Burns Auto Paper

Running head: SITUATION ANALYSIS AND PROBLEM STATEMENT: BURNS AUTO CORPORATION

Situation Analysis and Problem Statement: Burns Auto Corporation

University of Phoenix

MBA 510

6/5/06

Situation Analysis and Problem Statement

Besides the main objective of earning the optimal amount of revenues for its shareholders, a business must also make sure that it keeps its cost of operating at a minimum level. By reducing its costs, and maintaining or increasing the amount of revenues, the business increases its net profit. Increased profits also result in a higher value of the business to potential investors.

Situation Background (Step 1)

Burns Auto Corporation, owned by Thomas Burns, consists of twenty-five new car dealerships selling cars produced by foreign automakers. The corporation has made its major presence in the western region of the United States. Being in business for twelve years, Thomas Burns has established dealerships in large automobile parks adjacent to freeways or on very busy streets in Albuquerque, Boise, Denver, Las Vegas, Phoenix, Tucson, and northern and southern California. Thomas Burns acquired the dealerships over a five-year period after ending an athletic career. The success of the business has been largely credited to the efforts of Richard Settle, the friend and business partner of Thomas Burns. Richard Settle, Burns Auto's Corporate President and Sales Manager, worked in the automobile industry in Detroit for a large American automaker before being hired by Thomas Burns.

Thomas Burns, concerned about how well the firm is doing, wants to adopt a new solution to managing inventories and forecasting sales, especially now that all manufacturers have mandated a "turn and earn" approach to managing inventories for the new model year, which starts in eight months. This means that each dealership receives new vehicles at the same rate at which it sells cars.

Issue Identification

The decision of Thomas Burns to adopt a "turn and earn" approach has created certain issues for the corporation. Some of the issues created by the decision include the implementation of the new approach at all of the dealerships, the costs to hire a consultant, disagreements among the management team, and the Richard Settle's reservations about working with the consultant hired by Thomas Burns.

The first issue deals with the implementation of the new "turn and earn" approach. With the new approach, it is important that dealerships not underestimate demand and have too little supply, because their ability to acquire additional inventory depends on the number of cars they sell. On the other hand, ordering too many cars will result in excess inventories and hurt the dealerships' profits due to the costs of carrying excess inventories. The implementation process of the new "turn and earn" approach will take a long time to successfully implement in all twenty-five dealerships. If careful planning is not done, the cost to implement the approach will increase tremendously and it may even result in a failure of implementation at certain dealerships. Thomas Burns and his team have to plan everything in advance and create backup plans for any contingencies that they may encounter during the implementation process.

The second issue facing Burns Auto is the cost to hire a consultant. Thomas Burns finds it necessary to get the help of a consultant with the implementation process. The issue regarding the hiring of a consultant is the cost. Thomas Burns has hired a consultant who is going to charge $50,000 to provide his services to Burns Auto.

Another issue faced by Burn Auto is the disagreements among some of the management team members. Although they agree with Thomas Burn's decision to hire the outside consultant, Lisa Hopkins, Corporate Vice President of Burns Auto, and Mary Peterson, the Associate Vice President and Marketing Director of Auto Burns, have both suggested that a different statistical model be created for each dealership instead of creating one statistical model for the entire corporation as a whole. Both Lisa and Mary feel that the dealerships would be closest to their environments and would have a better idea about the economic factors in their environments.

The fourth issue facing Burns Auto regards the resistance of Richard Settle to work with the new consultant. Richard has been working with different consultant in the past and does not find it necessary to hire another consultant. Richard had stated to Thomas Burns that the problem could be fixed within the corporation.

Opportunity Identification

Some of the opportunities for Burns Auto include the successful implementation of the "turn and earn" approach at all of the company dealerships, the opportunity to decrease overall costs, the opportunity to increase revenues and net profits, and the opportunity to acquire or build more dealership locations.

If Thomas Burns and his team are able to successfully implement the "turn and earn" approach to all of its dealerships, each dealership will be able to better predict the number of cars they will sell per month. This will enable the dealerships to reduce their excess inventory and reduce maintenance costs as well.

As a result of successfully implementing the "turn and earn" approach to the dealerships, Burns Auto has the opportunity to reduce its overall costs. Once management and staff at each dealership become proficient with the "turn and earn" approach, they will be able to reduce their overhead costs including the costs to maintain their inventories.

By reducing its costs, Burns Auto has the opportunity to increase it revenues and net profits. With increased profits, Thomas Burns can expand the corporation