John Wolf, president of Wolf Motors, just returned to his office after visiting the company's newly acquired automotive dealership. It was the fourth Wolf Motors dealership in a netowrk othat served a metorpolitan area of 400,000 people. Beyond the metropolitan, but within a 45-minute drive, were another 500,000 people. Each of the dealerships in the network marketed a differenct brand of automible and historicly had operated autonomously.
Wolf was particulary excited about this new dealership because it was the first "auto supermarket" in the network. Auto supermarkets differ from traditional auto dealerships in that they sell multiple brands of automobiles at the same location. The new dealership sold a full line of Chevrolets, Nissans, and Volkswagons.
Startin 15 years ago with the purchase of a bankrupt Dodge dealership. Wolf Motors had grown steadily in size and in reputation. Wolf attributed this success to threee higly 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 seond factor was marketing approach called the "hassle-free buying experience". Listed on each automible 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 salesperson to assist them. Finally, and Wolf thought perhaps most importatntly, was the after-sales service. Wolf Motors 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 higly qualified, well-trained staff of service technicians. Second was the use of the latest tools and technologies to support diagnosis and repair activities. Third was the availability of the full range of parts and materials necessary to complete the servic and repairs without delay. Wolf invested in training and equipment to ensure that the trained personnel and technology were provided. What he worried about, as Wolf Motors grew, was the continued availability of the right parts and materials. This concern caused him to focus on the supplier relationship process and managment of the service parts and materials flows in the supply chain.
Wolf thought back to 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 experineced myriad problems that led to inefficiencies and an inablity to compete effectively. He did not want that to happen to Wolf Motors.
Each of the four dealerships purchased its own service parts and materials. Purchases were based on forecasts derived from historical demand dats, which acounted 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. Similary, coolant was needed in the spring to service air-conditioners for the summer months, whereas antifreeze was needed in the fall to winterize automobiles. Forecasts also were adjusted for special vehicle sales and service promotions, which increased the need for materials used to pre new cars and service other cars.
One thing that mad ethe purchase of service parts and materials so difficult was the tremdous number of different parts that had to be kept on hand. Some of these parts would be used to service customers automobiles, and others would be sold over the counter. Some had to be purchsed from the auomobile manufaturers or their certified wholesalers, and to support, for example, the "guaranteed GM 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 depneded 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 sevcie.
As Wolf 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 financing 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 automobile lines at the same facility. Wolf wondered what could be done in the puchasing area to address some of these concerns and alleviate some of the pressures.
- What recommendations would you make to John Wolf with respect to structuring the supplier relationship process for the Wolf Motors dealerhip network?
- How might purchasing policies and procedures differ as the dealershipp purchase different types of servcie parts and materials (for example, lubricants versus genuine GM parts)?
- How can supply chain desing and integration help John Wolf reduce investment and space requirements while maintaining adequate service levels?