Class 'A', not just IT, transforms ailing chemical company

The $160m Trafford Park Manchester-based division of $1.5bn Great Lakes Chemical Corp, acquired in 1999 and now part of the flame retardant segment of Polymer Additives and its Biolab industrial water treatments firm, has achieved massive improvement in its major business measures. Return on capital employed has risen from 3% to 15%, a whole ‘hidden factory’ has been eliminated and inventory, lead times and customer service transformed. But this is not the direct result of a good ERP (enterprise resource planning) system implementation. The firm had installed company-wide SAP R/3 ERP in 1996, but while it undoubtedly provided the foundation, it was certainly not the driver – and there are worthwhile lessons to learn. Ciba originally owned the facility before it was sold to US conglomerate FMC in 1993 – and it was soon after that it started to face problems. Synergies thought to be there weren’t so strong; the collapse of the Soviet Union economy saw a major part of its business disappear; and weak currency meant costly materials. Says Biolab’s managing director and vice president David Cartmell: “The company went through several rounds of cuts and reorganisations to try and turn the business round, but these had little effect. We trained staff, reorganised factories… But we were fiddling while Rome burned. Business process re-engineering was the phrase, but tackling it piecemeal just didn’t work.” Around 1994 FMC started implementing SAP – a big $100m project, of which this division accounted for some $7m. It went live in 1996 with on-going annual expenditure on consultancy, maintenance and training, but the problems continued. The system apparently wasn’t delivering, and the turnaround in efficiency and profitability just wasn’t happening. Grasping the nettle “Eventually, it was ‘backs to the wall time’,” says Cartmell. In mid-1997 the firm decided that a serious injection of Oliver Wight company-wide business transformation was the answer – setting up and maintaining OW’s best practice business controls and processes, and moving to drive everything from measures like customer delivery performance, inventory record accuracy, production planning accuracy, etc. What’s more, the management team decided that the firm only had until the end of 1998 to achieve the full monte of OW’s ‘Class A’ benchmark, or it would probably be sold. Says Cartmell: “Finally, we just had to get the overall structure right quickly. A business is like a supply chain, or a chain of events. You can make as many point changes as you like, but it will have no value unless you attend to the whole structure.” Oliver Wight associate Malcolm Caisley, who had audited the firm’s planning and control processes, recalls that he thought it would be “extremely difficult” in the time frame. But Cartmell was convinced it could be done. “Under Ciba, many people in the company had been trained in MRP II methodologies through Oliver Wight, so we already had a head-start.” He was right, and what’s valuable here is how and why – and what’s been done since to keep it going. Says Cartmell: “The whole management team gave it 100% backing. There were few other initiatives to distract us: we weren’t doing lean manufacture or Six Sigma at the time, and senior management was willing to put 40%—50% of its time and effort into the programme.” And he adds: “That’s critical.” So that was point one. But that said, one of the absolutely fundamental problems the team soon found turned out to be none other than education and training – not on the job training, but big picture and process education. In a nutshell, mistrust of ‘the SAP system’ meant that the old pre-SAP ways and inefficiencies were just being perpetuated. Cartmell refers eloquently to discovering “an immense ‘hidden factory’”. Even simple business processes, he says, such as raising a sales order, often had 30 or 40 steps instead of four or five. “Nobody believed all the SAP data on the VDUs because they couldn’t, so they were double-checking, developing their own numbers using manual, paper and electronic processes, spreadsheets and the like. They’d take them to someone else’s system at the end of the shift, or the end of the day, week or whatever, and it was just a whole factory of people, chasing around.” They were all part of creating their own problem. Not only were they wasting time and effort, but inadvertently ensuring that no-one would ever be able to trust the system and do better. So the goal had to be getting the processes right and people using them. “We invested our time and money on people, behaviour and processes using Oliver Wight’s courses. We deliberately didn’t bring in a large team of consultants to develop our processes for us because, at the end of the project, they walk off with the knowledge. You can’t outsource this: we used our own people under guidance, probing, help and direction.” So far so good. The other big issue was improving the business processes themselves. And again this required OW involvement. The first phase was to educate directors, key individuals and taskforces in OW’s supply and demand management principles. Phase Two involved developing 14 key end-to-end processes, covering everything from sales orders, to maintaining inventory accuracy and production planning. Cartmell: “We developed new plant sequencing rules, processes for obtaining better BOM accuracy, production planning and scheduling, sales forecasting, sales control. They were fundamental processes, but the point is they were defined from start to finish – not just fractured around the different departments.” Going back to training, Cartmell says that all 550 people on site were given an eight hour basic MRP II session by line managers. “Everyone, from the cleaner to the vice president, has to have the fundamentals. They’ve got to understand what everyone else is doing and the impact of what they do on them. Then other training can be to specific needs, depending on the individuals and the complexity of the tasks. We’re still delivering refresher training now.” The division went live’ with its new processes in July 1998, and although 95% of the problems were dealt with quickly, the big one was inventory record accuracy, which stuck at around 40%. ‘Shipping to customers’ accuracy was 60% only because the gap was being closed by the ‘hidden factory’ and fire fighting. Cartmell says the problem was the workforce not recording SAP transactions close enough to ‘real time’. “It was a behavioural problem of, for example, staff waiting until the end of the shift.” By rigid adherence to the rules and daily inventory counts, his team beat this, getting up to 95% record accuracy. “The second biggest problem was production scheduling. You’d be amazed how many incorrect BOMs we had – because people had just known what was needed. You can’t make assumptions once it’s automated, and the important thing is to go for zero tolerance. If the BOM is incorrect the first job is to adjust the process and get the data into SAP.” As the workforce saw results, they began to trust the numbers, and that was the turning point – the catalyst for improvements in other areas. Says Cartmell: “Teamwork improved and we started seeing tangible business benefits, including a cost saving in numbers of people. Our lead time for orders reduced from four to three days and reliability improved. Customer complaints dropped from 3% to 1.5% of orders, and inventory reduced by 25% while customer delivery performance increased from 85% to 95%. Massive ROI “On the bottom line, return on average capital employed improved from 3% in 1998 to 15% in 1999. We also moved from being one of the lowest performing divisions of FMC to one of the highest. We passed the Oliver Wight Class ‘A’ audit in December 1998.” And it never stops. Says Cartmell: “We’ve held ‘Class A’ for three years now, and we keep it by keeping on preaching the message. It’s relentless.” When asked to talk about building out SAP support and his IT strategy, Cartmell says the division has invested in better business intelligence and reporting tools in the form of Cognos, and there’s been development of a secure website for key distributors covering product details, order tracking and the like. But on the supplier side, the issue for him is less about web-based supply chain systems – although email replenishment ordering from SAP has been implemented – and more about “building tighter and tighter Kanbans, moving towards delivery in half hour slots with better scheduling and improving our working capital position.” He comments: “Supply chain management IT all sounds very sexy but you have to ask what deliverables you’re really going to get. Whereas I know I can talk about 10% less inventory and the working capital improvement that comes from improved processes and people that know what they’re doing.”