Production Operation Management at Turbo Exhausts - Case Study Example

Turbo Exhausts Case Analysis Student’s Name Course/Number Institution Date Instructor Name Turbo Exhausts Case Analysis Turbo Exhausts is an Australian company that designs and manufactures exhausts systems and automotive extractors for the motor racing industry. When it was formed, the company’s main objective was to develop custom-made high quality and efficient exhaust systems and automotive extractors. As a result of increase in demand and excellent performance brought by high quality products, the company expanded its production to include off the shelf high performance systems. It also received several request from the private motorist who needed to improve the performance of their motors. More so, the company received a request from national car part distributor to supply it with high performance automotive parts. Arguably, all these requests are coming in the face of limited resources and production. The company operates a single plant which is not enough to manufacture all the demanded requests to supply. More so, as a result of limited production, most of the productions are not completed as it should be. In addition, the company’s costs are rising, and profits are not the way as it should be. This paper focuses on identifying the operational challenges the company is facing as well as outlining the root causes of these challenges. In identifying the operational problems, the paper will focus on current production processes, the effect of the new contract with The Performance Shop on the company’s operations, as well as the consequence that the shift to the production of off-the-shelf systems could have had on the financial structure of the company. The challenges that Turbo Exhausts faces are a consequent of the desire to expand and meet the rising demand of its products. The company faces the challenge of satisfying the increasing demand with its limited resources. Perhaps the company’s problems can be said to occur from its excellent reputation. This company has been remarkably successful, which has attracted a massive demand. It is because of the company’s excellent brand that various companies want Turbo Exhausts to manufacture them their products. As can be noted from the case study, the demand from private motorist as well as the general public grew more and more. The company’s product and services are of high quality such that every motorist needs to improve the performance of their motor vehicles by purchasing Turbo Exhausts products. Turbo Exhausts’ excellent performance can be also attributed to the company’s ability to create a broad range of products, which meet the diverse range of market demands. This ability has played a critical role in appealing to the wide range of consumers across Australian motor racing industry. More so, it has contributed immensely in the development of a brilliant company which is well admired not only as a manufacturer to the Australian motor racing industry, but also as a manufacture to the general public and other car sections of the market. One of the challenges the company is facing is how to handle the enormous demands from the motor racing industry, The Performance Shop and the private motorist. There is an enormous demand of the company’s high quality products, which is putting the company’s management on the dilemma, which products should be given priority. The orders from The Performance Shop have been increasing and are affecting the production of the off-the-shelf and custom made systems. Since the production resources are limited and that the plant is used in full capacity, it may not be possible for the company to meet all orders within the existing production resources. Arguably, it is a challenge considering that the company needs all these orders in order to increase in revenues and profits as well as for its expansion. In order to enjoy more profits from all the present orders, the company needs to address this challenge and be able to supply all these orders in good time and place as well as maintaining its excellent quality. While the company has enormous desire for enormous profits, it is essential that it balances it with the production capacity of the plant (Mahadevan, 2009). The other main challenge facing the company is the increasing production costs and particularly the costs associated with orders from the Performance Shop and the off-the-shelf system. The challenge is that the cost associated with this orders are increasing yet its sales revenue are not as they are supposed to be. This implies that the profitability of off-the-shelf products and The Performance Shop orders are declining. Questionably, cost is an crucial element in every business entity which must be managed efficiently (Hill, 2006). Excellent management of cost is vital for excellent financial performance and the continuity of a company. Thus, the increasing cost on these orders is a paramount concern that is threatening the excellent financial performance of Turbo Exhausts. The management’s concern is not only the declining profitability of these products, but also the impact this product has, on other productions. It is acknowledged by Joe, Co-owner that it is extremely getting harder to meet the company’s demand as a result of the new agreement with The Performance Shop. The other challenge is that the company’s profits as accounted for are not as it is supposed to be. Every business entity is build with an aim of getting profits. When it is not making profits, then its continuity is not guaranteed. Before the agreement with the Performance Shop, the company’s profits were satisfactory according to the company’s management. With the new contract arrival, the company’s profit seems to be declining or not as it should be. The major product that the company depends on for profits is the custom-made systems. Thus, in their efforts to protect profits from this system, the management ensures that productions of custom-made products are given outright priority. This effort, though it is highly recommended is causing the non-completion of other products and causing delays in delivery times. The company’s challenge also includes the fact that most of its funds is being held up in inventory either as raw materials, work in progress or as a finished product. More so, the inventory was growing in volume, which has led to the renting of expensive warehouse to accommodate them. This implies that the company’s liquidity may not be as it is desired as money is tied up in inventory. Chary (2009) argues that funds being tied up imply that the company’s ability to pay its short term financial obligations may have been less and could prove risky if a creditor demands payment. In this regard, the company’s funds should not be tied up in greater portions especially where the company is supplied in credit. Arguably, it is a concern for Turbo Exhausts that its funds are being tied up in inventory while it is needed to facilitate other areas of production. Limited capacity of production constitutes another challenge faced by Turbo Exhausts. In the face of the increasing demand, the company’s production capacity is full. This implies that there is no room for production to be increased with the current layout. The limited production capacity has led the company to be without stock of off-the-shelf products, which supplies the wider range of customers. Occurrence of stock-outs is another challenge that may taint the excellent brand name the company has and may drive some customers a way to other competitors (Sunil, 2009). According to Boyer and Rohit (2009), the challenge of limited production also poses limitations on the profits a company can achieve. There is the challenge that the off-the-shelf products should be of the same quality with the custom-made products in order to attract high profit margins. The company’s management desires that the off-the-shelf products should be manufactured in similar engineering process as those of the custom-made products. Among other challenges are the limitation of manufacturing equipments and highly skilled man power. This is evident in the fact that both off-the-shelf products and custom-made products compete for these resources. Turbo Exhausts current production process is excellent and unmatched. This can be evident in the way the company is attracting large orders from the industry. It is because of its excellent current production process that the organization has grown. It has grown from just only manufacturing custom-made exhaust systems, and automotive extractors to the manufacturing of a wide range of products that meet the wide range of consumers in the Australian motor industry. The company currently supplies a wide market including the private motorists who want to improve the performance of their cars, the consumers with exact specifications, as well as the off-the-shelf market. However, as a result of the increased demand, limited resources as well as the exhausted capacity, the company current production process has been strained. This has caused the company’s production process to slow down which has subsequently led to increased lead times. The company’s management is now concerned with the reduced efficiency in the production process, which has resulted in increased leads times, in the manufacturing of both the custom systems and The Performance Shop orders. As a result of the strained current production process, the company’s orders are taking a longer period to be completed and thus, delaying promised delivery times. This is a serious challenge which is out to taint the excellent reputation of the company. Prior to the agreement of The Performance Shop, the company’s production process was excellent, and delivery was made not only on the right time but at the right place. The Performance Shop orders are increasing each day, and since production is constraint, delivery cannot be made on the right time, unless the production plant is expanded (Galindo, 2009). Arguably, the company’s current production process was excellent until the acceptance of the new Performance Shop agreement. It is justified to argue that the company’s production process is sound and efficient. The inefficiencies being noted is as a result of switching productions among the various orders. Productions have to be switch from custom-made to off-the-shelf and to the Performance Shop orders. According to Galindo (2009), the switching of production from one system to another is perhaps the main contributor to the increased lead times. Thus, it would not be fair to term the current production process as inefficient. There are several impacts the new contract will have on the company’s operations. The effect of the new contract with The Performance Shop is clearly depicted. Since the acceptance of the new contract, the company’s production capacity has been pushed. The company has had to strain immensely in order to manufacturer all orders on offer, although it has not been successful. The contract has had various impacts on the company’s operations. The first impact is that it led to increase funds being tied up in inventory. This is because the agreement required initial stoking of supply chain as well as regular replenishment of stocks. As a result of its increase demand, off-the-shelf products were sacrificed. This affected the production of off-the-shelf products, which attracted and satisfied the wide range of customers. In effect, stock-outs on off-the-shelf products occurred, thus denying the company to meet the wide needs on their consumers. The new contract has had the effect of increasing the company costs, thus diminishing its profitability. The new agreement has not only increased production costs it has also led to the renting of the warehouse, thus increasing storage cost. Finally, the Performance Shop contract has led to increased lead times, which has caused the delay in deliveries. However, the contract has contributed to the company’s profits although affecting other operations. The daily operational decisions that are required under current operating conditions for the company’s operations to run effectively should address mainly the challenges faced. From the situation the company is, it is clear that there is a need for urgent strategic decisions in order to ensure it function efficiently. One of the strategies would be to ensure that there is efficient production process (Boss & Rosenbaum, 2007). Efficient production process ensures that production takes the least time possible and does not compromise the products quality. Since different product share the same equipments, it is high time that these equipments are utilized 100 percent. This can be done by utilizing extra overtime. From the case study, it is evident that some overtime was utilized. It would be beneficial to increase overtime usage in order to increase the number of hours needed in production (Chary, 2009). Since there is limited human power, the company can high extra high skill trades men to work in an overlap manner with the present workforce. This would minimize fatigue and allows workers to be focused. Additionally, this will reduce the lead times and as well improving the production efficiency. Increasing the overtime hours as well as the workforce is like increasing the plant itself, and works in the same way. Apart from increasing workforce and overtime hours, the company needs to have the predicted number of orders based on the past. This will help in production planning, finances as well as minimizing stock-outs of products. It should also ensure efficient management of production cost in order to maintain a healthy profit margin. The production of the off-the-shelf systems has had varying impacts on the company’s financial structure. Though their production could affect the production of other valued products, off-the-shelf products have a positive contribution in the company’s profits. However, since there is a limited production resources, products with high profit margin have to be produced. Arguably, off-the-shelf products were most valued by the more price conscious customers. This implies that these products were sold lower prices and since the company’s reputation was excellent, customers preferred them. However, off-the-shelf products were not specifically designed to a precise engine, and thus, their prices was lower as compared to the custom made products. More so, the performance of these products was below those of custom made products. Just like the Performance Shop orders, off-the-shelf would have contributed profits though not at the same level as the custom-made products. Since off-the-shelf products did not require an initial stocking of inventories, the financial structure under off-the-shelf would have been much better as compared to that of Performance Shop orders. This is because these products would not hold much inventories inform of raw materials, work in progress or finished products, but would be bought more often because of its relatively low price and its high performance. Therefore, the company would not be having huge inventories on stock, and would have less money tied on inventories. This further implies that the company would have a better financial position in terms of liquidity. In conclusion, the challenges experienced by Turbo Exhausts are as a result of the need to expand and meet the increasing consumer demands. The company faces various challenges that must be addressed in order for the entity to proceed being efficient. Among the challenges faced by the company includes the increasing costs on off-the-shelf and Performance Shop orders, the increased leads times causing late delivery of products, limited production resources, as well as the declining profits. There is the challenge of meeting the huge demands from the increasing consumer demand, including the verity that most of the company’s funds are being held up in inventory either as raw materials, work in progress or as a finished product. The company also faces the limitation of manufacturing equipments and highly skilled man power, which is evident in the fact that custom-made products and both off-the-shelf products compete for these resources. The company’s current production process has been excellent until the acceptance of the new Performance Shop agreement. It is justified to argue that the company’s production process is sound and efficient. The inefficiencies being noted in form of increased lead hours is as a result of switching productions among the various production systems. The company’s efficiency can be improved through increasing the number workforce and overtime hours, as well as having a predicted number of orders based on the past. This is because it guides in production planning, finances as well as minimizing stock-outs of products. Efficiency can also be increased through efficient management of production cost in order to maintain a healthy profit margin. Reference List Boss, R & Rosenbaum, R 2007, Supply Chain Excellence: A Handbook for Dramatic Improvement Using the SCOR Model, American Mgmt Association, New York. Boyer, K & Rohit, V 2009, Operations & Supply Chain Management for the 21st Century, Cengage Learning, Southwestern. Chary, S 2009, Production & Operation Management, Tata McGraw-Hill Education, London. Galindo, W 2009, the Power of Thinking Differently: An Imaginative Guide to Creativity, Change, and the Discovery of New Ideas, Hyena Press, Boston. Hill, T 2006, Manufacturing Strategy-Text and Cases, Mc-Graw Hill, New York. Mahadevan, B 2009, Operations Management: Theory & Practice, Pearson Education, India. Sunil, C 2009, Supply Chain Management, Pearson Education, London. Khanna, B 2007, Production and Operations Management, PHI Learning Pvt Ltd. Read More