Steve’s Tire and Lube is a thriving, independently owned and operated firm locat
ID: 2422648 • Letter: S
Question
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 well-known 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.
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.
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
What are these and should they be changed or strengthened?
Table 1: Operating Hours and Mechanic Work Schedule
Day*
Shop
Hours
Mechanic Work Schedule
Total Hours
Full-Time
Part-Time
1
2
3
4
5
6
7
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
* 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%
Brake pad replacement
2
100.00
20%
Service inspection
0.75
45.00
5%
Table 3: Sample of Parts and Supplies
Products
Retail Sales Price
(in $)*
Volume used in shop per week
(in units)**
Volume sold thru retail per week
(in units)**
High performance motor oil
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
Car freshener
9.99
n/a
25
Rearview mirror OSU football helmet
35.00
n/a
20
OSU license plate frames
12.00
n/a
20
* Purchase cost from supplier is 50% of sales price
** Standard deviation of demand is 10% of total weekly demand
Day*
Shop
Hours
Mechanic Work Schedule
Total Hours
Full-Time
Part-Time
1
2
3
4
5
6
7
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
Explanation / Answer
Answer: In auto industry, reasonable price and high quality are considered as order qualifiers. Your company offers extremely high quality service but not the reasonable price. High cost resulted from high quality could become the order loser in the long-term run. In order to prevent the cost from raising any further, we recommend you making a long-term agreement with suppliers to take advantages from cost negotiation. On the other hand, we identify honest and reliable work with excellent customers service as your competitive priorities. On the other hand, friendly environment and worry-free quality of service that customers find from a small-town mechanic are seen as your order winners. Thus, we strongly recommend strengthening the competitive priorities and order winners by focusing on the distinctiveness that you already had. On the other hand, we also recommend you expanding the order winner to product customization since customers nowadays have very different preferences and they have the tendency to choose the store where they can easily find what they need. One way to strengthen customized service and products is distributing the surveys enclosed in the cards.
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