Terror Tubes: Operational and Strategic Issues

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Operational management refers to the management of the conversion process that changes inputs such as raw material and labor into outputs in the form of finished goods such as exhaust systems. The company’s corporate strategy is determined by customers in the marketplace. For instance, the need for higher performance exhaust systems in the motor racing industry in Australia informed Test Tube’s corporate strategy. This strategy reflects how Test Tube Company plans to utilize its resources and functions, such as marketing, operations, and finance to earn a competitive over market competition. Test Tubes’ operational strategy portrays how the company utilizes its capabilities to support its corporate. The marketing strategy looks at how the company will sell and distribute its custom-made systems and standard line systems.

This paper identifies and discusses the operational details that are affecting Terror Tubes Company, emphasizing the strategic implications. Terror Tubes Company was established by Sam Peters and Phil Stevens who were part-time motor racing drivers in 1974. The company endeavored to be a leader in the design and manufacture of custom-made high-performance automotive exhaust systems. The target market for the company products was the Australian motor racing industry and the automotive aftermarket in Sydney. In 2000, the company made a strategic decision of shifting its entire operations from Homebush to Blacktown before the Sydney Olympic Games. This location provided the company space required for expansion. Specifically, discusses critical issues determined in Terror Tubes Company.

Current Processes Utilized by terror Tubes and Daily Operational Decisions under the Current Operating Conditions

Originally Terror Tubes was established to supply one-line specialty exhaust systems to the motor racing industry. Later, as the company’s reputation continued to grow, there was increased demand from private motorists who wished to enhance the performance of their streetcars. To satisfy this market segment, the company embraced the expertise to design and produce a wide range of models of cars available in Australia. This enabled the company to satisfy a varying range of customer demands, thus, creating a solid company respected both as a supplier to the Australian motor industry and a supplier of private motorists in the new market segment.

Since its establishment, the company applied custom-built systems, each meant to meet the specifications of the engines in question. The growth of the company’s reputation and increased sales volume made the company adjust its previous policy to making popular products to stock. This enabled Terror Tubes Company to have safety stock that assisted the company to smooth out the nature of variations in the demand for streetcar systems. This shift into producing off-the-shelf products enabled the company to enter into the production of a standard line of exhaust systems. Customers targeted in this line were more sensitive to pricing compared to custom-made systems customers. However, the company’s top management made the strategic decision of manufacturing off-the-shelf products that reflected the similar quality of engineering as custom-designed systems. According to the case study, the profit margins for custom-designed systems were much higher and continued to dominate Terror Tube’s sales volume, for instance, accounting for 60% of volume and 75% of the sales in dollars.

Currently, both custom-made systems and standard systems are produced in one production facility. Terror Tubes Company adopted high technology engineering equipment for the general purpose of providing the flexibility required for making custom-made systems. The object of the company adopting this single manufacturing facility was to allow interchangeability between parts and decrease costs, for instance, the application of the same engineering equipment in all ranges of both custom and standard line products.

In investing in a single manufacturing facility, Terror Tube company is able to benefit in a number of advantages, such as one, the company enjoys decrease in variety, provide long production runs, and there is a marked lowering of tooling and setting up costs; two, the system makes greater use of special purpose machines as output is greater. In essence, this will mean a reduction in terms of operating costs; three, the system encourages a decrease in stocks, materials, components and finished products, tools, idle time, and overhead costs; encourages consistent quality and there will exist less maintenance and service costs; the small range of products will reduce purchasing costs; and reduces training costs as it makes training became shorter and simpler. On the part of consumers, they are able to enjoy a lowered price, interchangeability, and receive better supplies, service, and available maintenance (Mahoney, 1997, p. 970).

As an operation section, the company’s design department plays a significant role. To facilitate the efficient flow of production, Terror Tubes Company had an elaborate production layout plan, where one section deals with all tube cutters, the next section deals with tube bending, and the third section was utilized for welding purposes. In this type of production process strategy, the quality of designs and expertise of individual employees determine and reflect the quality of the end products. In addition, there is always competition for time processing on the same equipment operated by the same craftsmen and women (Kotha, 2000, p. 260).

Terror Tubes contract with Super Car and its effect on Terror tubes Operations

An organizational strategy is a plan of how organizations can attain their goals and objectives (Alexander, 1985, p. 95). Drucker defines an organizational strategy as the commitment of the organization’s available resources to future expectations (Alexander, 1985, p.91). Operations and strategic management is aimed at deciding on the goals of the organization, how to achieve the established goals, and guaranteeing that the company is in a sustainable position to pursue these goals. In addition, the established company strategies offer a basis for managerial decision making (Morita, 1987, p. 968). Strategic and operational management process emphasizes on the integration of available opportunities with competences that distinct. The internal strategic analysis is utilized by the organization to identify resources and capabilities of held by the company. This will direct the strategic alternatives developed in the next phase of the strategic planning process, as will the external market environment of customers and competitors. According to Hayes (1994), “existing assets or distinctive capabilities currently available in the organization are centers through which strategies are formed through matching with environmental opportunities” (p. 78). Strategies may also assist in identifying new competences that will be acquired, developed and supported. The company growth strategy such as the expansion of the product, market, and diversification often require the extension and enhancement of competences to satisfy environmental opportunities (Mahoney, 1997, p. 967).

Terror Tubes operations strategy emphasizes more on matching what the company does best with the specific needs of the customer. It satisfies conditions such as; the quality and type of products that the company manufactures and supplies exhaust systems both to the motor racing market and the general public who wish to enhance the performance of their street vehicles, the range of products the company offers, the type of production process used, technology adopted, quality maintenance, geographical area work is located, and planning capacity for enjoyment of economies of scale (Hammond, 1997, p. 95).

Issues of Design and Operations Strategy

There are many ways an operation strategy can be designed by managers. In most cases it involves a combination of analyses, reasoning, experience and intuition. The most reasonable process includes the following procedure: one, business strategy analyses, and other strategies, from an operations point of view. This provides the context and overall aims of the operations strategy; two, knowing and understanding the market in which the operation strategy must work. This indicates customer preferred products as well as the volume, range and flexibility; three, determine factors that will lead to success in the market, and the importance of these factors. This puts emphasis on the qualifying and order winning factors, and indicates the general features that products need in order to compete effectively; four, description of the general features of the process that can best produce these products. This involves factors such as capacity, flexibility and level of technology; five, best organizational structure design, controls and functions to support the process; six, design measures to compare actual performance with planned, optimal and competitors; seven, continuously monitor and improve actual performance (Mintzberg, 1990, p. 173)).

Operation managers do not work in isolation when designing a strategy, but the include links to strategic decisions in related areas, particularly marketing and finance. Such coordination’s, however, require compromises between competing goals. For instance if the company’s business strategy is to achieve high profits, operation managers try to achieve this by reducing costs, and concentrating on a narrow range of products; at the same time, marketing managers might try to increase sales, and demand a wide range of products. There are always internal conflicts; these are best resolved by taking the decisions that best achieve the mission, corporate and business strategies (Pellegrinelli, 1994, p. 86)).

Issues affecting Terror Tubes Operations Strategy decisions

Terror Tubes production strategy is concerned with guiding investment decisions. The decision by the company’s strategic managers to invest in the design and manufacture of high performance exhaust systems for the motor racing industry in Australia, provided guidelines for the current and future production operations of the company. In developing this strategy, Terror Tubes considered factors such as; the resources to be placed in production, capacity required to meet the agreed production and corporate objectives, and the location of the plant and the type of technology to be utilized.

Chase (1989) posits that “operations strategy to be concerned with long term plans development for ascertaining to best employ a company’s key resources so that there is a high degree of compatibility between these resources and the company’s corporate strategy” (p. 96). Terror Tubes operations strategy addresses broad questions about how the company’s major resources should be configured in order to produce high performance exhaust systems for the motor racing industry and automotive after market in Sydney Australia.

The major structural issues addressed in Terror Tubes operations strategy include: how big the company will utilize its available facilities to produce and supply high performance automotive exhaust systems; strategically shifting the location of the business from Home bush to Black town prior to Sydney Olympics of 2000; installing a single manufacturing facility to produce both custom made systems and standard systems.

The major issues affecting the role of terror Tubes operations strategy were: one, the increasing demand from private motorists to enhance the performance of their street cars. The company had to adjust its operation strategy from specializing in custom V8 exhaust systems meant for Holden Ford to design and produce products common Australian car models: two, issues of competitive priorities, for instance, to maintain the quality of her products, Terror Tubes management decided to make the off-the shelf reflect the same engineering quality a the custom systems. This was an effective operations strategy that created some value (added quality) to customers. Skinner (1969) identified basic competitive priorities which include; cost, quality, delivery and flexibility (p. 136).

These competitive priorities translate directly into features that are used to describe various processes such as custom made system and off the shelf system by which a company like terror tubes adds value to the product it offers. There always exists a segment market within every industry that makes purchases strictly on the basis of low prices or cost. For instance, the target market meant for Terror Tube’s standard line products were price sensitive compared to custom made systems. This explains the reason why the company’s finance and accounting department showed increasing costs associated with standard line. For example: the costs of maintaining stock, that is, both the raw materials and work in progress increased; and the company was also forced to rent an expensive public warehouse with enough space to sustain the stock volume.

Chase (1989) divides quality in two classes, that is, the quality of products and the quality of the production process. The levels of quality in Terror Tubes product design varies as per the motor racing market and private motorists market segment. Obviously, the process of production adopted to manufacture custom systems was of different quality than the off-the-shelf systems for common car models in Australia. This is replicated by the fact that custom made products continued to dominated its segment market. Normally, products of high quality products command higher prices in the marketplace. Terror Tubes custom made production system focuses more on the customer’s specific requirements. As a result of high quality custom made products, Terror Tube’s custom made product has continued to be profitable and dominant in its market segment. The process quality is also essential in every market segment. The clients will always require products without defects. Thus, Terror Tubes quality of engineering produced efficient products that sold with a healthy profit margin.

In sum, Terror Tubes operational strategies involve all the strategic decisions made by managers at the operational level. The company’s operations strategy defines the overall operational policies and provides the framework for detailed management decisions involving operations. The strategy provides a link between the largely abstract company’s strategic plans and the final products both custom made systems and standard systems. Operation strategies assist in designing the products and processes that can achieve the business and corporate strategies of the company (Mint berg, 1990, p. 176)). For instance, Terror Tubes has a business strategy that calls for market leadership in the supply of high performance exhaust systems to Australian motor racing industry. The company also has operations strategy that utilizes custom made production and distribution facilities to supply high performance exhaust systems to the auto racing industry in Australia and the automotive after market in Sydney.

The Effect of New Contract with Super Car

Market segments consider speed of product delivery to be a significant determinant in its decision to buy. To enhance speedy delivery of products in the market, Terror Tubes Company accepted Super Cars proposal to supply a limited number of exhaust systems of high performance. Stalk (1988) in his consultations demonstrated that both profits and market share are linked directly to the speed with which a company can deliver its product relative to competition. Manufacturing focus and trade off was important to Terror Tube’s operations strategy. Consequently, terror Tubes management had to decide the company’s critical priorities for the company’s success. In looking to obtain a competitive advantage in the market place, Terror Tubes made an agreement with Super Car for quick and reliable delivery of standard systems to the market. Stalk (1988) identified speed of delivery as a major factor in determining the success of the company (p. 45).

The new contract with Super Car had tremendous effects on terror Tubes operations strategy. For instance, to fulfill the challenge manufacturing at least 1000 pieces needed by Super Car, Terror Tubes had to make a decision of utilizing weekends to meet the new capacity. This called for additional labor costs, increased machinery maintenance costs, storage costs for both raw materials, increased overtime man hours, and work in progress. Increased sales through Super Car of standard systems forced Terror Tubes to do regular scheduling of standard line system. Nevertheless scheduling on competitive priority basis or scheduling trade off, the company gave custom systems priority due to its higher sales and profit margin. This had a dramatic effect on the scheduled lots for standard items; which were scattered around the firm in their various stages of completion, that is, as work in progress. As a result the effect of Terror tube’s shifting to making standard systems increased.

Much of Terror Tube’s were tied up in stock, that is, both the raw materials and work in progress despite steady increase in its sales. This comes as a result of trade off, that is, priority of production being preferred to the production of custom systems due to its profitability. The rise in held up inventory also caused the company to hire a public warehouse space at higher charge. It also caused increased lead times resulting to longer delivery periods. Last but not least, the strategic decision to move to producing standard items has pushed to company’s capacity, making the current layout inadequate, thus limiting the company’s capacity to expand.


In sum, operations strategy concept plays a vital role in determining the company’s overall success in the long term. By developing an operations strategy, companies discover new ways to add value for the customer in goods that the company makes and delivers (Kotha, 2000, p. 258). Therefore, operations strategy of the company must be aligned by managers with the strategies of other functional areas together with the company’s overall business strategy.


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