Purpose
The primary purpose of this assessment task is to help students develop skills in the use of Operations
Management principles, theories and models in the analysis of the current operations of a
manufacturing enterprise. The assignment requires you to analyse the current situation. The objective
is to identify and specify the problems that exist – DO NOT TRY TO ‘SOLVE’ THE CASE.
The secondary purpose of this assignment is to give students the opportunity further develop analysis
and problem identification skills, as well as generic academic research and writing skills within the
framework of a formal essay. The essay format is chosen for this assignment as it is the most suitable
format in which to present a sustained argument.
Description
Assessment task 1 requires the writing of an academic essay. This essay should be an ‘argumentative
essay’, and must therefore contain an argument that is used as the structuring element of the paper.
The assignment is based on a short case study that describes a manufacturing organisation that is going
through a process of growth and change. The purpose of the essay is to identify the operational issues
within the case, and to identify root causes of the problems that are evident. Students are expected to
engage in extensive research within the academic literature relating to operations management. Some
research into the industry of interest would also be beneficial.
Details
The assessment item is based on the case study titled Brisbane Extraction Systems Australia Pty
Ltd (a fictitious company). The case itself, and assignment requirements are detailed below. You
should read, and carefully analyse, the case and respond to the issues presented at the end of the case
study within the context of an academic essay.
MGMT20085 2 Term 2, 2015
Case study: Brisbane Extraction Systems Australia
Brisbane Extraction Systems Australia Pty Ltd designs and manufactures custom-made high
performance automotive exhaust extraction systems for the Australian motor racing industry and the
automotive after-market. The business was established in Brisbane by two part-time motor-racing
drivers in 1997. Martin Graves was an automotive mechanic by trade and Benito Treglia was a
mechanical engineer. The business operated originally in Bowen, but relocated to Wacol in 2011 to
take advantage of lower rental costs. Whilst the move created some marketing issues, the new
premises were much larger than the old factory in Bowen. The new premises gave the firm much
needed room to grow.
The company was originally a part-time venture created to supply specialty exhaust extraction systems
to the motor racing industry, specifically, the Supercar V8 circuit. But as Brisbane Extraction’s
reputation grew, more and more demand came from other sectors of motor racing as well as private
motorists seeking to improve the performance of their street cars. Whilst originally specialising in
custom V8 exhaust systems for Holdens and Fords for V8 Supercars racing, Brisbane Extraction
quickly developed the expertise to design and manufacture systems for several of the more popular
makes and models of car common to motor racing in Australia. This ability to meet a diverse range of
market demands helped to create a solid company that quickly became a full-time operation. Now
days, Brisbane Extraction is a well-respected supplier to the motor racing industry, as well as a
supplier to the performance street car sections of the automotive after-market.
Traditionally, the company had focussed entirely on custom-built systems; each being specifically
tailored to the engine in question. This process involved fitting, calibration and tuning of the system
individually to each engine. But as the company’s reputation grew, more and more requests were
received for high performance systems that could be bought off the shelf. Individual fitting and tuning
was an expensive process and many potential customers were put off by the cost. Customers knew that
they could buy off-the-shelf systems from other manufacturers, but the Brisbane Extraction brand was
very attractive to many performance motoring enthusiasts.
Seeing an opportunity for expansion, in 2008 Martin and Benito started manufacturing a few systems
to stock to meet this small but growing demand. Initially, this production was limited to the two main
systems (Holden and Ford), and only occurred when the work schedule permitted. The move into offthe-shelf
products resulted in Brisbane Extraction producing a more standardised line of performance
extractors and exhaust systems. These systems were not specifically tuned to an individual engine, but
were designed to fit standard production cars. Whilst they were still high performance systems, their
performance was slightly inferior to that of the custom-made extractors that were carefully tuned to the
engine in question. Customers were more than happy to trade-off a small drop in performance for a
substantial saving in the purchase price. These customers appreciated the brand value offered by
Brisbane Extraction but expected good value for money. Martin and Benito felt however that the offthe-shelf
products should reflect the same quality of engineering as the custom systems that sold for a
great deal more, and attracted a much healthier profit margin. Notwithstanding the increasing demand
for off-the-shelf product, the custom-designed and made systems continued to dominate the
company’s sales.
Brisbane Extraction operates a single manufacturing facility in Wacol, where both custom-made and
off-the-shelf systems are manufactured. The high-tech engineering equipment used to manufacture the
systems is mainly general purpose in nature in order to provide the flexibility needed for producing
custom systems. The factory is laid out with equipment grouped by function: tube cutters together in
one section of the facility, tube benders in another, a swaging and flaring section, a separate welding
section, and so on. The machine shop that produced header and exhaust flanges and other machined
components was housed in its own internal section, well away from the hustle and bustle of the
assembly areas. The facility also has three dyno-equipped service bays that facilitate the tuning and
fitting of custom systems. The majority of the staff are highly skilled tradespeople who take pride in
the quality of design and the quality of manufacture of their products. Both the custom and the off-theshelf
systems are produced on the same equipment by the same tradespeople using the same processes
and procedures.
MGMT20085 3 Term 2, 2015
Six months ago the firm was approached by Race Gear International; a national car parts distributor
specialising in the supply of high performance automotive components to both motor racing
enthusiasts and the general public. Race Gear was seeking supply of a limited range of high
performance exhaust systems for the 5.0L Ford “Boss 302” SVO and the 5.0L Chevrolet small block
racing engines (the same engines used in the V8 Supercars). After due consideration and careful
analysis, Brisbane Extraction entered into an agreement with Race Gear that involved production of an
initial stockholding to populate the supply chain, and the regular replenishment of stocks in line with
sales. Based on comprehensive market research, Race Gear estimated demand for the systems to be
regular but of low volume. The initial stock requirement of 200 units of each system was met by
scheduling overtime production across several weekends. All production for Race Gear was
transported to Race Gear’s central distribution centre in Sydney from which the products were
distributed nationally at Race Gear’s expense. Retail pricing would be similar to the off-the-shelf
systems sold over the counter by Brisbane Extraction, but with a small premium to cover Race Gear’s
distribution costs. Even though the wholesale price received from Race Gear was substantially less
than Brisbane Extraction’s own retail price, the gross profit margin on the products was still very
viable, and represented not only a useful increase in revenue, but also an increase in net profit.
Race Gear’s sales forecasts suggested that the day-to-day demands for stock replenishment could be
met during normal production time augmented with a small amount of occasional overtime. Overtime
costs were factored into the modelling based on Race Gear’s demand forecasts and a little overtime
was welcomed by most of the staff. In an effort to increase efficiency, it was decided to produce the
standardised systems (both for Race Gear and for Brisbane Extraction’s internal sales) in small batches
of two to five systems. This would reduce machine setup time and allow for faster assembly. Martin
and Benito were confident that these arrangements would ensure that the new contract would not
disrupt operations whilst providing a useful new income stream.
During the past few months however, sales of performance systems through Race Gear steadily
increased, leading to more regular scheduling of this line of products. However, when scheduling
trade-offs had to be made, the custom-made systems were always given priority because of the higher
profit margins these products attracted or because of the urgency of the job. Thus, scheduled lots of
components for the Race Gear systems were often taken out of production and partially processed
batches were left sitting around the factory in various stages of completion. Occasional stock-outs
were also occurring with Brisbane Extraction’s own over-the-counter systems, but as a rule, the Race
Gear requirements were always met on time. The overall increase in demand had however, created an
increase in the level of raw material stocks as well as purchased components such as catalytic
converters and mufflers.
As the owners reviewed the progress of Brisbane Extraction, both Martin and Benito were happy with
the growth of the company. Sales of custom-made systems remain strong, and sales of made to stock
and wholesale systems were slowly but steadily increasing. Currently the custom systems were
accounting for 60 percent of the production volume and 75 percent of the revenue. However, Cathy
Wu, the company accountant, had recently indicated that net profit was not in line with forecasts.
Cathy’s latest financial report recommended that manufacturing costs be reviewed as gross profit was
not growing as expected. Costs associated with the off-the-shelf and Race Gear systems were rising.
Money was being tied up in increased inventory; raw materials, components, work in process and
finished product. Nearby warehouse space has been rented to accommodate the growing amount of
inventory. Martin was also concerned with increased lead times for both custom and Race Gear orders.
It was sometimes difficult to meet promised delivery times. Stock-outs had also occurred with their
own off-the-shelf retail products. Capacity was being pushed, and with the current layout, no space
was available in the plant for expansion. Benito was worried that it was getting increasingly difficult
to meet the demand created by their new contract with Race Gear and decided that the time had come
to take a careful look at the overall impact this increased demand for exhaust systems was having on
operations.
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