I can’t believe how much we have changed in a relativefy short time. From being an inward-looking manufacturar, we became a customer-focused “deslgn and mate” operai/on. Atow we are an integrated service provider. Most of our new buslness comes from the partnerships we have formed with design houses. In effect, we design products jointly with specialist design houses that have a weli-known brand, and offer them a complete service of manufacturing and distribution. In many ways we are now a “business-to-business” company rafher inan a “business-to-consumer” company. (Jim Thompson, CEO, Concept Design Services (CDS)) CDS had become one of Europe’s most profitable rtomeware businesses.
Originally founded in the 1960s, the company had moved from making Industrial moufcfings, mainly in the aerospace sector, and some cheap ‘homeware’ items such as buckets and dustpans, sold under the ‘Focus’ brand name, to making very high-qualrty (expensive) stylish homewares with a high ‘design value’. The move irrto ‘Concept’ products The move into higher-margin homeware had been masterminded by Linda Fteet, CDS’s Marketing Director, who had previously worked for a large retail chain of paint and wallpaper retailers. Experience in the decorative products industry had iaugnf me the importance of fashion and product devetopment, even in mundane products such as paint. Premlum-priced colours and new textures would become popular for one or two years, supported by appropriate promotion and feaiures in Irfestyte magazines. The manufacturers and retailers who created and supported these products wers dramaticalfy more profitable than those who simply provlded Standard ranges. Instinctivety, l felt that this must also apply to homeware.
We decided to develop a whole coordinated range of such Items, and to open up a new distribution network for them to serve upmarket stores, kitchen equipment and speciality retailers. Wlthin a year of launching our first new range of kitchen homeware under the “Concept” brand name, we had over 3000 retail outlets signed up, provided with point-of-sale display fadlities. Press coverage generated an enormous interest which was reinforced by the product piacement on severa! TV cookery and “lifestyte” programmes.
We soon developed an entirefy new maritei and within two years “Concept” products were providing over 75 percent of our revenue and 90 per cent of our profits. The price rea/feation of Concept products is many times higher than for the Focus range. To keep ahead we launched new ranges at regular intervals. ‘ The move to lhe design house partnerships ‘Over the last four years, we have been designing, manufacturing and dlstributing producfs for some of the more prestigious design houses. This sort of business is likely to grow, espedally in Europe where the design houses appreciate our ability to offer a Ml service.
We can design products in conjunction with their own design staff and offer them a levei of manufacturing expertise they can’t get eisewhere. More significantiy, we can offer a distribution service which is tailored to their needs. From the customefs point of view the distribution arrangements appear to belong to the design house itself. In fact they are based exclusive/y on our own call centre, warehouse and distribution resources. ‘ The most successful collaboration was with Viliessi, the Itaiian designers. Generally tt was CDS’s design expertise which was attractive to ‘design house’ partners.
Not only did CDS employ professionally respected designers, they had also acquired a reputation for being abie to translate difficult technical designs into manuf acturable and saleable Part One Irrtroductton products. Design house partnerships usually involved relatively long lead times but produced unique products with very high margins, neariy always carrying the design house’s brand. This type of relationship p/ays to our strengfhs. Our design expertise gains us entry to the partnership but we are soon valued equally for our marketing, distribution and manufeciuning competence. {Unda Fteet, Marketing Director) Manufacturing operations Ali manufacturing was carried out in a facility located 20 km from head office. fts moulding area housed large injectfonmoulding machines, most with robotic material handHng capabilities. Products and components passed to the packing hall, where they were assembted and inspected.
The newer more complex products often had to move from moulding to assembly and then back again for further moulding. AR products followed the same broad process route but wfth more products eeding several progressive moulding and assembly stages, there was an increase in ‘process flow recycling’ which was adding complexity. One idea was to devote a separata celi to the newer and more complex products until they had ‘bedded in’. This cell could also be used for testing new moulds. However, it wouid need investment in extra capacity that would not always be fully utilized. Afler manufacture, products were packed and stored In the adjacent distribution centre. ‘When we moved Into making the hlgher-margln Concept products, we dlsposed ofmost ofourolder, small injectton-moulding machines.
Havlng ali larger machines allowed us to use large multi-cavity moulds. This increased productivity by allowing us to produce several products, or componente, each machine cycle. K also allowed us to use high-quality and complex moulds which, although cumbersome and more dlfficult to change over, gave a very highquality product. For exampfe, with the same labour we could make three items per minute on the oti machines, and 18 items per minute on the modem ones using muttimoulds. Thafs a 600 per cent Increase in productivity.
We also achieved high-dimensional accuracy, excettent suriace finish, and extreme consistency of colour. We could do this because of our expertise derived from years making aerospace products. Aso, by standardizlng on single large machines, anymould could frtany machine. This was an ideal situation from a planning perspective, as we were often asked to make small runs of Concept products at short notice. ‘ (Grant Williams, CDS Operations Manager) Incraasing volume and a desire to reduce cost had resufted in CDS subcontracting much of its Focus products to other (usually smaller) moulding companies.
We would never do it with any complex or design house partner products, but it should allow us to reduce the cost of making basic products while releasing capacity for hlgher-margin ones. However, there have been quite a few ‘teething problems’. Coordinating the production schedules is currentiy a probtem, as Is agreeing quality standards. To some extent it’s our own fault. We didn’t realize that subcontracting was a sklll in its own right. And although we have got over some of the problems, we still do not have a satisfactory relationship with ali of our subcontractors. (Grant Williams, CDS Operations Manager) Planning and distribution services The distribution services department of the company was regarded as being at the heart of the company’s customer service drive. Its purpose was to integrate the efforts of design, manufacturing and sales by planning the flow of products from production, through the distribution centre, to the customer.
Sandra Whfte, the Planning Manager, reported to Linda Fteet and was responsible for the scheduling of ali manufacturing and distribution, and for maintaining inventory leveis for ali the warehoused items. We try to stick to a prefetred production sequence for each machine and mould so as to minimize set-up times by starting on a light colour, and progressing through a sequence to the darkest. We can change colours in 15 minutes, but because our moulds are large and technically complex, mould changes can take up to three hours. Good scheduling is important to maintain high plant utilization. With a higher variety of complex products, batch s/zes have reduced and it has brought down average utilization. Often we can’f stick to schedules.
Short-term changes are inevitable in a fashion market. Certainfy betier forecasts would help… but even our own promotions are sometimes organized at such short notice that we often get caught with stockouts. New products in particular are difficult to forecast, especialfy when they are ‘fashion” items and/or seasonal. Also, l have to schedule production time for new product mould frfafe; we normally allow 24 hours for the testing of each new mould received, and this has to be dane on production machines. Even ifwe have urgent orders, the needs of the designers always have priority. (Sandra White) Customer orders for Concept and design house partnership products were taken by the company*s sales cal) centre located next to the warehouse. The individual orders would then be dispatched using the company’s own fleet of medium and small distribution vehicles for UK orders, but using carriers for the Continental European market. A Standard delivery timetable was used and an ‘express delivery’ service was offered for those customers prepared to pay a small delivery premium. However, a recent study had shown that almost 40 per cent of express deliveries were initiated by the company rather than customers.
Typteatly this would be to fulfll deliveries of orders containing products out of stock at the time of ordering. The express delivery service was not required for Focus products because almost ali deliveries were to five large customers. The size of each order was usually very large, with deliveries to customers’ own distribution depots. However, although the organization of Focus delivery was relativety straightforward, the consequences of failure were large. Missing a delivery mearrt upsetting a large customer. Chapter 1 Operations management
ChallengesforCDS Although the company was f inancially successful and very well regarded in the homeware industry, there were a number of issues and challenges that K knew it would have to address. The first was the role of the design departmerrt and its influence over new product development. New product development had become particularly important to COS, espectafly since they had formed altiances wlth design houses. This had led to substantial growth in both the size and the influence of the design departmerrt, which reported to Linda Fleet. Building up and retaining design expertise wiH be the key to our future. Most of our growth is going to come from the business which will be bought in through the creatMty and flair of our designers. Those who can combine creatMty with an understandfng of our partners’ business and design needs can now bring in substantial contracts.
The existing business is important of course, but growth will come directly from these people’s capabilities. ‘ (Linda Fleet} But not everyone was so sanguine about the rise of the design department. It is undeniable that relationships between the designers and other parts of lhe company have been under strain recently. l suppose it is, to some extent, inevitatie. After ali, they really do need the freedom to design as they wish. l can understand It when they get frustrated at some of the constraints which we nave to work under in the manufacturing or distribution parts of the business. They also should be able to expect a professional levei of service from us. Yet the truth is that they make most of the problems themsetves.
They sometimes don’t seem to understand the consequences or implications of their design decisions or the promises they make to the design houses. More seriousfy they dorit really understand that we could actually help them do their job better if they cooperated a blt more. In fact, l now see some of our design house partners’ designers more than l do our own designers. The Villessi designers are always In my factory and we have devetoped some really good relationships. ‘ (Grant Williams) The second major issue concerned sates forecasting, and again there were two different views.
Grant Williams was convinced that forecasts should be improved. ‘Every Friday moming we devise a schedule ofproduction and distribution for the foHowing week. Yet, usually bafore Tuesday moming, it has had to be significantiy changed because of unexpected orders coming In from our customers’ weekend safes. This causes tremendous disruption to both manufacturing and distribution operations. If sales could be forecast more accurately we would achieve far high utilization, better customer service, and l befieve, significant cost savings. However, Linda Fteet saw things differently. ‘Look, l do understand Grant’s frustration, but after ali, this is a fashion business.
By definition it is impossible to forecast accurately. In terms of month-by-month sates volumes we are in fact pretty accurate, but trying to make a forecast for every week end every product is almost impossible to do accuratety. Sony, thafs just the nature of the business we’re in. In fact, although Grant complalns about our lack of forecast accuracy, he always does a great job in responding to unexpected customer demand. Jim Thompson, the Managing Director, summed up his view of the current situation. ‘Particularly significant has been ouralliances wlth the Italian and German design houses. In effect we are positioning ourselves as a complete service partner to the designers. We have a world-class design capability together with manufacturing, order processIng, order-taking and distribution services.
These abilities allow us to develop genuinely equaJ partnerships which integrate us into the whote industry’s activities. ‘ Linda Fleet also saw an increasing role for collaborative arrangements. It may be that we are seeing a fundamental change in how we do business within our Industry. We have always seen ourselves as primarily a company that satisfies consumer desires through the medium of providing good service to retailers. The new partnership arrangements put us more into the “business-to-business” sector. 1 dont have any probtem with this In principie, but /’m a little anxious as to how much it gets us into areas of business beyond our core expertise. ‘ The final issue which was beirtg debated within the company was longer-term, and particularly important.
The two big changes we have made in this company have both happened because we exploited a strength we already had within the company. Moving into Concept products was only possible because we brought our high-tech precision expertise that we had devetoped in the aerospace sector Into fhe homeware sector where nona of our new competitors could match our manufacturing excellence. Then, when we movedinto design house partnerships we d/d so because we had asetof designers who could command respect from the world-class design houses with whom we formed partnerships.
So what is the next move forus? Do we expand gtobatly? We are strong in Europe but nowhere e/se in lhe wortd. Do we extend our design scope into other markets, such as fumiture? If so, that would take us into areas where we have no manufacturing expertise. We are great at plastic injection moulding, but if we tried any other manufacturing processes, we would be no better than, and probably worse than, other firms with more experience. So what’s the future for us? ‘ (Jim Thompson, CEO CDS).
