Terror Tubes Company’s Operational and Strategic Issues

Terror Tubes is a company that produces high-tech engineered exhaust systems in Australia. It was started by Sam Peters (mechanic) and Phil Stevens (engineer). The business was originally in Homebush but relocated to Blacktown later on. They are a respected company in the automotive industry and supply exhausts for private motorists and motor racing companies alike (Course Profile, 2010, par. 1).

The Terror Tubes is the case study and this paper seeks to analyze the production processes used by the company and the additional ones that could be incorporated. It also looks at the effects of the Super Car contract on the company’s operations. It also focuses on the decisions required by the company as a result to countercheck the effects. Finally, it critically analyses the effects of the standard systems on the financial structures.

The Terror Tubes were initially used to produce custom-built exhaust systems for particular engines. The custom-built system is the system that is directed to the customers and the products the company manufactures are based on consumers’ desires and needs. The main peculiarity of the custom-built system is the products the company creates are unique. Being busy with this system, the company was tailored to the engine in this very question. The direction to the customers’ needs made it possible to create a positive image of the company that usually satisfies customers’ needs. The shift to the ‘off-the-shelf’ product system was also successful, still, the customers of these products appeared to be more price sensitive. The main idea of the ‘off-the-shelf’ products is that these products are of the more standard line. According to Sam and Phil’s opinion, the custom-built system brought more profit for the company than ‘off-the-shelf’ one (Course profile, 2010, par. 2).

They started making standard systems to increase their profits. The standard was ones specifically made for the price-sensitive buyers who needed the systems. They made a centralized system in that they have one manufacturing facility in Blacktown that handles both the custom and the standard systems. The production process is such that different components are grouped in different spaces (Course profile, 2010, par. 2). The tube benders, cutters, and the welding section are all different working spaces and warehouses. What becomes tricky in their system of operation is the priority in making the two categories of products. The custom exhausts have to be made once in a while in bulk and the standard popular ones also have to be made regularly since they are frequently needed. The custom ones are bought occasionally but they bring in a considerable amount of money as compared to the standard ones. Some of the operational issues that take place are that when there is a good order of the custom exhaust systems the standard systems’ production is put on a halt to make the big dollars. This interruption results in low Work In Progress (WIP) for the standard exhaust systems.

The use of the standard system does not increase the profit of the company. Moreover, the craftspeople have to work more after this system implementation. Even though, it is easy to answer the question about the reasons why the company established it. Working according to the custom-built system, the company got used to meet customers’ desires. The standard system with the production of a more common line was dictated by the market necessity, so the company could not refuse this system (Course profile, 2010).

The systems are made with the same equipment and are operated by the same craftsmen. This ensures that the quality of the work is the same only some are specialized and tailor-made (custom) and some are general (standard systems). There are four types of production systems generally, engineer-to-order, configure-to-order, make-to-order, and finally make-to-stock. Terror Tubes mostly deals with the engineer-to-order or make-to-order for the custom-made exhausts and the make-to-stock for the standard orders. Although sometimes when they have big orders for the standard systems, for example when the demand is high, they probably operate on the make-to-order processes, since the products do not stay at the plant for long they are shipped soon after manufacturing (Course Profile, 2010, par. 2).

Terror tubes got into an agreement with Supercar to supply them with high-tech equipment in the form of exhaust systems that are high performance (Course profile, 2010, par. 4). Their job description was to supply to their chains and provide more items for their stock. For Terror tubes to provide the first batch of 1000 units, they had to put in extra work time for many weekends. This meant all the employees had to stay around more than usual with minimal rest until the work was done.

The Super Car contract took the Terror Tubes by surprise in that they were not prepared both in terms of facilities and know-how. They could supply the products but they had not done it in the magnitude that they were intended to supply this time around. This meant they had to outstretch their facilities and even their resources. Resources here being both monetary and human. The old orders were left unattended so they could chase after the contract, their operations became slow since they had to deal with the new orders and the current orders (Course Profile, 2010, par. 5).

The operations in the Terror Tubes need a major revolution. First and foremost since the orders are becoming overwhelming on the company they need to think of starting new plants to take care of that. One should deal with the custom exhaust systems and the other should take care of the standard systems so that at any given point the custom is being produced the standard systems are also in continuous production. There are a few suggestions that have been used by different companies, for example, Toyota uses the Japanese Kanban policy of control that entails the use of cards to control production and transportation between stages. Toyota uses two of these. As information is passed in the system, there is minimal blocking just before the cell entrance. This system limits the information in any cell. The minimal closing procedure means that if one cell completes the processes before the next cell, a new process can be started. On the other hand, in the Kanban model, this can not happen all the processes have to be complete in the whole system before a new process is started.

The base stock control system is almost similar in operation to the Kanban only here the demand information is communicated to all production systems at the same time in that the WIP is increased. For this system its advantage is that in case the system fails, the downstream processes will continue until all the available components are processed. The upstream processes will also keep working until the part with the malfunction (Production and Operations Management, 2009).

The CONWIP control is about maintaining a constant work in progress throughout production. The machine accepts jobs until the preset WIP level is attained the no more jobs can be allowed into the machine. These accepted jobs have to be completed before more are released into the system. The WIP level is set according to the demand of events. The other jobs that arrive after the machine reach the WIP level are held as backlog. In case of failure in the system, it works like the basetock level control only when the upstream jobs accumulate the system stops releasing new jobs into the system (Bonvik, Couch and Gershwin, 1996).

The last method is a hybrid of two control systems the CONWIP and the Kanban. Where the jobs run to the end and back to the production stage to initialize the release of new jobs without the need of another card. In the hybrid, the amount of workload is set so the possibility of the backlog is eliminated to some degree. Only work that is required is released into the system (Operations Management – Operations and Production Management, 2010).

Planning is essential; the management needs to reorganize their approach in managing their supply chain (Microsoft Corporation, 2007). They need to get state-of-the-art instructions to accomplish their tasks of supplying the exhaust systems. In doing this they have to study the life-cycle of the product and be able to predict the demand of the same. This helps to stay ahead of the customer.

The other area is safety stock planning. If they had systems that would help them determine their optimal stock, they would be able to avoid piling of components (Flynn, Sakakibara, Schroeder, Bates, & Flynn, 1990, pp. 267). They would be able to have just enough in stock after they have made their sales and not excess as it was.

Planning also needs to be done in the supply network. They need to integrate all the different related components like manufacturing, transportation, distribution, and purchasing into a model (Hopp, 2008, pp.1979). After that, they need to come up with tactical solutions after investigating the common trends in the market that are working for other supply companies. They need to identify the levels of demand, prioritize and match them accordingly. In addition, they can divide the staff into different groups so that they assign different clients to the various groups. This way they can meet deadlines and reduce lead times.

Collaboration with other partners across the specific supply network helps reduce buffers in inventory. The raw materials move faster and in the pipeline. This keeps the customers coming back due to efficiency. This will in turn increase the revenues more than what they were making (SAP supply chain management, n.d).

Execution of the plans comes next. Management must make sure everyone in the team knows where what is stored this is done by consciously sharing the information about inventory and orders made to procure the materials. When everything is done according to plan, there is no need for the feedback loop that occurs between the demand and the supply in most models (Kaplan, 1964). In the execution of manufacturing processes, it is important to consider all the production processes that should take into consideration all the restraints that hinder them and all the materials that are used in real-time (Buffa, 1980, pp. 6).

The SAP program also has a way of doing things with the available-to-promise capability, the ATP. The system receives questions from preceding systems or processes and determines how long it will take to build a certain product and whether it could be available in the stipulated period. It gives the cost of producing the product and how long it will take to deliver the same.

In transportation, Terror Tubes can also adopt the system that helps to manage different transportation of orders from a central point. The system ensures shipments are made directly from the supply center to the customers this helps reduce the costs and to meet deadlines efficiently (Chase, 1980, pp. 11).

In warehouse management, open purchases and incoming shipments are reconciled. This procedure supports a system that stores away information and could easily retrieve it if there is a need.

They can outsource from the regions where they get the orders. To be resourceful when outsourcing they need to make sure they have active relationships with all the entities involved in the business customers and manufacturers included among others. This way they reduce transportation costs and risks of damage or theft during transportation. At the end of the day, the company will end up having reduced costs generally and errors in calculations while processing.

The move by the company to produce standard systems was a well-intended one but was mostly beneficial financially. The production served well and they grew and made good dollars per se but according to their accountants, it did not reflect, as it should have (Course Profile, 2010, par. 6). The contract was what made them somewhat not see the ramifications. The sales were impressive custom systems bringing in healthier profit margins and standard systems not disappointing. On the contrary, this would have been much more if they had preferably two systems that handled the two types of orders so that the components of the pieces that were left unfinished and the raw materials would have been put to good use. The space they paid for to store the components was also another expense.

They went on to keep producing the standard systems because they made the quick cash they needed to keep their organization running. This also meant they were active in the market and thus an avenue to market their main business.

The standard systems are making them make more investments. In analyzing the growth rates, the Boston Consulting Growth-Share Matrix (BCG) was integrated. The BCG uses the product life cycle in analyzing the prioritization of products in a business entity. Every company has a portfolio that contains products that take away from the business in terms of cash and those that grow in a slower pace and bring in cash in huge amounts. (Fisher, 2007,pp. 379). There are four categories in this matrix. First are the stars. They are those that grow fast and have a high and stable market share. They use large amounts and also give high returns. If the market share is retained, they could bring in cash cows.

The second category is the cash cows. They are characterized by slow growth and have a high market share too. Here the profit margins and the cash inflow is high. Due to slow growth rate the investments to be made are also consequently low. This helps keep the profits accelerating. This is basically the foundation of any company.

In the third category, Dogs, there is a low rate in growth and a low market share. They need to be minimized in any company. It is advisable to liquidate cash.

The last category is the Question marks. They grow fast and posess a small percentage of the market. They have the most depressing cash characteristics among all the categories. If it is not monitored it will run the business dry and end up being a dog. The advice here is to invest in large amounts to increase the returns or to do away with the whole product. The company can sell it and get some cash or increase the number of shares. This aspect can only be known by the company after they analyze their profits (BCG Matrix, 2009).

According to the analysis above it is safe to say that the standard exhaust systems seem to be the cash cows since they don’t take as much to produce but they can give very high market shares if produced continually which is what the Terror Tubes should consider doing. The custom exhausts are the stars. They require huge investments but they also yield the big bucks in returns for this company. the company can at this point weigh its options on the implications of the standard systems on the financial structure. They yield but have to be boosted more and done in large quantities so that they could develop into stars some day.

Terror Tubes is doing very well in terms of financial returns. They dealt with the production of exhaust systems both standard and custom made. The problem came in after they got the contract with Super Car. The contract placed demands on their operations. Therefore, they worked overtime. They had to make tradeoffs and so some orders suffered because of the decisions made. For them to effectively go through with such a contract they have to be conversant with the tips on managing supply chains. They deal with planning and execution of the various processes in the company. The processes include purchasing, distribution and manufacturing among others. In the execution, the use of some techniques like collaboration and SAP systems make the processes even more efficient.

In analysing the implications of the standard systems on the financial structure, it was found that the standard systems have a powerful position in the returns of the company. They are the ‘cash cows’ in the company. The company can however make more investments into growing them so they become stars like the Custom made systems.


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