The Potential of the Pipework Plc - Essay Example

?Topic: Improving Business Performance BUSINESS IMPROVEMENT PIPEWORK CASE STUDY Executive Summary Pipework Plcis a United Kingdom company that has been in business for quite a while but realized its growth into a market leader by acquiring other companies that have seen to improvement in its synergistic strategies. The company has had a good record in its business especially in the several divisions it involves itself with. It is divided into three divisions that have had a good business since they were created. The divisions are the drainage division, the do-it-yourself division and the boilers division. Each division is independent of the others and does have its own profit and loss account besides their own balance sheets. Each division’s balance sheet and profit and loss and account are then merged with the others to form a single balance sheet and profit and loss account for the group’s final accounts. Due to the problems brought about by some internal factors in each division, the most recent final records for the company show a turnover of 700 million pounds and a pre-tax profit of 35 million pounds. This compares dismally to the previous years when the amalgamated records were better than this (Dresner, 2008, p. 78). Pipework Plc has great potential as far as its business model is concerned compared to what the market and its competitors. Its diversity in both the drainage and boilers businesses give it an edge on the competition where most of the companies competing with it. There are several areas that this company can improve to gain even a greater edge in the three business divisions it focuses on. These improvements all aim at ensuring that the business outdoes the rest while improving its operations in the pipes and boilers businesses. Some of the areas to be improved include; The Stores Function – the stores function is one of the main areas to focus on for Pipework Plc. The fact that it has an excellent employee by the name of Wise does not make it indomitable since there are many problems associated with the division. There is the case of its budget for further training of its personnel always being rejected in favor of other divisions. There is also the stock turn on materials that is poor. If the correct methods are used, this area will have less problems and more contribution to the firm’s well being (Baxter and MacLeod, 2007, p. 74). Transport – this department has great potential if only the correct procedures are followed and the United Kingdom and European Law are followed. Drivers would be more transparent as to the number of hours worked and thus their correct remuneration. Engineering – this department is quite fine in its operation save for the lengthy period required to churn out a new product. If this time is reduced by half, it would match that of Pipework Plc’s main competitor and generally improve the business. Sales and Marketing – this department of the company does quite well since it has ensured a great market presence for the company though its personnel and the department’s head. It should be known though that there is need to reduce the number of days and the general amount of time used to process orders from customers. Finance and Administration – this department needs to follow the required accounting procedures and reduce the number of days taken to clear invoices to ensure a more transparent department (Andersen, 2007, p. 100). Personnel – the fact that Lynette promotes those under her division based on personal observations raises questions as to the validity of these promotions. Payments and rewards for staff should also be normalized to eliminate unnecessary disparities. The widespread favoritism should also be eliminated to allow for a harmonious motivation of the department and the company as a whole. PIPEWORK PLC With the correct methods in place, Pipework Plc is poised to make the most of its market presence and get better returns on its investments. As identified above, there are several areas that need the attention of both the management and the other employees in general. The changes that shall be suggested in the following sections will pitch Pipework Plc to its competitors as a new and refined firm ready to adopt new methods of development and see to lots of progress in its operations (Baxter and MacLeod, 2007, p. 84). The other result is that there would be a more motivated workforce that will put all its efforts in seeing to the success of Pipework Plc and reduce the employee turnover in general. The resources Pipework Plc has at its disposal have a greater potential than that which is being realized at present. The specific areas to focus on for Pipework Plc’s development and improvement are the stores function, the transport department, the engineering section, the sales and marketing department, the finance and marketing department and, finally, the personnel department. Focus in these areas should be focused on ensuring that everything throughout the firm is geared towards solving the problems the firm is experiencing at present. There are several areas especially the human resource factors which should be dealt with urgently to reduce their effects on the firm’s market presence and revenue (Baxter and MacLeod, 2007, p. 98). Pipework Plc has two methods by which it can see to the demise of its problems. The first of this method is the kaizen (continuous improvement) method while the other is the radical improvement or Business Process Reengineering method each of which shall be discussed in the following paragraphs before the better of the two is chosen for Pipework Plc’s case. The Kaizen method of improvement is borrowed from the Japanese with word ‘kaizen’ being translated to ‘improvement.’ This though is not the complete meaning of this term; it instead refers to slow and steady improvement of the activities of the firm in its quest to deal with its problems. It involves the dealing with each stage of the problem in order of priority with the plan that only after a given level of improvement has been maintained does the firm move to the next stage of development (Baxter and MacLeod, 2007, p. 89). The method does not involve giant leaps forward but sequentially arranged steps of progress. According to Imai, “Kaizen means improvement. Moreover it means continuing improvement in personal life, home life, social life, and working life. When applied to the workplace Kaizen means continuing improvement involving everyone – managers and workers alike” (Imai, 1986). Since Kaizen deals majorly with the human aspects at the workplace, Pipework Plc’s management and workforce in general would use it to address the several relationship issues in the firm between the employees and between the employees and the management. Among the main issues to deal with are; A high sickness and absenteeism rate. A high turnover rate. A short average length of service. The concentration of the responsibility for quality to the management only. The concentration of the responsibility for manufacturing issues to the management alone. The use of specialists instead of team leaders for the responsibility for maintenance. The use of only the Human Resource Management department to deal with people issues instead of combining this department with team leaders for the same issues. Lacking the involvement of employees in improvement efforts. The reason for selecting the continuous improvement method is that data from this firm shows that it compares dismally with competitors and world class firms in the same industry. This comparison shows that the rate of sickness and absenteeism in Pipework Plc is 17 percent; a value that is higher than the two most immediate competitors A and B who have 15 percent and 6 percent respectively. The average rate for sickness and absenteeism in a world class company is a measly 0.2 percent. The average annual turnover for Pipework Plc is 23 percent which is the highest compared to its two immediate competitors A and B and a world class company which have 20, 8 and 3 percent respectively. The average length of service for Pipework Plc employees is 8 years. This value equals that in Competitor B but is lower than that in Competitor A and a world class companies which have 9 and 13 years respectively (Rob van Dijk, 2007, p. 65). Unlike in competitor firms and a world class company where team leaders are responsible for the manufacturing issues, Pipework Plc has given its management autonomous control over this issue. It has also appointed a specialist instead of using team leaders to be responsible for the maintenance issues. The people issues have all been taken as the Human Resource Management department’s responsibility instead of combining the department with team leaders for the right results. What eats most into Pipework Plc’s productivity is the fact that the employees are not allowed to contribute to the improvement efforts of the firm. Data from the company shows that no suggestions are taken from the employees concerning the improvement efforts of the firm when the immediate competitors A and B with the world class company having 5, 8 and 47 suggestions on average respectively (Lundeberg, 2011, p. 78). The Kaizen method would be the best for this case since changing human aspects is not a one-day issue but takes time. Therefore, steady efforts should be channeled with unifying the aims of the workforce with that of the management to eliminate issues such as sickness, absenteeism, employee turnover and motivate the employees enough to increase the average length of service to the international standards of 13 years. Eventually, Pipework Plc would do better than the competition due to its great potential in realizing its goals. As seen from the type of leaders it has in control, Pipework Plc is able to implement this method to realize the desired goals (Klubeck, M, 2011, p. 98). The second method at Pipework Plc’s disposal in its efforts to improve the overall situation of the company and enable it compete more competitively is the Radical Change or BPR (business process reengineering) method. According to Michael Hammer (1990), the best way to see to the betterment of the firm is breakthrough improvement instead of having continuous improvement. He says “Don’t automate, obliterate” (Hammer 1990). This method employs new technology to turn around the processes within the business to enable it instills change for the better. This approach focuses on the fact that taking time to develop only makes it harder for the firm to survive and develop since the competition would be moving at a faster rate than that. This method would focus on the following areas that are problematic for Pipework Plc; The low units per labor hour. The high outgoing quality in terms of parts per million. The high incoming quality also in terms of parts per million. The high number of days of raw material stock. The high number of days of work in progress stock. The unnecessarily high number of days of finished goods stock. The low stock turn ratio. The slightly low number of hours between supplier order and actual delivery. The main reason for using the radical change method to improve the areas outlined above is that unlike the human resource factor which can be slowly improved while production is underway, the monetary issues of this firm needs quickness and dexterity in handling to increase the company’s market presence. The profits would not need time to be improved thus effective and quick efforts should be used to change the fortunes of Pipework Plc around to other heights. It should be noted though that the Business Process Reengineering method is not a full replacement of the Kaizen method but the two are usually used together for the best results (Paladino, 2013, p. 77). Pipework Plc shall need a project plan to streamline its efforts so that its resources for the same purpose do not go to waste due to cases of role duplication or role overlapping. The project plan is to bring to light how the firm is to go about achieving its goals since the plan shall outline the main areas of concern as far as the major milestones, products, issues, activities and the resources for the case are concerned. Pipework Plc Project Plan Pipework Plc needs to work on the needs of its employees and the other areas of the business to eliminate their negative effects (Andersen, 2007, p. 160). This will give Pipework Plc the competitive advantage it needs to beat the competition. The plan shall be in place for the following 24 months. Business Improvement Teams; From the areas of concern identified in the above paragraphs, Pipework Plc needs to have teams in the following areas to focus its efforts in the required areas; The Human Resources The Plant Profiles. The Human Resources In the human resource department, Pipework Plc faces a high sickness and absenteeism rate besides a high average turnover rate, a lower length of service besides solely ensuring the responsibility of manufacturing and maintenance to the management. Other than that, there is the issue of wholly ensuring the responsibility of the people issues to the Human Resource Management department (Baxter and MacLeod, 2007, p. 102). The involvement of the employees in decisions of improving the workplace and production conditions is also on the minimum. i. Sickness and Absenteeism (3 months) The high rates of sickness and absenteeism have a detrimental effect on the firm since only a few hours are used for productive purposes. The medical costs incurred in caring for the sick also increase the burden on the company hence the need to work out a solution. The firm shall slowly increase the levels of employee involvement in decision making to make the employees feel they are an important part of the company. ii. High Average Turnover and Short Length of Service (3 months) The firm needs to reduce the high rates of turnover and short lengths of service as they reduce the overall productivity of the workforce. This will be handled in the 3 months’ period it has been allocated with activities such as increasing employee loyalty and increasing the benefits they obtain from the firm such as salaries and wages. iii. The Responsibility of Manufacturing and Maintenance (3 months) Pipework Plc needs to reduce the levels of consolidating the making of decisions to include other levels of the workforce to ensure the company’s success does not rely on a few individuals but considers other people’s contributions. In the three months allocated for the same exercise, decision making on important issues shall involve the collection of the opinion of a chosen number of employees to ensure the ramification of the given decisions. iv. Human Resource Department (3 months) The Human Resource Department for Pipework Plc is wholly responsible for the people issues. This is a wrong approach to handling these issues since centralizing the handling does not ensure an effective method of dealing with them. In any case, this only creates a bureaucratic red tape as far as handling these issues is concerned. The 3 months allocated to this part of the department shall involve the involvement of the employees in the making of decisions on an increasingly larger scale. For all these human resource issues, the plan in place is to slowly increase the level of employee engagement over the 24 month period. The management team should consider the lower-ranked employees as part of the team instead of seeing them simply as cogs in the gears of production. The implementation of this plan should occur in the daily activities of the firm over the period stated over. Over the decided upon period, there should be interim statistics to determine the level of effectiveness of the plan in place (Andersen, 2007, p. 188). Any disparities and changes needed should be included during the interim taking of statistics. The plan should enable Pipework Plc to realize other issues besides those that have been identified. It should be in the management team’s interest that all the areas stated above should be improved especially using the Kaizen method of improvement since they are mainly human relational issues. The Plant Profiles On the plant profiles side, efforts should be geared towards ensuring that the balance sheets of all the three divisions are improved and that of the whole firm too. The problem areas of this department are the low units per labor hour, the high outgoing quality in parts per million, the high quality of the parts per million, the high number of days of raw material stock, the high number of days of work in progress, the high number of days of finished goods stock, and the low stock turn ratio (Andersen, 2007, p. 78). i. Low Units Per Labor Hour (2 months) The low units per labor hour experienced in Pipework Plc need to be dealt with the seriousness the issue demands of the management. The two months’ period allocated to the dealing with this problem should involve the increase of the units per labor hour through methods like the introduction of better and efficient machinery to eliminate the lag created by the current method of operations. ii. High Quality of Outgoing Parts Per Million (2 months) The high quality of outgoing parts per million should be reduced since this has a negative effect on the company as a whole. To deal with this over the two months’ period allocated to the dealing of this problem, Pipework Plc should put into place the required measures to cut down on the effects of this parameter. iii. High Number of Days of Raw Material Stock (2 months) Pipework Plc has an unnecessarily high number of days of raw material stock compared to its immediate competitors and an ideal international firm. This stock only occupies space that would be used for other more productive purposes that would improve the company’s after-tax profits and other areas of the businesses it undertakes. Over the two moths’ period for this purpose, the firm could undertake activities such as adopting the Just-In-Time production method which will enable the firm only stock the required stock for the production of the required items as dictated by the available orders. iv. High Number of Days of Finished Goods (2 months) Pipework Plc stores a large amount of finished goods which only serves to increase the storage costs without adding any reasonable value to the firm. In the two months allocated to dealing with this issue, the firm should aim at adopting the Japanese method of Just-In-Time to reduce on the amount of stock which only draws resources with little benefits. v. Low Stock Turn Ratio (2 months) Given that Pipework Plc has observed a low stock turn ratio, the company needs to improve several areas to ensure the stock turn turns positive as required. Since a stock represents the overall wellbeing of the company, the activities stated in the other areas are all geared towards improving the company’s outlook. The plan in place over the 24 months decided upon is to slowly eliminate the unnecessary activities to focus on the important ones that shall improve the company in general. Such activities include the reduction of the stock of finished goods since this only uses up time and space when orders can be worked on upon their receivership. Interim appraisals should be carried out over the 24 month period to determine of the activities decided upon are effective or not. Other factors should then be added, subtracted or changed as dictated by both the plan in place and the prevailing conditions (Andersen, 2007, p. 190). The best plan to use for these types of changes is the Radical Improvement needed due to the nature of the problems. Lastly, the desired results are bound to be obtained for these areas if the Kaizen and radical improvement methods are used to deal with the problems. Of great importance is the fact that without the management’s role as the leaders of change, these efforts shall all be to no use. Every individual should be included in the efforts to eliminate the problems and make Pipework Plc the leading firm it should be (Baxter and MacLeod, 2007, p. 144). References Andersen, B., 2007. Business Process Improvement Toolbox. New York: ASQ Quality Press. Baxter, L and MacLeod, A., 2007. Managing Performance Improvement. New York: Routledge. Dresner, H., 2008. The Performance Management Revolution: Business Results through Insight and Action. New York: John Wiley & Sons. Klubeck, M., 2011. Metrics: How to Improve Key Business Results. Chicago: Apress. Lundeberg, M., 2011. Improving Business Performance: A First Introduction. Chicago: SSE Institute for Research. Paladino, B., 2013. Corporate Performance Management Best Practices: A Case Study Approach to Accelerating CPM Results. New York: John Wiley & Sons. Rob van Dijk., 2007. High performance business strategy. Chicago: Kogan Page Publishers. Raynus, J., 2011. Improving Business Process Performance: Gain Agility, Create Value, and Achieve Success. Chicago: CRC Press. Read More