H G PLASTICS
Supply chain strategy formulation case study
Contents
1. Introduction
2. The choices in 1999
3. New concept homeware
4. The position in 2003
5. Implementing the new concept policy
6. Raw materials
7. The moulding process
8. Assembly
9. Design
10. Production control
11. Marketing
12. The future
1. INTRODUCTION
The original HG Plastics company was one of the first companies in the UK to specialise in the injection moulding of industrial plastic products. Although originally mainly a jobbing company, by the early 1960′s it had diversified into the manufacture of plastic homeware- buckets, washing-up bowls, drainers, food containers and the like. In 1986 the company was bought by one of its largest customers, an American owned conglomerate whose interests included several European consumer durable manufacturers. After the take-over HG became totally dependent on in-group customers for its industrial moulding business, while continuing to expand its own homeware products which it supplied direct to large retail chains, variety stores and trade wholesalers. By 1999 the company’s activities were split about 50/50 by value between industrial products and homeware.
In 1999 the Group decided to reorganise on a divisional basis, each division to be self contained. As a consequence HG Plastics found itself in one division while all its in-group customers were in others. Notice was given to HG that over the next two years the requirement on companies in the other divisions to buy from HG would be phased out, in fact other divisions would be encouraged to develop their own injection moulding capability if they considered this appropriate.
In addition to the pressing need to find replacements for its industrial work, the company also recognised that its current range of homeware was coming under pressure from small firms who could compete effectively in this sector of the market. In the words of the current Managing Director;
‘At that time our, and indeed everyone else’s, homeware products were seen by the consumer as plastic first and homeware items second. The traditional image of plastics as a cheap and transient material was the view held by customers of our domestic range. We moulded and competed in the market place on the basis of having plastic products (and that inferred low price and low quality) and not on the basis of the product themselves. At the same time we were coming under pressure from small ‘back- yard’ manufacturers who could produce cheaply because they had very low overheads. We needed to rethink what we did and how we competed’.
The Management of H.G. in 1999 saw the company as having to choose between a number of strategic options:
A. Accept the loss of half of its sales, reduce the size of the company quickly with, or ahead of, reducing industrial demand and concentrate on homeware products. The company’s engineers believed that their mastery of the new multi-cavity* technology would enable them to reduce the manufacturing costs of homeware products and compete successfully with their low-overhead competition. Having re-established themselves by technological dominance as lowest cost producer, they could expand again.
B. Continue the mix of activities as at present and find alternative outside customers for their industrial moulding operation. The great advantage of this strategy, it was argued by some of the company’s management, was that it would capitalise on the company’s strengths. Any other strategy would dissipate the existing pool of market and manufacturing expertise in the industrial plastic moulding area.
C. Seek totally new replacement business which would fill in as industrial products declined. Suggested new products included, home improvement and building products, industrial shelving and storage systems, and electrical components. The general idea of this strategy was to find products which had not hitherto been made in plastic to keep ahead of the market in the substitution of plastic for other materials.
3. NEW CONCEPT HOMEWARE
In the end, and after much debate, it was a variant of the last strategy which won out. The company was persuaded by the views of one of its young product designers. His case was that the generation then entering their 30s were spending ever more than previous generations on their homes. Also their ‘lifestyle’ was such that they were more conscious of design, quality and co-ordination in their purchases. Retail outlets were responding to these changes, traditional homeware manufacturers should do likewise.
From this initial perspective the company evolved a corporate policy to design, manufacture and sell ranges of high quality, well designed, co-ordinated, fashion homeware which would reverse the currently held image of the company’s consumer products and enable the company to compete in a different and growing sector of the market. These products were known within the company as ‘new concept’ products which the company continued to make albeit at a slightly reduced level.
4. THE POSITION IN 2003
New concept homeware had been a remarkable success from the launch of the first products in 1999. Starting with kitchen ware and food containers the company had expanded into cleaning equipment (dust pan, brushes etc.) and table ware and containers. All of the products of high quality, stylish design and produced in co -ordinated colours.
By 2003 sales had grown more than three fold and profits more than seven fold since the new concept was introduced. Old concept was still produced but only the very high volume lines had survived. In sales terms old concept products accounted for less than 10% by value but about 23% by volume. Nevertheless old concept products were reasonably profitable although not to the extent that new concept products were. The old industrial products had ceased in 2001.
5. IMPLEMENTING THE NEW CONCEPT POLICY
The company had been forced to change in several ways since 1999 in order to implement the new concept policy. Problems were acute in both manufacturing and the management of the supply chain.
6. RAW MATERIALS
The advent of the new range of products brought with it a significant increase in the number of raw material types and colours as well as higher quality levels. The ‘old’ products did not require close colour matching since they normally used a contrasting colour on the lid, but precise colour matching in the new ranges was critical, and all the more difficult as they usually had matching lids and bases. Furthermore, the ‘new’ products were clustered around a ‘matching’ range of products as a strategy to enhance sales -the purchaser having brought one item for the home would be more likely to buy another item of the set when next purchasing. This meant that it was necessary to maintain colour matches over a long period of time.
7. THE MOULDING PROCESS
‘At the beginning of the changeover there were many technical difficulties which had not been foreseen. These ranged from the technical specification of the machine to do the job through to the moulding properties of the new materials. New Product launches are also becoming more frequent and life cycles shorter which causes problems. The only way to be sure of meeting launch dates is to try each mould as we receive it, irrespective of whether or not we can then leave it in the machine to produce the initial launch quantities. Approaching the job in the preferred way of waiting for a machine to be available for the whole of the mould testing and initial production run period is risky. If one of the last-tried moulds required substantial modification we would miss the agreed schedule. But this means that at times we can have 30% of our capacity working on new products. The problems of trying to be a development unit and production unit under the same roof are enormous. The pressure of achieving deadlines, particularly when little or no slack time has been allowed in the plan, requires all our attention so that normal production has to look after itself’.
(Gorge Brett, production Manager. )
The available production capacity has shifted markedly towards larger machines over the last few years. In order to keep moulding costs down, the company had in fact moved towards multi-mould operation. This had increased productivity, especially on long production runs, but made product changes more difficult because multi-moulds were larger and much more sophisticated. They also required larger machines and this accounted, in part, for the drift away from the small machines of the mid 1990s.
All these changes had taken their toll in terms of industrial relations. From 24 operators in 1999, mainly manning small machines, there were now 22 larger semi-automatic machines with frequent product changes and machine adjustments which the operators did themselves. Some resentment had been expressed over being ‘…expected to be technicians but paid like production workers…’ this being a reference to the department’s payment by results scheme. A survivor from the old days, the scheme based moulding machine operators pay on the number of parts each individual moulder produced in the week.
8. ASSEMBLY
The Assembly Department was located away from the Mould Shop. It undertook the sub-assembly, final assembly and packing operations, all of which had increased noticeably with the new product ranges, the number of operators nearly doubled during this period. Most of the traditional old -concept homeware items were assembled and packed but to a lesser extent than the new product ranges, where quality, packing and presentation are an important part of the product concept.
9. DESIGN
This feature of the business had expanded considerably over the years such that by 2003 there was a separate design function with a manager and seven staff. Their job was to liase with the customers (often these were large department stores), agree to the design detail and complete the require drawings. The manager in charge of the Tool Room then undertook to sub-contract or make the moulds and to get the mould into production.
10. PRODUCTION CONTROL
‘The new range of products present a different set of problems in production control terms. Their design and style introduces additional complexity purely because of the quantity of components and the amount of packaging involved. Planning and controlling these new ranges is very difficult due to the uncertainty inherent in the mould-testing process, the procedure for agreeing packaging and having a fixed launch date which all these activities have to meet. Though, perhaps the biggest change has been the huge increase in product range.’
(Geoff Calister, Production Controller.)
In addition, Geoff explained that marketing often wanted to try out additional colours to those planned in order to increase sales in existing markets or to break into new ones. In situations such as these the production run was small and then made even less efficient by often requiring several colour changes as well.
The other major problem within the production control department was demand seasonality for the new concept products. There were two sales peaks in the year, one in Spring, one at Christmas. Currently the company coped with this by authorising extra overtime during peak periods and stocking up during slack periods. Even so these times of the year were always somewhat frantic, in spite of the remaining old concept products forming a fairly steady base load through the year.
12. MARKETING
The Marketing Department was divided into product areas and by home and export. Each of these had a manager responsible reporting to Mark Williams who holds the newly created post of Marketing Director. Mark, who joined the company in 2001, confirmed that, in his opinion, the change in product direction had enabled the company to compete successfully in a new sector of the market.
‘Before I joined the company, it had already achieved recognition in the market as a manufacturer of high quality, well-designed products and as a front runner in this sector. Frankly, that was one of the big reasons for my agreeing to take on this job.’
13. THE FUTURE
Mark Williams had continued to push the new concept policy in relevant product areas and had been instrumental in bringing in several new/updated product ranges since joining the company. The latest was due to be launched in early 2004.
‘We hope to repeat the success we have had with the new concept homeware by breaking into the office equipment market using the same ideas. Already our first batch of designs have been approved and moulds are being designed at this moment. I would not be surprised if office equipment accounted for 15-20% of our turnover within two or three years.
The office equipment range of products was on average larger than homeware products (but within the capability of the company’s large machines) nor would the product range be quite as wide or as turbulent. But the marketing approach was essentially the same- produce stylish, high quality, innovative products.
Overall the company was proud of its achievements and confident in the future.
‘We have come a long way since those days of change. My predecessor as Managing Director had the foresight to re -think the corporate policy when the group re -structuring caused such substantial excess moulding capacity. For the past two years I have attempted to reinforce this change as I consider it to have been a sound strategy. The marked increase in sales is anticipated to continue as both home and export sales are up on last year. But for corporate success to continue it is important to use our productive capacity efficiently. However, I do recognise that new product launches make large demands on the system but they are our future life blood. In addition we have to keep all areas of costs down -our decision to go towards multi-moulds was one way of keeping competitive.’
(Graham Brown, Managing Director)
Yet in spite of the company’s success Graham Brown knew that there were problems, especially in the Manufacturing and supply chain functions. New product introductions were a constant irritation, finished goods stock had grown disproportionately over the last few years, the spring and Christmas peaks always caused problems, and introducing new capacity to manufacture the office equipment range would need careful planning. Most pressing of all, labour unrest over the payment scheme in the moulding department needed dealing with.
This last problem was a direct result of the failure to redesign jobs and the payment system to take account of changed manufacturing methods.
‘We need to get a firmer grip on the whole of our operations; we seem to have only the haziest idea of what’s going on the shop floor. I’m hoping that things will improve after our new Operations Director arrives next month. Of course we should have made this kind of appointment years ago. One of the first tasks he’ll have is setting up some kind of system to tell us how we are performing at the operations level. We may be successful but I believe we could be a damn sight better.’
Case study group work
In your group, discuss through the following questions below, and prepare a short presentation as set out below.
Questions
1. From the description of the old and new concept products, identify the order winning, and order qualifying criteria for both ranges.
2. What are the key differences, for manufacturing, purchasing, materials management and distribution, required to support the new concept products ?
3. How could the manufacturing and logistics problems have been avoided during implementation of the new concept products?
4. Suggest changes in the following areas to adapt the supply chain to the new concept products:
¾ Production process, type and capacity of moulding machines, assembly and packaging areas.
¾ Payment/Incentive scheme.
¾ Inbound logistics and raw material control
¾ Outsourcing
¾ Inventory control and scheduling systems
¾ Storage of finished goods and distribution
Presentation
Create a Powerpoint presentation (Maximum 15 minutes – guide around five to six slides) using the following structure, to outline a strategic response to the current situation at HG.
Executive summary (No more than one slide)
¾ Main problems/issues
¾ Main recommendations
¾ Expected benefits
The main body of the presentation, containing
a. A resume of the current situation. This must be brief. Imagine that you are writing the report for the management of the company who already know the situation. You should not reiterate the facts from the case. Instead the key aspects of the situation should be presented from a logistics/supply chain perspective. A schematic diagram of the supply chain, and main manufacturing processes might be a concise way to illustrate the current situation in an organised manner.
b. Statement of the main issues and problems. Again it is important not to just reiterate and list the problems as they appear in the case. Instead problems, rather than symptoms should be identified and presented in a categorized and prioritised format. Remember to make reference to order winners and qualifiers as a way of presenting the background to the problems.
c. Outline of alternative policies or options. Two or three alternative solutions or improvements may be briefly presented together with a brief statement of their pro’s and con’s.
d. Recommendations. A Clear and concise statement should be given of the preferred solution or recommended policy together with a justification of its choice.
* Multi-cavity technology involved using very large injection presses fitted with large, complex moulds which produced two, four, six, or even eight products at a time. Although it was a long cumbersome task to change over the moulds on the press, once running, the machines produced exceedingly efficiently
Credit:ivythesis.typepad.com
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