Half way up and still a mountain to climb

DMM International, the mountaineering and industrial safety equipment company headquartered at its main manufacturing site (DMM Engineering) in Llanberis, North Wales, is going through the pleasure and pain of transformation. It’s putting in a badly needed framework for better, more efficient management founded on a new, group-wide McGuffie Brunton Impact Encore ERP system, and it’s not all plain sailing. While implementing financials, sales order processing, stock control and purchasing has all gone well, production and its integration with the business is proving more of a challenge. DMM’s is a particularly interesting story because it reflects what is happening in so much of British industry – a lot goes well, but difficulty in one area lets it down. And it amounts to people – their ‘systems’ and reluctance to change – holding it back. Although the firm’s board knows that improved manufacturing control is central to higher productivity and “six figure savings on working capital”, it’s not going to come easy. It’s certainly not that DMM has been unsuccessful. The company has grown fast: it now dominates its market in the UK and has also expanded into Europe and America. Turnover is £10 million-plus and it employs 200, having acquired seven businesses. And it’s not the products: it’s karabiners, harnesses, crampons, ice axes and the like keep on hitting the spot because of the firm’s directors’ deep roots in climbing and associated engineering. So that’s all good. And for the last two years it has been doing all the right things in terms of upping the ante with its business management. DMM has been moving away from “the practices established when the business was founded by a small team of climbing enthusiasts,” as DMM’s group finance director Richard Rust kindly puts it, by introducing new integrated Impact Encore IT, keeping it standard – and using the opportunity to overhaul its internal processes. Mind you it had to. Management lacked what many would regard as essential practices: there was no standard purchasing system and no costing system, for example. Also the DOS-based system, for accounts, sales order processing and stock control, was old and struggling. And other systems, like Access databases for production control and monitoring, incentive schemes and so on at DMM Engineering (which produces all the metal products and components for the group), were incomplete, inadequate for the production volumes and product range – and didn’t ‘talk’ to one another. “We saw the system’s introduction as a way of providing a structured framework for imposing greater management discipline, better decision co-ordination and creating structured and effective control practices across the business operations,” says Rust. “We’re saying, ‘use the systems and the ideals in it to change for the better’.” Last year, all of the group’s businesses went live with Impact Encore’s finance, sales order processing, stock control and purchasing modules. Rust says it all went swimmingly. “Impact Encore has already brought standardisation and data commonality across all of our operations, and in itself this has proved a significant move forward. For a start, we now have the ability to bring together information easily from each operation, and so manage the group better,” he says. New business discipline Also, as anticipated, the system has imposed discipline. Says Rust: “Impact is already acting as an effective template for educating our staff and developing the company into a more organised business… We’re light years ahead of what we had before.” So far so good: but what of manufacturing? Well, it’s a mixed picture. The main DMM Engineering site has seen serious investment in terms of CAD/CAM systems and CNC machines and the rest. But rolling out Impact’s manufacturing modules has been a victim of entrenched management practices. “We had [in the past] unwisely tried to build our own manufacturing systems, but this proved to be a mistake,” says Rust. “The extent of this error was masked for a long time because the systems’ deficiencies were hidden by the ability of the production team to supplement any systems by keeping track of activity in their heads and on scraps of paper.” Lauren Waterman, DMM Engineering’s manufacturing manager, says non-communicating systems means data not updated across functions. “We have a works order system, where batch orders are raised, and a totally separate inspection system that records those work batches that have been passed and sent to distribution. It has been known for products still reported as WIP (work in progress) in the works order system, and so available for allocation against requirements, to have already been completed, inspected, sent to distribution and even sold. “Similarly, sometimes batches of product just disappear, because halfway through production a change in requirements leads to these products being configured differently to the original intention – but this is not reported back and reflected in the systems.” And it’s still happening, she says. Wasted resources Sadly, it’s all too familiar a picture. And while Rust insists that it’s had no affect on product quality, poor production control has, he concedes, had a serious impact on resource utilisation, manufacturing capacity, inventory, lead times, service levels and profitability. “DMM Engineering is far less efficient than it could be. We can’t improve the flow of production through the factory because we haven’t got the information flow, the production feedback. We need to improve visibility: we’re only getting around 70% of the output we should be achieving and so each product is that much more expensive. And, as a result of this ‘organised chaos’ we also work with WIP and finished stock levels that are much too high.” So you’d think change would be welcome. But no: it’s all about education, training, drive from the top and trust. Because, like so many out there, the production team has clearly made it through the years by working round earlier inadequate systems. And the issue with any integrated system is ensuring that it’s used properly – the necessary transactions reported and data entered accurately and at the right time. Without that it will certainly fail. A clearly frustrated Waterman confirms the position: “The old bespoke production systems were often bypassed or ignored, not only because they didn’t work well, but because most of the workforce and management, who have grown up with the company, have never worked with computerised systems. We could not afford to have this ‘avoidance’ happen again with Impact’s manufacturing modules. So at every step we’re having to educate everyone – from the shop floor up to director level – to recognise what the systems do and why, understand the benefits and accept the new practices.” Waterman says it’s an uphill struggle. And there’s more: stock codes had been developed ad hoc, so that’s had to be tidied up, and much of the core data, including the BOMs (bills of materials), has had to be generated from scratch to avoid using out of date information. “Although we need these systems to come on line, using poor data just to speed up the process would have solved none of our existing control issues and just created even more problems.” She’s openly pessimistic. But Rust still hopes that the WIP and BOM modules will go live at DMM Engineering “within the next 12 months”. He says: “In other companies in the group, they’re going forward – grasping the ideals. They’re wanting to buy the modules – it’s different personalities.” And he believes this will force the spread: “It will happen. It’s very hard to defend yourself when other companies are getting it right.” Ultimately, they must. As Rust says, “The implementation of the BOM module will enable us to develop a proper costing system. Then, effectively for the first time, we’ll be able to get a better idea of the direct costs and contribution, and so determine which products and customers are profitable and which are not. This will be a massive benefit.” Also, providing the functionality and framework for structured production monitoring and ‘closed loop’ control via Impact will enable DMM to improve its production efficiency and lead times, reducing costs and improving customer service. Longer term, the possibilities also include a move over to a relatively standard production schedule for all major components, with configure-to-order final assembly – which would further massively reduce WIP and finished stocks. “Even in the short term we would expect to gain major benefits,” states Rust. “At present WIP often reaches eight weeks of production, and finished stock is often far too high at up to six weeks. Even at a conservative estimate, there’s no reason why, once Impact goes live at the factory, we could not cut these stocks by half, and so immediately release £300, 000 of working capital.”