Out of the fire and into profit

Two years ago, we had unacceptable losses, poor delivery performance and an inefficient factory,” says a very candid Mike Keaney, MD of Saxon Sanbec. “Six months after new [ERP] software, we’ve seen a real difference. Last year we made a profit, improved our cashflow, increased manufacturing throughput and improved on-time delivery performance from 40% to 94%. We couldn’t have done it without new software. “And the product configurator [software] means that after reviewing customer requirements we can produce detailed contract quotations in 30 minutes.” But this incredible turnaround in fortunes certainly hasn’t all been about implementing new IT. As Keaney explains: “IT gives your workforce the discipline it needs to adapt normal working methods to new business processes and initiatives. You also need strong leadership, good training and managers that understand and can educate your staff.” Based in Sandbach, Cheshire, Saxon is a £10m turnover business, part of UK-based parent the Johnston Group’s engineering division. Saxon employs 130 people – around 100 of these in production. The firm designs and manufactures specialist road vehicles, mostly fire engines for UK local councils, but also other sub-contract vehicle work, such as road sweepers and AA recovery vehicles. Last year, the firm made around 100 fire engines so it’s not high-volume stuff we’re talking about here. Jobs come in very small batches (between one and five vehicles typically) so manufacturing is a mixture of engineer-to-order and contract manufacturing. The average vehicle order value is around £120k, with tight margins (sometimes as low as two to three percent) on each job. Therefore it’s important that Saxon has total control and visibility of its material and operational costs, including labour, which can amount to almost 50% of total vehicle costs. Three years ago, Saxon faced some major business issues: it was operating at a loss; material control was poor; product costs were too high; and stock and work-in-progress (WIP) levels were also too high. So Johnston Group decided that something needed to change - and fast if Saxon were to survive. Paper-based errors Since its establishment in 1982 the firm had been using business software from a local supplier. It was used by accounts, sales and purchasing, and Keaney describes it as, “Archaic with poor flexibility and costly to maintain.” There was certainly no WIP tracking, no product configurator and no MRP (material requirements planning). As Saxon’s IT manager Phil Bowers explains: “Most of our processes at this time were paper-based and so were prone to human error.” The process at Saxon starts with estimating, which prpepares bids for vehicle contracts. This means reviewing a fairly detailed client vehicle specification, then creating drawings and engineering BOMs based on the various configurations the client has chosen. The contract is then costed on this basis and a quotation prepared. The problem was the final production BOM (ie when the job reached the shopfloor) never matched the original engineering BOM created for the tender. This meant some vehicles were made at a loss because they needed re-work, or at best, were produced with very small margins. Often materials were missing on the shopfloor when they were needed and so jobs inevitably left the factory gates late. So in mid-2000 Johnston Group appointed Keaney as new MD of Saxon. “We introduced a continuous improvement programme with objectives for every department and individual in the company. New business software was just one important component of the strategic plan. We needed it to support our existing business activities but also to support future growth and new diversification plans,” he says. “The drivers were identifying where we could reduce costs, improve efficiencies, get better control upfront of our vehicle estimating, better delivery performance and improve our customer service… We started by reviewing our IT and existing business processes.” So the firm decided to search for a replacement enterprise system. “We considered four vendors really: Information Engineering, Cincom, Infor:swan and Exel,” says Keaney. “We chose Information Engineering’s Impact Encore [ERP] for two reasons: it had an impressive product configurator that could integrate with our 2D Autocad software; and its staff had expertise and a real understanding of our market.” CAD-BOM integration The ERP implementation began in early 2001 and took 12 months to complete. Bowers: “The basic control software modules [BOMs, parts, sales orders, purchase orders, stock, WIP and financials] were all up and running in four to five months… We initially placed only new incoming vehicle orders on the system, but after six months 100% of orders were live on the software.” The remaining modules, which Bowers refers to as, “adding value to the business” were piloted extensively during early 2002. Material scheduling went live in March and the product configurator is set to go live in June this year. According to Keaney, the key was synchronising the engineering and production BOMs by integrating 2D CAD software with the product configurator. “Purchasing were using engineering BOMs to order materials months in advance of production. When I arrived here the firm had a nine-month stockpile of materials for jobs. We’re now operating at about 15% of this level. Purchasing now works from accurate BOMs and orders material to schedule.” At pre-contract stage, sales will use the configurator to standardise and simplify the whole process. The software automatically creates an engineering BOM based on the client’s specified vehicle configuration. Some want water hoses, special equipment or a different chassis. The choices are numerous and there are more than 400 questions built-in to the configurator, with underlying rules based on engineering integrity, to ensure sales don’t (and physically cannot) sell a configuration that makes no engineering sense or cannot possibly be built without incurring unnecessary manufacturing costs. The process now relies on engineering and years of captured design knowledge rather than the skills of a salesperson. Saxon’s chief design engineer Keith Barton: “Time was being wasted with designers walking around trying to find paper drawings and technical data. Now the CAD and BOMs are integrated, they do it all through the desktop. We tell sales what to sell now. “And design now has complete control of the BOM from Autocad. Part numbers are created automatically [rather than taking the next available one from a logbook] so manual errors have been eliminated. And designers add related technical data and characteristics to the drawing as it’s created. So we get a fully costed BOM to work with before contract start. Drawings are done once now at the tendering stage,” he adds. There are now 30 ERP users at Saxon. 20 are ‘active’, the rest use ‘floating’ licences. Keaney estimates the total investment so far: “We spent about £120k in total: £20k on upgrading our hardware and networks, £65k on software and £35k on implementation services. This doesn’t include extra internal costs such as hiring new temps to re-key purchase orders and sales data into the new software. We expect the system to pay for itself within two years.” Two things really stand out from this implementation: the strength of leadership of the man at the top and the clever application of the product configurator software. Unfortunately, one cannot succeed without the other.