Steveâs Tire and Lube is a thriving, independently owned andoperated firm located in Logan. It was founded in 1993 by SteveSmith. Steve was born and raised in Logan, OH. Steve is well-knownand trusted by the residents of the town. As a teenager, he was astar football player for the high school team. In his spare time,he enjoyed working on cars and had a special talent when it came tocars. After graduating from Ohio State, this hobby led Steve tostart his own business â Steveâs Tire and Lube.
Steveâs does a wide variety of work on vehicles of all makes andmodels. The shop also offers a variety of parts and supplies atretail. Steve spends a great deal of time conversing withcustomers, most of whom he has known his whole life. His reputationfor honest and reliable work has earned him many repeat customers,with the positive word of mouth helping him to expand hisbusiness.
His wife, Abby, runs the office, and takes special care toacknowledge customers on their birthdays with hand-written cardsthat include coupons for discounted services. Customers oftenreflect that Steveâs offers the kind of service you can only findfrom a small-town mechanic. While Steveâs is slightly moreexpensive than the chain establishments that have recently movedinto town, customers testify that the friendly environment andquality service are worth the price.
Operational details
Steveâs shop has grown steadily over the years. Originally, hemaintained a modest three automobile bays at his shop, and Steveand his long-time buddy, Bill, conducted most of the work exceptoil changes which were handled by a part-time apprentice.Currently, Steveâs shop has six bays (the layout of the shop isshown in Figure 1) and seven mechanics. Each of the bays isidentical 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 workpart-time (work fewer than 40 hours per week). Steve and Bill arethe only two mechanics permitted to do work beyond the basics, andso more involved car services can take some time getting throughthe shop. Most mechanics at Steveâs were trained at the areavocational school, and those with particular skill are taken on asapprentices who work under Bill and Steve on the more involvedprojects. Steve provides all the tooling necessary, and is reveredas a fair and caring boss. In return, Steveâs employees are loyaland hard-workers; seldom is absenteeism a problem, and turnover israre.
The employee schedule for a typical week is shown in Table 1.The numbers shown in Table 1 are all devoted to working onvehicles. The shop closes for one week in the winter (althoughsomebody is usually on call that week to handle emergency servicesthat cannot wait). The hours required, the prices charged, and thepercent of customers requesting each service are shown in Table2.
Inventory
Although the shop is primarily a service provider, all of theservices require materials in addition to labor, and so there areinventory considerations that Steve must manage. For example, tomaintain the cleanliness of each car brought in for service,plastic seat and steering wheel covers and paper floor mats areutilized. These must always be in stock, as Steve learned the hardway once early in his career that these items are significantlycheaper than replacing an oil-stained seat! Each client requires atleast one set of these items; however, it is not unusual that morethan one set is used if the original is torn during service. Supplydeliveries of protective coverings take one week for delivery.Historically, an average of 400 seat coverings is used each weekwith a standard deviation of 20 seat coverings. A 95% service levelis desired. If supply gets too low, it is possible to request anemergency delivery of coverings from the supplier, at a substantialupcharge.
A variety of other parts and supplies (for example, oil filtersand oil) must be kept available due to the regularity of use; itwould be difficult to meet the high expectations of customers ifthese items are not available. This has become a particularly highpriority ever since the service chains moved into town, as thespeed of their services such as oil changes is already far superiorto that of Steveâs. Steve is dedicated to using a high-qualitybrand of parts and supplies, most of which are available from asingle supplier. Note that these parts and supplies are not onlyused to support services but also sold as retail to customers whowish to perform their own repair work.
Currently, a continuous review policy is used for all car partsand supplies, but Steve believes this system may require too muchtime to maintain for all inventory items. A sample of some of theitems offered, the volumes used in services and sold at retail, andthe associated costs are shown in Table 3. Steve has determinedthat to call the supplier, pay for transportation, and put ashipment away costs approximately $40. The stockroom is relativelysmall and does not require special equipment or personnel. There isvirtually no theft of product, so the annual holding costs areapproximately 30% of unit cost. Delivery of orders takes about oneweek from the local supplier.
Your Mission
Your team has been hired as consultants to analyze Steveâsbusiness and to provide Steve with recommendations for him toconsider. As your team analyzes Steveâs Tire and Lube, be sure toconsider 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 salesprice
** Standard deviation of demand is 10% of totalweekly demand
Steveâs Tire and Lube is a thriving, independently owned andoperated firm located in Logan. It was founded in 1993 by SteveSmith. Steve was born and raised in Logan, OH. Steve is well-knownand trusted by the residents of the town. As a teenager, he was astar football player for the high school team. In his spare time,he enjoyed working on cars and had a special talent when it came tocars. After graduating from Ohio State, this hobby led Steve tostart his own business â Steveâs Tire and Lube.
Steveâs does a wide variety of work on vehicles of all makes andmodels. The shop also offers a variety of parts and supplies atretail. Steve spends a great deal of time conversing withcustomers, most of whom he has known his whole life. His reputationfor honest and reliable work has earned him many repeat customers,with the positive word of mouth helping him to expand hisbusiness.
His wife, Abby, runs the office, and takes special care toacknowledge customers on their birthdays with hand-written cardsthat include coupons for discounted services. Customers oftenreflect that Steveâs offers the kind of service you can only findfrom a small-town mechanic. While Steveâs is slightly moreexpensive than the chain establishments that have recently movedinto town, customers testify that the friendly environment andquality service are worth the price.
Operational details
Steveâs shop has grown steadily over the years. Originally, hemaintained a modest three automobile bays at his shop, and Steveand his long-time buddy, Bill, conducted most of the work exceptoil changes which were handled by a part-time apprentice.Currently, Steveâs shop has six bays (the layout of the shop isshown in Figure 1) and seven mechanics. Each of the bays isidentical 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 workpart-time (work fewer than 40 hours per week). Steve and Bill arethe only two mechanics permitted to do work beyond the basics, andso more involved car services can take some time getting throughthe shop. Most mechanics at Steveâs were trained at the areavocational school, and those with particular skill are taken on asapprentices who work under Bill and Steve on the more involvedprojects. Steve provides all the tooling necessary, and is reveredas a fair and caring boss. In return, Steveâs employees are loyaland hard-workers; seldom is absenteeism a problem, and turnover israre.
The employee schedule for a typical week is shown in Table 1.The numbers shown in Table 1 are all devoted to working onvehicles. The shop closes for one week in the winter (althoughsomebody is usually on call that week to handle emergency servicesthat cannot wait). The hours required, the prices charged, and thepercent of customers requesting each service are shown in Table2.
Inventory
Although the shop is primarily a service provider, all of theservices require materials in addition to labor, and so there areinventory considerations that Steve must manage. For example, tomaintain the cleanliness of each car brought in for service,plastic seat and steering wheel covers and paper floor mats areutilized. These must always be in stock, as Steve learned the hardway once early in his career that these items are significantlycheaper than replacing an oil-stained seat! Each client requires atleast one set of these items; however, it is not unusual that morethan one set is used if the original is torn during service. Supplydeliveries of protective coverings take one week for delivery.Historically, an average of 400 seat coverings is used each weekwith a standard deviation of 20 seat coverings. A 95% service levelis desired. If supply gets too low, it is possible to request anemergency delivery of coverings from the supplier, at a substantialupcharge.
A variety of other parts and supplies (for example, oil filtersand oil) must be kept available due to the regularity of use; itwould be difficult to meet the high expectations of customers ifthese items are not available. This has become a particularly highpriority ever since the service chains moved into town, as thespeed of their services such as oil changes is already far superiorto that of Steveâs. Steve is dedicated to using a high-qualitybrand of parts and supplies, most of which are available from asingle supplier. Note that these parts and supplies are not onlyused to support services but also sold as retail to customers whowish to perform their own repair work.
Currently, a continuous review policy is used for all car partsand supplies, but Steve believes this system may require too muchtime to maintain for all inventory items. A sample of some of theitems offered, the volumes used in services and sold at retail, andthe associated costs are shown in Table 3. Steve has determinedthat to call the supplier, pay for transportation, and put ashipment away costs approximately $40. The stockroom is relativelysmall and does not require special equipment or personnel. There isvirtually no theft of product, so the annual holding costs areapproximately 30% of unit cost. Delivery of orders takes about oneweek from the local supplier.
Your Mission
Your team has been hired as consultants to analyze Steveâsbusiness and to provide Steve with recommendations for him toconsider. As your team analyzes Steveâs Tire and Lube, be sure toconsider 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 | 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 | Price of Service | % 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 | Volume used in shop per week | Volume sold thru retail per week |
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 salesprice
** Standard deviation of demand is 10% of totalweekly demand
