Team-Based Homework Assignment 1: Steve's Tire and Lube Steve's Tire and Lube is a thriving, independently owned and operated firm located in Logan. It was founded in 1993 by Steve Smith. Steve was born and raised in Logan, OH. Steve is wellknown and trusted by the residents of the town. As a teenager, he was a star football player for the high school team. In his spare time, he enjoyed working on cars and had a special talent when it came to cars. After graduating from Ohio State, this hobby led Steve to start his own business - Steve's Tire and Lube. Steve's does a wide variety of work on vehicles of all makes and models. The shop also offers a variety of parts and supplies at retail. Steve spends a great deal of time conversing with customers, most of whom he has known his whole life. His reputation for honest and reliable work has earned him many repeat customers, with the positive word of mouth helping him to expand his business. His wife, Abby, runs the office, and takes special care to acknowledge customers on their birthdays with hand-written cards that include coupons for discounted services. Customers often reflect that Steve's offers the kind of service you can only find from a small-town mechanic. While Steve's is slightly more expensive than the chain establishments that have recently moved into town, customers testify that the friendly environment and quality service are worth the price. Operational details Steve's shop has grown steadily over the years. Originally, he maintained a modest three automobile bays at his shop, and Steve and his long-time buddy, Bill, conducted most of the work except oil changes which were handled by a part-time apprentice. Currently, Steve's shop has six bays (the layout of the shop is shown in Figure 1) and seven mechanics. Each of the bays is identical so that any employee can work at any station. Four of the employees (including Steve and Bill) are full-time (work at least 40 hours per week), and three are interns who work part-time (work fewer than 40 hours per week). Steve and Bill are the only two mechanics permitted to do work beyond the basics, and so more involved car services can take some time getting through the shop. Most mechanics at Steve's were trained at the area vocational school, and those with particular skill are taken on as apprentices who work under Bill and Steve on the more involved projects. Steve provides all the tooling necessary, and is revered as a fair and caring boss. In return, Steve's employees are loyal and hard-workers; seldom is absenteeism a problem, and turnover is rare. The employee schedule for a typical week is shown in Table 1. The numbers shown in Table 1 are all devoted to working on vehicles. The shop closes for one week in the winter (although somebody is usually on call that week to handle emergency services that cannot wait). The hours required, the prices charged, and the percent of customers requesting each service are shown in Table 2. Page 1 of 6 Inventory Although the shop is primarily a service provider, all of the services require materials in addition to labor, and so there are inventory considerations that Steve must manage. For example, to maintain the cleanliness of each car brought in for service, plastic seat and steering wheel covers and paper floor mats are utilized. These must always be in stock, as Steve learned the hard way once early in his career that these items are significantly cheaper than replacing an oil-stained seat! Each client requires at least one set of these items; however, it is not unusual that more than one set is used if the original is torn during service. Supply deliveries of protective coverings take one week for delivery. Historically, an average of 400 seat coverings is used each week with a standard deviation of 20 seat coverings. A 95% service level is desired. If supply gets too low, it is possible to request an emergency delivery of coverings from the supplier, at a substantial upcharge. A variety of other parts and supplies (for example, oil filters and oil) must be kept available due to the regularity of use; it would be difficult to meet the high expectations of customers if these items are not available. This has become a particularly high priority ever since the service chains moved into town, as the speed of their services such as oil changes is already far superior to that of Steve's. Steve is dedicated to using a high-quality brand of parts and supplies, most of which are available from a single supplier. Note that these parts and supplies are not only used to support services but also sold as retail to customers who wish to perform their own repair work. Currently, a continuous review policy is used for all car parts and supplies, but Steve believes this system may require too much time to maintain for all inventory items. A sample of some of the items offered, the volumes used in services and sold at retail, and the associated costs are shown in Table 3. Steve has determined that to call the supplier, pay for transportation, and put a shipment away costs approximately $40. The stockroom is relatively small and does not require special equipment or personnel. There is virtually no theft of product, so the annual holding costs are approximately 30% of unit cost. Delivery of orders takes about one week from the local supplier. Page 2 of 6 Your Mission Your team has been hired as consultants to analyze Steve's business and to provide Steve with recommendations for him to consider. As your team analyzes Steve's Tire and Lube, be sure to consider its: Competitive priorities, order qualifiers, and order winners o What are these and should they be changed or strengthened? Process strategy decisions, service package, front-office/back-office, and moments of truth o Have the appropriate process strategy decisions been taken? If not, what changes should be considered? o Are all aspects of the service package being considered? What should be emphasized? What should be de-emphasized? o Where is the front-office/back-office demarcation? Is this appropriate? o What or where are the moments of truth in the process? Capacity requirements o What is the utilization by day? By mechanic? Are there concerns? o What is the average capacity cushion? Is this too high, too low? Be sure to compute utilization rates and the average capacity cushion as part of the analysis of Steve's business. Inventory policy o What are the safety stock levels and reorder points for the seat covers? For the other parts and supplies? Are these appropriate? o How much is the total annual cost of ordering and holding inventory using the continuous review system? Be sure to compute these as part of the analysis of Steve's business. Revenue from services o How many customers can be expected in a typical week, since all open hours are used to provide services? o What is the weekly demand that can be expected for the various services provided by Steve's Tire and Lube? Note that each of these considerations should lead to a recommendation for Steve to consider. It is also possible that a recommendation is supported by more than one type of analysis. Page 3 of 6 Your Submission and Requirements Your team-based assignment should be written in the format of a memorandum addressed to Steve Smith o Download the \"How to Write a Memorandum\" file for helpful tips o Download the \"How to Analyze and Write Up a Case Assignment\" file for helpful tips The memorandum should look professionally appealing, be concise, be grammatically correct, and be free of spelling errors The memorandum itself should not be more than two (2) pages, single-spaced, with 1inch margins (top, bottom, left, and right) The font and font size for the memorandum should be Times Roman 12 Figures, tables, computations, etc. are to be attached as exhibits to the memorandum and be properly referred in the memorandum itself o In general, do not attach an exhibit that is not mentioned in the memorandum o The number of exhibits that can be attached to the memorandum is restricted to no more than ten (10) exhibits Please discuss your team-based assignment with only your teammates . . . remember that discussing graded assignments with students who are not your teammates constitutes two types of academic misconduct: (1) unauthorized collaboration and (2) giving and/or receiving aid in an unauthorized manner One copy of your team-based assignment with names of all team members must be submitted by the date and time detailed in the syllabus Page 4 of 6 Figure 1: Steve's Tire and Lube Layout Page 5 of 6 Table 1: Operating Hours and Mechanic Work Schedule Mechanic Work Schedule Full-Time Part-Time Shop Hours 1 2 3 4 5 6 7 Total Hours Monday 10 10 10 10 10 10 10 10 70 Tuesday 8 - 8 8 4 4 4 4 32 Wednesday 10 10 10 - 10 - 4 4 38 Thursday 8 8 - 8 8 4 - - 28 Friday 10 10 10 10 10 8 8 8 64 Saturday 6 6 6 6 - - - - 18 Day* * The shop is closed for business on Sunday. Table 2: Available Service Details Type of Service Hours to Perform Service Price of Service (in $) % Customers Requesting Service Oil change 0.5 35.00 40% Tire rotation and balance 1.5 75.00 35% 2 100.00 20% 0.75 45.00 5% Brake pad replacement Service inspection Table 3: Sample of Parts and Supplies Products High performance motor oil Retail Sales Price (in $)* Volume used in shop per week (in units)** Volume sold thru retail per week (in units)** 6.50 430 60 Oil filter 15.00 86 23 Windshield wiper blades 20.00 8 18 Windshield washer fluid 8.50 12 50 Antifreeze 10.00 15 5 Battery 55.00 9 2 Spark plugs 17.50 40 10 9.99 n/a 25 Rearview mirror OSU football helmet 35.00 n/a 20 OSU license plate frames 12.00 n/a 20 Car freshener * Purchase cost from supplier is 50% of sales price ** Standard deviation of demand is 10% of total weekly demand Page 6 of 6