Operational and Strategic Issues Facing Terror Tubes - Example

Operational and Strategic Issues Facing Terror Tubes Introduction Terror Tubes is a small direct-partnership company that has experienced phenomenal growth in market presence, turnover and product development in the last 36 years. Nonetheless, there has been minimal structural growth to accommodate the growth such that the production demands and daily operations have now overstretched the initial structure to levels of inefficiency and cost ineffectiveness. The company initially specialized in the design and manufacture of high performance automotive exhaust systems for custom-made Australian motor racing industry and automotive after-market clients within Sydney. Today however, their production covers from-shelf standard designs for the larger Australian automobile market. From designing exhaust systems for a few models of common automobiles, Terror Tube now designs and manufactures for almost every model of automobile in Australia. They have also initiated trade deals with retailers for supply of standard designs of their products. This growth has accrued consequent to a commendable product quality and positive reputation. Nonetheless, their premise which they acquired in 200 at Blacktown is no longer adequate for production, the human resource is overworked, the daily work schedules are conflicting, resource allocation is not properly prioritized and maintaining high quality customer service is no longer feasible. These are the negative consequences of operations growth that have in a way superseded strategic growth in infrastructure (Merrifield 2009, pp. 89 – 97). This growth was not targeted and planned for in advance. This essay represents a critical looks at the operational issues now facing Terror Tubes, discussing their effects and analysing their strategic implications. In essence, the issue discusses why Terror Tube production processes are in chaos and not optimized; why resource allocation is not adequately matched to the production demands, why product priority is now threatened to edge into unprofitability and why delivery of quality customer service is impossible. The objective of the paper is to illustrate how strategic planning in organisations must accompany daily operations of the organisation if the business is to grow and if that growth is to be maintained profitably. As the essay concludes; the operation issues at Terror Tubes project from and can only be solved by sound strategic planning that not only foresees growth but stimulates infrastructural and resource development to match that growth. Strategic Implications of Operations a) Production Processes The situation as Terror Tubes currently features a chaotic production. For instance, the most profitable products are the custom-made systems and yet the standard systems are having a greater demand. That means that the inventory buffer of standard line exhaust systems is longer possible to maintain since the retail market demand exceeds production capability. In fact, Super Car initial order was for 1000 units, which could only be produced during overtime. The Super car requirements have increased despite being low in demand. The same have to be produced during normal production time and irregular overtime by the same people and systems producing the custom made units. There is a risk that the more profitable custom made systems will lower in quality because their production process is overstressed by the Super car and retail supply demands. Again, the standard systems are also being shelved at times to facilitate production of the more profitable custom made systems thus inconveniencing their clients. Having to subject the work force to regular over times is overworking them and therefore risking the quality of their production. This may eventually lead to a complete burn out (Fangwu, and Zhou 2010, pp. 547– 561). The limited space in the production plant is also being occupied by unfinished scheduled lots for standard systems. The costs of producing standard systems are rising despite bringing in lesser profits. Most of these costs are incurred in paying over time, in inventory hold ups and in public warehousing. As McNeilly (1996, pp. 73) explains, when such chaos brews up in an organization’s production processes, the future becomes bleak and threatened. As Little (2005, pp. 31-34) notes, if an organisation does not foresee growth in demand for its products, and that growth persists, there is a point in time that such an organisation breaks under the strain of production chaos. Such incidences usually halt the growth and even marginalize the already conquered markets, forever stagnating to company at a level where the production infrastructure is at its optimal. Terror Tube’s single production line and four departments are no longer tenable in serving the new market niches the company has launched sales into. If there is no growth at the production level, if operations are not adapted anew to the new production demands and if the human resource base is not streamlined accordingly, the new market niches such as supplying distributing retailers with standard exhaust systems will be lost. If Super Car supplies are not guaranteed in efficiency and timeliness, they may end up cancelling their deal. The main sales earner (custom made systems) may also be affected such that clients start falling out due to worsening quality (given that the same people and the same production line is used for the over-bearing standard systems) and delays in delivery. This means that Terror Tubes may end up stagnating at the same point forever (Church 1999, pp. 41 – 58). What the Terror Tube partners should do is to sit back and initiate effective short term and long term goals in five core areas of strategic planning namely, customer satisfaction, product integrity, employee safety and workplace harmony (Napier 1997, pp. 304 – 311). This can be done by separating tasks and roles of departments, increasing specialist structures and designing the responsibility of each unit to cater for specific market needs. The systems theory of management requires that the organisation be broken down into independent units that comprehensively cater for the market demands of an organisation. The resultant specialization of both the manpower and the production units yields greater efficiency, volume and customer satisfaction (Fogg 1998, pp. 371-372). For instance, Terror Tubes can create a separate department, preferably located in another factory for standard systems and hire adequate manpower to enable supply to the retail markets and buffer inventory maintenance. This will leave the main plant with adequate space and manpower to facilitate for custom made systems exclusively. This done, each of the two plants will be more effective in managing production, delivering client orders and managing storage concerns. The two units will be set for growth such that increased market demand can be accommodated without having to affect the other production unit, which may also be experiencing growth of production demands. b) Super Car Tube Contract Signing a contract with Super Car represented market growth for Terror Tubes. Their product quality was esteemed and their production standards respected. Terror Tubes gained a lucky break though the retailers to market their products nationally, without having to roll out an expensive marketing and distribution costs. Again, the demand for their products has increased perpetually such that the initial estimate of stock supplies has been exceeded. This indicates that increased sales can be predicted correctly (Brunt and Taylor 2001, pp 123 – 125). Nevertheless, the problem is that the demands placed by the contract on Terror Tubes is overworking both the human resource and production line of terror Tubes. This may threaten quality of the systems produced for Super Car and inconvenience delivery time since the priority of production is placed on the more profitable custom made systems. Such outcomes may severe the contact in growth and ultimately end in termination. Added to this complication is the need for storage that is further depleting the marginal profit margin for the supplies produced for the retailer. There is a pressing need to ensure that production for Super Car is maintained and provided for in the main production operations and not viewed as an overtime venture. Given the potential of growth facilitated by the contract, it must be taken seriously and planned for in a long-term basis. The capital for such infrastructural growth can be sourced from public sales of shares or business loans (Emmons 2000, pp. 94). The partners should not consider the Super Car contract in isolation. If the contract is handled well, this venture represents the first of the many that Terror Tubes may acquire with other Australian suppliers and even international retailers. Long term plans for any business need to accommodate the possibility of referral clients from a good reputation (Goodstein 1993, pp. 227 – 271). If however, the production for standard systems is separated to a different factory as recommended above, that growth can be factored in appropriately. Important here is the formulation of a 5-year operational plan listing the objectives of growth as exemplified in the forgoing paragraphs. Again, it is important that such a plan be exhaustive and strategic such that it does not address the needs of Super Car alone, but the possibility of other retail bulk clients. Such 5-year plans will thus begin with acquisition and equipment of a new factory for standard exhaust systems. A permanent storage solution like erection or purchase of a Terror Tube warehouse should also be considered for the inventory buffer at hand to facilitate urgent orders from Super car and similar future retailers should be considered. Increased marketing for the products in the Australian market could also ensure that Super Car and other retailers have a ready market in Australia and beyond so that profits may increase through bulk sales, a cardinal element of growth in business (Liedtka 2009, pp. 69 – 84). The plans must also include additional staff that exclusively deals with the standard exhaust systems. c) Daily operational Strategies Given the current situation at Terror Tubes, there are three sectors of daily operation strategies that must be looked into very urgently and comprehensively (Buckley 2009, pp. 113–136). The first is human resource management. The repeated need for overtime is indicative of over worked staff and there is need for an additional workforce to cater for the current production demands and future growth. The selection, hiring and training of professionals in the various phases of daily operations is paramount. So too is the compensation and motivation of the human resources base important, to guaranteed continued growth (Nejad 2009 pp. 19 – 34). Having a reliable, motivated, skilled and adequate human resource base is a prerequisite of business growth. Secondly, there is need to cut costs and increase production efficiency so that the production costs especially of the standard exhaust systems; are reduced in respect to the profit margin. Production costs must always be at par with net income (Brunt and Taylor 2001, pp 123 – 125). This might be factored in as part of infrastructural growth such as acquisition of their storage facility instead of relying on public warehouses. Thirdly, there is need to reduce risks and manage those risks that cannot be avoided (Roberto 2009, pp. 119 – 134). Super cars can stop their order without warning and the production needs to be tailored in a way that such a risk is well accommodated. The production line can stall or develop mechanical problems and the company needs to think of ways to facilitate continued production should that happen. These and other risks need to be considered and planned for in advance in such a way that they are and remain manageable (Martin and Riel 2009, pp. 342– 364). As already noted in earlier sections of the essay, the daily operations could better be smoothened out by instilling precise role definition and department specialization. Terror Tubes may for instance add to their four production departments to include several other specialist departments such as custom-made exhaust systems department, bulk retail systems department, storage and store management department etc. The idea here is to ensure that each structural unit is specialized on a particular role such that it can instil better performance, higher production efficiency and higher quality standards. As Liedtka (2009, pp. 69 – 84) notes, Role definition and role separation are among the best ways a company can instil growth, efficiency and reliability in production. d) Standard Systems Production on Terror Tubes As regards, the production of standard exhaust systems, Terror Tubes need to ensure that their production cost remains cognizant of their profit margin. The employees and other production resources committed to the production of these systems must not be too expensive such that the marginal profits are swallowed up (Williams 2006, pp. 39 – 44). Separation of these systems’ production to a different exclusive plant ought to facilitate that. They should not be produced alongside and in the same standards as the custom made systems since this will be cost ineffective. Storage issues need to be addressed in a long term basis as detailed above (acquisition of their storage facility). Based on their marginal profit margin, it is cardinal that the partners’ construe of a way to make their production very cost efficient. More importantly however, they can also bring in a higher income if they were marketed more rigorously such that bulk sales make up for additional income generation. The strategic plans for the future should aim at doubling the units of standard systems produced at a lesser cost. The economies of scale will thus make them a profitable venture since the production cost will keep going down as more units are made as the profit margin and sale turnover increases (Brunt and Taylor 2001, pp 123 – 125). To ensure that the standard systems are not a liability to the business, they should be budgeted for and run on a different account from the custom made systems. This will ensure that this account is maintained at its optimal profitability, without relying on and dragging the custom made systems’ account. Emmons (2000, pp. 94) notes that in many cases, when products with variant production expenditure and returns are produces simultaneously, the high performing products are usually affected negatively and it is easy to slip into inefficient production. Conclusion The essay has stressed the need for increased strategic planning at Terror Tubes to cater for the phenomenal market growth. Without strategic plan on infrastructural growth, the increased market performance will be brought back to naught or at least stagnated. Terror Tubes partners need to plan on rolling out infrastructural growth with an insight not just for the current demands but also for increasing demands that will result if their growth curve is to remain vibrant as it has for the last 36 years. With operations growth, the implication is always felt at and accommodated or delimited by strategic planning (Haines 1999, pp 21). Currently, Terror Tubes production and marketing operations are in chaos. There is need to address the growth and alter the business accordingly to facilitate current needs and future growth. Failure to accommodate strategic planning in their operations, strategic plans that allow the infrastructural growth to match the market demand, Terror Tubes is headed for the rocks. The company is at present profitable and such profits can be reinvested in infrastructure growth for the next five years or so such that the growth curve does not stall or even sublime. Organisational change is always mandated if increasing demand for their products is to be sustainable (More 2009, pp. 29 – 44). The most important move the partners can make is to plan for continued growth even before that growth accrues so that they can be ready for it when it finally arrives (Ford 2007, pp. 137-144). As the essay has noted, setting up of specialised factories and having employees specialised in particular production units (role division in respect to systems theory of management), acquisition of more infrastructure (such as storage and production line) adopting of modern innovative, cost-cutting and efficient production technologies and rigorous marketing in the Australian market and beyond, are the key strategic needs facing Terror Tubes partners. References Brunt, D. and Taylor, D., 2001, Manufacturing Operations and Supply Chain Management: The Lean Approach, Thomson, London, pp 123 – 125. Buckley, P. and Horn, S., 2009, Japanese Multinational Enterprises in China: Successful Adaptation of Marketing Strategies, Strategic Planning Society Journal, Vol. 31 (23), pp. 113 – 136. Church, M., 1999, Organizing Simply for Complexity: Beyond Metaphor Towards Theory, International Journal of Strategic Management, Vol. 32 (4), pp. 41 – 58. Emmons, W., 2000, The Evolving Bargain: Strategic Implications Of Deregulation And Privatization, Harvard Business School Press, New York, pp. 94. Fangwu, A., and Zhou, K., 2010, Technological Capability, Strategic Flexibility and Product Innovation, Strategic Planning Society Journal, Vol. 31 (23), pp. 547– 561. Also Available at . Fogg, D., 1998, Implementing Your Strategic Plan: How to Turn "Intent" Into Effective Action for Sustainable Change, AMACOM, London, pp. 371-372. Ford, B., et al, 2007, Ernst And Young Business Plan Guide, John Wiley & Sons, New Jersey, pp. 137-144. Goodstein, L., et al, 1993, Applied Strategic Planning: How to Develop a Plan That Really Works, McGraw-Hill, New York, pp. 227 – 271. Haines, S., 1999, The Manager's Pocket Guide to Systems Thinking and Learning, HRD Press, New York, pp 21. Liedtka, J., et al, 2009, Getting To Growth: The Organization as Its Own Worst Enemy, Ivey Business Journal Online, Vol. 73 (2), pp. 69 – 84. Little, S., 2005, The 7 Irrefutable Rules Of Small Business Growth. John Wiley & Sons, New Jersey, pp. 31-34. Martin, R., and Riel, J. 2009, Thinking by Design, Strategic Planning Society Journal, Vol. 31 (23), pp. 342– 364. Also Available at . McNeilly, M., 1996, Sun Tzu And The Art Of Business: Six Strategic Principles For Managers, Oxford University Press, New York, pp. 73. Merrifield, R., 2009, A New Lens For Looking At The New Business Environment, Ivey Business Journal Online, Vol. 73 (6), pp. 89 – 97. More, R., 2009, How General Motors Lost Market Focus – And Its Way, Ivey Business Journal Online, Vol. 73 (2), pp. 29 – 44. Napier, R., et al, 1997, High Impact Tools and Activities for Strategic Planning: Creative Techniques for Facilitating Your Organization's Planning Process, McGraw-Hill, New York, pp. 304 – 311. Nejad, M., et al, 2009, Strategic Leadership: Short-Term Stability and Long-Term Viability, Ivey Business Journal Online, Vol. 73 (5), pp. 19 – 34. Powell, M. and Simpson, T., 1999, Designing Research Organizations for Science Innovation, International Journal of Strategic Management, Vol. 32 (4), pp. 71 – 88. Roberto, M., 2009, Cutting Your Losses: How to Avoid The Sunk Cost Trap, Ivey Business Journal Online, Vol. 73 (6), pp. 119 – 134. Williams, G., et al, 2009, Best Practice: Strategic Planning in a Complex Environment: The Health-Care Example, Ivey Business Journal Online, Vol. 73 (8), pp. 39 – 44. Read More