Marshall B Rosenberg said: “Analyses of others are actually expressions of our own needs and values.” Dr Mike McDonagh recounts his experience of just such a situation in a lead-acid battery manufacturing company.
In the standard structure of manufacturing factories, there are normally departments with different responsibilities. Because they are jointly responsible for ensuring that products are correctly made, produced on time, and in sufficient numbers to generate an income, there is always tension between them. Failure to deliver on the mandate can often result in a blame game. As a rule of thumb, those with the most to hide are generally the ones with the most to say about the others. Consciously or unconsciously derived, this behaviour can create a very negative and unproductive culture. Unless addressed directly and effectively, it can lead to the downfall of even well-financed organisations.
In this fact-based tale from the late 1980s, we have, as usual, a lead-acid battery factory as part of a larger, international group. The company had been struggling for the last 10 years to keep its head above water. Despite many visits and initiatives from the corporate head office, as well as five changes of managing director over this period, the company’s performance was slowly getting worse. In fact, the factory had made heavy losses over the previous three years and, following the departure of the last managing director, the inevitable make-or-break strategies were announced.
Heralded as the last available hope for the company’s malaise, the latest managing director called a meeting on his first day on site. His name was James, a surprisingly young and fresh-faced individual; an accountant by training, he had worked for the organisation for 12 years. During this period, he had risen very quickly to the corporate board and had a reputation as a tough but very astute trouble-shooter. This was not his first rodeo with an underperforming company. However, previous experience was purely with retail organisations, and as he freely admitted he had no experience or knowledge of manufacturing, engineering or the “other technical gibberish” involved in making batteries.
The meeting began with the finance department giving the monthly and year-to-date performance results for the company. They were not good. Turnover was 11% down on the projections and costs were 3% higher. Overall, after the first six months of trading in the financial year, the company was making a 4% loss on sales. On a £50 million ($70 million) turnover, this was already £2 million (2.8 million), However, sales generally picked up in the second half of the year and the losses were lower. This was hardly any comfort to James who immediately rounded on Colin, the sales director.
“So Colin, what’s the story? Why are sales so abysmally low?”
Colin immediately launched into a tirade against the production department. Vehemently rejecting any criticism and putting the blame squarely on the shoulders of production director Vic. To make his case, he very cogently shared the ratio of sales enquiries to orders taken, which was low, mainly due to the long lead times that were quoted. Then he furnished more information on the number of cancelled orders due to missed delivery dates. At this point Vic interjected, unable to contain his obvious frustration.
“Our manufacturing process takes nine days from start to finish. Three days for grid casting, one day for pasting, two days for plate curing, one day for assembly and two days for formation, cleaning and warehousing. This stretches to 11 days because the finance department has banned weekend overtime and keeps stocks at the lowest possible level. According to the sales department, our competitors are giving a five-day delivery from the date of order. How is it possible to compete with that when we can’t afford to keep enough finished stock?”
Getting apoplectic he shouted down Colin who tried to interject: “And furthermore, it is the sales department who tell us what the stock mix and amounts should be. Why is it they can only sell what we don’t have in stock or is not in our product catalogue?”
“OK people, that’s enough!” Slapping his file loudly onto the table, he waited until the meeting went quiet. “There is clearly bad blood here, as well as deep-seated issues that need to be resolved. What I will do next is to visit each of you in turn and spend a day going through all of your departments. I will start with sales this afternoon. Meeting dismissed!” With that, he walked out and left the stunned department heads staring, rather uneasily, at each other.
Over the course of the week, he was as good as his word. He visited every department, absorbing as much as he could of their function and problems. On the Friday afternoon of that week, he sent a memo to all department heads, asking them to attend a management meeting the following Monday afternoon. In the course of the week, he examined each department in detail. During this time, he satisfied himself that he understood not only how they functioned, but also how they interacted with the other departments. He also managed to meet a good cross-section of the employees including management and shop floor staff. His weekend was then spent putting together a plan of action that was aimed at addressing the key issues that he had uncovered in his investigations.
On Monday James opened the meeting with a brusque statement: “Well people, I have spent a week going as deeply into the operational aspects of the company as time and patience permitted. I found serious matters that urgently need to be addressed. I have identified the solutions that I believe are necessary to bring about the changes needed for this company. Accordingly, all of you will be involved in implementing the identified solutions to the current problems.”
Picking up a two-page document and holding it over his head for all to see, he continued: “I have here, what I believe to be a list of actions that will put this company on the right path. I expect each of you to take these on board and to make sure that they are implemented as diligently as possible. However, before I start on that, I think it best to demonstrate the accuracy of my conclusions by asking each of you some simple questions.” He turned to the production manager: “Vic, I would like to start with you.”
Vic shook his head and looked down at the table and muttered audibly: “Yes, here we go again, all my bloody fault, I knew it!”
James firmly interjected: “Before we go any further, I would like to remind all people here, of the extent of my brief. It is very simple. If I cannot turn this place around in six months then I have to shut it permanently. I am not the one on trial here; it is each and every one of you. Am I clear?”
There was a muted acknowledgement with shuffling of feet and rearranging of papers.
“So, Vic, tell me what concerns you most in the functioning of your department?”
This was a bit of a surprise and Vic had to scratch his head for a minute before giving a fairly clear answer: “Well, to be honest, it’s machine maintenance, order lead times, finished goods and materials stock levels. And while I’m at it, it’s the payment of suppliers to make sure they deliver on time.
James nodded. “Anything else? No? OK, thanks for that.” Now it was the turn of the maintenance manager. “Jim, what about you?
Jim was clearly itching to get something off his chest. “Well, number one is shop floor training, followed by spares inventory then process specifications that are not followed because they don’t work.”
James: “I see Jim, so operators are damaging equipment due to lack of training and abandoning process instructions because they don’t work. Then you cannot fix these, because there are no spares to put into the machines. Yes?”
Jim nodded. James then turned to Colin. “And what’s your story?”
Visibly restraining an emotional eruption, Colin began his report through clenched teeth.
“My sales team move heaven and earth in a really competitive environment. Our competitors are undercutting our prices on almost every sales enquiry. They also offer a three to five-day delivery service compared with our seven to 14, which, by the way, we miss more often than we hit. With regard to stock levels, we don’t have an 80/20 rule in this business. In fact, the highest seller in our catalogue range was just 4% of total sales. So, if you ask what types should we stock, it is quite simple: every type is the honest answer. But our finance director, Francis, insists that we have to keep stocks to a minimum. And while we are on that subject, we are the only company to insist on 30-day payment terms when the competition is offering at least 60; and in many cases 90 days!”
Colin was now building up to a crescendo his voice getting higher and shriller. James cut him off quickly before he could get started on some new line of attack.
“Thanks, Colin, there is enough information here for this meeting. Basically, we cannot match the competition, and you are fighting with two hands tied behind your back. Yes?” OK, now please answer, in one sentence, the original question: What concerns you most about the running of your department? Just bullet points please.”
Colin scratched his head. “Well, it is what I said, long production times and low stock levels, high selling prices and long lead times before the product is put into the production schedule.”
I was expecting my turn to come, but mercifully I was spared. James asked Colin to sit down and stared at his notepad for a few seconds before putting his pen down.
“OK, I think we have heard enough; there is no need to go through every department. It is pretty clear what is going wrong here,” said James.
There was quiet murmuring and feet shuffling as each department head waited, expecting the finger to be pointed at them.
James continued: “You are all in the wrong jobs!” There was a pause as quizzical glances were thrown around the table and bodies shifted nervously. “Yes! Each and every one of you wants to be in charge of another person’s department.”
James paused to let his words sink in and watched as the reaction went from surprise to plainly confused.
It was Jim who made the first move: “I’m sorry James but I just can’t see what your point is. How on earth did you arrive at this conclusion?”
“Very simple.” James leaned forward, elbows resting on the table his hands clasped. “You Jim, are very concerned about shop floor training, yes?” Jim nodded. And you Vic worry most about machine maintenance. Yes? This time Vic nodded but still looked puzzled. So, question for you Vic: who is in charge of maintenance?”
Vic shrugged his shoulders, “Well Jim of course”
“Right.” James leaned back on his chair. “So what can you do about it? Nothing! And why? Because it is not your responsibility. Machine maintenance is not your concern and yet you worry about more about that, than the training of your staff! And you Jim, why do I hear nothing from you about your department? You are obsessed with staff training, and that is out of your control.” He leaned forward again. “So either I swap your roles and put you in charge of each other’s department, or…” and there was a long deliberate pause as the two managers stared, rather apprehensively into each other’s eyes. “Or, you can reverse your concerns, and start to worry about what you can influence. And frankly, what you really should be worried about.
“I guarantee that, if Jim worried half as much about keeping machines well maintained as Vic does, we would never have a breakdown. The same applies to you Vic. You should be terrified of having half-trained staff let loose on such expensive equipment.”
You all should be terrified of being unable to ensure that what is under your direct control is functioning properly.
Both men sputtered as they tried to come up with a suitable response. James held up his hands and waved the two back into their seats. “I picked on you two as examples. Do not take it personally; the same applies to each and every one of you. You all should be terrified of being unable to ensure that what is under your direct control is functioning properly. And guess what? That is now my job: to guarantee that all of you concentrate on getting your own areas right, that you keep your noses out of other departments, (except to communicate and cooperate), and that this company becomes more competitive. Now, having spent some time in every department, I have come up with the schedule in front of you. It is designed to ensure that you all take the necessary steps, to turn this company into something resembling a commercial enterprise. We have six weeks to get these changes implemented. To make sure that we are all on the same page, I would like to go through each department in turn, and we can start with Colin and sales.”
Putting the detail of the meeting aside, the departmental plans looked like this:
Sales
- A new priority-based system for production scheduling that will avoid order congestion for particular dates.
- Sales staff have to agree to work to this priority scheduling system, and not try to jump the queue.
- The priority system will provide a realistic delivery date that must be transmitted to the customer. Fixed-time and blanket-delivery-dates do not reflect reality and do not allow for variations in the order intake.
- To give financial incentives, a new pricing structure will be drawn up giving customers a better price discount for longer production lead times.
- Sales-staff bonuses, based on total order value, will be changed to sales order margins, as well as total sales values. This means that the higher the contribution from the order, the higher the salesperson’s bonus payment.
Production
- Arrange a training scheme for machine operators to include correct process adjustment procedures and routine maintenance. Four weekends to be scheduled.
- Training in weekend overtime will be specially funded by head office.
- A new production scheduling system will be implemented with first-in-first-out plus 10% space for urgent, priority orders. There will be extra production space created by less machine downtime due to better maintenance and training.
- The dry-cured plate stock to be doubled for all types and be related to the production and sales history. There is no 80/20 rule for finished batteries, but the plate types used in the batteries are a different story. Looking at production records revealed that the XT-type plate contributed 60% of all plate production in the previous years.
- Keeping large stocks of dry-cured plates ready for assembly removed six days from the production time. This brought the delivery times down from 9-11 days to 3-5 days for more than 40% of the battery range. This easily matched the competition, even with the occasional two or three-day extension due to a high order input.
Maintenance
- A training programme will be drawn up for machine operators. This will consist of procedures for adjustment and routine daily operator maintenance. Finance will be made available for the skilled maintenance crew to train operators in weekend overtime over four weekends.
- A spares inventory will be collated and will identify the most commonly used spares along with their delivery times. This information will provide the basis for machinery spares stock. The spares will be paid for by a one-off fund from the head office.
Technical
- Identify bottleneck processes and engage in trials to speed up processes for higher output, without detriment to quality.
- Examine reject rates to improve the product yield. Target a 15% reduction in rejects and scrap.
- Ensure that all processes are properly carried out and that they work efficiently and effectively.
- Any processes not working in accordance with specifications should be rectified.
- Examine cost reduction possibilities. This will include:
- Alternative product materials.
- Effluent treatment and filter scrubber chemicals.
- Product processing costs.
Financial
Draw up financial projections to examine the impact of:
- 25 and 50% increase in stock levels, mostly at the plate level.
- One month’s overtime payments for staff training.
- Bonus payment for sales staff based on total sales contribution rather than sales level.
- Lower selling prices in line with those of the competition.
- The anticipated increase in turnover due to lower prices and faster deliveries.
- Lower sales levels but higher selling margins due to the new bonus structure.
- Explore alternative finance sources to reduce borrowing and overdraft costs.
- With the information from the above, a new pricing structure should be put into place, along with faster deliveries and a consequential increase in turnover.
Managers were given one week to complete and submit their proposals. After brief discussions and tweaking of the schedules, an overall plan with a six-month total timescale was put into place. The six months were to allow the sales team to make use of the improved price structure and delivery terms, and for essential quality and process, improvements to be fully implemented. At the end of the deadline period, it was found that the improvement measures were paying off. Tangible headway was made in increasing output and lowering operational costs. It was found that the strategy of keeping high levels of plate stocks, and achieving more efficient production, along with the reduced cost of finance, enabled the lowering of battery sales prices, and facilitated more competitive delivery schedules. All of this translated into higher sales levels and provided the company with its first quarterly profit in over three years.
