Founded in 1984 in Birmingham, England, Handles and Hinges (H&H) Ltd was established by Dave Philips and Chris Agnew, experienced entrepreneurs in the hardware industry. Specializing in providing high-quality polished metal door handles, cupboard knobs, furniture fittings (primarily for shop/office furniture), and hinges to the “designer” market, H&H rapidly grew its business. By 1996, their annual sales had reached around ?500 million.
This success was achieved due to H&H’s reputation for excellent and distinctive designs of both traditional and contemporary products. Numerous architects would specifically choose and recommend H&H products for prominent projects, including new office developments in London’s Docklands. Dave, the Chief Executive Officer in charge of sales, believed that construction companies predominantly placed orders with H&H simply because they assumed there weren’t other alternatives once the H&H products had been specified. On occasion, larger companies would propose to architects that similar products were available for a significantly lower price.
Despite being advised otherwise, the architect frequently disregarded the advice due to their strong attraction towards H&H’s designs and quality. They were unwilling to take the risk of compromising major projects worth millions of pounds in order to save a small amount of money.
Dave explains that the recession has had a significant impact on the construction industry, especially in office building, causing changes in the marketplace. Consequently, H&H has seen an increase in its direct sales to prominent UK hardware retail companies since 1990. These sales now represent approximately 40 percent of the company’s sales value but only around 15 percent of its gross profit.
To meet the requirements of price-conscious customers, we prioritize developing products that are affordable and high-quality, yet competitively priced. To achieve cost savings, we have incorporated thinner and less expensive materials similar to those used by our competitors. An example of a recent cost-saving measure is sourcing brass sheet from Poland, resulting in a savings of more than ten percent. Furthermore, we have implemented measures to streamline our processing expenses.
Chris successfully transitioned all production to modern batch methods (refer to figure below), but I have concerns regarding our timeliness in delivering to our UK retail customers. This issue challenges our ability to maintain positive relationships and secure repeat orders. The ‘retail segment’ demands speedy delivery of relatively small quantities. On the other hand, the construction/contractors market allows for lengthy production lead times, and on-time delivery is crucial to prevent project delays, which have resulted in financial liabilities on a few occasions. In cases where customers express dissatisfaction with delivery or faulty products, we make efforts to compensate them and retain their business, whether through credit notes or discounts on future orders.
Our representatives spend approximately one day each week dealing with the consequences of late deliveries. However, meeting with a client presents an opportunity to secure the next order. Hardware retail companies often require quick delivery, which sometimes involves prioritizing production for specific items. On a different note, we are increasingly concerned about reports of quality issues. Several construction companies have complained about dented or scratched handles. Our production department insists that the handles left the factory in good condition and were likely damaged on site, which is expected in a large construction area. The Quality Control Manager acknowledges that he cannot guarantee every handle’s quality since we only conduct sampling during final production. If more than a few sub-standard handles are found during the final inspection, the entire batch is rejected, re-inspected, sorted, and reworked.
By utilizing express courier transport and overtime in the factory, rework typically takes about a week to complete. However, the constructors consistently express their grievances to the architect, possibly due to their dislike of being instructed on whom to make purchases from. Consequently, this issue often results in an abundance of correspondence and meetings between H&H, the contractor, and the architect. This unnecessary consumption of time prevents us from focusing on other tasks. Moreover, over the past two years, this problem appears to have worsened, and there is often a challenge in reaching an agreement on whether the product is of substandard quality.
The level of polish and lacquer finish can vary, sometimes with visible scratches. However, customers are often too particular. Chris, the Manufacturing Director, provided a different perspective on the issue. The information is from the book “Operations management” by Slack et al. (1998), pp. 670-72. According to Chris, the sales catalogue displays products with special effects for a shiny appearance, but the actual finish is matte. Sales samples are meticulously crafted to ensure no scratching or faults, but this standard cannot always be replicated in modern batch production methods. To mitigate quality problems resulting from production method reorganization, statistical control was implemented based on expertise gained from studying quantitative methods at a local college.
Our inspectors now randomly sample batches of components and measure key dimensions such as the diameter or length of brass handles and the thickness of incoming materials. Any batches that fail are either rejected or reworked, and any material with identified faults is returned to the supplier. Our buyers regularly threaten to place orders elsewhere. I have instructed supervisors to inspect press tooling before each production batch to ensure there are no surface faults. Therefore, I believe it is unlikely that the dents and blemishes are caused during production.
I need to ensure that this is being done. In any case, we have adjusted our final inspection sampling to achieve an acceptable quality level (AQL) of 2%, which is a decrease from the previous 5%. To meet this new standard, we have hired four additional final inspectors, costing £15,000 each per year. However, the entire management team agrees that in order to pack high-quality products, we must have confidence in the final quality. As a result, we have provided SPC training to some of our top assemblers and appointed them as full-time inspectors.
Their technical and statistical skills make them the right people for this job. Our operators are not capable of performing dimensional checks, as they lack knowledge in measuring using metric rules, micrometers, or vernier gauges. It is better to have them focus on achieving correct output targets. I believe that most quality problems here are caused by occasional operator carelessness. The batch method of production has provided us with greater control over operations, eliminating the need for slow and unpredictable craftsmen.
Currently, we are optimizing our use of economic batches at each stage to take advantage of economies of scale resulting from longer production runs and cheaper unskilled labor. Additionally, we incentivize our employees with bonuses tied to meeting agreed standard times, which has led to increased productivity. Our operations have never been more efficient, allowing us to produce high-quality output while reducing costs. As a result, we are well-prepared to compete aggressively against our rivals. We anticipate a significant increase in profits compared to our current modest one percent return on sales.
The typical production processes for handles A B C D E F G H I J include cutting metal blanks, shaping handles (via pressing or spinning), fordulo turning parts, milling corners, handle sub-assembly, polishing,lacquering ,inspection , final assembly ,and packing . These processes occur in various departments such as the machine shop , assembly department , lacquer and paint department , inspection department,and packing department . Prior to 1993,the individual craftsmen collaborated in pairs: A+B,C+D,and E+F+G+H+I+J.
