Focus Plastics UK plc

Stuart Chambers, Warwick Business School

Updated by Simon Croom, University of San Diego

INTRODUCTION

“Our strategic decision to exit industrial products and to concentrate on the

household market has clearly allowed us to build up both our technical
expertise and marketing skills; and this is reflected in our impressive results
(Attachment 1). No-one in the industry can come anywhere near our sales
margin and RONA (return on net assets).”

It was with this confident statement that James Thompson; CEO of Focus Plastics
addressed the final board meeting of 2015. His colleagues shared his confidence.
After all Focus Plastics, was one of the UK’s longest-established plastic injection-
moulding businesses and is a member of a large industrial group involved in the
packaging and engineering industries. Originally founded by two friends who had
studied organic chemistry together at university, it had grown quickly into a
successful small business supplying specialised high quality small plastic mouldings
for a variety of industrial customers largely in the consumer durable, toy and
automotive component industries. During the late 1980s, the company gradually
extended their range to include popular household items such as washing up bowls,
pedal bins, baby baths, buckets, and dustpans. These were sold under the ‘Focus’
brand name, mainly through wholesale distributors. By the early 2000s the
household business had grown to account for over seventy-five percent of turnover
which had itself more than doubled in ten years. New large injection-moulding
machines had been purchased to cope with the success of the household products,
and the increased capacity provided economies of scale that enabled Focus to
compete aggressively in a market where barriers to entry were low. However,
competition was increasing, mainly from small competitors who tended to offer very
narrow ranges of products (e.g. just buckets or bowls), not least because the large
costs of moulds; a single mould for a bucket could cost £30,000 ($60000) or more
depending on size and complexity.

THE PRODUCTS

By contrast, Focus Plastics offered a full range of items, often in several colours, so
could supply all the plastics needs of the wholesalers. In total the company then
produced over 200 stock keeping units (SKUs), yet it also developed a reputation as
a reliable source of supply of good quality products. Conversely, the value of
industrial products had grown only slowly. Consequently, in 2003, it was decided to
exit from the complex and cyclical industrial market, in order to concentrate on
developing the more profitable household products business. The Managing
Director, Jim Thompson, explained:

“We recognised that the industrial market was becoming a distraction to both
our production and sales operations. Typically, order sizes and therefore

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 batch sizes, were getting smaller; and we were also losing some larger
contracts, such as toy components, as production moved abroad. Similarly,
our automotive customers were ordering smaller quantities and higher variety.
In the end, we decided that the industrial business did not fit in well and was
particularly difficult to plan and control alongside the longer runs of household
products. Even in the Sales Office, it was felt that the commercial
relationships with household product wholesalers were clearer and under
control, whereas business with the industrial customers was unpredictable
and unstable. Schedule changes in quantity and delivery date were an
everyday occurrence that disrupted the office and caused most internal
communication problems. By 1995, all our industrial business had been
terminated; the results are for all to see: our profit has risen faster and our
reputation for household products has become the benchmark for the
industry. But this dedication to one market was recognised as carrying risks,
and we were determined to differentiate Focus Plastics from our competitors.
We knew that it was quite easy for ‘hungry’ smaller manufacturers to compete
for the volume business by undercutting our prices. Our overheads were
higher than theirs for many reasons; we operated from modern premises, and
used the latest, precision equipment, which we kept well maintained and safe.
We bought the best quality moulds, and generally positioned ourselves as ‘the
professionals’ with high quality catalogues modern computer and telesales
equipment and a well-trained salesforce. Lastly, we were recruiting the
design and marketing skills needed to keep ahead in the game! Linda Fleet,
our Marketing Director, has been in charge of this development, which has
taken us into new exciting markets.”

MARKETING

Linda had joined Focus Plastics in 2002, having previously worked in marketing for a
large retail chain of paint and wallpaper retailers.

“My experience in the decorative products industry had taught me the

importance of fashion even in mundane products such as paint. Certain
premium-priced colours and textures would become popular for one or two
years supported by professional advertising and features in lifestyle
magazines such as “Homes and Gardens”. A year later they look old-
fashioned and people who care about their surroundings would decorate
individual rooms or even the whole house. The manufacturers and retailers
which created and supported these fashion trends were dramatically more
successful than those who simply provided standard ranges. Instinctively, I
felt that this must also apply to plastics: In Scandinavia and Germany, the
most up-market stores offer a few beautifully designed household plastics in
the latest colours. We decided to develop a whole co-ordinated range of such
items; and to open up a new distribution network for them via kitchen
equipment and speciality retailers. This was a big investment, but it certainly
paid off! As you can imagine, there was a degree of scepticism throughout
the company, at every level, but eventually the Board fully supported the idea,
and backed it with a major investment in product design and new tooling.”

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 “Our first new range, which comprised storage jars, mixing bowls, strainers,
salad bowls, towel holders, and other kitchen items, was launched in 2004,
under the “Concept” brand name. Within one year, we had over 3000 retail
outlets signed up, provided with point-of-sale display facilities, brochures, and
initial stock. Advertising and articles in suitable magazines and newspapers
generated an enormous interest from the public, which was reinforced by the
use of our products on several TV cookery programmes. Our salesforce did a
tremendous job with the retailers, supporting local promotions. This was
undoubtedly the most exciting event in the history of the company: Within
twelve months we had developed an entirely new market and were the envy
of our competitors. Concept now provides over seventy percent of our
revenue and the bulk of our profits. The unit prices we can achieve are on
average up to three times higher than for the Focus range, so you can see
the market appreciates the value inherent in our designs. Although now many
of the original designs and colours have been superseded, some older lines
remain popular. We quickly learned that the retailers liked the idea of a co-
ordinated range of items. Customers could buy a few items to start a
“collection” and add to this progressively. Our market research indicated that
some customers kept our products ‘on display’ in their kitchens as lifestyle
statements rather than putting them away in cupboards. We exploited this
idea in our advertising; and supported colour preferences with a guarantee of
to supply any item in any colour for at least five years. We now have the most
comprehensive range of “designer” items in the market; five separate ranges
of styles, a total of 155 different items, and fifteen different colourways. To
keep ahead we intend to launch at least one new range per every year, and to
introduce two new colourways.”

MANUFACTURING

All manufacturing was carried out in a large, leased modern facility, which was
located approximately 200 (124 miles) kilometres from the Head Office which
housed all non-manufacturing functions. The factory had a process-based layout,
with areas for receiving and holding raw materials (bulk plastic granules were stored
in tall silos). The moulding area includes twenty-four large injection-moulding
machines of various ages. The most recent had simple robotic devices to remove
finished products from the machines and to place them on conveyors which lead to
the packing area. Older machines used operators to do this task. Adjacent to the
moulding area was a large tool store with a capacity to store about 200 moulds on
racks, and a small mould repair section with skilled craftsmen and a range of metal
working machinery and handtools.

Products passed by conveyor to the packing hall where they were inspected and
packed in bags or cartons, put on pallets, and stretch-wrapped. These were then
taken to an adjacent large narrow aisle warehouse with high-level pallet racking and
special forklift machines. In one corner was a dispatch bay with a platform access to
load delivery vehicles. Grant Williams, the manufacturing manager, described the
development of these facilities over the last ten years.

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 “The move away from industrial products around ten years ago allowed us to
concentrate our efforts on household items. This had several advantages.
Firstly, it allowed us to dispose of most of the older, small injection moulding
machines which had been used to make such things as parts for washing
machines and toys. Most of the household items were larger, so we gradually
bought more large machines, and where possible used multi-cavity moulds,
particularly for smaller items such as salad spoons, cruet sets, and small
storage jars and lids. About half the range of items was of this type, and
multi-cavity moulds have allowed us to use the large machines very efficiently
on all the range. For example, it would have taken the same labour to make
three jars (a typical Concept product) per minute on the old small machines
as eighteen jars per minute on the modern large machines with a six-cavity
mould. That’s a theoretical 600% increase in productivity! I’ve been able to
visit many other plants around Europe and Asia, and I am convinced that we
now achieve the highest productivity and quality in the industry. This has
been the result of the hard work of everyone in manufacturing and a
consistent drive for best practice. We are proud that we achieve such high
dimensional accuracy, excellent surface finish, almost invisible “flash” marks
where the mould parts come together, and extreme consistency of colour. It
is this excellence which has contributed to the success of the Concept ranges.
The end product quality is second-to-none! Also by standardising on the
single large machine any mould can fit any machine. This is an ideal situation
from a planning perspective, as we are often asked to make a run of Concept
products at short notice on the next machine to become available ... and any
one will do!

PLANNING AND CONTROL

Sandra White the Planning Manager, was responsible for the scheduling of all the
injection moulding machines, and for maintaining inventory levels for all the
warehoused items. Supported by three other staff, she also prepared performance
reports which monitored utilisation of the equipment, output rates for each product,
and scrap rates. These figures were also used by her for realistic scheduling, as
‘standard times’ for production rates of each product were either not always available
(particularly for new Concept products) or had been overtaken by improvements in
efficiency in the production processes.

“We try to establish a preferred sequence of production for each machine and
mould. To minimise set-up times we plan for each mould to start on a light
colour, and progress through a sequence to the darkest. In this way we can
change colours in around fifteen minutes with relatively small amounts of
waste material (mixed colour products). Because our moulds are both large
and technically complex, mould changes take around three to four hours, so
we decided to plan for minimum runs of six shifts (forty eight hours)
production. The factory is usually not scheduled for weekend production, and
maintenance is usually performed on Saturday mornings. In the past we
would never have run a mould for less than fifteen shifts (one week) and the
general reduction in batch size has unfortunately brought down average

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 utilisation. But with the wider product range now of well over 1800 SKUs we
really have had little choice.”

“Everything would be fine if we were able to stick to schedules, but short-term

changes are unavailable in our market. For example, last Friday we had to
produce a run of 5000 rain-forest green pasta strainers because of
unexpected demand levels. This involved complete rescheduling with one
extra mould change, and a long colour change from green to white with one
hour’s waste production. Ideally we would like some stability, but the market
is dynamic and continual schedule changes affect utilisation, efficiency and
scrap rates. Certainly better forecasts would help, ... but even our own
promotions are sometimes organised at such short notice that we often get
caught with stockouts. Although Focus products have relatively stable
volumes the Concept products are much more seasonal, which make
capacity planning and scheduling very difficult at peak times around
November (for the Christmas gifts market) and Easter just after the spring
trade fair in London. The new Concept Office products, introduced in 1995,
are relatively constant in volume but seasonal colour promotions have caused
us problems in meeting demand from inventory.

At the same time, I have to schedule production time for new product mould
trials; we normally allow three shifts (24 hours) for testing of each new mould
received, and this has to be done on production machines. From my
perspective it is often a difficult choice whether to schedule products that are
needed urgently, or mould trials for new product launches which are equally
urgent.”

NEW PRODUCT DEVELOPMENT

Grant Williams explained the new product development process.

“We receive detailed drawings of the new products from the Design Office,
which is managed by Marketing. The Concept products are often high
precision, complicated objects, each of which presents its own technical
challenges. However, we pride ourselves in our ability to overcome the
technical and quality problems and when we have decided on the basic mould
requirements, orders are placed with suitable mould makers. It usually takes
around three or four months to get a new mould, which then has to be tested.
At the scheduled time, we fix the mould into a machine and undertake trials;
adjusting pressures, temperatures of heating and cooling zones, feed rates of
plastic and dwell times until we get perfect quality output. These then become
the operating parameters and are recorded for future use. This whole
process can take up to 24 hours, so we sometimes miss a night’s sleep if
there is an important trial in progress. Frequently, we have to take the mould
out and make minor modifications to the design to get what we want. But in
the end, we always achieve the specified quality and optimise the production
output rate. The most difficult moulds to get right are the multi-cavity ones;
you might have problems with just one cavity, but the technical challenge of
solving production problems is what keeps us all going!

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 “The operators are as keen as we are to get the cycle times as fast as
possible, since their bonus payments are based on good output. We make it
easy for them by getting the settings right from the outset, but I’m afraid they
don’t all appreciate that. Sometimes, several operators spend most of a shift
involved with normal production set-ups, and argue that they could have
made more bonus wages on production. There is always a bit of tension
here, but I still believe that we must link wages and output if we are to retain
our excellent record of productivity.”

LATEST DEVELOPMENTS

The Concept Office brand had been introduced in 2007, and had been perceived as
a very successful entry into a new market, employing many of the marketing ideas
developed with the Concept household range. Concept Office items comprised
filing trays, storage boxes, and a range of desk items, all in innovative styling and
seasonal colours. Users were encouraged to change the colour in use every season
to provide variety in drab, open-plan offices. Concept office branded products were
sold through a small number of multi-branch office equipment retailers, with bulk
deliveries to their central distribution warehouses, supported when necessary by
emergency ‘top up’ deliveries direct to branches that experienced stockouts. High
service levels were expected. Premium prices and good margins were achieved
through innovative stylish designs and excellent delivery performance. From a
manufacturing perspective, the products were on average physically larger than
Concept ones, justifying the use of large machines, but the volumes of the seasonal
colours were only sufficient to be produced in the minimum schedule quantities.

Jim Thompson, the Managing Director, summed up his view of the current situation
at the latest Board Meeting.

We continue to trade very profitably but we must now tighten up on working capital
and get a bit smarter with the way we develop new products. If we are to continue in
the fashion markets we must find ways of shortening the product development cycle.
I also feel that sometimes we give too much of time to the Focus range. We know
that the profit margin for this is relatively low, so it should not be given priority over
Concept or Concept Office requirements. To get the manufacturing department
under control, I have decided to appoint an Operations Director to take charge of all
aspects of manufacturing, warehousing and distribution. He has a much more
strategic view of what operations can bring to the business. I hope that you will all
give him your fullest support and co-operation.”

Assignment Questions

1. Have Focus Plastics’ strategies, since the decision to exit the Industrial
Products market, been entirely successful?

2. In what ways have marketing strategies affected manufacturing?

3. What have been the main features of manufacturing’s policies up to 2007?

What operations-based competitive advantages were developed by these

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 approaches? After 2007, what changes do you think should be made to their
manufacturing strategies?

4. What changes, if any, would you recommend for the business to continue to
grow in sales and profit? Do you agree with Jim Thompson’s summing up on
page 6 of the case?

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 Attachment 1
FOCUS PLASTICS
Financial Information from 2003 - 2015
Year ended 31 December - all figures in £000s

2003 2005 2007 2009 2011 2013 2015

FIXED ASSETS

Plant etc. 1683 1656 1197 1260 1836 2514 2940

Moulds 306 390 510 540 960 1752 1860

TOTAL 1989 2046 1707 1800 2796 4266 4800

CURRENT ASSETS

Debtors 1449 2394 2526 2451 3963 2889 4119

Inventory 786 1758 3087 3777 4677 6729 7701

TOTAL 2235 3990 5613 6228 8640 9618 11820

TOTAL ASSETS 4224 6036 7320 8028 11436 13884 16620

Share Capital 150 150 150 150 150 150 150

Retained Profits 840 1260 1590 1710 2490 5280 7980

Group indebtedness 1350 1590 2460 2640 3360 2370 1470

TOTAL 2340 3000 4200 4500 6000 7800 9600

CURRENT LIABILITIES

Creditors 1878 1596 1884 3402 5322 5232 5295

Bank 6 1440 1236 126 114 852 1725

TOTAL 1884 3036 3120 3528 5436 6084 7020

TOTAL LIABILITIES 4224 6036 7320 8028 11436 13884 16620

Net Sales 7566 8616 12636 13398 15324 16182 24063

Net Profit
before tax 438 555 822 1086 1686 2124 3150

Sales by Market
Industrial 1510 0 0 0 0 0 0

Focus 6056 8616 9225 8740 7780 6622 6533

Concept 0 0 3411 4658 7544 9560 16210

Concept Office 0 0 0 0 0 0 1320