At Home In The Factory

December 6, 2013 3:13 pm
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Do you ever walk around your factory floor and take a good look at the walls? Imagine working an 8 hour or even 12 hour shift looking at them. This is more time than anybody would spend in their living room, yet our living rooms are nearly always neatly decorated and adorned by ornaments and pictures that remind of the things we love.

Taking this a little further, when we buy new furniture for our living room we will often re-visit the décor and adjust to ensure everything matches and the harmony is preserved. Do we apply the same theory in our factories? Think about the last time you installed a new line, was any time spent on the surrounding areas? Coriolis has visited hundreds of businesses and we rarely observe any efforts to make such improvements. So what do we see?…..Out of date information, visuals printed before the word laser and jet even existed, documents signed by retired folk, tired and peeling posters and the infamous unused performance board! (A subject we will come back too….next month)

We then move on to the line where photocopied paperwork sheets are strewn all over the line, scraps of paper used for key information, all of which your operators are expected to complete accurately. Let’s apply the same theory in the home. When you open the cupboard is all the crockery nearly organised into sets? Mine is, this means I then empty the dishwasher and fill the cupboard up exactly the same way each time. Now what would you do if the cupboard had everything just dumped in it? Probably the same as the operators do on the line, try their best but get discouraged when they see no one else bothering.

This all costs money to fix? Yes, if you want to install automated data capture and move to a paperless factory which is the equivalent of a dishwasher that automatically warehouses your crockery. No, just a little bit of time and focus could add the same value at a fraction of the price.

Three quick ideas are below:

  • New paperwork printed in colour where the layout has been considered in relation to the ease of use will drive completion and compliance. Try it – it works!
  • Complete a “wall walk” to remove all out of date information and refresh all old material. You can get waterproof laminates printed for a small percentage of the historical costs including performance boards.
  • Set up a visual management team – create ownership for what the place looks like, a bit like my better half does around our home.

In summary, we spend a large percentage of our lives in our working environments. If we really want to get the best from our people, consider if the state of the places we expect them to work matches our expectation of their performance.

 

Written by Paul Eastwood, Director

talk +44 (0)7764 746 902 web www.coriolis.co.uk type paul.eastwood@coriolis.co.uk tweet @Easty_Coriolis



Project Governance : Ensuring best practices are followed, not just documented.

December 6, 2013 3:09 pm
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“No plan of operations extends with certainty beyond the first encounter with the enemy’s main strength”. Moltke’s theory of war

Most businesses now have a well defined methodology for selecting, prioritising and managing capital projects. The problem is not the theory, it is the application; and they are not problems that are apparent at the start (except perhaps as risks), they are the result of learning and also decisions on the way.

What you see and what you don’t

The statement “Capital projects so often disappoint” hardly raises an eyebrow.

What is perhaps less well known is that there are many projects which have not disappointed, but would have done without the right disciplines in place. Dissapointing projects are never analysed since you cannot study what you cannot see. The types of problems that typically occur are best illustrated by examples.

The capital to revenue shuffle

The project has been progressing well for a period, but then an event occurrs that was unforseeable (in other words it should have been funded from the amount set aside for unforseen risks – which some people forget to budget for) How can the project reduce the spend? Let’s try these methods as a start. We can:

– Rent that new packing machine rather than buy it

– Lease that new building rather than build it

– Amortise the cost of the expensive new tool in parts or packaging supplied instead of paying up front

– Transfer that cost to another project or to revenue

– Leave that part of the refurbishment till the next phase

All of these may be legitimate business decisions, but they will all effect the benefits case. It is essential that whenever there is a change, not just in the work done but also how it is funded, that the change in the benefits case is signed off.

The business case is well founded

There are two problems with this expression, one of completeness and one of tense. What it should say is “Overall, the business case was well founded”. During the course of a project the commercial forecast or strategy may change, in emphasis or priority if not in direction, and this may make it appropriate to change, postpone or even cancel elements of the programme. This means that projects must be reveiwed at a frequency and with a granularity that ensures they continue to be run in a way that best fits with the current business needs.

“There’s money left in the budget”

If you hear this you can be sure that there won’t be for long. For some reason people seem to see funds allocated as their own, and that includes the contingency. To be able to capture this before it is too late, proposed increases in spend need to be challenged each and every time to confirm that they are required to meet the original scope, especially if they relate to “enhancements”, “equipment” or “refurbishment”.

Governance audit

Project Directors and Project Managers rightly take pride in their work and want to bring the projects and programmes in to time and cost. This inevitably results in a focused, and, dare I say it, limited outlook. What is required is a degree of oversight from an individual with no invested interest and no political stake in the outcome. Their goal is to ensure that decisions are made on a completely objective basis and in the context of the most up to date business knowledge.

This is not a mechanical role, focused on the correct completion of forms or the use of standard formats, and it is certainly not full time on one project. It is a role requiring business thinking and the ability to probe and challenge intelligently and tactfully. If it is not seen as fair and helpful, or at least unobstructive, in the eyes of the project team, then it is unlikely to be effective.

Will it be cost effective?

The typical budget cost for this task is around 0.2% of project cost, or £4,000 on a £2,000,000 project, though as with all governance resources this varies with complexity. This figure is almost always recovered in direct cost avoidance at some stage, but the real value of the role is in reducing the risk of major unnecessary spends running into perhaps hundreds of thousands of pounds.

Written by Mike Roberts, Capital Projects Director

talk +44 (0) 7730 525 592 web www.coriolis.co.uk type mike.roberts@coriolis.co.uk tweet @CoriolisLtd

Japanese Corporate Acquirers – Corporate Makeover Now Complete

December 6, 2013 3:07 pm
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By Shaun Browne – Managing Director of McQueen

The recent acquisition of Ribena and Lucozade by Suntory caught some industry observers by surprise. This was partly because the price of £1.35bn was quite racy at 14x EBITDA, but mainly because the Japanese firm moved extremely quickly and completed the acquisition before the auction process had formally kicked off.

In the world of M&A, Japanese companies still have to fight against a stereotypical image problem which suggests they move extremely slowly and with multiple layers of bureaucracy. This has tended to act as a major disadvantage to them in competitive auction processes where vendors prefer to deal with fast-moving decisive counter parties.

In recent food and drink transactions in the UK, Japanese companies have worked very hard to try and dispel this old-fashioned negative image.

– Princes (owned by Mitsubishi) acquired the canning assets of Premier Foods and then further demonstrated their ability to move quickly with a rapid disposal of Fray Bentos after the regulatory authorities in the UK demanded such a remedy.

– Mizkan moved decisively and rapidly to acquire Sarsons vinegar and Haywards pickles from Premier Foods last year in a competitive auction process. They then moved rapidly once again to dispose of their Manor vinegar site at Burntwood in Shropshire.

– Suntory approached GSK to express their interest in Ribena and Lucozade earlier this year, but only received meaningful financial information in mid July. They were informed that, if they wanted to pre-empt the auction process, the deal needed to be completed by 9th September, which was the day the Information Memorandum was due to be circulated to interested parties. They managed to complete their extensive due diligence work in this short time frame and in total confidentiality. Indeed, it was not until around 6th September that the press picked up that a deal was imminent. By 9th September, the transaction was signed and announced.

So does this herald a change in image for Japanese companies looking to be active in M&A? Well, it certainly should do. They have proved beyond doubt that they can move quickly and efficiently if they need to. Vendors considering a sale to a Japanese corporate bidder no longer need to assume automatically that the process will be tortuous. The Japanese corporate M&A makeover is complete.

Shaun Browne is Managing Director and co-founder of McQueen, one of the leading M&A advisers in the food and drink sector. Shaun worked as either sell side advisor or buy-side advisor on 3 of the 5 transactions mentioned in the article. He can be contacted on shaunbrowne@mcqueenltd.com



HCFC replacement

December 6, 2013 3:06 pm
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At Coriolis we have been asked to help several clients plan for the removal of HCFCs from their factories.

HCFCs (or hydrocarbonfluorocarbons) are ozone depleting refrigerants that have been banned under European legislation. The most common is R22 but there are others.

For several years it has been illegal to use virgin HCFCs to service refrigeration equipment and from 1st January 2015 it will be illegal to use recycled or reclaimed material. So, if you decide to run on beyond that date you will be carrying a major risk because you will not be able to top up the system in the event of a leak or repair. We are also beginning to see major commercial risks as retailers ask to see a list of the refrigerants used on site, and they expect to see detailed plans for the removal of HCFCs.

There are three options open to food manufacturers.

1) Cross your fingers and hope the refrigeration system doesn’t leak or break down.

2) Retrofit your refrigeration systems with replacement gases. Usually the cheapest

option but there is often a big reduction in efficiency, with a corresponding increase in running costs. Suppliers may be unwilling to give any guarantees on system performance.

3) Replace your refrigeration equipment with a modern specification. Usually the highest cost option, but moving to a more modern specification can often deliver big savings in running costs. Grants and tax breaks are also available on some types of equipment.

Above all, food manufacturers need to start planning now for the replacement of HCFCs. As the deadline for replacements gets closer, the availability of equipment and reputable contractors is going to get ever tighter and costs are bound to go up.

If you want any help or informal advice on this subject, talk to Coriolis.



Efficiencies For All Seasons – How To Make The Most Of Seasonal Markets

December 6, 2013 3:05 pm
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Food Manufacturers are engaged in a constant battle. With inflationary pressures on both transportation costs and raw materials, the production process is increasingly becoming the focus of this battle as manufactures strive to drive down costs and increase efficiency while maintaining quality.

For processes which run 24/7, 365 days per year this is tough. But spare a thought for the producers of seasonal products. They have significantly less time to refine their processes to ensure they are right while the penalties for getting things wrong are even more massive. Seasonal manufactures fall into one of two distinct categories: those that produce standardised products which are on sale all year but enjoy a distinct seasonal sales spike and those which produce a purely seasonal product which only hits retailer’s shelves for a few months or even weeks of the year.

For example, while confectionary sells all year round with a distinctive summer sales spike, Christmas pudding has a single one off seasonal sales period.

Manufacturers with production lines which need to change from zero to 100 per cent capacity in just days, need to ensure their maintenance regimes are robust enough and that machinery is capable of taking the strain without malfunctioning. Failing to ensure production lines are fit for purpose will cost manufacturers of seasonal products dearly in missed orders and broken promises.

Companies which have a standardised product but have in-built capacity for their peak periods, often achieve this through having multiple production lines. At times of lower demand, managers need to think carefully about whether to run all production lines at a lower capacity or just one at full tilt while leaving the others idle.

Each approach can have its benefits and there is no right or wrong method.

The cultural shift required within organisations is equally as important. Taking businesses on a journey toward achieving manufacturing excellence through a process of incremental continuous improvement can be a challenge for management teams.

Recently, Coriolis was contacted by Askeys – part of Silver Spoon Sugar – which manufactures 70 per cent of the ice cream cones, wafers and ice cream sauces for the UK market. They required assistance in helping them to achieve increased efficiencies for their distinctly seasonal products.

Starting with a critical analysis of the management’s strengths and weaknesses, the objective was to embed a new operating culture which would bring with it a raft of efficiency savings. “The process was intense at times but we had to make the senior management face up to certain situations and give them a real understanding of the numbers behind their production processes.” said Mark Schubert, Director at Coriolis.

Following the process, Askeys’ site manager Abdullah Khan said: “This project was a huge education for me and now I understand what the excellence journey looks like. Coriolis’ team have exceptional people skills and want long term results not just an outcome for one project.”