Production and Operations Management

Introduction

The researcher by the way of this essay uses the example of “Turbo Exhausts” (A company specialising in custom high performance exhausts) to highlight the importance of production and operations management in the smooth functioning of an organisation especially a manufacturing one.

The study of production and operations management concerns itself with observing and designing methods that utilise the resources available to add value to them and transform them into a good or service that becomes the final offering of the organisation. This process of production and operations management helps produce goods which are centred on consumer preferences and attempts to deliver them in time and at the right place.

This essay will attempt a technical analysis (rather than providing the solution) of the case presented. The researcher will observe the production and operation processes of the organisation, Turbo Exhausts in context of its recent partnership with “The Performance Shop”, its day to day operational issues and the broader operational problems of this growing firm.

Manufacturing Process at Turbo Exhausts

The manufacturing process at Turbo exhausts is primarily concerned with processing the resources available in to goods that fit the demands of the target market. Turbo Exhausts deals in producing custom automotive extractors and exhausts which are chiefly consumed by the Australian auto racing sector and the automotive aftermarket; therefore, the organisation’s processes are made to suit the requirements of producing the specialised products.

Turbo Exhausts maintains a singular production facility at Black Town which is utilised to manufacture both customs as well as off the shelf products. The facility employs high tech engineering equipment which is general purpose in nature; this provides the flexibility to produce the custom equipment. Also, the factory has a layout divided into four sections. The first section employs tube cutters, the second one employs tube benders, the third one employs welders and the last one has dynamo fitted bays to test and fit the custom equipments. The work is this facility is executed by high trained and skilled technicians who work on both custom and off the shelf products (both of which are produced at the same facility).

Since both the production lines are produced at the same facility it often happens that both of them compete for processing time. Often custom equipment is given preference over off the shelf products since the former yields higher profit margins; this results in the off the shelf equipment being left unprocessed on the factory floor. The company has also hired an expensive warehousing facility nearby which is falling short of fulfilling the increased requirements of the business and the current factory floor cannot be further expanded. It can be best summed up that the production processes of the firm are equipped to serve the old requirements of the firm; that is, they can serve the custom production line better than off the shelf product line. Hence, the processes need an updation to the new requirements of the business. Since, it is established that production and operation process management deal with the conversion of resources into output which caters to the market of an organisation, it is critical for turbo exhausts to remodel its current processes to the new market it has expanded into.

Contract with the Performance Shop

As mentioned in the case Turbo Exhausts is a company that specialised in the production of custom extractor and exhausts. Once it entered into a contract with The Performance Shop the requirements of managing the supply chain changed drastically. Before the contract the firm’s processes were singularly concerned with producing equipment tailor made to the requirements of a specific engine or car make. However, post signing the contract the firm felt the need for a process to cater to the production of a more standardised equipment. The original processes were relatively simple. Especially processes like inventory management, procurement and production did not require a lot of planning or forecasting. However, once the firm entered into a contract with the Performance Shop, a need was felt to change and adapt the processes to the new requirements; for instance once the flow of goods to the new outlet began a need was felt to stock up as against the earlier rule of producing according to order. Definitely the supply chain management also needed to accommodate a standardised structure to produce off the shelf products.     

The contract with the performance shop has opened up a new market segment for Turbo exhausts. Accordingly the firm started requiring a process that could keep pace with the steady demand flow brought in by the new tie up. Since the old processes of the firm did not require any forecasting or inventory management as production was more or less immediate need based the new product line required a drastic change. An increased focus on elements like inventory management, forecasting demand and planning procedures and stocking was needed. The lack of this planning culture was the primary reason behind the issues faced by Turbo Exhausts – especially that of work in progress lying idle on the factory floor for prolonged periods of time. Since the plant capacities and procedures were suited to only one production line that is custom equipment, the introduction of the new product line burdened the processing system and there started a competition between the custom and off the shelf goods. It was quite obvious that custom products were given preference since they yielded high margins however the supply to The Performance Shop suffered (that is these products were kept as work in progress on the factory floor for long periods, ignoring the volumes this product line could generate)

A general observation indicates that the symptoms to the problems currently faced by Turbo Exhausts emerged when the demand from The Performance Shop increased; this resulted in an irregular supply by Turbo Exhausts. A careful analysis of this symptom lead to certain broad definition of the various problematic issues faced by the organisation. These issues are, less space on the factory floor, capital locked in inventory, need for warehousing, irregular production schedules, increased lead time and late deliveries. All these problems indicate that Turbo Exhausts has failed to align its supply chain and production processes to its changed needs. To maintain the efficiencies and economies the managers at Turbo Exhausts need to pay an immediate attention to the issues surfacing and align its processes to fit in seamlessly into the processes of a larger supply chain system.

The irregular production schedules, increased lead times and lead deliveries, all point in the same direction; the firm is lacking in planning and managing its demand, inventory and scheduling procedures. The lack of space on the factory floor and the exhaustion of warehousing facilities indicate that the current layouts and facilities are being overburdened by the growing demand and production lines. An immediate redressal of these broad issues is needed to function smoothly and profitably.

Operational Decisions at Turbo Exhausts

A study of the issues faced by Turbo Exhausts it can be said that there are certain operational elements that the firm needs to address and adapt immediately. A modified perspective in viewing daily operational decisions can do the trick for Turbo Exhausts. Since the contract with The Performance Shop necessitates the establishment of a standardised procedures it is essential to view the two production lines as separate entities and take operational decision for both of them separately (and commonly in some areas). Unlike the custom manufacturing procedures earlier followed the firm will now require a strong system of inventory management and especially that of forecasting wherein, one can estimate the future demand and the raw material needed to meet that demand. This will help in scheduling processes in a manner so as not to conflict with another production line and freeing up capital tied in inventory.

One of the core elements of any production process are daily operational decisions. These are the decisions which shape up the success or failure of the organisation. Therefore it is of key importance that these decisions are aligned with the overall strategy of the business. This will help the managers to steer the organisation in an intended direction on a daily basis; and will also keep progress measurable and deviations correctable due to the presence of established measurable goals.

 Since the intentions of managers at Turbo Exhausts is to maintain the two business lines it is important to take daily operational decisions in such a manner so as to minimise conflict between the two production lines and to strike a balance between the processes of the two. This is a difficult to achieve objective; however, the managers at Turbo Exhausts can achieve the target by establishing a transparent information system. A culture where there is free flow of information, will promote sharing of information helping support informed decision making – procurement and scheduling. This will enable maintaining optimal inventory and reducing lead times to cater to the client.

The production issues faced by Turbo Exhausts are related to inventory management; which are leading to overstocking or shortages at times. The supply too, is turning out to be irregular therefore, it is critical to address the operational/production problems on a priority. This can be achieved by daily forecasting of procurement and processing based on past figures and future expectations. Also the scheduling need to be done with careful planning and foresight in order to reduce the work in progress lying idle (and promoting faster investment turnover). A working balance need to be reached between the production functions of custom equipments and The Performance Shop produce in order to promote the growth of both the business lines.

Financial effects of the Off the shelf products

It has been clearly stated that the off the shelf products did not result in a financial gain as was expected out of them. The standardised equipment has not resulted in profits comparable to that made by the custom products. However, the management also cannot deny the importance of the off the shelf equipment in future expansion. Therefore the processes have been forced to take the increased burden of the new production line although it does not generate much of an income. One critical issue that has surfaced due to the accommodation of the new product line, is that of maintaining inventories. Since inventories have to be maintained in anticipation of demand, it leads to a lot of capital being locked up in stock reducing the profitability or profit potency of the business (since such capital could have been used otherwise in a more profitable venture). Planning procurement and process scheduling with dexterity will lead in faster capital turnover hence increasing the profits.

Another financial burden that has cropped up due to the new production line is that of work in progress. As already stated in the case, a lot of unfinished work in progress is lying idle on the factory floor. This means a lot of investment is being tied up in this unfinished lot which is worth almost nothing – this implies an increased need for funds to finance other functions of the business. One way the financial structure of the company can be freed up is by means of reducing the bottlenecks in the production process; that is giving the production of off the shelf products equal importance as that to custom products (by trusting in the future viability of the standardised lot).

It is quite obvious that the new production line has resulted in a sudden drop in profitability. The firm has been slow in adapting to the new requirements hence, the new production line has only burdened the existing capacities of the production facility. Although the profit margins are low in the standardised equipment there is great scope for expansion and increased volumes in the future; therefore, Turbo Exhausts should invest in inventory management and establishing information systems in order to enable informed and planned decision making and implementation in the organisation. The financial health of the company is currently negatively affected and it may continue to be the same for a while; however, efforts in bettering inventory and supply chain management may help Turbo Exhausts to improve its long term financial health.

Conclusion

The essay has helped in developing an informed perspective about the organisation in question. Also it has been material in helping to analyse in detail the problems affecting the organisation.

Turbo Exhausts, originally a custom manufacturer of exhaust and extractor systems (chiefly used in auto racing), diversifies into a new production line. However, the growing firm is slow in adapting to the requirements of the new business. This results in several problems like, overburdened production capacities, long lead times and delayed deliveries. The researcher by the way of this essay has been able to unearth the financial implications of such issues. Also pointing in the direction of what is lagging in the current system and what can be improved to smooth the operational systems of Turbo Exhausts.

The essay has also been material establishing the importance of organisational goals and the need to align day to day decision making with such goals; so as to establish a step by step process to achieve such strategic objective.

Summing up, the essay has provided perspective, detail and understanding about the importance of production and operations management by studying it in context of a real world organisational problem.