A fine state of affairs

Posted on 4 Aug 2011 by The Manufacturer

Rewind the clock 10 years and Fine Industries was a very different place to work at and to do business with.

The usual clichéd terminology of culture change and shifting global markets do not really fit the bill in this instance as Jane Gray finds out.

The 90s was a good time to be in business for pharmaceutical and chemicals companies in Europe. As part of the Laporte Group, Fine Organics Limited (FOL) used to turnover £80m and seize a sizeable £20m profit margin.

Keith Hanson, now managing director at FOL looks back on the 90s, when he was operations director with the company, as a time of quick money and easy living. Hanson reflects: “I don’t think the profits we were pulling in were at all unusual at the time. Life was good. We all had an inkling that Asia might ‘happen’ in the early 2000s but many people chose to hide from the possibility saying, ‘it’ll never happen; they’ll never get the quality right’ and so on.” But of course Asia did ‘happen’, and in a big way.

Not only this, but the pharmaceutical and agrochemical industries were rife with big mergers and acquisitions in 2001 and 2002, indeed FOL itself was acquired by chemicals giant Degussa as part of a larger deal which saw Laporte subsumed.

Hanson explains the implications of this kind of activity: “Every time a big pharmaceutical company buys or merges the first thing they do is stop the pipeline. They then take a basket of selected products forward and throw the rest in the bin; unfortunately if you had business in those products you simply lost it overnight.” Within three years FOL saw its turnover halve and with directives from head office to cut cost. The good times were put to an end through redundancies. In 1999 FOL had 450 staff; by the end of 2004 it had 250 and there were no signs of increased sales in the pipeline to raise morale or provide assurance that there was light at the end of the tunnel.

It was at this point that Hanson gained the opportunity to become general manager at the faltering Seal Sands plant near Middleborough, and between 2004 and 2008 he led an impressive transformation journey.

In 2004, with the company haemorrhaging millions of pounds a year, big change was a must and so a number of operational transformations were implemented with a firm hand.

Hanson remembers: “We changed the shift pattern from 12 hour shifts to eight hour shifts, we cancelled operator contracts and we cancelled union agreements; the whole lot.” Given the difficulties currently being experienced across public and private sector organisations there must be many who would give their eye teeth to know how Hanson managed this without revolt. His answer is simple; communication and education: “We went to the brink of strike twice in one year.

Fully equipped QC laboratory fine industries
Fully equipped QC laboratory

But we communicated with the union and the workforce every two weeks and we worked hard to get understanding that life was different out there,” says Hanson. “The business had been so successful in the 80s and 90s and a lot of the staff were still here in the 2000s.

We had to reconcile their knowledge of the profits we made then with the pressures of the external environment in the present.” Hanson’s education approach was successful. Whereas pay disputes in 2004 took several months quibbling over fractions of a percent, post 2004 they were reduced to just one day. By 2005 Hanson felt that the changes implemented so far had laid sufficient ground work, and he moved to the next stage of his long term transformation plan.

In his mind’s eye Hanson always looked to create a culture of autonomous and continuous improvement (CI) at FOL but, unlike many organisations with lean ambitions he did not just pay lip service to the concept of employee engagement nor underestimate the power of a truly committed workforce. 2005 was given over entirely to consolidation, culture building and morale boosting for FOL.

Hanson explains his reasoning: “I took the decision that there is no point whatsoever in introducing CI, lean sigma, six sigma at a point when it would be seen as a cost reduction programme, because that is all it would ever be seen as.” Instead Hanson spent two years focusing on the culture of the organisation. Between 2005 and 2007 everyone in the company was taken off-site at least twice for training and team building sessions. These sessions were designed to create an environment in which employees felt comfortable talking to management.

The result of this attention to people has been striking.

Raw material and effluent storage, fine industries
Raw material and effluent storage

Hanson has been guided by the mantra: ‘it is easier for a hundred people to take one step than it is for one person to take a hundred steps’. His approach to building knowledge of CI techniques (a programme which started in 2006) has been that it is a way of thinking for the whole organisation and needs to be understood at every level. It cannot be the preserve of an elite few.

Hanson’s efforts with the Seal Sands site did not go unrewarded. By 2007 the company was once again breaking even. More importantly it had a visible CI agenda in place, and unequivocal engagement from senior management to the chosen methodology for efficiency (Hanson was the first to apply 5S, or as FOL call it, 5Cs in his office).

Fine Organics at a glance

Fine Organics was established in 1977, and was bought by Fine Industries Ltd in 2008.

Seal Sands, Middlesbrough.

Fine Industries 214 (178 Fine Organics, 36 Fine Facilities Management)

Key Products
Contract Manufacturing of Pharmaceutical (APIs & intermediates) (http://www.fineorganics.co.uk/pharmaceuticals.aspx); Crop Protection, and Speciality Chemicals.

Key Customers
“Blue Chip, Top Tier” Pharmaceutical and Agrochemical Companies.

Circa £30m

Points of interest
● Three years of continuous profitable growth, at a time of deep global recession.

● In-house developed Business Management System is behind Fine Software Solutions.

● In 2012, Fine Environmental Services will bring online one of only three approved incinerators in the UK with permission to burn hazardous liquid waste.

● Fine Contract Research will offer clients small scale assets and a highly qualified team who are technically competent in all aspects of custom synthesis, route selection and laboratory operation to gain cost effective solutions for their product development requirements.

● CI programmes across all business areas continues to provide the basis and backbone for long term contract opportunities.

It is not just the path of true love that is prone to a bumpy ride however, and just as things started to look up, a commercial problem with two of the products being supplied to the USA threw the company back into an uncomfortable situation. “All of a sudden we were a potentially significantly loss making business again,” recalls Hanson.

As an indentified cost centre within a large group it did not take long for a summons to arrive from HQ in Germany.

It was not a happy meeting. “I presented a credible business plan for pulling the site back on track and I didn’t get a thank you or a smile,” says Hanson.

Piqued and unsettled, Hanson asked for honesty from the board. The frank response was that “everything is for sale if the money’s right” a statement which was followed by a half joking: “Are you interested in buying?” comment from the financial controller.

Hanson’s mouth ran away with him and before he knew it he was at the centre of a management buy-out. In a whirlwind year of management selection, legal work and brand restructuring the die was cast and the buyout was completed in November 2008. Since then Fine Industries, the new umbrella group under which FOL and its related businesses now sit, has not looked back.

“Although at the time,” says Hanson, “people, particularly our wives, thought we were mad.” Sensitive to the feelings of customers who might think the same, or who would see this fledgling independent company as a risky supplier, the first priority of FOL was to secure contracts and prove ability through delivery. Luckily this was an area where Hanson and his new, carefully selected management team were confident; a confidence which sprang from faith in the workforce they had worked so hard to develop.

Steve Catchpole, operations director at FOL says: “I’ve operated in five or six different sites and, I know it might sound cliché, but the quality of the people here drew me back [after leaving FOL in the early 90s]. Their ability to adapt within our project based business is really unique. It takes a very special kind of person to be able to deal with the transience of our environment.” Expanding on this point, Catchpole explains that, whereas many chemical companies have one or two products to which they are dedicated, FOL has developed the flexibility to deal with continuously changing projects.

Fine IndustriesTypically, the plant will manage around 50 changeovers a year which require complete reconfiguration of the plant.

Of course, we have heard how FOL’s workforce has been whittled down due to the pressure of recession and invested in to maximise the capabilities of the remaining crew, but going forward, how does the company plan to safeguard the quality of personnel which it values so highly? Catchpole explains that recruitment rigour plays a key role: “When we recruited our engineering manager after the MBO, we took a year to find the right guy. We talked to some very good candidates but they were not all people we felt could excel in this environment. We took our time and we got our man in the end.” Digging down deeper into what qualities a potential employee should display, Hanson and Catchpole agreed that the ability to see the business in the context of the wider world and to juggle multiple tasks were essential. “In addition,” says Catchpole, “we look for results orientation and advanced interpersonal or communication skills, and not just at the senior management level.” Clearly the clarity of purpose which these characteristics bring the company is effective since, despite the upheaval of the MBO and amputation from the securities which come from being part of a large group, FOL lost none of its customer base following the buy-out. Furthermore, due to a hard working sales operation, new business was secured and after one initial year of loss the company has now stabilised as a profitable enterprise. Earnings before tax this year are expected to be in excess of £1.0m.

But mere profit was not enough for the ambitious new management team. Proving beyond all doubt that CI is a way of life at FOL, the reaction to success was ‘what next?’. In considering business strategy, Hanson says the company’s position as a small private business did not give it the financial position to attempt the strategies taken by many other chemical and pharmaceutical firms. “We did not have the money in the bank, so we decided to start our strategy by looking at where we spend money and whether or not we can spend it more wisely,” says Hanson.

This train of thought has led to a major re-structuring of Fine Industries.

The company has sub-divided into a number of different businesses which are designed to minimise the amount of contract labour brought in and maximise output from the diversity of skills held within the business.

Maintenance was one of the first and most obvious areas for re-invention.

Despite the fact the FOL had strong in-house expertise and was a difficult customer to serve, since it had developed a strong set of in-house maintenance systems, the company was still spending half of its £3.4m maintenance outgoings per year on contracted labour.

Catchpole says: “It became a no-brainer to take everything inhouse, but we then took that logic one step further.” Catchpole explains that realising just how high their own standards were started to beg the question of opportunities to deliver services for others. “While the chemical industry is generally quite sophisticated we started to investigate if there were other industries where we might bring our expertise to bear,” says Catchpole.

As a consequence a new business; Fine Facilities Management has been born.

This expertise in maintenance, planning and scheduling which this business aims to take further afield is, however, supported by another in-house asset which now forms an exciting business proposition. Namely, Fine’s custom-built IT system which is ran out of the subsidiary Fine Software Solutions.

This specialist OEE and business management asset is, says Catchpole, the easiest and best business management system he has used during his diverse career. The system, which was developed by manufacturers for manufacturers, enables real time monitoring of business assets through touch screen points around the plant as well as mobile access to business analytics and data. Hanson says access to this information in meetings has enabled him to clinch contracts with new customers in the past.

Aside from the Fine Facilities Management and Fine Software Solution offering, the company has already established fledgling management teams for; Fine Environmental Services and a not-for profit organisation, Fine Contract Research. The first of these businesses will exploit an on-site but currently dormant incinerator in order to deal with industrial waste for other organisations. The second will protect Fine Industries’ long term interests by building relationships with start-up businesses and innovators in order to support a more dynamic, collaborative chemicals industry in the UK. The final part of the business – the traditional chemical manufacturing business, now exists under the banner of Fine Organics.

The dynamism and ambition demonstrated in FOL’s radical new strategy is a manifestation of the business model innovation which bodies like the Technology Strategy Board and many leading management schools are saying will be the make or break factor for companies in the coming decade. Having seized a risky opportunity to take control of their own destiny in an industry dominated by big hitting international players, FOL is busily laying foundations which will make it a force to be reckoned with in the future.