Sample Case Study

COMPANY PROFILE
Industry Location Established No of employees Annual turnover Manufacturing UK 1972 150 22.00 Million

Market BACKGROUND

Global

In 1972 Mathew Osbourne, a time-served engineer who had established a good network of industry and professional contacts as a result of his employment with a large manufacturing company, set up his own fabrication and machining shop in a rented workshop, in partnership with one of his friends. Due to conflicts of priorities, the partnership lasted for only two years and with one employee, he focused on the engineering and production side of the business. This led to the loss of financial control and the agitation of creditors and suppliers. In 1975 his wife joined the company as the company secretary to handle the finance and administration side of the business. With a favourable economic climate, the business was growing and orders kept coming in. As well as recruiting two to five new employees every year, he realised the need for investment in larger building facilities, in order to satisfy the market demand. In 1978 the building of new facilities was completed at a cost of 250,000 and he moved the machining part of the operations to the purpose built facilities, and he limited the workshop facilities for fabrications only, as he did not consider these two operations to be compatible. The company continued to grow. By 1985, the company had 80 employees, had developed Managing a good customer base and Director established a reputation as a company known for quality and customer Design, service, within the industry Purchasing Finance, Production Orders sector. In 1984 one of his Personnel, Stock control Administration three sons, David joined the family business as an office clerk and buyer (the other Operatives sons did not wish to work for the family business and started their own Figure 1; Companys Organisation chart businesses). With the slow flow of orders from customers, the company survived the recession of mid 1980s and managed to purchase their third CNC machine. However, the early 1990s recession forced the company to reduce the number of employees from 102 to 85, but it did not make any financial losses.

In 1990 the building facilities were valued at 2.00 million. As part of a strategic plan, a building company was set up by the family and the premises were transferred to the new company. The company then rented the premises from the new building company. This enabled the original company to pay cash and purchase a new company (a major customer), which was previously owned by a an international food company. Mathew Osbourne based himself in the new company and his son David, who had become familiar with all aspects of the business and had become a true business entrepreneur, was promoted to Managing Director, responsible for the overall operation and running of the company as the parent company. This promotion was also influenced by the fact that prior to his appointment, five Managing Directors had been recruited and dismissed in a short period of time. In the light of strong competition and market conditions, upon his appointment he was forced to make major strategic decisions concerning the efficiency and the profitability of the business. He began by restructuring the administration function and placing more emphasis on the financial control side of the business and the use of Information and Communication Technologies (ICT). He promoted a flexible production environment, through the purchase of new CNC machines that were financed partly through the sale of less flexible and unwanted machinery and equipment. The company is located in the South East of England, has an annual turnover of 22 million pounds and employs 150 people from which, 92 work on the shopfloor. They are highly skilled and flexible with an average age of forty. PRODUCTS AND CUSTOMERS The company operates as a sub-contractor and manufactures parts and sub-assemblies for filling, packaging and process equipments for its customers. The product range is not regular, and the company is attracting orders from different sectors of manufacturing. The company is also considering the possibilities of providing design solutions for customers worldwide. Three major customers provide 50% of the business activities. The remaining 50% is made up of six regular and 40 fairly regular customers. The company has exceptionally good relations with its established customers that have been developed throughout the years.

BUSINESS PROCESS

The Managing Director, who is responsible for the majority of management processes, has all the personal qualities that are desirable for a successful Manager. With his leadership qualities and knowledge of the business, he has inspired selfconfidence among operators, and chosen a right mix of skills and knit them into a productive team with a common purpose. The above together with a semiconsultative approach to problem solving has enabled him to gain the respect of both internal and external stakeholders. Further, it has made it possible for him to delegate the internal operational aspects of the business to the departmental manager and focus on the business issues that are more critical to the success of the business. Due to fierce competition from overseas, the UK market is declining by 10% every year. According to the company, there would only be a very limited market for their industry sector in five years. As a result, the company is limiting their investment initiatives to projects that are considered critical to business operations and are planning to review their business strategy with a view to; maintaining and satisfying the existing markets, attacking and capturing new markets worldwide, increasing investment in Information and Communication Technologies (ICT), and to expand and grow through strategic alliances and diversification. To maintain their market

shares, the company competes with six similar size and thirty smaller size companies from within the UK, from which about half are struggling. However, large organisations in this sector are doing better, due to their capabilities and resources. To remain competitive, the company focuses on providing a complete package from design to delivery. It is a part of the company policy and its competitive strategy to; tenders for contracts that are small for bigger companies, have higher profit margins, and are short termed and require a short manufacturing lead-time and consequently a low work in progress investment. A typical contract begins by following an enquiry or a request for tender by the potential customer. If required, the company will then participate and work with the customers design team to ensure that the proposed specifications satisfy both market and customers expectations. In the next stage, based on historical data and a pricing strategy described below an estimation of the product cost is calculated by the Managing Director. After clearance of the customer and upon successful tender, the manufacturing team begin by providing a prototype version of the product to ensure; an appropriate and cost effective approach to the production process, and to ensure the suitability of the design. The latter often leads to some modifications and cost savings for the customer, upon which the customer is informed and their approval is secured. This approach has been very beneficial to the company and has led to a good and long term relationship with its customers. Full production is followed after a meeting between the Managing Director, departmental managers and the manufacturing team, where targets and milestones are agreed together with quality requirements. The progress is then monitored to ensure the delivery of the products to the required specifications, on time, within budget and to the required quality standards.
PRODUCT PRICING The Managing Director who is responsible for formulating marketing strategy and sales forecasts, decides on the pricing policy. This is usually influenced by a number of factors including; order size and specification, customer, economic climate, competition and markets. The pricing strategy is cost-related and is based on break-even analysis or costplus-profit pricing systems, where, the cost of materials, processes and operations (hourly rate) are added together with the cost of overheads and the expected profit margin on a particular job. The profit margin and the cost of processes and operations (hourly rate) often provide the flexibility required to satisfy customer perception and also a mechanism to respond to prices quoted by the competitors (figure 2).

Cost of Materials

Cost of Processes and Operations (Hourly rate)

Cost of Overheads

Profit Margin

Figure 2; Pricing Policy As well as a well-established reputation for; good quality products and services, flexibility and the speed of response to customer inquiries and requirement, some aspects of the pricing policy have given the company a competitive advantage over its competitors, including; the return of excess profit to customers and agreement with some customers on hourly rates for processes and operations.

CAPITAL INVESTMENT In the past, Mathew and David, in response to one Company Competition or a combination of factors including; company growth, competition, new product development, New Product Business business opportunities, Capital Investments positive economic climate, and favourable purchasing conditions have always Purchasing Economic initiated capital investment Condition Climate projects (figure 3). The investment in new building facilities in 1978 was a part of a well planed strategy Figure 3; Capital Investments for growth. The strategy Factors was formulated in 1973 in response to a favourable economic environment, competition, and the desire for increased market share. The acquisition of a new company (a major customer) in 1990 was heavily motivated by the need to ensure future orders, compatibility of operations with the companys existing manufacturing operations, availability of finance, favourable purchasing conditions, and competitive rivalry. The investment in CNC machines was based on the need for flexibility with a view to; Financial manufacturing capabilities, satisfying customer Company Accounts (monthly) requirements in terms of product variety and the Budgeted forecast speed of delivery. The payback method was used Work-in-progress for appraising investment, allowing ten years for building facilities and up to five years for machinery Business and equipment. At present the company is only concerned with capital investment projects that Order labour costs enable them to gain competitive advantage and Forecast accuracy those projects that are essential for completing Contract performance (hourly customer orders speedily and more efficiently at rate) competitive prices. Customer PERFORMANCE MEASUREMENT Pricing (hourly rate)

The company consider performance measurement Learning as a catalyst for company growth, and an essential Labour productivity (hourly rate) process that has an important impact on the Punishment success of their business strategy and the Figure 4; Performance achievement of their business goals and objectives. Measurement Systems Due to the nature of its business activities, the measurements focus on the financial indicators and are dominated by the cost of processes and operations (hourly rate), chargeable to customers. The financial and non-financial measures (figure 4) are analysed by the MD on a weekly basis, and with other senior personnel from within the company on a monthly basis. Copies of monthly company accounts, which are in the form of a mini annual report together with productivity report are sent to the company owner. A copy of the company accounts is also sent to the bank, but only when the figures

are favourable, or when requested by the same. The approach to performance measurement systems is not systematic, and it is used for decision-making, performance appraisal and accountability. They are initiated by the Managing Director and are reviewed on an on-going basis. IT AND E-BUSINESS IT is used extensively within the management function and processes. The Managing Director who is an IT literate, is well aware of the importance of IT and the contribution that can be made by ICT, as an enabling technology, including Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM). However, the companys traditional work force and the level of investment required to develop an effective IT infrastructure, have limited the progress of IT within the company. The company would like to remedy this situation. But, this is not something that can be achieved in a short period of time. Training, IT facilities, systems and applications and finance are some of the key issues, providing the bottlenecks. The company has recently upgraded their operating system to Windows XP. The Local Area Network provides access to MS Office, Stock Control, Purchasing, and Personnel systems. The Wide Area Network provides access to e-mail and the Internet. The company also benefits from a host of stand alone and in-house developed applications including; Performance Measurement, Customer Database, and Contract Systems. As a part of marketing strategy, the company set up their web site in 1998, providing content. Since then the site has been upgraded by an IT personnel from within the company to incorporate ecommerce facilities, however, a number of internal and external stakeholders have questioned its usability and its contribution to the company as a whole. The desire for efficiency, productivity, service improvements, and competitiveness has encouraged the company to recruit an IT Director in August 2007. Andrew France has a MSc in E-business together with fifteen years experience in all aspects of ICT and a successful track record in managing various .com project. In a meeting with the MD and Departmental Heads, he presented his vision of ICT for the company emphasising the need for a suitable strategy for the digital environment, an integrated infrastructure, e-business, investment, and education and training.