Terror Tubes Firm’s Issues and Financial Structure


Terror Tubes is a company that manufactures Custom-made high-performance automotive exhaust systems. The company has since then undergone several operation aspects due to the demands of customers and the rising of new markets needing new products. The operations have come with their implications on the company. The demands of the customers have forced the company to look for larger space where it can increase production. It has also divided its operations into branches that perform different operations separately. Recently, the company entered into a deal with Super Car which distributes car parts. The deal has affected the operations of Terror Tubes in a great manner. For the company’s operations to run effectively, the management should make some daily operational decisions. This will help the company increase its production to meet the high demand. The company has also moved to producing standard systems that have affected the company’s financial structure. Terror Tubes has undergone major growth which has affected its operations and financial structure and therefore needs a production and operations management program to help in running the operations.

Literature Review

The establishment of Terror Tubes was with a view to providing both the automotive and motor racing industries in Australia with exhaust systems. Sam Peters, an automotive mechanic was instrumental in the establishment of Terror Tubes. He jointly helped in the establishment of Terror Tubes with engineer Phil Stevens. The two were part-time motor racing drivers and wanted to come up with better exhaust systems for the motor racing industry. Before the 2000 Olympic Games, the company was relocated to Blacktown from Homebush where it previously had its operations. The move was made so that the company could increase production and meet the customers’ needs. Here, they built premises that were about twice the size of the previous premises (CQ University Australia 2010, p.7). When it was established, the company specialized in producing custom V8 exhaust systems for Fords and Holdens. The expertise of the employees led to the production of exhaust systems that were compatible with most makes and models of cars used in Australia. The allowed it to meet the wide range of demands by customers.

The custom-built systems that the company produced in the beginning were produced to be used in specific engine types. An increase in sales forced the company to produce and stock popular items. Having a stock of products in-store helped the company to meet the needs of customers. The production of systems that were standardized and not meant for specific automobiles allowed it to produce more stock that is readily available for merchandise. The major issue with the Off-the-stock customers is that they were more sensitive to price than those whose systems were custom-produced. The profits from the custom-made systems have always been much higher than those from the standardized systems. The two products are produced in the same place using the same facility that is flexible so that it can produce systems that meet the needs of different customers. The different groups such as the tube cutters, tube benders, welders, and others are grouped in different sections (CQ University Australia 2010, p.8). As stated before, the custom systems are more profitable than the standard systems. However, the two systems compete for processing time when the same machine is used by the same product to produce the two products.

Super Car approached Terror Tubes so that it could provide them with quality exhaust systems. Super Car intended to supply the exhaust systems nationally. Terror Tubes accepted the request and got to an agreement where it was required to provide the initial stock and keep on restocking it as some get sold. According to Super Car, sales for the systems were likely to be constant but not large (CQ University Australia 2010, p.8). Terror Tube managed to meet the initial requirement of Super Car by extending the time for production over the weekends.

As Super Car continued to supply the exhaust systems a few months ago, the demand for standard systems has greatly increased past the demand for custom tubes. Terror Tubes has therefore been forced to produce more of these systems for restocking. It is important to note that the custom tubes have been more profitable than the standard systems. This had made Terror Tubes give priority to the production of custom systems and it was at times forced to leave some components of the standard systems uncompleted to produce the ones that provided more revenue (CQ University Australia 2010, p.8).

Terror Tubes’ Current Production Process

The current operations of Terror Tubes take place in the new premises in Blacktown where the same machine is used to produce different types of exhaust systems. The move from Homebush to Blacktown was triggered by the increasing demands of the product by not only the motor racing industries but also by private individuals. The company today produces a large amount of stock that is stored in the same premises. It manages a single operations facility that is used to manufacture both the custom exhaust systems and the standard systems. The amount of systems produced is determined by their demands in the market. This affects the operations of the company. For example, the increase in demand for the standard exhaust systems that came when the Super Car started distributing the products made the company increase the production of the same. Production of all the systems is done using one machine (CQ University Australia 2010, p.8). The machine is flexible so that it can be adjusted to produce exhaust systems that fit different models of cars in the market. This helps in meeting the needs of different customers. Since the same machine is used to produce the custom and the standard systems, only one type of system can be produced at a time (Wilson 1995, p.586). The company manages to produce products that meet the needs of the customers.

The production of one item is divided into several stages where each stage has some individuals who have the expertise and craftsmanship required in the production of the item. The tube cutters section help in cutting tubes of different sizes and shapes that fit in different models of automotives. The individuals in this section have specialized in the cutting of the tubes. The work of the craftsmen in this section helps in meeting the customers’ needs. The tube benders section helps in bending the tubes that are cut by the cutters into different sizes and shapes. The welding section specializes in welding together the different pieces that make a system. Many other branches exist with each branch specializing in dealing with specific tasks. The end product reflects the expertise and craftsmanship of individuals in the different sections.

Specialization of individuals in the production of a certain type of system is quite hard in the organization. As stated before, all the employees in the organization are involved in the production of the different types of systems but in different sections. The major cause of this is that the company has only one facility that is involved in the production of any one item. This means that if some individuals were allowed to produce an exhaust system from scratch to the final product, some others would be staying idle (Porter and Tanner 2004, p.130). The production of a system by the entire team in different sections helps give them some experience in the different sections. The only dangerous thing about this system is that the absence of individuals in one section may affect the operations of the entire company. The company has been involved in the production of the two types of systems since it shifted its operations to the new premises. However, the market for the custom systems has been higher and the profits have also been higher than the obtained when the standard systems are produced. This could tempt the organization to produce the ones that are moving faster and those that provide much revenue. However, the company has established a scheduling technique that is used in the production of the systems allocating the production of each system sometimes. The use of one facility is quite dangerous because if the facility undergoes a breakdown or a specific part breaks down, the operations are affected in all subsequent sections.

Effect of the New Contract with Super Car on Terror Tubes’ Operations

It is a major trend for manufacturing companies to get into contracts with suppliers who help in the sale of the products. The manufacturing company promises to provide the supplier with a commodity for a specific period of time and to restock the stores of the suppliers frequently so that there is always some stock in the stores. In a contract, the two parties make agreements with each other and none of them is supposed to violate the terms of the agreement. When manufacturing companies get into agreements, they in most cases change their operations to meet the needs of the suppliers. Terror Tubes got into an agreement with Super Car and this affected the operations of Terror Tubes in a great way.

The agreement between Terror Tubes and Super Car affected the operations of Terror Tubes in a great way. The agreement required Terror Tubes to produce quality exhaust systems that were to be supplied by the Super Car. In the agreement, Terror Tubes was to provide an initial stock of one thousand units of exhaust systems. The one thousand units consisted of both the customer and the standard systems. The company was also required to restock the Super Car stock every time it was reduced to a certain amount. Previously, the company produced systems meant for its own sales. This was determined by the demands of the customers (McNamara 2009, par.4). The new order by Super Car affected the operations in the company in a great way. The normal operations in the company could not have helped producing the one thousand units within the specified time. The organization changed its operations so that individuals had to work overtime over the weekends. This is because the same single facility was used in the production of the exhaust systems.

Terror Tubes had to produce systems to supply Super Car and others for its own sales. This means that even after the production of the one thousand units, the production will still rise because Super Car wants their stores restocked depending on the sales in addition to the company’s stock. Supercar suspected that the demand for the systems would be constant but not in large volumes. Surprisingly, when Super Car started supplying the systems, the demand for the standard systems rose past the demand for the custom systems. Terror Tubes produced the custom systems in large numbers because their demand was high and the revenue was also high. The high demand for the standard systems meant that the operations in the company had to be altered so as to meet the new demands (Gardiner 2008, p.46). This eventually affected the scheduling system that was previously used. It eventually affected the company in that it got into an agreement with Super Car to restock its stores every time the stock levels were low. On the other hand, the standard systems whose demand has gone high are not as profitable as the custom systems. This means that the company has to come up with a strategy that will not affect the production of the more profitable custom systems.

The agreement between the company and Super Car made the company come up with some means of storage. This is because the high numbers of products produced had to be stored safely before delivery. Super Car supplied the systems in the whole country. This increased demand meaning that some storage space was required to stock the high production. In general, the agreement affected many operations in the company.

Daily Operational Decisions Required under the Current Operations

The current operations in the company need some daily decisions so that the whole process is effective (Chary 2004, p.64). For example, there is only one machine that is used for the production of all the systems. The management must determine the demands of each type of system so that allocation is effective. The management must also determine the reliability of the machine so that it does not fail to work at any given time. This way, the machine will need some maintenance and the management has to determine the specific times when maintenance can take place. Since the process of production is one, they must be concerned about the available skills, production costs, and others. This will help in production so that the least amount of resources is used to produce products that meet the needs of the customers (Elearn 2005, p.21). The management in the company must also make some daily decisions about the dates when certain systems will be produced and supplied to the Super Car and for sale by the Company. Transportation, storage space available, cash flow, and other factors will affect the production program (Sim 1979, p.502). Some decisions need to be made about the people who are working in the company. To increase and keep the levels of production high, the employees need to be motivated; their salaries need to be reviewed; and the management needs to address communication so that there is a clear line of communication.

The Effects of the Move to Producing Standard Systems on the Company’s Financial Structure

The move by the company to producing standard systems has some negative effects on the company’s financial structure. The finance and accounting that has been done in the company show that it is not realizing the amount that is expected. This is an indication that the increase in sales of standard systems has no effect on the profitability of the company. It has been established that the costs associated with the production of standard systems are rising and these are leading to fewer profits in comparison with the sales. A lot of money is being tied up in the inventory for storage of excessive products which are not purchased. The more the products continue to stay in the inventory, the more the expenses. The storage of raw materials for the production of standard systems increases the expenses. To ensure that their inventory volumes are stored well, the company operates rental public warehouses. The public warehouse is very expensive and increases the expenses (Van den Berg 1999, p.758). In a case where the company had already ordered raw materials used in the production of standard systems and later decides 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.

The company experienced some 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 (Gupta 1969, p.522). This, in turn, leads to a reduction in profit because the time that could have been used in the production of the custom systems that are more profitable and have high demand now goes to the production of the standard systems. In addition, the company experiences extra expenses for the shipment of products. The employees involved in production have to receive their wages and salaries regardless of the fact that the profit margin from the standard systems is minimal (Wruck 1990, p.432). At the end of the day, the move to producing standard systems have more financial expenses leading to low profits than expected.


The operations and financial structure Terror Tube has been affected by the growth and the agreement between the company and Super Car. Terror Tube has been involved in the Manufacture of Custom-made high performance automotive exhaust systems. The company started with producing with producing exhaust systems for motor racing industries. Its reputation increased and it started producing standard systems that could be used in the different models and makes of cars used in Australia. The company is currently involved in a production process where different employees are placed in groups that produce the exhaust systems systematically. The agreement between the Terror Tubes and the Super Car affected the operations in the company in that the company was first forced to work extra hours over the weekends so as to meet the needs of Super Car. The production was also affected in that the company was now required to increase production of the Standard systems. Under the current operations some daily decisions touching on employees, resources, machine, programmes, and others need to be made. Production of the standard systems affected the company’s financial structure. The expenses increased due to the inventory and warehouses.


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