Case Study “Handles and Hinges”
Handles and Hinges (H&H) Ltd1 H&H was established in Birmingham, England, in 1984 by two young entrepreneurs, Dave Philips and Chris Agnew, both experienced in the hardware trade. The business specialized in the ’designer’ market for polished metal (brass or stainless steel) door handles, cupboard knobs, furniture fittings (mostly used in shop/office furniture) and hinges. By 1996, sales had grown to about ?500 million per year.
This success was based on H&H’s reputation for high quality, unique designs of both traditional and modern products, many of which were selected and specified by architects for large and prestigious projects such as new office developments in London’s Docklands. Dave, the Chief Executive Officer, with responsibility for sales, believed that most orders from construction companies were placed with H&H because they assumed they had no other choice once the H&H products had been specified. Larger companies would sometimes suggest to architect that similar products were available at less than half the price.
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This advice was invariably ignored as the architect would be attracted by H&H’s designs and quality, and would be reluctant to risk ‘spoiling’ multi-million-pound projects for the sake of saving a few thousand pounds. Dave outlines the characteristics of the changing marketplace. ‘Because of the recession in the construction industry, particularly in office building, we have, since 1990, expanded our direct sales to large UK hardware retail companies, which now account for about 40 per cent of our sales value, but only about 15 per cent of our gross profit.
This segment is much more price-sensitive, so we must be able to manufacture good quality, simple, standard products at low costs comparable to those of our competitors. Some of the reduced costs have been achieved by using thinner and cheaper materials similar to those used in our competitors’ products. We have just received our first consignment of brass sheet from Poland with a saving of over ten per cent in this case. We also had to organize to reduce our processing costs.
Chris had done a great job of changing all production to modern batch methods (see figure below). However, I am concerned that we are often late delivering to our UK retail customers, and this makes it difficult to keep good relationships, and to get repeat orders. Fast delivery of relatively small quantities is required in the ‘retail segment’. Whereas construction/ contractors market allows very long production lead times, and dependable delivery is crucial to avoid completion delays, for which we have been held financially accountable on some occasions! “When customers complain about delivery or about faulty products, we try to compensate them in some way to keep their business – for example, by credit notes or discounts on the next order.
Our representatives each spend about one day a week dealing with the consequences of late deliveries, but on the positive side, a meeting with a client is an opportunity to get the next order. The hardware retail companies often require very quick delivery, which is often only achieved by switching production to the item which is required first. ‘Really, I am more concerned about reports of quality problems; an increasing number of construction companies have complained to us about dented or scratched handles, but our production department assures us that they left the factory in good condition and must have been damaged on site; which is to be expected on a large construction site. The Quality Control Manager says, however, he cannot give an absolute guarantee that they were all OK, because we only do sampling of final production; if more than a few in a sample are found at final inspection to be sub-standard, the whole batch is rejected, reinspected, sorted and reworked.
Using express courier transport and overtime in the factory, rework usually can be done in about a week, but invariably the constructors complain to the architect, perhaps because they dislike being told who to buy from. This can lead to lots of correspondence and meetings between H&H, the contractor and the architect, when we could be doing other things. This problem seems to have got worse on the last two years; often it’s also difficult to agree if the product is substandard.
It is frequently just a question of how shiny (for matt) the polish and lacquer finish is; at other times there are scratches in areas that really can’t be seen in use. Often the customers are too fussy, anyway. ’ Discussions with Chris (the Manufacturing Director) put a different perspective on the problem. The case is from Slack, N, Stuart Chambers, Christine Harland, Alan Harrison, Robert Johnston, (second edition): Operations management, Pitman Publishing, 1998, pp. 670-72. 1 ‘The sales catalogue shows pictures of our products prepared for hotography; special effects are used to give a bright polished finish but we actually use a matt finish. The samples used by Sales are especially made by experienced craftsmen to eliminate any scratching or minor faults; of course, we cannot always repeat that standard with the modern batch production methods. ’ ‘We were aware that the reorganization of production methods could lead to quality problems, so I introduces statistical control, a subject I studied extensively in a quantitative methods course at the local college.
Our inspectors now take random samples of batches of components and measure important dimensions such as the diameter or length of brass handles, the thickness of the incoming materials, etc. Batches which fail are either rejected or reworked, and all material where we have identified any fault at all is returned to the supplier, and our buyers routinely threaten to place orders elsewhere. I instructed the supervisors to inspect press tooling just before the start of each production batch to ensure that there are no surface faults, so I think it is unlikely that the dents and blemishes are caused in production.
I must make a point of checking that this is happening. Anyway, our final inspection sampling has been changed to give an acceptable quality level (AQL) of two per cent whereas until recently it was only five per cent. We have had to increase the number of final inspectors by four at a cost of ? 15 000 each per annum, but all the management team agrees that with quality products we must be confident of the final quality before packing. We trained some of our best assemblers in SPC and made them full time inspectors.
The combination of their technical and statistical skills ensures that we have the right people for this job. We could not rely on our operators to do any dimensional checks; hardly any of them know how to measure using a metric rule, let alone a micrometer or a vernier gauge. It is best to keep them concentrating on achieving correct output targets. I believe that most quality problems here must be caused by occasional operator careless. ’ ‘The batch method of production has given us much more control over operations. No longer do we have to rely on had-to-recruit craftsmen who did everything slowly and unpredictably.
Now we make the most of economic batches at each stage, benefiting from the economies of scale of longer runs and cheaper unskilled labour. With incentive bonuses based on effective performance against agreed standard times, all our people are working faster to achieve the company’s goal of higher productivity. There is no doubt that our operations are now more productive than they’ve ever been. With high quality and low costs, we are now set for a major assault on the competition. We expect our profits to rise dramatically from the currently inadequate one per cent return on sales. Typical production processes for batches of hadles A B C D E F G H I J Process steps Cut metal blank Shape handle (press or spin) Fordulo Turn parts Mill corners Handle sub-assembly Polish Lacquer Inspection Final assemly Pack Department Machine shop Machine shop Machine shop Machine shop Machine shop Machine shop, Assembly Lacquer and paint Inspection Assembly Packing Preceding steps — A — C B, D E F G H I Note: Prior to 1993 the following operations were combined and carried out by individual craftsmen (A+B), (C+D), (E+F+G+H+I+J).