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Analysis of Auto Parts Inc., Case

Analysis of Auto Parts Inc., Case
Auto Parts, Inc., is a distributor of automotive replacement parts. With no manufacturing capability, all the products it sells are purchased, assembled, and repackaged. Auto Parts, Inc., does have extensive inventory and assembly facilities. Among its products are private-label carburetor and ignition kits. The company has been experiencing difficulties for the last 2 years. First, profits have fallen considerably. Second, customer-service levels have declined, with late deliveries now exceeding 25% of orders. Third, customer returns have been rising at a rate of 3% per month.

Phil Houghton, vice president of sales, claims that most of the problem lies with the assembly department. He says that although Auto Parts, Inc., has accurate BOM indicating what goes into each product, it is not producing the proper mix of the product. He also believes it has poor quality control, its productivity has fallen, and as a result, its costs are too high.

Treasurer Dick Houser believes that problems are due to investment in the wrong inventories. He thinks that marketing has too many options and products. Dick also thinks that purchasing department buyers have been hedging their inventories and requirements with excess purchasing commitments.

Assembly manager John Burnham says, “The symptom is that we have a lot of parts in inventory, but no place to assemble them in the production schedule. When we have the right part,” he adds, “it is not very good, but we use it anyway to meet the schedule.”

John Tolbert, manager of purchasing, has taken the stance that purchasing has not let Auto Parts, Inc., down. He has stuck by his old suppliers, used historical data to determine requirements, maintained what he views as excellent prices from suppliers, and evaluated new sources of supply with a view toward lowering cost. Where possible, John reacted to the increased pressure for profitability by emphasizing low cost and early delivery.
As president of Auto Parts, Inc., you must get the firm back on a course toward improved profitability.

QUESTIONS
1. Identify both the symptoms and problems at Auto Parts, Inc.
2. What specific changes would you implement?

Asked by: 464 days ago - 2 Answers - 1879 views

2 Answers


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    Problems : most of the problem lies with the assembly department although Auto Parts, Inc., has accurate BOM indicating what goes into each product, it is not producing the proper mix of the product.
    It has poor quality control, its productivity has fallen, and as a result, its costs are too high.
    are due to investment in the wrong inventories. He thinks that marketing has too many options and products. Dick also thinks that purchasing department buyers have been hedging their inventories and requirements with excess purchasing commitments.

    Answer by mahmood 443 days ago


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    Possible Solutions:
    - Start basing inventory mix requirements on “forecasts” based on market conditons, customer feedback, sales-channel promotions, and advertising plans, instead of just historical data.
    - Implement a quality inspection program at both the receiving side, and the shipping side (to include pick-n-pack quality inspection). Hold suppliers, employees, & department management acccountable to specific quality levels.
    - Measure and monitor inventory turns, and hold purchasing or planning department accountable for low inventory turns.

    By reducing poor quality products, customer returns should go down, and allow assembly department to not fall behind on shipping of orders. Reduced returns and improved customer service will help return profitability.

    Answer by James 122 days ago


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