Scenario one Problem Solution

Scenario Two: Problem Solution

Sydney Caruthers

MBA/510 Managerial Decision Making

Dr. Gary Funk

December 3, 2005

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Scenario Two: Problem Solution

The automobile industry is one that has constant vicissitudes. Burns Auto Corporation is not exempt from these unexpected changes or shifts in that industry. Many factors drive the automobile market fuel prices, the economy, and family sizes are just a few. This paper will take an in depth look at the current situation at Burns Auto; including the situation, problem definition, end state goals.

Situation

Burns Corporation is an auto corporation that consists of 24 dealerships selling foreign automobiles in the United States. Burns has experienced an increase in their inventory, which is becoming costly and cutting into profits. Inventory costs total approximately 300 million dollars with a 3% finance charge. Recently, however, inventory costs have peaked at 360 million dollars and finance charges have reached approximately 750 thousand dollars monthly. As inventory grows due to misalignment of sales and merchandise ordering, so does the need for more accurate forecasting models. The manufactures have issued a "turn and earn" approach that affects how dealerships will be receiving their inventory. This change states that shipments will be based on inventory. The only way new models will be received is when other models are sold. Burns needs an analysis model that will assist them in future inventory decisions. The development of this model and what is should entail seems to be the main priority.

Thomas Burns is the owner of Burns Auto. Thomas has twelve years experience in the automobile industry and bought the dealerships as a five-year investment. He wants to take on a new method of managing inventories and forecasting sales, especially now that all manufacturers have mandated the "turn and earn" approach. Richard Settle is Burns' Corporate President and Sales Manager. Richard has fifteen years experience in the automobile industry working for a larger company, he acquired the position of senior vice president at that company before coming to work for Thomas. He has since been with Burns for five years and feels that the responsibility of forecasting should be a one-man job so that one man is held accountable. Peter Reardon is a potential consultant Thomas is taking into consideration. John Peterson is the consultant that has helped Richard in the past. Lisa Hopkins is the Corporate Vice President at Burns. She has fifteen years experience with a large domestic automaker prior to being hired by Burns. Lastly, Mary Peterson who was hired by Lisa Hopkins is the Associate Vice President at Burns. She worked in new car sales, served as a sales manager, and has worked at Burns for two years.

Opportunities

Burns has the opportunity to set a standard in analysis, which should lead to a more solid future. With the company being a force in their region of the market, this could really affect their place in the market in a positive way. Lisa states in the scenario that the company has the opportunity to "build a new and very flexible model that will allow us to adapt quickly to changes on the ground, the economy, promotions..."

Challenges

The challenges are very clear. Richard Settle is having great difficulty the accepting change of policy. He seems to have taken it personally. Burns has locations that are spread abroad and some of the decision-making may need to be customized to each individual dealership; therefore, allowing each dealership to make certain decisions. Richard's preceding forecasts are based on manufacturer-driven choices and personal intuition

Thomas Burns wants what is best for the company, and has looked at hiring Peter for a long-term overhaul, launching with sales forecasting. Peter's decisions are based on statistical analysis and have been very successful. Peter's models are easily adaptable, customizable, and work well with in relation to any company. John's time series model shows itself valuable in some aspects, convincing everyone else of his capabilities has become a challenge.

Lisa and Mary both want a more focused and analytical way to forecast sales. They desire a quantifiable system that can use past data and economic indicators to predict sales. The analysis should be developed into a model that can be adapted from an organizational level to a dealership level, due to different types of vehicle being sold in different parts of the country. They seem to agree with Peter's approach. The final challenge, which seems to be the greatest, is getting everyone on one accord.

Problem Definition

The problem is that inventory costs have been irregular and have increased from and average of $300 million to $360 million. This is directly related to sales forecasting. An analysis model is necessary, but the million-dollar question is which one to go with. Furthermore, once a decision is made for the model, how it is compiled is another factor. The decision needs to be made whether to have on model that is set in stone or one model that is customizable to each dealership. The more one sophisticates the model the more frustration can increase, it is important for firms not to forget the contribution that front line salespeople can make in predicting sales.

Desired End State and Goal

The end state would be one where Burns is successful in predicting their future sales. The chosen analysis model will maintain merchandise available for consumers and keep finance charges below the $300 million level. The chosen model will also decrease the variations in inventory costs and provide accurate forecasts. Another attainable goal would be to start implementing programs that will get cars off the lot that are not so fast sellers.

Alternative Solutions

There are several alternative solutions to this problem. Burns can go with Thomas's idea of hiring Peter Reardon and having him come up with a model to predict the sales forecasting. They could also go with Richard's idea of letting