Étude de Cas: DBMSG

Created at the end of World War 2, SMG used to be a small engineering and manufacturing company, based in the Loire Valley of France, producing and selling Construction equipment.

In the 1960’s the company became a leader in its national market, thanks to the very high personal involvement in sales and product development of its owner and CEO. The size of the market was high, and the customers were small companies or artisans in the construction business. The salesmen had consequently adequate technical skills and were able to understand their business and to convince customers to purchase their machines and equipment.

In the early 1970’s, the company began to produce equipment using diamond blades, and became the French agent of its main supplier, DIAMANT BOART, a Belgium industrial group specialising in diamond tools. The owner then took the opportunity to sell the company to DIAMANT BOART, but stayed on as CEO, the acquisition itself being kept as a quasi secret for staff and customers during the next 20 years.

During this period, the CEO continued strongly to manage the company, highly focused on sales and mechanics. He used to visit most of the key customers himself, to take all the major decisions himself, particularly around new product development. The company continued to grow, but began to have some administrative problems due to the poor IT infrastructure, and because of the absolute lack of integration between the departments and poor production planning management. Salesmen were supposed to sell as much as they could and as fast as possible, while the production department was supposed to design new equipment, reduce production costs, and produce enough volume for sales.

Over time, the company consequently had progressively to extend its manufacturing capacity,  and so acquired  a second plant, located 3 miles from the main one, where all the steel works were moved.

Inventories and work in progress began to grow very fast, in order to keep up an acceptable Customer Service rate. This was not a problem for the company, as it had now more than enough space to stock all the components and finished goods, while reduced - but still acceptable - profit margin  allowed them to finance the increased working capital.

In the 1980’s, the market became more and more difficult, due to strong marketing activities of the competition, the higher levels of quality requested by customers, and the entry of of new competitors into the market-place.

Moreover the distribution structure began to change, due to the development of a new rental business and the arrival of nationally organised suppliers, who were opening agencies in all the main cities. The company reacted by reducing prices to keep its position as market leader, but obviously had progressively to share more of the market with some of its key competitors.

In the meantime, the company began to sell equipment to its sister companies in Europe. During this period the company continued to make a profit and to be strongly managed by its CEO, keeping in place  the family spirit and culture, which it had always had.

In the early 1990’s, the situation became more and more difficult, and the company found it increasingly difficult to sell simultaneously to end users and also to national distributors or rental companies. The inventories were always very high, but the service rate to customers- including sister companies- was very poor. The relationship with the Belgium mother company progressively deteriorated and the CEO was asked to recruit his successor.

From 1991 to 1994, the newly arrived CEO first focused on Turnover, and immediately stopped direct sales. He developed as soon as possible a push-pull marketing approach and strong partnerships with national distributors and rental companies. He recruited new salesmen with less technical and more marketing skills, and modified and simplified their price lists and discount structure. He simultaneously acquired new software, and implemented a basic IT structure to reduce administrative costs. However, margins had disappeared, the company made no more profit, and he had to lay-off about 20% of the staff.

After these painful 3 years, it became obvious to him that he had to find some other way to manage the company, and need new ideas to give it a better chance to save it. He consequently decided to benchmark the business and began to visit a few other industrial companies. He discovered very soon that some of them, acting in the very competitive automotive market, had been able to survive, thanks to the high productivity gains obtained through effective management of production resources and logistics. Management of the basic industrial goods, information and cashflow and effective integration appeared to be the only  possible solution for survival.

In 1995 the new CEO launched a company project and asked Gilles Lauga, a specialised consultant, to help him in the development of this new approach.

Gilles Lauga carried out an initial audit and immediately discovered that the newly acquired and implemented ERP system (MFG-PRO) was not being used correctly. He also noticed that some new people in the company had a high motivation for change.

The production manager was appointed as full time project leader, and a project team was set up, and the project was launched in September 1995 in 3 main directions:

  • MRP 2 implementation
  • JIT / TQM
  • HR management

The first actions were to set up teams to:

  • Develop a SOP/MRP/CBN process using basic MRPII principles, driving towards properly use the software
  • Improve the reliability of Sales Forecasts
  • Initiate actions to improve data accuracy. This team also looked at the reduction in the number of components and their standardization of components. They also looked at how to reduce of the number of levels of the bills of materials.
  • Make product flows simple visible, developing a JIT / TQM attitude in the workshop, focused on safety, cleanness, visibility, 5S, and speed of the product flows
  • Move the steel works workshop from the 2nd unit to the main plant. This required strong action plans to reorganize stocks, reduce inventories and obsolete items, but significant savings were obtained by closing the 2nd unit..
  • Institute MBWO - Management involvement by walking around. The CEO was at least himself 3-4 hours a day in the workshop
  • Create effective analysis of suppliers’ performance
  • Implementing Quality Function Deployment in the R&D department to capture  the voice of the customer before developing new products
  • Implement clear job descriptions and yearly progress meetings between each manager and his direct reports
  • Implementing AQ and auto-control

On top of that, they implemented strong communication and education programs as soon as possible. The senior management was trained first, and the whole staff was progressively involved: 10% of them were trained by the consultant and became internal trainers for their colleagues.

The project started as a rocket but the company quickly encountered some difficulties, as the  project team became overloaded, its leader being the only person full time dedicated to the project. However the top management kept the pressure at a high level and continued to be directly involved in the project.

With Gilles’ advice, it was decided to focus on the following priorities:

  • Implementing MRP2 (SOP, MSP, CBN)
  • Implementing a pilot Kanban in the workshop
  • Improving data accuracy and using properly the software

The major difficulty which they faced, was to stabilize and follow the formal process implied by a firm Master Schedule, in line with the decisions taken in the monthly SOP meeting. The company had been so used to working to crises and being highly reactive, with the result that it had major difficulties in adapting to the new ways of working, - basically in working to a stable master Schedule, and managing the product and material flows through a simple JIT process. This took months, when it should probably have taken only a few weeks. Changing systems can be done overnight. People take a lot longer! The JIT / TQM program and the Kanban pilot were difficult to implement and manage, and it took time to make the education program effective – to win over the hearts and minds.

A performance measurement system was developed, and used as a tool to pilot the project itself. This helped the company to prioritise and manage more properly its action plans. Simultaneously the HR department developed a new reward and assessment program which was extended to the whole staff, which soon meant that  “change management” became a day to day reality.

In July 1996, the following main goals were achieved before the summer holidays:

  • A productivity improvement of 17% when volumes were significantly decreased due to the market trend
  • Reliable MSP and CBN implemented
  • Inventories and work in progress reduced by 15%
  • Training and education program achieved

Moreover, an acceptable level of flexibility had been obtained by developing multipurpose skills within the workforce, and through negotiating with the unions a new system for working time management.

The last quarter of the year was focused on QFD with both customer and sister companies in order to improve quality of products, of packaging, and accuracy of sales forecasts. However, in spite of all of these various and significant improvements, it was obvious that the industrial flows were still responding to manufacturing pushing out production rather than reacting to being pulled by customer demand.

In the early 1997, several events occurred:

  • The French CEO was promoted at the group level and had to spend more and more time at the group main office in Belgium. The new group GM decided to close the French plant, as the new strategic plan developed by McKinsey’s stated that equipment production was no more a core business. The French CEO kept this bad news a secret and requested a 6 month period to demonstrate that the company was definitely able to improve its profit level. This was finally agreed by the Group GM.
  • Unfortunately -  at the same time - the market suddenly dropped down, and the company had to focus on solutions to quickly increase sales.
  • To face the urgencies, the project leader decreased the time spent on the project and progressively managed again by himself the day to day production

In March 1997 an assessment of the situation was achieved by the consultant. He concluded that the company had reached the Gold Level, but would never reached a Platinum Level according to his assessment!! He stated this very clearly to the project team and project leader and to the top management of the company.

The next 3 months were extremely hard for the whole company. Everybody was re-mobilized and the project mobilisation and energy improved very quickly. A special effort was focused on customer service level improvement, with a heavy emphasis on the activities pf suppliers and subcontractors. Total Preventative Maintenance was implemented and very soon gave good results as it opened up additional capacity through improved productivity, which rapidly increased the speed of production flows. The QFD program began to give results in improving the acceptability of products to customers,  and at last support activities [Finance, HR and IT] became included in the project scope. The actions surrounding the JIT/Kanban implementation on the shop floor began to yield remarkable results in reduction in Work-in-Process, and smoothness of the production flows.

The consultant revised and improved the Sales and Operations procedure and policy, based on a 18 month rolling forecast with a 6 weeks firm period, which contributed to the global improvement of performance. After 3 month, the group GM granted another 6 month period to demonstrate the company’s ability to improve its profit level !

In July 1997 the company achieved the Platinum Level. As a result of all the actions that had been taken, sales volume was 140% above the original business plan, and the company had to organize a special SOP meeting, in order to revise the production plan and the annual financial forecast. Productivity registered another 18% improvement, allowing the company to meet the increased demand for their products.

In December 1997, the Platinum Award was given by the group CEO who stated during the ceremony that this plant was the only one in the group where he would send a customer for a surprise visit without any concern or worry! That was a turnaround! It was attention to the basic operational processes which led to the survival of the company in a highly competitive environment.