of purchasing criterion will definitely lead to the loss of customers. It is a reasonable fact to implicate that there are risks associated with the selection of a variety of suppliers especially when the materials and parts being purchased are of a similar nature.
Main Weaknesses of the Current Purchasing and Inventory Management Practices
It is seems unreasonable for the company to continue with its purchasing and inventory management practices of purchasing different varieties of parts and materials in the sense that it will have diversified its purchasing decisions altogether. The fact that the Company took the initiative of purchasing the parts and the materials not only for servicing the diagnosed vehicles but also for reselling it over- the-counter pose a serious threat altogether.
With the acquisition of the fourth, “auto supermarket dealership”, the aforementioned weakness is likely to increase the financial strain of the company already experienced altogether. The fact that the car dealership takes to purchase a greater volume of parts and materials poses the threat of lack of space needed for storing of excessively purchased materials and parts.
These immense levels of purchases indicate that the dealership in turn needs to expand its facilities in order to cope up with the increasing supply. Lack of space and finances will paralyze the initial sales pattern which had been introduced to the customers as the resultant effect leads to subsequent loss of customers’ altogether. It is also safe to indicate that the purchasing functions deployed when increasing inventory is rather insufficient in nature in that it has been diversified to include customized forms of services which are rather difficult task to conduct. It is quite unreasonable that the Company chose to diversify its operations without taking into account its net assets under disposal.
Supply-Chain and Inventory Management Concept
The Company can decide to apply the VMI model in its supplying and inventory decisions. VMI, Vendor Managed Industry model, advocates for particular firm’s to agree to the idea that inventory management as well as holding of parts and materials be left at the respective customer-end thus encouraging, just-in-time deliveries. There are distinct advantages which are associated with this model. Firstly, there is likelihood that with the application of VMI model, Vivierra will reduce its leap supply chain and thus get to minimize its logistics and inventory management costs significantly.
Secondly, with the application of the VMI model, Vivierra will be able to postpone the holding of its inventories until the definite time of consumption. The subsequent absence of inventories will thereby lead to the company not budgeting for its working capital which could have been used into creating more space for holding inventories. Thirdly, Vivierra will be under no obligation to create inventory operations by deploying teams at their respective inventory holding centers thus cutting expenses associated with management of inventory functions altogether (Fitzsimmons 2006).
It is a reasonable fact to argue that with the application of this effective and efficient methodology facilitates the minimization of investment decisions as well as spacing and in turn continue with holding its repeatable status of providing qualitative services to its customers thus ensuring that there is guaranteed survival of the operations of the firm. It has been noted through extensive research that by applying the Vendor Managed Industry model, the customers are made to feel appreciated and thus increases the level of customer loyalty (Rexhausen, Pibernik & Gernot 2012).
The company can also reduce or rather minimize the costs associated with spacing and investments decisions by way of outsourcing the supplying services from a firm which deals on the same. There are numerous benefits associated with outsourcing these services of supplying materials and parts while still maintaining the quality of services provided to the customers. Firstly, by outsourcing the company will have an absolute time for which they can use to negotiate the quality of materials and parts needed for daily operation of the Company. Secondly, the supplied materials and parts need not to be stored at the premise of the Company thus minimizing the costs needed for expanding the facility altogether (Santosh, Das, and Narasimhan 2012).
Another methodology which the Company can deploy to effectively minimize the costs associated with spacing and financial imbalances is by way of implementing the Economic Order Quantity (EOQ) technique so that only those inventories which are considered necessary (needed by customers) are purchased and stored within the premises. This approach ensures that there are no storage commitments for unordered materials and parts rather all the materials stored are only those awaiting collection by the customers (Zigiaris 2000))
Recommendations Needed For Structuring the Purchasing and Inventory Functions
The following are some of the recommendations which when applied will ensure that the entire Vivierra Motor Dealership operates effectively and efficiently in that matter.
(I) The Company should take the initiative to centralize its purchasing policies so that the voluminous purchases are made which in turn reduce the transactional costs incurred while conducting the activity. This approach will also ensure that the Company gets to select the supplier of there respective materials so well so that quality and timely delivery are not compromised (Supply Chain Management: Concepts, Techniques and Practices 2011).
(II) The company should also adhere to its initial policies and procedures which postulate that its substituent’s dealerships embark on providing specific types of services so that only particular car models are serviced and diagnosed at the designated dealerships. In this way the Company will have sufficient time to delegate responsibilities pertaining to servicing and diagnosing of cars in that matter.
(III) The Company should also take the initiative of familiarizing itself with the various implications which are brought about as a result of not conforming to the various principles of operational management which include Processing, Design and structure of the organization as well as the problem solving and control methodologies (Kristof, Slabbinck and Roodhooft 2012). In this way the company will heed to the sufficient measures needed for planning of growth and development.
(IV) The fact that the Company takes to utilize the historical data to determine the demand forecasts is not only sufficient but also unreliable since by basing purchasing decisions to the prevailing weather patterns is somehow misleading. It is unreasonable that the Company overlooks other specific attributes which could be used for the purpose of determining the actual amount of purchases made. This attributes include facets such as sales turnover as well as the absolute demand for specific car parts and materials (University of Bath 2009).