Terror Tubes Company’s Design of Staff Training

Background information

Terror Tube is a company that deals with the production of high-performance automotive exhaust systems. The company mainly targets the Australian motor racing industry. Initially, the company was designed to supply the industry with speciality exhaust systems. However, as its brand improved, other markets started appearing—these comprised individual motorists who wished to have their vehicles upgraded. Despite the company specializing in the production of custom V8 exhaust systems, demand for exhaust systems in the country made it start manufacturing standard exhaust systems that could be used by most cars in Australia. The ability of the company to adjust its operations based on demand has resulted in its reputation improving, making it the major supplier of exhaust systems to motor racing industries as well as private motorists. The capacity of the company to manufacture quality custom and standard exhaust systems has led to it entering into a contract with Super Car, which is a car-parts distributing firm. Terror Tubes supply the company with high-performance exhaust systems. Unlike in most cases where organizations expect to increase their sales when they get into contracts with others, the case is different for Terror Tubes. Its contract with Supercars has led to complications in its operations as well as increased its operations costs. The company has been forced to regularly alter its operations to meet changes in demand for products in Super Car. Terror Tubes has ventured into the production of standard exhaust systems, which has adversely affected the financial performance of the company. There are numerous operational issues affecting the company and which may have adverse implications on its financial structure as well as its operations.

The current production process used by Terror Tubes

An increase in demand for exhaust systems made the company relocate its operations from Homebush to Blacktown. This is in bid to get enough space to facilitate its expansion as well as accommodation of extra exhausts systems manufactured (Eisenhardt & Zbaracki 1992, pp. 17-37). Currently, the company is based in Blacktown. It manages a single operations facility where all its exhausts systems are manufactured. Demand for both custom and standard systems dictates the order in which operations are conducted in the company. Terror Tubes owns general-purpose engineering equipment, which is responsible for manufacturing the systems. This facilitates adjusting the manufacturing process to produce custom systems based on consumer needs. To enhance operations within the organization, the different processes followed when developing the systems have been divided into different sections within the company. In its production of high-performance exhaust systems, the company employs various production processes. There is the tube cutters section. This is the process where materials used in tube production are cut according to the required shapes and sizes. After the tubes are cut, they are transferred to the bending section. This is where they are bent to the desired shape and model. The tubes are then welded.

Different workers within the organization use their experience in developing both the custom and standard exhaust systems (Flynn et al. 1990, pp. 250-263). The company has not come up with a system where staffs specialize in the production of one type of exhaust system. All employees are responsible for the manufacture of both the custom and standard exhaust systems. The fact that the company has only one facility responsible for manufacturing the exhaust systems, it experiences problems when it comes to allocating the facility to the production of an individual type of exhaust system. The two types of exhaust systems compete for the same facility. This requires the organization to come up with a strategy for allocating processing time for each production. Failure by the company to establish a scheduling technique for the two products may result in the company concentrating on the production of one product at the expense of the other (Flynn et al., 1990, pp.264-284). Consequently, the company may fail to address the demand for the least produced product when it arises due to the product being scarce in the company.

Concentrating the entire production under one facility may have a severe effect on the organization. This is especially in the case of breakdown (Gardiner 2008, p. 423). As Terror Tubes use a single facility in running all its operations, chances of all its operations coming to a stop are high in case of mechanical breakdown within the facility. In case of mechanical problems in one section of systems production, it would be difficult for the company to go on with subsequent production stages.

Effects of a new contract with Supercar on Terror Tubes operations

Different manufacturing companies enter into contracts with firms that deal with their products. In such a case, the manufacturing company pledges to supply the other firm with various products for a specific period of time (Gardiner 2008, p. 428). A contract is signed stipulating some of the agreements made between the two firms. This ties the two firms together, with each firm obliged to keep to the terms of the agreement. In case one of the firms violates the agreement, there are penalties that it is supposed to suffer. One of the effects of contracts on manufacturing companies is an alteration of their normal operating procedures. Organizations alter their operations so as to meet their pledges to the organization they enter into a contract with.

When Terror Tubes entered into a contract with Supercars to supply the company with custom exhaust systems, there were different agreements that were made. The company was expected to make an initial stocking of the supply chain, which was to be followed by subsequent replenishment of the system as per the demand of the product. The company had to supply Supercar with 1000 units of high-performance exhaust systems. To cater for this, the company had to alter its operations. Due to the nature of the production process in the company, it proved hard for the company to achieve this number of units with its normal operations (Meredith 1998, pp. 441-449). This is because the same processing facility is shared by the two varieties of exhaust systems. The normal operations within the organization were altered to provide for overtime scheduling during weekends. This was to ensure that the company managed to compensate for the period used in producing other systems hence providing the required units on time. Speculations from Supercar were that demand for the systems would be regular but not in large volume. This would make it easy for Terror Tubes to continue with its normal operation processes and regularly replenish them with more products as time go on. This led to the company having to organize for overtime to cater for this irregularly.

In its normal operations, the company divides the available processing time between the production of standard and custom exhaust systems (Meredith 1998, pp. 450-454). Custom products having the highest demand and profit margin has been found to be allocated more processing hours than the standard systems. Operations within the company are more focused on the production of custom exhaust systems. Standard systems have limited demand, thus making the company produce them in low volume. However, after Super Car signed a contract with the company, the trend in sales volume of standard systems significantly increased. This led to the company having to reschedule its initial processing method to cater for this demand. More processing hours are allocated to the production of standard systems based on their demand. This has resulted in the two ranges of products immensely competing for the processing facility (Van den Berg & Zijm 1999, pp. 519-525). The contract has resulted in the company having to do away with its initial process scheduling system. It has become difficult to predict the trend in demand for the two types of exhaust systems. Consequently, Terror Tubes have been compelled to relax its operations’ program to allow for flexibility in changing from the production of one product to another based on their demand.

A time comes when the company has to make a decision on the product to be allocated to the production facility. Eventually, custom systems having the highest sales volume as well as the profit are allocated more time than standard systems. When demand for custom systems within Supercar is high, production of standard systems is brought to a halt, with Terror Tubes focusing on the production of custom exhaust systems. Incidences of unattended standards systems at different phases of the production line have also been common. This is done to help the company produce more custom systems to meet the demand.

There has been an increase in the company’s operations with it having to run a warehouse. The unpredictable trend in demand for various products within Super Car Company has led to Terror Tube having to operate a warehouse where it stocks its inventory. Rescheduling of the production process, which results in some components of the different systems being unattended in various stages of production, has called for the establishment of the warehouse where these components are stored as they wait to be completed later. The company currently has to interact with numerous operations associated with warehouse management (Van den Berg & Zijm 1999, pp. 526-528). These include product storage, inventory management and product distribution.

Since Terror Tubes started manufacturing high-performance exhaust systems, it has never experienced delays in its delivery times. The company came up with an inventory to extra stock products its manufactures hence ensuring that products are readily available in the market. Nevertheless, its contract with Supercar has led to delivery processes within the company being affected. Lead time for products ordered has significantly increased, making it hard for the company to deliver its products on time.

Daily operation decisions made by Terror Tubes to facilitate its operations

At times, demand for different products manufactured by a specific company leads to the company being overwhelmed by its production activities. For products sharing the same production resources, it becomes hard to determine the most effective way of allocating production resources to the different products. Organizations tend to allocate resources to the production of products with the highest profit. As Terror Tubes use a single production facility to produce both the standard and custom exhaust systems, it experiences strains in resources, especially when demand for the two systems is high. In its daily operations, the company is challenged by making decisions on the product to be allocated production resources (Simon 1979, pp. 493-513). This is because the same facility and staff are used in the production of both the custom and standard exhaust systems. It calls for the company to look into various factors before deciding on a product to be allocated production resources. Some of the considerations made include the determination of profits gained from each product as well as demand for the products. The product with the highest demand and profit margin ends up being allocated production time.

Effects of production of standard exhaust systems on the financial structure of the company

Products production within organizations may have positive or negative effects on the finical structure of the organization. This is based on production cost, demand for the product as well as its product (Gupta1969, pp. 517-523). Some products have high production costs with respect to materials and production techniques used in their production. These products lead to the company spending a lot of money on their production. To help the company recover from production costs, it requires the company to sell the product at a high cost. If the product is not so vital to its users, its price may scare away consumers from purchasing it. Consequently, the company may end up experiencing losses. Other products may not have high production costs but still lead to organizations experiencing losses. This is especially if the demand for the product is low. Production of the product may cause the company to incur additional costs in storing the product as the company waits for it to be demanded (Gupta1969, pp. 524-529).

Production of standard exhaust systems has led to constraints in organizations’ financial structures. This is due to fluctuation in demand for the product. At times high demand for the product has led to the company producing standard exhaust systems in large quantities. When demand for this product goes down, the company has been left with excess products in their inventory. This has resulted in the company experiencing financial hardships due to the inability to recover for production costs incurred in producing the product. At times the company has been forced to trade-off between producing custom and standard systems. In the case where the company had already ordered raw materials used in the production of standard systems and later decided to concentrate on manufacturing custom exhausts, it has been forced to incur inventory costs. This is because it has to store the raw materials to be used later. Producing goods with high demand assists a company in strengthening its financial position. This is because the company makes a profit at a high rate. Apart from production costs, no other costs are associated with such products.

Production of standard exhaust has led to an increase in the company’s production volume. This, in return, has resulted in the need for storage space to keep the extra products. Despite the company making a lot of sales in custom exhaust systems, its profit has not been able to go up (Van den Berg 1999, pp. 751-762). This is because of expenses associated with storage of inventory volume as well as the purchase of raw materials not in immediate use. Terror Tubes have to experience the overhead costs associated with warehouse management as it requires storing standard exhaust systems produced and not yet purchased. Operations cost in the company has significantly increased as the company has to allocate time and resources for the production of this product. This has led to a reduction in the profit margin of the company as time could be spent on the production of custom systems that have higher profit, and demand has now been directed to the production of these products that have low demand as well as profit.

Apart from the cost associated with the production and storage of the standard exhaust systems, the company has also incurred costs when it comes to the shipment of the products. The company has to deliver the product to its customers despite it having a low-profit margin. The company has incurred costs in paying staff responsible for producing the product regardless of it making sales on the product or not. Despite a company not making sales on its products, it incurs labour costs. This leads to the financial structure of the company is constrained. Selling the manufactured product helps the company compensate for the labour cost as the product’s price is set in a way that it covers the labour cost.


The act of Terror Tubes signing a contract with Supercar has resulted in its normal operations being altered. In return, its financial structure has been affected by the company having to confront an increase in operations cost. Initially, Terror Tubes aimed at supplying rally companies with high-performance exhaust systems. However, after entering into a contract with Supercar, the company has shifted its operations to the production of both custom and standard exhaust systems. This has led to the company’s operations processes being changed significantly. With the company having to use the same production facility in producing the two products, it has been compelled to make trade-offs between the products. The normal operations scheduling in the company has been changed to accommodate overtime schedules to help in replenishing Supercar with systems as they continue running out of stock. The company has seen most of its processing time being allocated to the manufacture of custom exhaust systems due to their high profit and demand (Wruck 1990, pp. 419-430). To ensure that operations within the company run smoothly, its management has been faced with the dilemma of deciding the product to give more processing hours. The decision is made by considering the demand and profit of each product. The product with high demand and profit is allocated more processing hours.

The decision by Terror Tube to produce standard exhaust systems has led to the company incurring high operation costs. Apart from the production cost of the product, the company has been forced to operate a warehouse to store raw materials as well as systems that are not purchased. Despite the company projecting to make a profit after signing a contract with Supercar, it has not been the case. The company’s financial accounts have shown that its profit margin is not consistent with its operations. This calls for the company to critically analyze its performance and identify the factors that have led to its profit not going up (Wruck 1990, pp. 431-444). The company also ought to reconsider its relationship with Super Car. Having good forecasting mechanisms will help Terror Tubes ascertain the effects of it changing its operation methods.


Eisenhardt, K. M. & Zbaracki, M. J., 1992. Strategic decision making. Strategic Management Journal, 13(2), pp. 17-37.

Flynn, B. B., Sakakibara, S., Schroeder, R. G., Bates, K.A. & Flynn, E. J., 1990. Empirical research methods in operations management. Journal of Operations Management, 9(2), pp. 250-284.

Gardiner, D., 2008. Operations management for business excellence. Pearson: Prentice Hall, North Shore.

Gupta, M. C., 1969. The Effect of Size, Growth, and Industry on the Financial Structure of Manufacturing Companies. The Journal of Finance, 24(3), pp. 517-529.

Meredith, J., 1998. Building operations management theory through case and field research. Journal of Operations management, 16(4), pp. 441-454.

Simon, H. A., 1979. Rational decision making in business organizations. The American Economic Review, 69(4), pp. 493-513.

Van den Berg, J. P. & Zijm, W. H., 1999. Models for warehouse management: Classification and examples. International Journal of Production Economics, 59(3), pp. 519-528.

Van den Berg, J. P., 1999. A literature survey on planning and control of warehousing systems. IIE Transactions, 31(8), pp. 751-762.

Wruck, K. H., 1990. Financial distress, reorganization, and organizational efficiency. Journal of Financial Economics, 27(2), pp. 419-444.

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