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Manufacturing Decline Partly Due to Services Shift - Ashburton Products - Management Assessment Answer

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Management Assessment Answer

CASE STUDY 1: ‘Manufacturing ’s Decline Partly Due to Services Shift’ “Up to a fifth of the decline in manufacturing’s share of the UK economy could be attributable to a shift by production companies towards service activities in place of turning out goods, according to UK government statisticians. The phenomenon of manufacturers undergoing a subtle metamorphosis so they become ‘hybrid businesses’ that combine production with services could explain why many individual companies regarded as manufacturers are performing a lot better than the sector’s generally gloomy macroeconomic data. Lord Kumar Bhattacharyya, director of the Warwick Manufacturing Group at the University of Warwick, and a highly regarded observer of manufacturing trends says: ‘The fact that many more manufacturers in the UK have gone into services is one reason many have been able to survive.’ Since 1995 the share of manufacturing in the economy has shrunk from 20% to less than 15%. This is a change generally linked to the faster growth of services plus productivity improvements in manufacturing reducing the value of factory output by making goods cheaper. Another factor is the growing share of global manufacturing output accounted for by countries with cheaper labour costs. UK data on the split between manufacturing and services are assembled by the government’s Office for National Statistics. It does this by asking companies to classify their output between the two activities. If a manufacturer has abandoned most of its UK-based manufacturing – but continues to function in the UK as a distributor or provider of other services such as repair and maintenance – the company can be recategorised and may officially no longer be considered a manufacturer. According to a senior government statistician, no one has properly accounted for how much service activity is now being done by companies formerly considered as 100% manufacturers but today are classed either as hybrids or wholly service businesses. The official said it was ‘quite plausible’ that as much as a fifth of the apparent relative decline in manufacturing in the past 10 years could be explained by this shift. One of the best examples of companies making such a shift is Pace Micro Technology, a West Yorkshire business, which is a world leader in digital set-top boxes for televisions. In the late 1990s, it employed 1500 at its main site in Shipley, most of them in manufacturing. Today the company’s UK manufacturing output is non-existent – all its production being done by contractors in low-cost countries – but continues to employ 450 on the site, mainly in design engineering and software. The output from the site is categorised as a distribution activity – sales of set-top boxes to retailers – while the value of the engineering work is captured also in an unclassifiable part of these distribution sales. In a similar way Alstom, a French engineering company that in the 1990s operated large factories in the UK producing power turbines and trains, today employs 5000 in Britain - all but about 350 of whom are involved in services such as designing new power systems or maintaining railway equipment while it is being operated by customers. Indesit, an Italian white goods company formerly known as Merloni and which makes the Hotpoint brand of domestic appliances, has 5500 workers in the UK, only 2000 of them in conventional factory jobs. The rest are in activities such as servicing appliances in people’s homes, distribution and logistics, sales and running a call centre in Peterborough for customer problems. Marco Milani, chief executive of Indesit, says: ‘Services are an extremely important part of what we do.’ UK company Dialight is a world leader in making light-emitting diodes – small electronic devices that can take the place of light bulbs and last a lot longer while providing more light. With most of its manufacturing in Mexico, it runs a plant in Newmarket, Cambridgeshire, employing 120. Most work is not in conventional manufacturing activities but jobs such as logistics and planning for the company’s global operations. ‘It’s important to remember the work of a production company goes a lot further than what people regard as manufacturing,’ says Roy Burton, chief executive.” Questions
  1. Discuss the main reasons for the growth in services
  2. Discuss operation strategy approaches adopted by companies such as Pace MicroTechnology and Alstom in this case study.
  3. Discuss at least two of the potential analytical tools that can assist business operation managers to identify the shift in their operations and to adopt appropriate transition techniques.
CASE STUDY 2: ‘Ashburton Products’ “Ashburton Products manufactures wooden fireplace mantels. They have a retail showroom in which various models are displayed. A small workshop close to the showroom was taken on a short-term lease, and various items of DIY power tools and second-hand woodworking machinery were acquired. The firm has also acquired a routing machine to provide flutings and other decorative details for the mantels. The firm prides itself on meeting customer requirements, and most mantels are customised. Hence, manufacture is organised on a one-off basis. Variations in output are catered for by working overtime. One of the joiners in particular frequently comes in at weekends to cut timber. A mantel consists of three sub-assemblies comprising two legs and a shelf. A variety of bought-in decorative motifs are also attached. The production process begins with cutting sheets of MDF and planks of hardwood. It can sometimes be difficult to move in the workshop due to its small size and the amount of cut timber stored. After cutting the timber is put onto the routing machine. Next, at the subassembly stage, the legs are brought together, glued and then clamped. The glue takes time to dry, so clamped sub-assemblies are left overnight. The shelf is also glued and clamped. The final assembly stage consists of gluing and clamping the legs to the shelf to make a complete mantel. When dried the assembly is taken into an adjoining ‘finishing’ area. Here excess glue is scrapped off and sealant is painted on to the exposed grain to seal it. The filler is applied to gaps around the joints or points where the surface is uneven. The whole is then rubbed down with sandpaper and taken to the spraying area for painting. MDF mantels are sprayed with up to 5 coats of white paint, with filling and rubbing down between coats. Hardwood mantels are sprayed with two coats of varnish. Finally, finished mantels are taken downstairs for packing. Since space is a major problem, the stock of finished mantels is extremely small. Demand for mantels has been rising for some time. Sales which were, in the past, based exclusively on single orders for individual customers have recently been supplemented by multiple orders from two local builders. In view of this trend, Ashburton’s management is concerned about how best to meet the increase in demand. Unable to expand the current site because of planning restrictions, and reluctant to spend large sums on new equipment, the management is uncertain what to do.” Questions
  1. Identify the current process type employed at Ashburton and discuss the benefit of this process type.
  2. Discuss the main constraints on current operations and identify any potential problems with the current production process.
  3. Explain how this company can improve its operation in terms of process type, process layout, process technology, and job and work design.
CASE STUDY 3: ‘Spencer Davis Engineering’ “Thanks to a carefully planned e-Business strategy, Spencer Davies Engineering has dramatically improved the efficiency of its production process and expanded the breadth of its offer. Spencer Davies has introduced technology across the company, from a web site and customer database to CAD/CAM, an intranet and production control on the shop floor. Its strategy has been to balance bigger, structural investments in core functions – such as in CAD/CAM – with smaller applications that reduce employees’ administrative burdens. The result of this approach is that each successive investment brings specific and cumulative benefits. For example, the original CAD/CAM investment improved the quality, speed and breadth of the offer. When combined with email, which now accounts for 60% of client communications, designs can come directly from clients and go immediately to the shop floor, saving up to a week on every job. Handling the processes electronically makes them easier to review, and the company can now hold less stock, ordering online from suppliers to secure the best deals. The company intranet includes a research library, company documentation, job descriptions and a contact database of customers and suppliers. This has been integral in maintaining internal communications, giving staff the tools, they need and improving customer service. Offsite engineers, meanwhile, are equipped with laptops, digital cameras and mobile phones so work can be budgeted, completed and approved on the spot. The company is also looking at integrating other aspects of its supply chain: it uses online procurement for office supplies and puts outsourcing enquiries on the Internet via engineering bulletin boards. Spencer Davies’s e-Business strategy has allowed it to expand while continuing to streamline its business. Its ICT investments have also produced greater auditing and management reporting facilities, giving the company the ability to evaluate future investments before committing financial resources. ‘We’ve been able to quantify the benefits thanks to technology’, says Owain Davies, Managing Director. The time taken from the design stage to the finished product has been dramatically reduced. Today, if the information is sent electronically by customers, the job can reach the production stage within 30 seconds. The company is now better equipped to tackle more complex engineering projects and consequently appeals to more potential customers. ‘Our investment in technology has allowed us to develop the business and look at new markets’, explains Owain. The improvement in communications with suppliers has been due in large part to enthusiasm from Spencer Davies Engineering. ‘Most of our suppliers are not eager to work electronically, and that’s a barrier’, admits Owain. ‘What I’m trying to do is show the benefits of technology and persuade them to come on board. Once they see the business benefits, we can usually win them over.’ In addition to the direct benefits of the company’s investment in ICT, Owain has noticed some equally important but unexpected results. Spencer Davies’s positive, forward-thinking attitude is producing a competitive advantage. ‘We are getting some valuable customer referrals’, explains Owain. ‘Our use of technology gives them the confidence to recommend our services. Technology has definitely allowed us to get more for our money. It’s now easier for us to sell because of the information that we have.’” Questions
  1. Discuss the impact the use of technology has on the competitive performance of Spencer Davies.
  2. Discuss the characteristics of process technology that has been used by Spencer Davies in assisting process technology decisions in their business organisations.
  3. Discuss the challenges of adopting new technologies in business organisations.
CASE STUDY 4: ‘Why the Bunker Mentality has become a Corporate Liability.’ “Sir Howard Stringer, the Welsh-born boss of Sony, has declared war on them. At Morgan Stanley, new chief executive John Mack has vowed to smash them. The US intelligence system is, infamously, riddled with them. It is a fair bet that your organisation is too. The objects of all this executive ire? Silos – divisions or departments that would rather burn in hell than cooperate with anyone on anything at any time. The phenomenon is not new. Turf wars and internecine rivalries have been around since our ancestors first tried to work in teams. But silos thrive in large, modern organisations. Multinational companies, public sector bureaucracies and universities seem to be especially vulnerable. Before you ask, newspapers are not immune. Most of the time, silos are just another obstacle to be overcome or, more often, to be circumvented. Occasionally, however, silos become so powerful that an organisation is rendered dysfunctional. Thus, the bipartisan commission into the terrorist attacks of September 11, 2001, concluded that the assault might have been averted if US intelligence agencies had been willing to share information among themselves. Similarly, the initially chaotic, uncoordinated response to Hurricane Katrina was symptomatic of silos at work. In the memorable words of Ray Nagin, the mayor of New Orleans, there were ‘too many frickin’ cooks’. The irony is that silos arise from the quest for efficiency. As Adam Smith pointed out, work gets done more quickly when it is divided into chunks and done by specialists. In the modern firm, confident, outgoing types handle sales. Number crunchers look after finance. Engineers are drawn to product development and manufacturing. But, while the division of labour is good for productivity, it also breeds complex sociology. One big-company chief executive complained to me this week that her company’s design engineers rarely talk to the frontline sales force. As a result, they rarely visit customers. Getting these reticent silos to communicate – and, ultimately, cooperate – is high on her list of priorities. Up to a point, this kind of institutional politics is nothing to get steamed up about. But it is worth remembering that organisations achieve their ultimate goals – whether manufacturing pins, countering terrorism or delivering aid to flood victims – only if specialists share information and work together. In the jargon of management, work mostly gets done in functional departments, but the value is delivered to customers via ‘cross-functional processes’ – for example, the flow of a purchase order from sales to manufacturing to fulfilment to finance. Senior executives are getting worried about silos because the costs of noncooperation are rising. In an increasingly competitive global economy, companies across all industries are under pressure to improve efficiency, year after year. The easy cost cuts have already been made. Further progress requires redesigning products and processes from first principles – something that can be achieved only if every department gets with the programme. Large, multidivisional companies such as Sony and Morgan Stanley face the further challenge of trying to find cross-selling opportunities and synergies between business units. Without these economies of scope, what other reason do they have to exist? The public sector is hardly immune from these pressures. Governments are reluctant to raise taxes. Voters are demanding higher standards from public services. The only answer is more efficient delivery of services, achieved by getting government departments to work together more effectively – what Tony Blair likes to call ‘joined-up government’. In public and private sectors alike, meanwhile, the rise of outsourcing and partnering gives a potential competitive edge to organisations that work well with others. Corporate strategy wonks, always quick to coin a buzz phrase, have dubbed this ‘relational capital’. Needless to say, organisations characterised by silos and internal rivalries make for lousy partners. Dismiss it as nonsense if you will. But this line of thinking is being taken very seriously among the managers of corporate America. If silos are such a liability, why do they persist? Because, like viruses, they occur naturally. Ask any large group of normally defensive, insecure people to work together on a project. Then stand back and watch the silos emerge. Our society of large, complex organisations is a perfect breeding ground. This is not to say that managers are powerless to combat them. The experience of General Electric suggests that a concerted effort to encourage cross-company cooperation can yield results. Jack Welch’s ‘boundarylessness’ initiative of the mid-1990s got the message out in no uncertain terms. GE’s subsequent adoption of Six Sigma, the process improvement methodology, is credited with further breaking down barriers by giving managers from across the organisation a common language. Like so much of what goes on within organisations, however, the kind of defensive, political behaviour that encourages silos is a function of corporate culture. A quick flirtation with Six Sigma or any other management technique is unlikely to change the tacit ‘way we do things around here’. More important is the steady flow of signals about the types of people who will do well in an organisation and the attitudes that are frowned upon. Ultimately, then, the tone is set from the top. Chief executives who demonstrate an uncompromising, all-or-nothing management style can hardly complain when their subordinates are reluctant to cooperate with one another.” Question
  1. Discuss the barriers the case study has identified in moving to a process-oriented approach.
  2. Discuss the steps that can be made to overcome these identified barriers by this company and by other organisations, in general.
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