Business Problem

Business Problem: Burns Auto Corporation

Burns Auto Corporation is owned by Thomas Burns, a former athlete. Burns has purchased a total of twenty-five dealerships in the western region of the United States over a five-year period, and has been in business for twelve years. The economy has been slow and has had some uneven growth. Despite the increased sales for all markets, inventory costs have continued to grow. Thomas Burns is now concerned about his investments. Burns Auto needs to adopt a new solution to managing inventories and forecasting sales in order to streamline inventory costs while taking advantage of the growing sales for the market. The manufacturers that supply dealerships like Burns Auto with cars have sanctioned a "turn and earn" approach to managing inventories for the new model year. "Turn and earn" translates into each dealership receiving new vehicles at the same rate at which it sells the vehicles. This system is essentially the just-in-time method, a balanced system in which there is little or no delay time and idle in-process and finished goods inventory. Burns Auto Corporation needs a way to implement this "turn and earn" approach through an analysis of research.

So, just how important is this problem? How much of an impact will this problem have on Burns Auto? First, this company should understand that demand should not be underestimated; this leads to the dealerships having too little supply. This is unfavorable because the ability to acquire additional inventory depends on the number of cars sold. After the purchase of a car, customers generally want the delivery of that car immediately. Conversely, ordering too many cars will result in excess inventories and hurt the dealerships' profits due to the costs of carrying excess inventories. To combat these challenges Burns has expressed interest in hiring a consultant, Peter Reardon, to improve inventory management. Peter Reardon's services would cost at least $50,000. JMS, Inc. intends to further analyze this situation to report the best possible outcome for Burns Auto.

Statement of Hypotheses

A hypothesis is a statement about a population developed for the purpose of testing (Lind, Marchal, & Wathen, 2005, p. 317). Hypothesis testing is a procedure based on sample evidence and probability theory to determine the reasonableness of the hypothesis statement (Lind et al, 2004, p. 318). "There is a five-step procedure that systemizes hypothesis testing" (Lind et al, 2004, p. 318). The steps are (a) state the null and alternate hypotheses; (b) select a level of significance; (c) identify the test statistic; (d) formulate a decision rule; and (e) take a sample and arrive at the decision of either rejecting or accepting the null and alternative hypotheses. Going along with the first step, the null hypothesis is that There is no significant difference between Peter Reardon's methodology for forecasting inventory and the observed sales for Burns Auto. The null hypothesis statement is the statement being tested. The alternate hypothesis is what will be concluded if the null hypothesis is rejected. There is a significant difference between Peter Reardon's methodology for forecasting