“Sweating the Assets to Maximise Performance”
In order to maximise performance a business must use all its assets to the full. However the “assets” of a business need to be considered much more broadly than just its manufacturing facilities.
Businesses have three main groups of assets
- Their Brands
- Their Intellectual Property (Recipes, Processes, Technologies, Skills, Patents, Ingredients)
- Their Capability (Financing, People, Buildings, Procurement, Manufacturing Capacity)
In order to create value, a business has to maximise the use it makes of these three components, but equally it has to integrate the components to give an optimum solution. If it is able to do this then it will become the strongest competitor in the market place and will outgrow and outdistance its competition through competitive advantage.
The relative strength of these assets is important as a degree of balance is needed for optimum operation. A small start-up business, for example, may have little brand strength but a high level of intellectual property. Conversely a mature business may have a strong brand but may have fallen behind in terms of intellectual property if it has not renewed its technology.
There are therefore two precursors to achieving “best performance”. One is ensuring that the strength of the three asset classes is brought into alignment by strengthening any which are relatively weak and the other is to ensure that there is a co-ordination of effort across the business to make the very best use of all its assets.
Brands
Everyone in an organisation must understand and subscribe to the importance of its brands and of building and strengthening those brands. They are the public face of an organisation and every element of a business can and must make a contribution to their strength. Each individual and each function must take responsibility for their contribution to the future health and growth of the brand and must examine every decision or action within that context. To empower people in this way needs a commitment from the brand leaders in an organisation to take the time to educate and explain to all levels of the organisation the key strengths of a brand, and what it means to consumers.
Once a brand has its strength assured internally and externally, consideration must be given to how it can best be exploited – a brand can never stand still.
To achieve maximum leverage it is important to understand the consumer’s view of what the brand stands for and to align development with that view. Whilst this may be well established in a mature and well understood brand it may require more fundamental thought in the case of a company introducing a new brand. It is important for a small company starting out, perhaps in just a local area, to understand very clearly what the consumer believes it is selling – which can be in contrast to what the company may think.
Intellectual Property (Recipes, Processes, Technologies, Skills, Ingredients)
A company’s IP is extremely valuable and needs to be carefully guarded, but equally it must be exploited to the full to make the best use of this key asset. A cupboard full of ideas has no value; it is the active exploitation of those ideas which creates value.
It is important to realise that IP is not a static entity – all of these components need to be dynamic, changing to reflect changing circumstances – be that in consumer preference, manufacturing cost, new technologies, skills requirements, ingredient sources or any other aspect of the business.
There should be a continuing programme of “how do we do things better” by using and extending the company IP. This does not have to be in the form of an expensive research programme, it may just be a matter of developing the right culture in an organisation so that anyone sensing change reacts and responds to it in a positive manner. That means, of course, that the company culture has to be genuinely receptive and inclusive and willing to embrace change.
Dynamic response to change will influence the direction and priorities in the development of the IP in a company and will facilitate the rapid and appropriate switch of resources between changing priorities. This will enable a business to be ahead of its competitors in strategic decision making, allowing it to develop competitive advantage and to lead rather than to follow.
Unless a business is constantly sensing, communicating and responding to what is happening in the commercial, operational and technical environment it will not make best use of its IP to secure its future going forward. Complacency is a deadly disease and many companies have been victims of it
Capability (Financing, People, Buildings, Procurement, Plant and Machinery)
Particularly in large organisations, the relationship between the individual capability components and between them and the rest of a business can be a difficult one. More than in any other part of the business these components can tend towards “silo” thinking with people becoming inward looking and preoccupied with day to day survival.
Capability is sometimes looked at as a cost to the business rather than an asset to be exploited. In many cases the emphasis will be on minimising cost in an area rather than fully realising the value it represents. The capability of a business is its most tangible asset and has the potential to make one of the largest contributions to the future of a business if fully exploited.
Finance – The potential positive role of finance is frequently missed, too often the function is seen in a negative light. Businesses need adequate finance and financial management to develop and expand and it is therefore an asset in real terms. It is important that the finance available is used to optimum effect, targeted at areas of maximum business potential and value creation. In particular finance made available should be used for capital investment and business development rather than covering revenue costs which should be covered by cash flow.
Finance also provides valuable oversight and evaluation tools, looking at internal operations and cost accountability and wherever possible gathering information to benchmark competitors activities. This information must be shared in an open forum to motivate the business and help it identify the areas where it has to improve.
People are most company’s most valuable and often its most expensive resource. In Western Europe total labour cost (including overhead functions) is of the order of 50% of manufacturing costs. It is therefore imperative that a business has the right balance of skills, the right number of employees and proper organisation and management to make absolutely the best use of them. An inherent part of any company’s profitability is “selling” its labour (through value creation) at a lower cost than it “buys” it through labour and some overhead costs
“Sweating the assets” in the context of people is absolutely not about making people work harder and longer – it is about positive development, giving them the tools and skills to work smarter and better. The way to reduce labour cost and improve labour efficiency is to train, develop and motivate people to “Get it Right, First Time, Every Time”
Most businesses do have a degree of over manning and “custom and practice” which limits labour efficiency. It must be stressed that this is not solely or even mainly a “shop floor” issue – overhead functions right up to director level appointments need to be constantly under review. There must be a constant programme of questioning “do we need this function” (which may be a completely different question to “do we need this person”) and above all else “does it add value”. This can be a very difficult area to tackle and often needs the trauma of a change of ownership or threat of business failure to bring it into focus.
Procurement has become a major engine of business effectiveness as companies have become globalised. Seizing the initiative to conclude beneficial supply agreements across entire businesses can give significant competitive advantage. Procurement needs to be proactive, being aware of activities throughout the supply chain and offering well thought out alternatives to all sections of the business from potential new ingredients and ingredient sources through energy strategy to alternative distribution opportunities. It must take a long term view and be aware of future trends in order to help shape business strategy
Plant, Machinery and Buildings Making the best use of these assets can, occasionally, mean making no use of them at all, because it can be better to scrap old machinery and to close old factories and relocate production. This will allow a company to exploit to the full its most efficient and cost effective assets and to dispose of less efficient ones.
There must be a constant dialogue within the business to identify and exploit any profitable opportunity to maximise the utilisation of its manufacturing capability.
Maximising the utilisation of existing assets will require optimising three key factors:-
- Utilisation – operating a plant 168 hours per week may not always be the best option (but it is a good place to start) but utilising it for 40 hours per week is definitely not a good tactic.
- Efficiency – much can be gained by improving the performance of a plant by methods ranging from improving maintenance and availability to reducing waste (defined below) and improving labour efficiency
- Flexibility – what else can be done with spare capacity or time – managers need to constantly seeking opportunity and must not regard excess capacity as a cushion.
There are 168 hours in a week and 52 weeks in a year. On that basis the utilisation of many plants is shockingly low. Whilst few plants will approach total utilisation at this level (although it is not that uncommon in other industries, why not in ours?) too many businesses in the food industry seriously under utilise their assets.
Discontinuous operation not only reduces gross utilisation, it seriously reduces plant efficiency because of time and output lost when starting and stopping the plant. A plant operating on a single shift five day basis is only being utilised about 25% of its available time and producing 15% to 20% of its available output, which means that the business has much more invested in plant and machinery than it needs to have as well as high operating costs.
There are of course a number of issues which have to be considered against this. Chief is perhaps the organisational requirements to man, maintain and supervise a plant in continuous operation. There may be special circumstances such as staff transport and cultural considerations which can be a barrier to full operation, but ways around these limitations should always be sought.
Utilisation can also be badly affected by frequent product changes, poor shift change discipline and unplanned maintenance and cleaning stops. Management must be tasked with maintaining operation at maximum output and managing changes etc. to minimise disruption.
If a facility or company capacity is poorly utilised the question posed has to be “how can we increase utilisation”. This may be by finding other products to manufacture on the same equipment, third party or own label operations, or even closing down a unit and moving production to other plants.
Underutilised capacity is not only an excess cost to the business, but because production will never be under pressure, efficiency will drift and become the accepted norm, not just in one but all production units.
Operational configuration of the overall business must be under constant review to ensure that tangible assets are being used to the maximum and any surplus capacity is not used to make up for inefficient operation.
Maintenance has a key role to play in maintaining a high level of availability in the plant. Planned maintenance, rapid response and break down analysis are all important as is the flexibility and organisation of the maintenance team.
Well organised technical support is also essential so that problems are identified and resolved rapidly and effectively. This needs to be integrated with the quality control and inspection functions although the reporting relationships should be different with technical support functions reporting directly or indirectly to operations and QC reporting to marketing.
A key element in defining and improving efficiency is waste, so it is important to understand the many different components which can be defined as waste and how they can be controlled.
- Poor quality, stock control and storage of ingredients and packaging will lead to outright losses and reductions in yield.
- Inefficient handling and control of ingredients within the factory will lead to losses and will impact process efficiency and yield.
- Recipe formulations must be adhered to and must have specific change recipes to accommodate changes in raw materials, waste inclusion levels, etc.
In confectionery manufacture wastage of ingredients can often be in excess of 10% even in relatively efficient factories
- Every stage of the manufacturing process needs to be controlled on an individual basis so that faults are resolved at the earliest possible stage and poor quality material does not have subsequent processing cost in ingredients invested in it
- Scrap material must be collected, measured, stored and controlled in the same way as other ingredients to ensure raw materials are salvaged
- A proper costing system must be developed to ensure that manufacturing units are strongly incentivised not to produce waste and to reuse such waste as they do produce.
- Every good product must be wrapped, cartoned and sold. Wastage of good product is unforgivable. This is an area for particular attention at times such as shift change over
- Careful attention must be given to weight control of finished products. Even very small overweight errors can be extremely expensive – 1% product overweight on 6000 t/y of confectionery can be worth well in excess of £100,000
- Cleaning cycles represent down time, effluent to be disposed of and product and ingredient losses. Cleaning for hygiene and for restoration of plant performance is of course important. However every effort must be expended to optimise cycles and thus reduce losses.
Wastage of any kind is in effect lost production capacity, because the plant has been run and labour, raw materials and services consumed to no benefit.
A business will not move from “comfortable” to “optimum” operation easily. Even once it has accepted that opportunity exists (and it always does) it will require a determined effort to change the culture and reality of a business.
Importantly the effort has to be across the whole business, concentrating on a single area will lead to demotivation and failure, because this process is about motivation and empowerment of everyone within the business.