Slagelse Industrial Services (SIS)

Slagelse Industrial Services (SIS) had become one of Europe’s most

respected die caster of zinc, aluminum and magnesium parts supplier
for hundreds of companies in many industries, especially automotive
and defence. The company cast and engineered precision components
by combining the most modern production technologies with precise
tooling and craftsmanship. Slagelse Industrial Services (SIS) began life
as a classic family firm by Erik Paulsen, Anders father, who opened a
small manufacturing and die-casting business in his hometown of Slagelse, a town in east
Denmark, about 100 km southwest of Copenhagen. He had successfully leveraged his skills
and passion for craftsmanship over many years whilst serving a variety of different industrial
and agricultural customers. His son, Anders had spent nearly ten years working as a
production engineer for a large automotive parts supplier in the UK, but eventually returned to
Slagelse to take-over the family firm. Exploiting his experience in mass manufacturing,
Anders spent years building the firm into a larger scale industrial component manufacturer but
retained his father’s commitment to quality and customer service. After 20 years he sold the
firm to an UK-owned industrial conglomerate and within ten years it had doubled in size again
and now employed in the region of 600 people and had a turnover approaching £200 million.
Throughout this period the firm had continued to target their products into niche industrial
markets where their emphasis upon product quality and dependability meant they were less
vulnerable to price and cost pressures. However in 2009, in the midst of difficult economic
times and widespread industrial restructuring, they had been encouraged to bid for higher
volume, lower margin work. This process was not very successful but eventually culminated
in a tender for the design and production of a core metallic element of a child’s toy (a
‘transforming’ robot).

Interestingly the client firm, Alden Toys, was also a major customer for other businesses
owned by SIS’ corporate parent. They were adopting a preferred supplier policy and intended
to have only one or two purchase points for specific elements in their global toy business.
They had a high degree of trust in the parent organization and on visiting the SIS site were
impressed by the firm’s depth of experience and commitment to quality. In 2010, they
selected SIS to complete the design and begin trial production.

“Some of us were really excited by the prospect … but you have to be a little worried when
volumes are much greater than anything you’ve done before. I guess the risk seemed okay
because in the basic process steps, in the type of product if you like, we were making
something that felt very similar to what we’d been doing for many years.” (SIS Operations
Manager)

“Well obviously we didn’t know anything about the toy market but then again we didn’t really
know all that much about the auto industry or the defence sector or any of our traditional
customers before we started serving them. Our key competitive advantage, our capabilities,
call it what you will, they are all about keeping the customer happy, about meeting and
sometimes exceeding specification.” (SIS Marketing Director)

The designers had received an outline product specification from Alden Toys during the bid
process and some further technical detail afterwards. Upon receipt of this final brief, a team of
engineers and managers confirmed that the product could and would be manufactured using
an up-scaled version of current production processes. The key operational challenge
appeared to be accessing sufficient (but not too much) capacity. Fortunately, for a variety of
reasons, the Parent Company was very supportive of the project and promised to underwrite
any sensible capital expenditure plans. Although this opinion of the nature of the production
challenge was widely accepted throughout the firm (and shared by Alden Toys and SIS’s
Parent Group) it was left to one specific senior engineer to actually sign both the final bid and
technical completion documentation. By early 2011, the firm had begun a trial period of full
volume production. Unfortunately, as would become clear later, during this design validation
process SIS had effectively sanctioned a production method that would prove to be entirely
inappropriate for the toy market but it was not until 12 months later that any indication of
problems began to emerge.

Throughout both North America and Europe, individual customers began to claim that their
children had been ‘poisoned’ whilst playing with the end product. The threat of litigation was
quickly leveled at Alden Toys and the whole issue rapidly became a ‘full-blown’ child health
scare. A range of pressure groups and legal damage specialists supported and acted to
aggregate the individual claims. Although similar accusations had been made before, the
litigants and their supporters focused in on the recent changes made to the production
process at SIS and in particular the role of Alden Toys in managing their suppliers.

“….it’s all very well claiming that you trust your suppliers but you simply cannot have the
same level of control over another firm in another country. I am afraid that this all comes
down to simple economics, that Alden Toys put its profits before children’s health. Talk about
trust……parents trusted this firm to look out for them and their families and have every right
to be angry that boardroom greed was more important!” (Legal spokesperson for US litigants
when being interviewed on UK TV consumer rights show).

Under intense media pressure, Alden Toys rapidly convened a high profile investigation into
the source of the contamination. It quickly revealed that an ‘unauthorized’ chemical had been
employed in an apparently trivial metal cleaning and preparation element of the SIS
production process. Although when interviewed by the US media, the Parent firm’s legal
director emphasized there was “no causal link established or any admission of liability by
either party” Alden Toys immediately withdrew their order and began to signal an intent to
bring legal action against SIS and its Parent. This action brought an immediate end to
production in this part of the operation and the inspection (and subsequent official and legal
visits) had a crippling impact upon the productivity of the whole site. The competitive impact
of the failure was extremely significant. After over a year of production, the new product
accounted for more than a third (39%) of the factory’s output. In addition to major cash-flow
implications, the various investigations took up lots of managerial time and the reputation of
the firm was seriously affected. As the site operations manager explained, even their
traditional customers expressed concerns.

“It’s amazing but people we had been supplying for thirty or forty years were calling me up
and asking ‘[Manager’s name] what’s going on?’ and that they were worried about what all
this might mean for them … these are completely different markets!”

Questions
1. What operational risks did SIS face when deciding to become a strategic supplier for
Alden Toys?
2. What control problems did they encounter in implementing this strategy (pre and post
investigation)?”