Tangram Technology Ltd. - Business Workshop Report 6 - Electrolux Limited

Business Workshop Report 6 
- Electrolux Outdoor Products

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BUSINESS WORKSHOP REPORT

GARDEN AND OUTDOOR PRODUCTS

British Plastics Federation

 

THE BUSINESS WORKSHOPS

The Business Workshops are supported by the DTI as part of the Partnership in Plastics (PIP) Programme. The Programme is designed to improve the competitiveness of the UK plastics processing industry by building links between major customers and small to medium enterprises (SMEs). The focus of the Business Workshops is on informing the SMEs of the changing needs of major customers and the means of meeting these needs.


CHANGING THE MODEL

Electrolux, through Flymo and other subsidiaries, is a major manufacturer of garden and outdoor products in the UK. The division defines itself as “an outdoor products supplier” and as a multi-national company, Electrolux uses global “best-practice” as a benchmark for operations in the UK. The business model is changing rapidly and shareholder value, brand management and return on investment are becoming the keys to survival in the world market.

Before 1979, a standard business model was used and all plastic parts were supplied by trade moulders - who were also responsible for all aspects of tooling and materials purchasing.

In-house moulding

In 1979, a “state-of-the-art” factory was established and this has grown to become one of the biggest in-house moulders in the UK. This was driven by:

  • The need to control and manage all aspects of a project from design through to product support. If a seasonal launch date is missed then 1 year in the market is lost. On-time project delivery is a critical factor. Project management is a key skill when faced with rigid deadlines for delivery - failure to deliver on time will cost significant amounts of the total product revenue.
  • The desire to influence and control the logistics and supply chain. The control of the capacity, supply, inventory and above all cost in the supply chain is seen as key to survival.
  • The desire to influence and control the use of technology. This is to gain manufacturing advantages in materials, tooling and machinery.

This business model is product led and sees manufacturing as a strategic weapon to achieve market leadership. The approach tries to achieve an integrated business with complete control of the product from “the cradle to grave”.

MAKE OR BUY?

Annual surveys have always been in favour of “Make not buy” and Electrolux currently acts as an internal supplier for the majority of plastic components.

Despite this current decision, the model is changing for the future. Many larger UK processors meet the key requirements for this type of large customer but the typical UK moulder does not.

The ideal moulding supplier meets the following requirements:

  • They have access to a wide range of machines for all moulding requirements.
  • They provide rapid customer response -despite low internal inventories.
  • They produce failure free parts with reject rates of less than 500 ppm.
  • They link directly into the customer’s information network for instant updating of changes to requirements .
  • They “self-bill” and are paid when the product is sold.
  • They use the latest technology and lead the customer by proactive developments across a range of support technologies. These are not only be technology based but also cost and quality based.
  • They have the ability to manage the design to minimise cost and time.
  • They meet environmental requirements for recycling and management of returns from post-consumer use.
  • They focus on continuous improvement in all sectors of the operation to generate cost decreases irrespective of polymer price movements.

These are difficult requirements to meet but the future is not going to be any easier for potential and actual suppliers to this market.

THE FUTURE MODEL

There is a rapidly growing realisation that the current business model may not be valid for the future. Three key concepts are becoming vital:

  • Maximisation of shareholder value is of prime importance.
  • Markets and manufacturing are becoming increasingly global.
  • Any retailer and consumer driven business must be open to new buying practices (such as the Internet).

These concepts have changed the business vision for the future for many industries and the garden products industry is no exception.

The new business drivers

The new “business drivers” are:

  • “On time in less time” - Time is a more important strategic weapon than manufacturing capability. Timescales for every activity are being driven down to compete in world markets.
  • “Lowest cost producer” - The origin of a product is unimportant when the customer will not wait or pay a premium.
  • “Asset optimisation” - The return on investment (ROI) must grow continuously and the working capital must reduce continuously.

These new drivers lead to radical changes in investment and operations. The company becomes a “Brand Manager” rather than a manufacturer. The “Brand Manager” supervises the product design (from suppliers or out-sourcing) and manages the sales and distribution. In the future, manufacturing is a means to an end and not a core strategy.

The future priorities of all suppliers must change to meet these new demands. The suppliers will not sell “parts” but will be managers of the design to production process for complete systems or products. The new suppliers will fund investments, become directly linked to the production line (both for supply and billing) and will use “top-down” costing to produce products to a target price.

This will change the customer/supplier relationship and integration will be wide and deep. Suppliers will have access to confidential long-term information and can work to “product life contracts” rather than purchase orders. Suppliers can begin to rent space and work inside the Brand Manager’s premises to provide the level of integration needed. The new suppliers will be responsible for continuous improvements in quality, performance and cost as well as full environmental compliance for the complete product life cycle.

This new model will make product development and production a shared risk. Suppliers will need to base their charges on a “service cost” model. Failure to reassess costs at either level will lead to failure of both parties when such levels of integration are achieved - symbiosis can be both dangerous and beneficial to both sides.

 


Business visions are changing rapidly. Shareholder value, brand management and return on
investment are becoming the keys to survival.


 

 


“Manufacturing is a means to an end and not a core strategy”

Peter Ginger - Vice President, Electrolux Outdoor Products.


EXAMPLES OF PLASTICS IN GARDEN AND OUTDOOR PRODUCTS

Mechanical products

  • Housings for garden products - mowers, trimmers, hedge trimmers and cultivators.
  • Electrical components for power transmission
  • Trims and covers

Other components

  • Tubs, pots and containers for planting and display.
  • Hoses and watering systems - connectors, sprays and tubes
  • Sheet products for planting and growing aids.

THE KEY LESSONS

  • Suppliers need to adjust their business models to match changes in the customer’s business model.
  • Customers are increasingly brand rather than production oriented.
  • Full out-sourced product management will become the way to capture multi-national business.
  • Suppliers must have the critical mass (through joint ventures, amalgamation or partnerships) to service the needs of major customers.
  • Suppliers must be cost competitive and have innovative internal manufacturing practices.
  • Time will be the new strategic weapon. Time to market and the skills that both reduce it and make it predictable will be particularly important in FMCG markets.

GROWTH PROSPECTS

The market is growing with changes in lifestyles and demographics. Changes in leisure time have created new markets for garden products. Production is now globally based and requires more than traditional plastics processing skills.

The PiP Programme consists of a range of activities including:

  • Business Workshops and Reports
  • Plasticity Seminars
  • Pentamode Code of Practice

Note: Any opinions expressed in this Business Workshop Report represent those of the author and not necessarily those of the BPF, DTI or Electrolux - Outdoor Products Ltd.

Produced for the PiP Programme by Tangram Technology Ltd. (info@tangram.co.uk)

For further information about the PiP Programme contact:

The British Plastics Federation
6 Bath Place
Rivington Street
London EC2A 3JE
Tel: 020 7457 5000
Fax: 020 7457 5045

This Business Workshop Report is based on the results of a PiP Business Workshop held in March 2000. The customer viewpoint at the Workshop was presented by Mr. Peter Ginger of Electrolux Outdoor Products Ltd.

March 2000

All logos and trademarks acknowledged. The assistance of Electrolux Outdoor Products Ltd. in the provision of logos and artwork is also gratefully acknowledged.