Back on a performance track

Posted on 9 Sep 2010 by The Manufacturer

Automotive supplier Kostal faced a rocky road in 2009. Now it is back on track.

UK car manufacturing took a beating last year – a recession-led slowdown in European sales, competition from Asian competitors and an ever-greater focus on costs has meant that many suppliers of specialist automotive parts such as Kostal UK have had to tighten their belts in the last 18 months.

For the UK division of German mechatronics manufacturer Kostal, the recession meant having to focus on survival above all else. Now it faces a new challenge – responding to rapid growth in orders with an under capacity headcount.

“Many UK industries have been worried about a double-dip recession and now don’t have the capacity installed to deal with a sharp recovery,” says managing director Martin Wood.

“Our priority now has to shift from financials and cash flow back to all aspects of business performance.” Based in Rotherham, South Yorkshire, Kostal UK recently celebrated its 20th anniversary. It makes switches, switch assemblies and mechatronics for customers including Jaguar Land Rover, Volvo, Porsche, Audi and Rolls Royce, with JLR the number one customer. Kostal UK has responsibility for the group for supply to the UK and Scandinavian markets. It makes any kind of switch one might activate in a car console – electric windows, electric seats and sunroofs. The company also offers electronics such as memory mirrors and central door locking functions. The electronic assemblies are built at Kostal’s factory in Ireland, while the switches are designed, engineered and assembled in Rotherham.

Kostal had to respond sternly to the depressed automotive market last year.

Martin Wood admits that business priorities changed: financial fundamentals bumped customer performance off the top, and Wood admits the company chased customers for payment harder than they would have liked, to give the business security. Some redundancies were unavoidable. “We’ve worked very hard over the past year and a half to remain a financially-sound company,” he says. “We’re now seeing that paying off in terms of our attractiveness to our customers. There are challenges here and we have various initiatives to remain competitive and improve. Our base financial solidity means a lot in the marketplace. It’s not unique, but we believe that this a very positive selling proposition that’s not shared by the whole industry.” Rediscovering performance At the same time, Kostal UK is writing a five-year growth plan to determine which customers, products, technologies, investments and returns the company will concentrate on, with the plan to return to the German group’s expected profit levels as quickly as possible.

Wood believes the key to this will be upping performance and delivering a consistently excellent level of customer service, with an expectation of sustained growth over the next five years. To that end Kostal UK has made several investments in new technologies and equipment, some with an environmental theme, such as an overhaul of shop floor lighting to a brighter, more energy-efficient system and fitting a blast chiller on the factory roof to provide free cooling.

“The challenge for us comes when you’re running fast to keep up but margins are squeezed, and you need to make investments at a time when capital is in short supply and the money you invest is self-created,” says Wood. “We have had to spend a lot of money on freight and we’ve had to fight to get allocation for our semiconductor components, for example. It has been a challenge putting the capacity [people] back into the business this quickly – to do that you must have confidence that you won’t take it out again. So we spent a bit more cash doing that than we’d have liked, but in doing so our profit margins have returned to a good level.” Wood’s background in the automotive industry stretches back many years. With a degree in electrical engineering, he took his first job at Ford Dagenham, an experience he describes as “hard work, where I saw manufacturing for the first time, warts and all” but for which he was extremely grateful. Here he developed a passion for manufacturing which led him to join the manufacturing business at Kostal UK 12 years ago, becoming technical sales manager. In 2005 ago he was made managing director. Strategic view He has a passion for manufacturing and is a big fan of the British car industry, saying it is frustrating to see the indigenous UK industry’s decline since the 1970s. “It’s sad to see once-great British brands no longer so dominant in the market and no longer in British hands. We’re expecting to see some pro-manufacturing policies from the new government at some point, but at the moment it’s all rhetoric – there’s little real substance in it for companies like ours.

I hope that greater levels of support do come in time, as they’re desperately needed in parts of UK manufacturing.” “Part of this is business support grants for various activities to grow technology, capability and skills to grow exports. Part of it is promoting the sector and creating an environment where, as a parent, you can see that for the next 40 years we as a country are committed to growing this sector and can encourage your child to consider a career in engineering or manufacturing.” Wood points to the apprenticeship scheme of the previous government as an example of a policy which could be built on successfully.

Kostal UK has students from Sheffield Hallam University on sandwich placements, and other Sheffield students have shown interest in working here.

The company is developing stronger links with local schools and universities, but it could do more with schools Wood admits. “One local university works with us on problem-solving and business improvement activities. They’re supporting us in developing a particular sub-component so that it functions better under heat,” he says.

The company has brought in 30 people, a 10% increase in headcount, this year and is looking to increase staff further over the next few months. “We’re busy recruiting at the moment, especially in engineering. We’re about to bring on five new apprentices. Ideally we want people we can train ourselves,” he says. “There’s a lot of demand coming from China, where some of our customers – notably JLR and Porsche – are doing very well.

China is Porsche’s number one market and almost two-thirds of all Mercedes S-classes are sold there. It’s a growing market, especially for luxury vehicles.” There aren’t many UK companies that ship parts to German car manufacturers, but Kostal UK counts among its clients BMW, VW and Porsche in addition to UK-based companies like BMW Mini. It has also secured a first contract with Daimler for the next generation S-Class vehicle.

PLM – Performance Leader Mechatronics
Over the last year and a half, the company sought to increase its financial monitoring and carefully examines its cash flow, debtors and its outstanding day sales.

Now it’s time to focus on performance metrics – Kostal also runs several programmes that analyse the field data with its customers, mainly in product failure tracking so that improvements can be made. “We have a slogan – “Performance Leader Mechatronics” – that ties the company to become the best in class quality performer for our product range,” explains Wood. “We certainly not there yet but we’re absolutely committed to getting there.” In the height of the recession, Kostal UK took its staff on a five-day lean reminder course so that they would all have the necessary skills when the time came to improve performance.

“Now business is picking up so quickly suddenly people have to work that much harder and we’re bringing in a lot of new people too, so the refresher was important,” says Wood. The company has also undertaken quality workshops this year to help its staff understand how best to improve quality within their particular area of responsibility. Financial performance targets come from the group’s headquarters in Germany but each site has considerable freedom to make the changes that they consider most important first – the UK site was the first to wholeheartedly adopt lean improvement techniques.

“While there are lean tools and techniques that we’re able to use, we’re also free and empowered to do what we need to do at our own site, but we must be careful that we’re not reinventing the wheel at each global location” explains Wood.

Kostal UK has been running lean programmes for the last eight years and there are two sig sigma black belts on site and about 15 green belts. Every operator on the factory floor has an NVQ level two qualification. “We’re all culturally switched-on to lean, but I believe there’s more work that could be done in that area,” Wood says. “We have kaizen throughout the company, but it’s difficult to keep it going when business has taken off so much and everyone is so busy. The key is to keep looking at what we need and ‘do lean’ around our customer delivery.”