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Introduction
Operation management involves the design and control of processes, supplies, and services within an organisation. Concurrently, it incorporates the acquisition and utilisation of resources to produce products (Gore 1976, p. 130). Additionally, it involves making considerable decisions and signing of contracts that might affect the daily operations of an organisation. Essentially, the management crew of any organisation should establish and ratify viable actions so as to uphold the organisational virtues. Tactical issues also affect the daily operations of the firm. These include the layout of the production area, the size of the plant, project management, and other relevant provisions. On the other hand, operational issues include inventory control, scheduling, and maintenance activities (Tighe 2002, p. 48).
Race-Tuned Extractors (a company) operates in the motor-racing industry in Australia. It has grown considerably in the recent past. Additionally, it has undergone through a remarkable transformation. Originally, the company specialised in the production and supply of exhaust and extraction systems. It supplied these to numerous clients in the motor-racing industry in Australia. Consequently, the company developed and became more popular. Private motorists commenced ordering various products from the company. The company, thus, began production of off-the-shelf systems. It also entered into an agreement with Oz Race Mart to produce some contracted systems. This paper discusses the production processes embraced in the firm, effects of the agreement with Oz Race Mart, operational decisions under current conditions, and the effects of producing off-the-shelf systems in the financial realms. Concurrently, this paper reveals the production processes, contract stipulations, decisions made, and strategies used to alleviate efficiency and increase in operation costs.
Currently, the firm’s production plant is situated at Blacktown. The company moved from Homebush after acquiring premises almost twice (in size) the ones they previously owned. This provided the company with enough room to increase production and storage capacity. Concurrently, it produces ‘custom-made’ and off-the-shelf systems. Previously, it supplied specialty exhaust and extraction systems. The systems were made to fit different engine specifications. Production of off-the-shelf systems began after private motorists showed interest in improving their street vehicles to increase performance.
The company decided to produce off-the-shelf systems to take advantage of the opportunity. The production process for the off-the-shelf systems focused on two engines. These were Holden and Ford systems. In addition, the production of the two took place occasionally (on demand). The off-the-shelf systems appealed to clients who were price conscious. These clients expected value for their money. This means that they expected high quality systems at lower prices. On the other hand, the owners of the firm felt that off-the-shelf systems should be of high engineering qualities. This would, however, make the concerned systems expensive for the price conscious clients. The firm should have done the research before beginning to produce off-the-shelf systems (Krishnan & Loch, 2005, pp. 433). This is a crucial provision when considered critically.
Off-the-shelf systems hardly registered considerable sales compared to the custom-made systems. They contributed only 25 percent of the revenue collected yet they accounted for 40 percent of the production volume. This shows that the production processes that the company uses presently are inefficient. The production processes of the company are also characterised by the use of a single production facility in Blacktown. The facility, however, is large enough to accommodate all equipment. The two systems are manufactured in the same facility. The firm has ensured that there is flexibility in the manufacture of custom-made system. The use of hi-tech engineering equipment enables this flexibility. The hi-tech equipment is for general purpose use.
The layout of the facility also influences the current production processes in Race-Tuned Extractors. Plant layout refers to how production facilities are arranged physically. It refers to the configuration of the work stations, equipment, and departments in the process of conversion. It is a plan that should enable optimum production. It should also enable all the production facilities to fit in the available space. The layout should streamline the movement of materials within the plant and facilitate the processes undertaken. In addition, it should minimise material handling costs and enable efficient use of the labour force. Appropriate layout also enables flexibility in the production process (Zhao & Tseng, 2007, pp.729). Currently, the firm has grouped equipment of same features together. The tube cutters are placed in one section, tube benders on another section and the welding machines on another section. The layout that the firm has adopted is likely to have strategic implications on production processes. There is the likelihood of increased handling of systems undergoing various stages of production. This can affect the quality of the systems. In addition, the time taken to produce a single unit is likely to be high. The current layout of the firm does not also allow expansion of the production processes of the firm.
The production of the two systems occurs concurrently. The same production equipment and trade partners are used in the production of the two systems. This creates a considerable strain on the available resources. Highly skilled individuals are used in the production processes of the company. However, competition for equipment and labour presents an operational problem to Race-Tuned Extractors. The equipment and labour used are likely to be overwhelmed by the workload (Boudreau, Hopp, McClain & Thomas, 2003, pp. 179). It is important to consider these provisions based on their viability and applicability in an organisational context.
Race-Tuned Extractors signed an agreement with Oz Race Mart, which is a company that specialises in supply of high-performance automotive parts. It supplies the parts to motor-racing enthusiasts and the general public. The contract was that Race-Tuned Extractors would supply a limited range of high-performance exhaust systems to Oz Race Mart. The systems were 5.0 L Ford “Boss 302” SVO and 5.0 L Chevrolet black box engines. Race-Tuned Extractors was to supply an initial stock of the supply chain. Later, it was to make regular replenishment of the stock. However, the contract had both positive and negative implications on the firm’s operations. It was important to consider both provisions so as to make a viable judgment.
Race-Tuned Extractors was to supply an initial stock of 500 units of the concerned components. This affected the operations of the firm. Overtime scheduling had to be done so as to meet this target. The overtime scheduling was done across many weekends. Thus, the first implication that the contract had on the firm’s operation was to interfere with production scheduling. Scheduling determines the time when a given operation is to take place. It determines when a product is to be produced and when its production should stop (Ivanov & Sokolov, 2012, p. 201). Race-Tuned Extractors had not made proper plans on how the components were to be manufactured before entering the agreement. The regular replenishment of the components required by Oz Race Mart was to be manufactured during normal production time augmented with irregular overtime.
This was according to the forecast done by the firm. The sales performance of the components improved overtime and Race-Tuned Extractors scheduled more time for their production. This improved the revenue of the firm in the short run. However, custom-made systems were given priority whenever scheduling tradeoffs occurred. This was due to the higher profit margins associated with their production. The other reason was because of urgency. The production of the components required by Oz Race Mart was, thus, abandoned. This reveals a negative effect of the contract. The production operation of the company was not flexible. It could not accommodate production of custom-made systems and components required by Oz Race Mart at the same time. The contract thus led to the firm leaving Oz Race Mart systems laying around the company at various stages of production. This is because the firm lacked the capacity and flexibility required (Balachandran, Balakrishnan & Sivaramakrishnan, 1997, p.49). Capacity and flexibility planning involve the ability of the firm to produce maximally without jeopardising the production process (Kreipl & Dickersbach, 2008, pp. 103).
The contract also led to increased lead times in production processes. This means that more time was used in the production of the systems. Therefore, the company could not keep delivery promises due to increase in lead times. The other effect of the contract is that it contributed to increase in inventory volume. Generally, inventory refers to materials that are in stock. Additionally, it includes materials that are still in the processes of manufacturing or are raw materials to be used in production but are not yet used. Firms that hold inventories are also flexible with the ever changing market conditions (Lee & Whang, 2008, pp. 22). However, holding inventory has negative impacts too. A large inventory results in increased maintenance costs. The contract led to increase in inventory since there were components left at various stages of production.
Decision making is one of the tasks executed by the management. In this context, the management of Race-Tuned Extractors has to make some decisions daily. These decisions should aim at making the firm’s operations run effectively. However, the daily decisions are guided by the current operating conditions of the firm. Under the current conditions, the firm has to decide how much of a given product is to be manufactured. The firm has to decide when the product will be manufactured and when this will stop. This means that the firm will be making decisions involving production scheduling daily. The firm produces custom-made and off-the-shelf systems. It, therefore, has to decide when the production of custom-made systems will begin and stop. This is to be done for the off-the-shelf systems too.
The company has to do this daily since there is only one production facility. The same machines are used in the production of the two systems (Kazan, Ahmet & Tanriverdi, 2006, p. 290). This also makes the firm decide on when to start producing each of the systems. These are operational issues that the firm should consider in order to bring about efficiency in the production process (Winch, 2003, p. 398). However, Race-Tuned Extractors made poor production schedules. Poor scheduling results in the company not determining the quantity of each of the systems it can produce at any given time (Kreipl & Pinedo 2004, p.77). It also resulted to abandonment of the components that were being manufactured for Oz Race Mart. After entering into a contract with Oz Race Mart, the company had to make decisions on overtime production daily. This was aimed at enabling the firm to meet replenishment requirement by Oz Race Mart.
Apart from this, the firm has to decide on who will take part in the production of the two product lines. This has to be done daily for the operations to run effectively under the current conditions. The firm has a highly skilled workforce. They are proud of what they do, and this shows how they are motivated. Since there are two systems to be produced, the firm has to decide on which trade people will be involved in the manufacture of custom-made systems and who will be involved in the manufacture of off-the-shelf systems. However, this was not appropriately done. The result was that the production of the two systems competed for processing time by the workers.
Furthermore, the firm has to decide on the quantity of each of the systems to be produced. The decision on quantity is to be guided by demand and capacity of the firm. The firm, for example, made sales forecast of the Oz Race Mart components. The forecast revealed to the company that demands for the components could be met through regular time of production plus overtime. Nevertheless, some of the decisions made by Race-Tuned Extractors resulted in inefficiency. The company did not make accurate demand forecasts for custom-made systems (Beech, 2001, pp. 54). This led to abandonment of Oz Race Mart components at certain stages of production. This shows that the decision to give priority to custom-made systems led to inefficiency. This is despite the fact that they are associated with high profit margins (Fishman, 1992, pp. 55).
The other daily decision that the firm makes regards the amount of time to be taken when manufacturing a given system. The firm has to ensure that the lead times in production of the systems are minimised. Under the current layout of the firm, the time used in production is likely to be longer. This is because machines of different uses are placed far from each other. The time used in the production process can be longer if the distance between machines used in production is large (Zijlstra & Mobach 2011, p. 127).
Previously, the company specialised in the production of exhaust and extraction systems. It then supplied these to the motor-racing industry in Australia. These were custom-made to suit specific engines. The reputation of the company grew and private motorists began demanding the products of the company. They aimed at improving the performance of their street vehicles. The company, therefore, began production off of the shelf systems to take advantage of the new market. The decision further made the reputation of the company grow. It was recognised as a supplier in motor-racing industry and of high performance street vehicles. However, the decision to start producing off-the-shelf systems had implications on the finances of the firm.
Mostly, off-the-shelf systems attracted price-conscious customers. These individuals esteemed the brand of the company. However, they expected the off-the-shelf systems to match the value of their money. This means that they expected high quality systems at lower prices. The owners of the company, on the other hand, felt that the off-the-shelf systems should be of high engineering quality as the custom-made systems. This is to enable them fetch higher profit margins. The first result, therefore, was that the off-the-shelf systems fetched lower profit margins. They were of high engineering quality, but their sales rate was low. This had a negative impact on the firm’s financial structure. A considerable amount of money was invested in their production, yet they only accounted for 25 percent of the firm’s revenues. In addition, the firm invested a lot so that they accounted for 40 percent of the production volume. This does not match well with the 25 percent revenue that they fetched. The contribution of the off-the-shelf systems to the firm’s revenue cannot compare with the contributions of custom-made systems. The custom-made systems accounted for 60 percent of the volume of production. The 60 percent, on the other hand, fetched 75 percent of the total revenue of the firm. This shows that production of a large quantity of off-the-shelf systems results in inefficiency as it uses up finances of the firm.
In addition, finance and accounting departments of the firm noted that production of the off-the-shelf systems resulted in the rising costs. This further had a negative influence in the firm’s financial structure. The likely reason is that the firm produced a large quantity of the systems. Nonetheless, they did not sell fast enough. The result was that they were kept in the store. The production of the off-the-shelf systems resulted in increased volume of inventory. There are, however, costs associated with maintenance of a large inventory. A large inventory brings about the need to fund the gap that exists between the systems produced and the resulting revenue from their sale (Lewis, 2005, pp.5). In addition, a large inventory uses up large space that can be used for other activities and for expansion. The result of a large inventory, thus, is to use up finances of the firm. There is the likelihood that the firm carried out a study before beginning the production of the off-the-shelf systems. This may also have resulted in the firm’s finances being used. Generally, the decision of the firm to produce the off-the-shelf systems had a negative impact in the firm’s financial structure. The systems had lower profit margins when compared to the custom-made systems. They accounted for 40 percent of the production volume yet contributed only 25 percent of the revenues. In addition, they led to maintenance of a large inventory which tied up some of the firm’s finances.
Conclusions
Operations management in an organisation focuses on the control of all business processes. It seeks to ensure that the firm operates efficiently. Additionally, it ensures that the resources that the firm possesses are used appropriately. The aim of this paper was to reveal operational inefficiencies experienced in Race-Tuned Extractors. The operational inefficiencies resulted from the production processes, contracts, and decisions made, and strategies that the firm used. The discussion focused on production processes and the effect of the contract the company made with Oz Race Mart. Furthermore, it focused on daily operational decisions made in the firm under the present operating conditions, and the effects of production of off-the-shelf systems on the firm’s finances.
The current production processes of Race-Tuned Extractors exhibit remarkable inefficiencies. Currently, production processes of the firm take place at Blacktown. The company moved from Homebush after acquiring premises that could suit its operations considerably. The large space that the current premises provide gives the company enough room to increase its production and storage capacity. This is a considerable factor when scrutinised critically. The company specialised in the production of custom-made systems. However, it began receiving demands from private motorists. This made it start producing off-the-shelf systems. The production of these systems, however, led to inefficiencies in the firm’s production processes. The layout of the production facility also led to inefficiencies. Layout affects production processes since it influences distances covered by components of the systems. Additionally, it influences material handling. The current layout groups equipments in various sections of the plant. This affects the production processes. Finally, production of the two systems run concurrently, and this affects production processes. This is because the production times of the two compete for equipment and trades people.
The contract that the company made with Oz Race Mart had a negative impact. The contract impacted on the scheduling of the production processes. Race-Tuned Extractors had to schedule for overtime production of the components that Oz Race Mart required. The production of the components also had to be stopped at times. This was because priority was given to custom-made systems. Additionally, the contract resulted in increased lead times in production processes. Finally, it led to increase in inventory volume, hence more costs.
Additionally, some of the daily decisions that are made in the firm result into inefficiency. The scheduling decisions that the company made resulted into inefficiency. The firm did not make proper decisions on when to produce custom-made systems and when to produce off-the-shelf systems. This resulted in the two competing for production times, equipment, and employees (trades people in this context). Poor scheduling also resulted into pitiable production orchestrations. The firm also had to decide the quantity of each of the systems to be produced daily. This decision depends on the demand volume that the company receives. The firm also had to make decisions on the taken time to produce the concerned systems. The time had to be short so that the lead times could be minimised. However, under the current layout that the facility had, lead times were high. The production of off-the-shelf and Oz Race Mart systems also led to increase in lead times.
Finally, the paper focused on the effect of production of off-the-shelf systems on the firm’s finances. One of the effects was that the production of the systems used up firm’s finances, yet made little contribution in terms of revenue. This was because they had smaller profit margins. Finance and accounting also noted that they had increased production costs. Furthermore, their production resulted in the maintenance of a large inventory. However, a considerable amount of money is used in maintaining large inventories of the firm. The paper, thus, managed to reveal operational inefficiencies that existed at Race-Tuned Extractors.
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