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Ace Automotive Case Solution & Answer

Ace Automotive Case Solution

Introduction

Spartan industries, corporation is a part of the automotive sector and it is one of the best profit sectors in the United States. The Spartan industry has been diversifying its portfolio into four divisions. Ace Automotive is one of the divisions of the Spartan industry which supplies parts to the industry. Other divisions of industry includes Spartan tools, Viking Electronics and Guardian Rubber. Ace Automotive Company supplies and manufactures automotive parts, and due to an increase in the customer’s demand in this industry; the companies profit margin are increasing continuously, resulting in strong customer base helps which is helping the company to achieve its targets and to earn greater revenue, locally as well as internationally.

Company background

Ace Automotive is one of the Spartan industry’s division suppliers.Moreover, the Spartan sector purchased ace automotive company in 1987 from McCullough, due to its cost efficiency, high-quality products and customer base in the industry. The main products of Ace automotive are fuel pumps water pumps and oil-filters adopters. Additionally, Ace is a leading provider of machined castings, which are likely to be used in alternative assemblies. The peters 125000 square ft. plant was built in 1975, where the company manufactured and assembled its products.

Problem statement

Ace Automotive Company supplies manufactured automotive parts, as due to an increase in the customer’s demand; the companies that are operating in this industry are having continuous increase in their profit margins, which is also a factor that has been helping the company in having strong customer’s base, enabling it to achieve its targets and earn a greater revenue on national as well as international scale. Due to high profitability; there is a huge number of players emerging in the industry, which is setting new performance standards in the industry. Therefore, an increase competition in the industry and international pressure has forced the companies to work on cost efficiency techniques, reduce prices and enhance their products’ quality in order to increase their customer base and  market share in the automotive industry.

Due to a reduction in costs; most of the companies have reduced the workforce, which has increased the problem of schedule. Moreover, Ace automotive is also facing the same problem, the company is evaluating three projects, and the available hours for these projects are fewer than what is required. As a result, the company’s management is examining an optimal production plan that would meet each customer’s need while reducing the costs.

Alternatives

Alternative -1: general motors request for quotation to supply water pumps for the HV6 segment:

General Motors is the biggest customer of Ace automotive company.General Motors want to expand its product line by adding new engine the High-value 6. The company needs 140,000 units of water pumps for that engine.  The estimated cost of manufacturing products and capacity to meet this goal is estimated by the manufacturing, market and the engineering department. According to manufacturing departments, the cost of manufacturing 140000 units the cost is 13.81 per unit based on (800/1000 ton presses and four cavity dies for casting).  The marketing cost is based on normal sales, general and administration costs, they estimated 4% of sales is marketing cost in this case. And the profit margin of the company is 12%. The total cost of producing the units of water pumps is equal to 16.50 per unit. In addition to costs, outsourcing is also required to meet the demand of contacts as result cost will also increase.

Pros

  • It is the biggest opportunity for the company to produce 140000 units of water pumps for General Motors.
  • It increases the revenue of the company, because its profit margin is more than 12%.
  • General Motors was an old customer of Ace Automotive Company, so they should retain their customers in order to further increase the customer base. Retention of the customer is key to success in a competitive environment.

Cons

  • Ace automotive company is facing the issue of the workforce schedule. To achieve the target; the company should need 2,870 standard hours of capacity on 800/1000 tons.
  • Due to high competition in the market; the company has not increased its production costs. If the company increases the costs; it will lose the bid.
  • According to history, the company has estimated that the actual purchase will be less than 140,000……………………..

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