No short circuit to top performance

You may be profitable, your cash flow may be wonderful, but neither pointer tells you how well you'll be doing in a year's time or helps keep you on track. Only one vague but vital measure will manage that trick: customer satisfaction. A lot of UK companies have learned this lesson, says Professor Robert Luther of the Centre for Management Accounting Research at the University of the West of England at Bristol. After a close study of the measures industry uses, he and his colleague Ahmed Abdel-Maksoud found that a lot of companies say they focus principally upon customer satisfaction, though they also listed product quality, on-time delivery (both customer-satisfaction measures you'd think), employee morale, and efficiency and utilisation. Keep them happy But how do you keep your customers happy? After all, they all want different things, don't they? Not really. Years ago, one Ford supplier, staggered that his latest price cut hadn't produced the expected smiles, asked his Dagenham masters, "Well, what do you want?" "Paradise. For nothing," was the reply. David Fox knows this. Fox chairs Power Panels (PPL), a small but award-winning and international electrical-assembly supplier based in Walsall, West Midlands. Now growing at about 30% a year, PPL is heading for sales of £17m this year. It has a raft of big-name automotive-equipment, CNC packaging-machine and machine-tool customers for its custom panel-wiring skills. The strategy is simple - find out the number-one names in particular industry sectors and get their names on your customer list. How do you keep them? "They all want 100% quality, 100% delivery at the lowest possible cost," says Fox. Even so, Fox has a pecking order. He measures the business by profitability, but that's little use as a day-to-day star to steer by: "The number one driver has always been the highest possible quality," he says. PPL's big move forward came in the early 1990s. Contract work for Toyota in Derby gave PPL the confidence it needed to approach Worcester-based tool builder Yamazaki. Yamazaki gave PPL some orders but added that was only because it was "the best of a very poor bunch," Fox recalls. "Yamazaki worked with us every day of every week," on quality and its continuous improvement, Fox recalls. PPL learned so much from building Yamazaki's CNC control panels that more orders followed from Japanese and US-owned car makers. PPL uses the measures its customers prefer. A few years ago PPL's quality levels, as measured by its customers, were a shade over the mid-90% level. Now, they come in at 99%-plus. One secret to the transformation is investment. PPL has just taken delivery of a new £200,000 machine to add to its two Metzner Triathlon cable-prep machines. The machines, driven by CAD wiring programs, cut a cable to exact length, strip and crimp it, test the crimp and print the identity of the crimp's destination on the cable-end. The other secret, inevitably, is culture change. In the 1990s, says Fox, "We shouted at everybody. The foreman told people what to do." Then Fox, who had met and worked with US GE's Jack Welch, read Welch's GE Way handbook to six sigma. Out went shouting at people; in came the PPL training school. Every employee gets 200 hours' training a year. Fox recruited two 'six sigma' black belts from the car industry, one each for the production area and the school. Often, Fox adds, using six-sigma analysis tools is "a sledgehammer to crack a nut. There are a few tools we use but many of them we just keep in the locker." Traffic light systems provide an important guide to shopfloor consistency. Operators book on and off jobs electronically, and shopfloor screens show performance as red, amber or green against what Fox calls industry standards. Performance is measured by individual cable and by operator. Nothing, says Fox, falls through the cracks. The emphasis is on ownership, each operator taking responsibility for checking his or her own work. Now, says Fox, customers don't merely place orders. They ask PPL how to solve problems: "We're the experts," he says. "As we have grown in reputation, people come to us and ask us how to do it. We've become a world authority." And it hasn't done the bottom line any harm. Fox is reluctant to part with numbers, but he says his net-value margin has almost tripled since 2000. Fox says PPL's competition has simply disappeared. Stiff competition The competitive picture at Silvergate Plastics could hardly be more different. This Wrexham, north Wales, based supplier of plastic-granule colour compounds for injection-moulders and suppliers of caps and packaging to the pharmaceutical, healthcare and medical industries, has 50 or more direct competitors in the UK alone and more in mainland Europe. Its answer is to provide an unmatchable delivery service. Silvergate doesn't quote a lead time. It just delivers when the customer stipulates. If it fails, the customer gets half or all its money back. "We move everything to get out on time," says Silvergate operations director Chris Spooner, even if that means occasionally, "ignoring the cost element". It may, not always, spend £200 to get a £100 order out on time. Yet Silvergate doesn't have that high a proportion of repeat orders. Product churn is one third of a 40,000-colour product range that, in turn, is a fraction of the 20 million available colour permutations. Where orders are repeated, however, colour matching is both essential and fraught with peril. And that's a quality issue. Faults in the feedstock, the process or testing can cause mismatches between the original colour and a later production run. Small amounts of pigment may have to be added to match the two up. Silvergate's success in providing guaranteed customer-determined delivery dates is governed by the constant recalculations of a Preactor scheduling system. Where clashes arise - and they do, according to Spooner - Silvergate can run a weekend shift. The parent group Vita Thermoplastics measures Silvergate by profit measured against Silvergate's own annual business plan. But Silvergate uses a slew of internal measures for day-to-day running. Spooner chairs a 30-minute meeting of department heads every morning - accounts, customer service, the business manager, production planner, production manager and laboratory supervisor - to review Silvergate's 'production dashboard' of internal measures. Silvergate monitors the number of requests it receives for colour matches. These are sales enquiries which may turn into orders, so are an important indicator of either pressure on capacity or the need to drum up more business. The dashboard includes deliveries 'on time and in full' (OTIF) and previous day's sales value. Silvergate tries to deliver overnight, so production for tomorrow's orders is despatched the previous day. If orders are late, Silvergate uses premium freight to deliver the same day, so a third measure, the previous day's premium freight cost, provides a warning sign that production is falling behind. Silvergate also tracks any customer credits issued if a customer complains, and health and safety - accidents. Silvergate was prosecuted in 2002 when an untrained operator lost the tip of a finger in a bagging machine. The lesson has been learned: "It's a very different company now," says Spooner. Each of the five active production lines is monitored for quality, overall efficiency, output in kilos per hour, product yield and first-time pass rate. All this information is available instantly, says Spooner, and shown on up to eight large plasma screens around the shopfloor and other parts of the business. All the managers have to do, he adds, is to walk about and make sure things are running smoothly. So which measures should you be using? "A difficult subject," says Andy Neely, professor of operations strategy and performance at Cranfield School of Management's Centre for Business Performance, and chair of the Business Performance Association. "There is no generic set of measures that's right for all manufacturing firms." Everything depends on knowing which outcomes the organisation wants to achieve, which behaviours will result in those outcomes and how to put measures in place that encourage those behaviours and no others. "Measurement is a way to clarify the strategy of the organisation," says Neely. Working out what measures to use "forces senior management teams to carefully articulate what success means to your organisation". Saying the aim is 'to be number one' doesn't tell the people in the business what they should be doing here and now. "Managers want to understand what's happening in their organisations," he says, so they introduce more and more measures - of how customers feel, employees feel and how well their R&D departments are performing. Visual charts can proliferate, offering thousands of measures instead of "telling a story". Then the unintended consequences begin to show. "Once you measure 'x', 'x' becomes important," says Neely. If it's customer service, for example, buffer stocks - and costs - rise to make sure the customer is never let down. Then a balancing act takes place to bring everything back to proportion. Even when the measures are set, he warns, "people spend an inordinate amount of time gathering data but they never analyse the data to understand the story behind it." You have to be really careful, says Neely, that all the information isn't merely gathered into reports no-one reads. Information technology is a big offender, though, as at Silvergate and PPL, it has its uses. IT makes it easier than ever to collect data, squirt out reports - and then what? But IT has a worse flaw. Today's operators collect information so they - not managers - can take minute-by-minute process decisions. IT sometimes re-centralises control: "It cuts across the structure you have put in place. Management by remote control went out of fashion in the 1970s. Technology tries to reinvent that." Neely disputes the assertion that shopfloor measures should be translated into financial outcomes because operators and others can relate more closely to financial than non-financial measures of, say, waste. Financial measures will take precedence over non-financials and drive short-termism, says Neely. Functional, department-focused measures work against fostering the wellbeing of the whole organisation, he says. But he isn't wholly against some measures which, like machine utilisation, have fallen from favour. "Any measure like that can be right," he says, but not in isolation. Utilisation may be appropriate if you're making one product and never stopping production, says Neely, but few industries are like that now and it's not a sensible model for any other type of business. Utilisation just drives up finished goods stock and work in progress. However, using utilisation alongside delivery measures like OTIF is sensible. What you need is "a blend of measures that says what you are running in a manufacturing plant is a system with a bunch of connections between different activities".