CHAPTER 4 Case Study of Smiths •••.•
4.1 Background-Smiths Manufacturing Pty Ltd
4.1.4 Encapsulating Smiths' Business Model
Smiths serve the South African based subsidiaries of major vehicle manufacturers with OEM systems and components. A substantial portion of the products are exported to Visteon Climate Control Systems (VCCS) based in USA and it also exports a smaller portion to Europe. The automotive air-conditioning and climate control systems market is a very dynamic and specialized market with a limited amount of customer possibilities and long standing well established relationships in place. There seems to be a growing trend among customers in mature economies for specialized or customized products. Given the globalization of markets and increasing world-wide competition from large multi-nationals, many smaller firms may have no choice but to specialize in the supplying of products that occupy a somewhat a niche market segment (Preston, 2006).
According to Lakhan (2006), most of Smiths' products are manufactured under license or supply agreements with suppliers to the parent companies of the South African based
subsidiaries. The licenses include Denso (formerly Nippon Denso), Modine, Siemens, Calsonic and Valeo. He also adds that Smiths have had to adapt and recognize the importance and flexibility these license agreements provide Smiths in terms of developing close collaborative relationships with the international giants. This however does come at a cost in the form of royalties being paid to the licensors but nonetheless this has also resulted in technological spillovers from the developed countries like Germany and Japan.
Smiths has had to develop a progressive policy on the development of products in conjunction with its licensors and the development of facilities and systems to meet the unique requirements of the low volume production requirements of the South African market (Smiths' internal corporate profile brochure).
It can be noted that the closely forged relationship between the various divisions enables a co-operative and a collaborative effort in ensuring superior customer service. An example of such a relationship is that between the heat exchanger manufacturing division and the climate control/assembly division which fosters a synergistically symbiotic relationship that is centered on superior customer service and all this is backed by a common support services such as marketing & sales, finance, HR and logistics.
According to some long standing senior management level employees, Smiths does not have selling and distribution outlets/channels, rather they focus purely on the core business of manufacturing and process technological activities. Just like any other business, this industry has been brought onto a highly competitive landscape where new business acquisition depends on cost, quality and speed (Veloso and Kumar, 2002: 1 0). Even in the case of follow source design, if the given target prices are not met by Smiths, the business is quite easily awarded to other manufacturers (Naidoo, 2006).
The sudden awakening of the world to the preservation of the environment, corporate social responsibility, ethics, improved commitment to quality etc has seen the implementation of various systems and mechanisms to assure compliance. In keeping with the stringent standards of all the Metair subsidiaries, an immense amount of importance is given to various accreditations for Smiths. Some of these include the following:
• ISO 14001 (environmental accreditation)
• VDA 6 (European quality accreditation)
• TS16949 (international quality)
Most quality standards provide a quality management system that focuses on continuous improvement, defect prevention, reduction of variation and reduction of waste in the supply chain thus increasing customer satisfaction and reducing quality cost (Bennet and O'Kane, 2006:15). In today's automotive industry a first tier supplier will struggle to win business unless their system is certified to QS 9000, for an example, (Bramorski et aI., 2000:275- 83).
Govindsamy (2006) asserts that these accreditations play a pivotal role in new business acquisition, more especially in the OEM markets. He also admits that all these accreditations are frequently audited and re-validated provided the necessary stringent requirements are met with.
Whilst this same level of stringency is not 'emphasized' for aftermarket products, Smiths inherently applies the one quality system across the whole organization by default (Le. for both OEM products and after market products). Interestingly, Chetty (2003:73-84) argues that in spite of consistent growth of the after market segment, a process of stagnation is imminent and moreover it is said to experience viability for another four years after which the viability would cease.
Like all automotive manufacturers, Smiths has had to focus on many philosophies such as Total Quality Management (TQM), Just in Time (JIT), Kaizen (continuous improvement) and the most recent introduction being Smiths Business Systems (SBS) adds (Lakhan, 2006). Of noteworthy importance was the introduction of Mission Directed work Teams (MDWT) in 1998. According to the directive of the Smiths' MDWT manual:
"MDWT philosophy is to drive continuous improvement within the firm. Modules implemented include goal alignment where measurements against cost, quality and speed and morale are monitored; team coaching to promote skills development". The corporate newsletter pamphlet states "we believe in continuous improvement in all aspects of production and therefore encourage and train our people to seek and suggest innovative
ideas", (Smiths' MDWT Manual).
Continuous improvement teams run by line operators have resulted in significant improvements in the rearrangement of work stations, in operating methods and overall
quality. All continuous improvement (Kaizen) ideas are driven through a monthly forum or a presentation where the winning teams are rewarded by way of monetary vouchers for their efforts (Smiths Weekly news, 2006b).
Chetty (2003:84) highlights the fact that Smiths does have a planning process in place which has been evolving over the past number of years. She also notes that the strategic planning which takes place at the executive level does incorporate the PEST analysis, Porters five force analysis and indeed SWOT analysis.
Esterhuizen (2006) briefly outlines the main objectives of Smiths as follows:
• Target of>25% on return on assets
• Growth with profit
• Improve relationship with licensors
• Better staff retention and recruitment and employee development
• Supplier development
• Supply Chain management improvement and development
• Better stock management (first in first out-fifo, last in first out-lifo, etc) & effective forecasting
• Compete without protection & improve quality
• Commitment to Safety, Health and Environment (SHE)
• Forge closer ties with customers
He asserts that above factors play a pivotal role in the survival of the firm and that all stakeholders need to be satisfied with the objectives and performance ofthe firm.