Case Analysis on Hill’s Automotive, Inc.

Case Analysis
Presented to the School of Business Management
Master in Business Administration
Xavier University – Ateneo de Cagayan

In Partial Fulfillment
Of the Requirements for the Course
MBA 117B Production and Operations Management

Submitted by:

Group 7
Johnson Rubelle Acol-Acol
Feebe Christy Joy Laurete
Joaquin Antonio Soriano

Submitted to:

Engr, Glenn B. Paclijan

Professor
1. Situation Analysis

1.1 Introduction:

Hill’s Automotive, Inc. is an aftermarket producer and distributor of automotive

replacement parts. We have noticed that Hill’s Automotive, Inc. has limited manufacturing

capability, a state-of-the-art Material Requirements Planning (MRP) system, and

extensive inventory and assembly facilities.

When the economy faced a downturn, Hill’s Automotive, Inc. had to deal with a

downward pressure on volume and margins. Their profits had fallen considerably.

Another problem they had to face was the decline in the customer service.

1.2 S.W.O.T. Analysis

STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

State-of-art MRP Lack of coordination Has advantage of Economic factors may

system within departments supplying hard-to-get severely affect the
parts to customers operations leading to
decline in sales and
customer satisfaction

Has exclusive Poor quality control Can make use of the Competitors offering
and hard-to-get MRP system to lower prices
parts and maximize overall
supplies efficiency in
purchasing,
manufacturing and
delivery plans
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STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

Extensive Low productivity Can provide high

inventory and quality parts at low
assembly costs
facilities

Limited Maintaining sufficient

manufacturing level of materials and
capability products in order to
reduce inventory
costs.

Investing in wrong
inventories

Hedging their
inventories and
requirements with
excess purchasing
commitments

Low quality parts

Oversupply of parts
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2. Assumptions and Missing Information

We can assume that there is a lack of coordination between the assembly

department and purchasing department. The company is experiencing an oversupply of

parts on standby but no place to assemble them in the production schedule. We also

don’t have concrete information about customer orders for Hill’s Inc. on why there’s an

oversupply of parts.

3. Problem Definition

The lack of coordination between departments paved way to the following

problems:

3.1 Wrong (not proper) mix of product

For the VP of Sales, Assembly Department seems to have not producing the

proper mix of product maybe because the products produced do not conform with the

products that should have been produced based on the outstanding sales orders and/or

the existing product demand based on the sales forecast.

3.2 Poor Quality Control System and Low Productivity

Although some parts/ components purchased were not very good, these were

still used to meet the schedule. Thus, the quality of the products is compromised. This

might have contributed to the rising customer returns.

Late deliveries exceed 25% of orders. These might be caused by the inefficient

scheduling due to inaccurate calculation of lead times of purchasing, production, and

delivery period.
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3.3 Lack of Manufacturing Capacity

The present manufacturing area could not accommodate the processing of all the

existing inventories of the company.

3.4 Poor inventory Management

This is attributed to the bad practice of the Purchasing Department in hedging

inventories and requirements with excess purchase commitment. Having raw

materials/parts not processed immediately or as planned incurs a huge inventory costs

(holding and carrying costs) to the company.

The limited manufacturing capacity is already given, thus the Purchasing

Department should only purchase the raw materials or parts which could be processed

just-in-time, so as not to hold or carry unnecessary inventories.

4. Development of Alternatives

Alternative No. 1.

Maintain the status quo.

Alternative No. 2.

a. Formulation of KPI for each department that considers the proper coordination of their

activities and being aligned towards the overall organizational goals.

b. Implementation of Master Production Schedule (MPS), which specifies what is to be

made (how many finished products or items) and when. This MPS should consider the
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data from Sales Department (e.g. Sales Forecast) and Purchasing Department (e.g.

purchasing lead time)

c. Use of Gross Material Requirement Plan, which is a schedule that shows when exactly

an item must be ordered from suppliers if Hill’s Automotive would run out of inventory and

it is also stating when the production of an item must be started to satisfy demand and

the customer by a particular date, which can improve the lead times being more

accurate. Other benefits would be a faster response to market changes, improved

utilization of their facilities and labor and a reduced inventory.

d. Use of Statistical Process Control Plan. This plan uses statistics and control charts to

tell when to take corrective actions and it provides a statistical signal when assignable

causes of variation are present. This plan can help increase Hill’s Automotive’s quality

standards. The plan implements that every few hours, workers need to measure the

accuracy of each procedure and if they find that statistics are not in range, actions need

to be taken in order to eliminate the cause and restart the process.

e. Use of Capacity Planning Plan, since they don’t have enough manufacturing capacity,

they have to make sure that they have the right capacity. They need to know and

understand how much they can produce in a period of time.

f. Purchasing Department to review their criteria in purchasing the materials/parts. They

should not only look on lowering the costs but to procure high quality materials at

reasonable cost. They should purchase the materials according to the Master Production

Schedule.
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g. Purchasing Department should also use the EOQ system to order the optimal quantity

they need with a minimal cost.

h. Management should keep track of all the lead times, to manage time efficiently to

provide the finished products on time to the customers.

5. Evaluation of Alternatives and Recommendation to Management

Alternative No. 1.

If we recommend maintaining the status quo. Hill’s Automotive, Inc. should bear

the fact that they will also be maintaining higher inventory costs and hoping for a better

economic turnaround into their favor.

Alternative No. 2.

This is our highly recommended alternative to management. Implementing

MPS and MRP should not hinder the company in any way. This alternative will ensure

materials are available for production and products are available for delivery to

customers with minimal-to-no delay. Also this will maintain the lowest possible material

and product levels in store to reduce inventory costs. Lastly, planning for manufacturing,

purchasing and delivery activities will be at ease.