Turbo Exhausts Production and Operation Management - Case Study Example

Turbo Exhausts Production and Operation Management Student’s Name: Instructor’s Name: Course Code: Date of Submission: Turbo Exhausts Production and Operation Management As a growing organization in the manufacturing industry, Turbo Exhausts is facing a challenge in increased demand for its products. The company initially specialized in design and production of custom made high performance automotive extractors and exhaust systems for Holdens and Ford in the motor racing industry. However, with the growing opportunities the company changes its factory location from Homebush to Blacktown and later increases its production line to cover the automotive aftermarket in Australia. The company’s opportunities are further boosted by the contract with The Performance Shop which places the firm’s product at a more national platform. Despite the contract being a growing opportunity for Turbo Exhausts, it introduces production capacity and financial constraints to the company. However, diversification and ability to satisfy a range of markets has made the company to attain a solid base in the industry. At a glance, the SWOT analysis of the company shows that Turbo Exhaust products are its greatest strength, the production capacity as the main weakness, demand being the key opportunity and inability to meet the increasing demand and likely loss of market share being the major threat. The advantage of the Turbo Exhaust current situation is that its opportunities and strengths surpass the threats and weaknesses if only a timely diagnosis would be done. The current constraints may lead to dire consequences to the company if not addressed in terms of its market and production efficiency. Turbo Exhausts employ two main production processes, job and flow shop. Both methods use general purpose equipments and same skilled personnel. At the onset of the company, job shop production method was used for the manufacture of its custom-made high performance automotive extractors and exhaust systems specialty. Later on, flow shop also known as batch production method was employed in the production of the private motorists (off the shelf) products. The ‘off-the-shelf’ products requirements were designed into a standardized line of performance extractors and exhaust systems that were not tailored to specific engines. In Turbo Exhaust company, the job shop production method involves custom made extractors and exhaust systems where specific customer requirements (for the engine) for racing motor cars are met. The custom products are made upon order by the customers thus not based on any foreseen demand. Therefore, one customer requirements are highly likely to differ with what others may need. Unlike the job shop method of production batch manufacturing at Turbo Exhausts is faster since it involves production of standardized performance extractors and systems. Therefore, the production volumes from batch method are higher than for the job method for a given time. The off the shelf products are produced in batches to meet the Performance Shop requirements and forecasted demand. The standardized products are made without customer specification then stocked and are purchased off shelf as customers may need (Chase, 2007; Tao et al, 2011). The performance measurement of Turbo Exhausts shows that initially the company was able to timely manufacture the custom made and standardized products. The speed of manufacturing and interchange of products time on the machines and skilled personnel is an indicator of time use operational efficiency. In the early stages of Turbo Exhausts scheduling of manufacture of the custom and off the shelf was done in an optimal manner. However, as the company grew this change, especially with the Performance Shop contract Turbo Exhausts is unable to meet the timely demand of the standardized and custom products with increasing lead time (Martin, 2005; Chase, 2007). Turbo Exhausts systems employ a production layout whereby it groups tube together in one section of the factory facility, tube benders in another, a separate welding section, three dyno-equipped service bays which aid in the tuning and fitting of custom systems. The production of Turbo Exhaust Products undergoes a process whereby depending on the part being made and people undertaking the work, it undergoes several steps to reach the assembly point. The zoning of the factory into several steps that manufacturing goes through the promoting specialization of the company staff which refines skills and increases productivity. The product manufacture flow seems to be mixed up in the process layout mainly due to various paths taken by different tasks in building the exhaust systems. The company may have come up with the generalized method in the use of machines to manufacture its products as a strategy and difficulties in the expansion of its current capacity. However, although exhaust systems may share process or utilize the same equipment, depending on the order or specifications of manufacturing at different stages may vary (Alfaro & Rabade, 2009). The current production layout employed by Turbo Exhausts presents difficulties in scheduling orders that need to be processed on each available machine. This way the company limits its production volumes and efficiency consequently prolonged lead time in supplying the custom built and standardized exhaust systems. The capacity constraint that exists in the company, sequencing/scheduling methods such as shortest processing time and first come, first served represents the arrangement of individual tasks in terms of arrival or the speed with which the order needs to be processed (Chase, 2007; Montgomery, 2012) . Turbo Exhausts production capacity flexibility is required, that is having the skill to swiftly decrease or improve production levels, or ability of moving production capacity rapidly from one product of extractors and exhaust systems to another as need be. The flexibility performance measure of Turbo Exhausts is quite on the high considering the general purpose machines used to build both custom and standardized products. The skilled personnel of the company that are involved in the manufacture of all the products represent flexibility. As the company reputation grew demand for its products escalated and need for additional product lines increased, the company adjusts itself to accommodate the new demand and is able to produce the required volumes. However, increased lead times for both custom and performance shop products, causing delivery delays, stock outs arose with the off the shelf product line and it is getting increasingly harder to adequately satisfy the demand emanating from the new contract with The Performance Shop. The company’s capacity has been pushed and no space has been left in the plant for further expansion thus dwindling Turbo Exhausts flexibility performance (Chase, 2007). The innovation and learning performance of Turbo Exhausts is quite high. The company was built on innovation by its two partners, Joe and Geoff who were initially part-time motor racing drivers. It took an observant eye to see the need and the existing gap, sharp mind to concoct a plan and passion to implement the foreseen opportunity. Further, as a way of innovation and awareness capacity the company foresees growth capacity in Blacktown thus deciding to shift from Homebush ahead of 2000 Olympic Games. The company is able to quickly respond to customer needs requirements by ability to create new and unique goods and services that delight customers and create competitive advantage. The increasing challenge of meeting the order requirements presents a learning process and gives the company a challenge of innovativeness. The satisfaction that Turbo Exhausts with the brand quality they make and their work environment boosts the company work system performance and effectiveness. Turbo Exhaust Company foresees an opportunity to grow and is quick to undertake it. Its competitive priorities represent strategic emphasis that it places on certain performance measures and operational capabilities within its value chain. The general public need for extractors and exhaust products on off the shelf terms presents a challenge to the company in terms of its adjustment capacity. The company is able to develop a standardized product for its price conscious buyers who take pride in the brand quality of the company. This gives the company an edge in terms of its cost competitive priorities. In addition, the company products are known for their quality especially the custom built products which enable to company to fetch high profit margins compared to standardized products (Montgomery, 2012). The quality of these products boosts the high value perception of the clients which in turn boosts value competitive advantage (Chase et al., 2007). The contract with The Performance Shop has brought effects to Turbo Exhausts. The company’s capacity has been overstretched leading to rental of an expensive warehouse. Turbo Exhausts needs to re-evaluate its business with a view to decide whether it needs to retain or amend its current capacity strategy plan. A capacity strategy plan would provide an approach in determining the whole capacity level of capital concentrated resources which include facilities, labour and equipment that have potential for boosting the company’s long term strategy. The allocation of these crucial resources has to be done right in an optimized manner (Hill, 2000). The selected capacity level for the company presents has a critical impact on Turbo Exhausts response speed, the cost structure, flow, and management (Farsad & LeBruto, 1993). If capacity is insufficient or constrained, the company is likely to lose customers from slow service (increased lead times) or by letting competitors penetrate the market, staging a takeover. This situation is already prevalent in Turbo Exhausts Company whereby products lead times are on the rise and instances of stock outs have been reported. This presents a serious challenge to the company that might see it losing its competitive advantage (Chase et al., 2007). In normal circumstances, as a plant gets bigger and production volume improves, the average cost per unit goes down as economies of scale would dictate. This could be attributed to lower operating and resource cost. In addition, maximization in the use of the plant equipment would highly boost production; ensuring full employment of the available equipment. Acquiring a higher capacity equipment say twice or three times capacity would not translate to twice or thrice operation and purchase cost, rather it would reduce average operation and production cost. However, this move is not to be misconstrued to mean that large is always better as it may lead to diseconomies of scale if the company is unable to fully utilize it. In case of diseconomies of scale a company would be forced to cut down the product prices so as to ensure constant or increasing demand thus ensuring guaranteed equipment use. Another approach of ensuring capacity meets the required production volumes would be employing a parallel system that would ensure that operations are not affected in case of a breakdown (Hill, 2000). The effect of the new contract with The Performance Shop on Turbo Exhausts’ operations is quite huge. The move to producing standard systems has led to change Turbo Exhausts’ financial structure considerably. Finance and accounting statements have indicated that profits margins are not what they should be. Further, costs associated with the off-the-shelf and The Performance Shop systems are rising. This has caused concern among the partners since cost efficiency is crucial in determination of health status of a company. The increasing costs means that cost of goods sold and available for sale are high coupled with other operational costs. If the production costs are increasing and profit margins decreasing it means Turbo Exhausts has retained the current prices or increased with a lesser margin than the cost of the standardized products. The move by the company to cater for the price conscious buyers has hurt its financial structure. The company money is being tied up in inventory in both of raw materials, work in progress and finished product. The tie up has led to effect on the current assets and inventory ratio. The current assets have increased due to increase in closing inventory and a consequential effect on the company liquidity. The carrying cost also is increased through storage coupled with insurance premiums and security costs. The financial structure challenge is further magnified the increasing volumes of products that need storage space thus the company renting an expensive warehouse. These cost effects have huge effect on the balance sheet of the company as well as the income statement (Fleming & Gombas, 2009). The company undertakes day-to-day operational tasks in order to run operations in effective ways (Miller, 2009).  The decisions made in daily allocation of personnel, determining which line of products are to be manufactured and time division. These allocation forms the basis of the company’s performance. The conglomeration of operation personnel (cost accountants, plant engineers, production managers among others) must put their minds together to come up with the best allocation schedule. It involves balancing of available resources in addressing the required issues, for instance in Turbo Exhausts custom and standardized products compete for equipment and personnel whereby the management must address the space, urgency and volumes issues as needed. The trade-offs involved in the make-to-stock and make-to-order products would also be keyed to financial benefits and market share platforms of the exhaust systems. In this case Little’s law of scheduling could be applied. It argues that a long-term relationship between inventory, throughput and flow time of a production system in stable state exists. The link is expressed as inventory equals throughput rate times flow time. The throughput of a system is expressed as long term average rate in which items are flowing through the process of Turbo Exhaust systems manufacturing whereas flow time is the time a unit takes to flow through the process from beginning to end (Leon-Garcia, 2008; Little, 20011; Simchi and Trick, 2011). In conclusion, Turbo Exhausts company challenges emanate from its plant production capacity which has been overstretched as per the current layout following increased demand of custom built and the Performance Shop products. The equipments are grouped according to their functions where job and flow shop methods are utilized in production. Therefore, a review of the strategic capacity plan needs to be undertaken so as to avoid compromise of financial and market share of Turbo Exhausts. A good balance between inventory and finished goods needs to be arrived at. The increasing costs of off shelf and performance shop products needs to be assessed. For the company to continue growing the quality custom made high performance extractors and exhaust systems should be accelerated as this is the key pillar of Turbo Exhausts. 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