Reference no: EM1384618

Hill's Automotive, Inc., is an aftermarket producer and distributor of automotive replacement parts. Art Hill has slowly expanded the business, which began as a supplier of hard-to-get auto air-conditioning units for classic cars and hot rods. The firm has limited manufacturing capability, but a state-of-the-art MRP system and extensive inventory and assembly facilities. Components are purchased, assembled, and repackaged. Among its products are private-label airconditioning, carburetors, and ignition kits. The downturn in the economy, particularly the company's discretionary segment, has put downward pressure on volume and margins. Profits have fallen considerably. In addition, customer service levels have declined, with late deliveries now exceeding 25% of orders. And to make matters worse, customer returns have been rising at a rate of 3% per month.

Wally Hopp, vice president of sales, claims that most of the problem lies with the assembly department. He says that although the firm has accurate bills of materials, indicating what goes into each product, it is not producing the proper mix of the product. He also believes the firm has poor quality control and low productivity, and as a result its costs are too high.

Melanie Thompson, treasurer, believes that problems are due to investing in the wrong inventories. She thinks that marketing has too many options and products. Melanie also thinks that purchasing department buyers have been hedging their inventories and requirements with excess purchasing commitments.

The assembly manager, Kalinga Jagoda, 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, it is not very good, but we use it anyway to meet the schedule."

Marshall Fisher, manager of purchasing, has taken the stance that purchasing has not let Hill's Automotive 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, Marshall reacted to the increased pressure for profitability by emphasizing low cost and early delivery.

Discussion Questions

1. Prepare a plan for Art Hill that gets the firm back on a course toward improved profitability. Be sure to identify the symptoms, the problems, and the specific changes you would implement.

2. Explain how MRP plays a role in this plan.