Born from the ashes of Instelec Ltd, CHH CoNeX has grown from a small start-up employing eight people to a company with a workforce of 141. Tom Moore discovers the structure and intent behind the growth curve.
CHH CoNeX at a glance
Location: Holford Industrial Estate, Witton, West Midlands
Revenue: £10.1m (Aug 2010 to Aug 2011), £8.1m (Aug 2009 to Aug 2010)
History: Founded in September 1990 by Tim Hughes, managing director, and Alan Coley, technical director, after the collapse of Instelec Ltd left a gap in the market.
Key Markets: CHH CoNeX is driven by domestic contracts and hopes to continue this focus as it believes there is room for further expansion at home. The UK accounts for 90% of the company’s revenue.
Customers: Companies within the Telecoms, Industrial, Transportation and Medical sectors.
Key Products: Cable assemblies, rack integration, box build, kitting and marshalling
CHH CoNeX had a host of facilities before obtaining the funding for a permanent site. The mix was made up of a range of unusual work spaces, from patio floors to garden sheds, while it fought to meet a contract supplying cable assemblies to its sole customer, Birmingham-based GEC Avery, a manufacturer of weighing and food processing systems.
This contract was left vacant following the collapse of Instelec Ltd, and provided the start-up with £7,000 for its first month in business. Since then the company has built a strong customer base and achieved a steady, controlled rate of growth. The company moved into its 85,000 sq ft facility in Witton in 2007.
CHH CoNeX started is 100% owned by its directors. Tim Hughes, managing director, comments: “It is not just your business reputation on the line, but also your personal one. There is a real buzz created by the will to go and do things without being held back by a corporate structure or governance.”
Process Review / Project Management / Cost Reduction
Environment: Fixed Line Telephony / Application: Voice/High speed broadband transmission
“CHH CoNeX’s partnership approach to working with our engineering team on process audit delivered great benefits. Collectively we managed to achieve increased output, improved quality and optimised total cost of acquisition by redesigning the process to better align activities with appropriate resources, in the right environment at the right time. An excellent outcome.”
Customer needed two engineers for every installation to complete the test regime. Engineers working in difficult conditions such as poor light, at height or in congested cable runs. On site termination was taking 2 hours per cable (between 2 and 10 cables per site).
CHH CoNeX Solution:
The customer’s installation site was visited to observe activities and conduct a process review. Product and process improvements were identified and introduced to eliminate the need for the second engineer. The solution meant that one end was factory terminated and could be plugged in immediately on site.
Annual on site engineering savings of £594,000 were achieved. Net cash savings of £227,520 achieved. Sites were fully installed and commissioned by one engineer instead of two engineers. Increased capacity by releasing 16,500 senior engineering man hours.
The next step
CHH CoNeX acquired two new Directors; Steve Turner, supply chain director and Andy Whitmore, sales and marketing director at the turn of the century. They came on board to facilitate growth to facilitate the growth strategy and two years ago, in January 2010, the management team decided CHH CoNeX was ready to step up to the next level.
As a result, Shaun Ashmead came into the business as operations director, taking up a stake in the company – just as the other directors do – and bringing experience of managing a manufacturing team of over 200 people with his previous employer.
Tim Hughes says: “The Company needed to re-assess its current position so we spent four months redefining strategy. We concluded that we wanted to diversify into new markets and new customers with new capabilities. The director team was strengthened with the addition of contract electronics manufacturing (CEM) specialists.”
With the right team of directors in place, CHH CoNeX began to look at the core competencies of the business, the processes and the marketing plan. As with many businesses that grows from a start-up to a medium-sized business, growth can muddy strategy. As contracts were picked up in order to drive business growth, the core disciplines of the business became fragmented.
The directors realised that operations needed to be streamlined. As a result any business deemed noncore – like a project to make electronic beer brewing kits – that clearly didn’t fit within this new strategy, were cut.
Part of the CHH CoNeX’s progression from its humble beginnings was success in achieving the high standards required to join the SC21 programme (21st century supply chains). “The programme parameters gave us a framework against which to set part of our strategy deployment,” comments Mr Ashmead. SC21 is a UK supply chain programme, instigated by the aerospace, defence and security trade body ADS, to accelerate the competitiveness of companies these sectors, by ensuring that they deliver high quality solutions for customers in the most efficient and effective way possible.
As part of its early steps toward penetration in the aerospace, defence and security sectors, CHH CoNeX achieved AS9100 certification, a quality management standard specifically written for the aerospace, defence and security industries. Ashmead describes this as “a statement of intent to enter the aerospace, defence and security market.”
As part of the company’s desire to provide a quality service to its customers, CHH CoNeX became a signatory to SC21 and has actively promoted the programme’s concepts throughout its supply chain. “Just fourteen months after CHH CoNeX first became a signatory of the programme, it was awarded the prestigious SC21 Silver Award,” says Ashmead. The company met the SC21 requirements in a fraction of the typical time. Out of around 600 signatories, the company became only the fifth firm to achieve the SC21 Silver Award. Funding from MAS-WM helped the company meet the requirements for the SC21 Award, a cost which added up to circa £20,000.
Green is the new black
Costs are an essential part of any business and as many are now finding, becoming green means becoming lean. CHH CoNeX spends approximately £85,000 on gas and electricity to power operations and heat its premises per year. Following a Carbon Trust audit in March 2011, potential cost savings of 15% were identified. Realising these savings has meant many small changes but minimal impact upon staff, such as setting radiator temperatures 1°C lower and creating a power down policy when an area is not in use. When the changes are all in place, CHH CoNeX anticipates a saving of around £12,000 per annum.
The motive behind the Carbon Trust audit was to seek ways of meeting requirements for the SC21 accreditation. Now it seems that taking that initial step has led to CHH CoNeX becoming much more environmentally aware. The company has plans in place to pay for the Carbon Trust to come back and talk with the company’s six-man strong environmental team.
CHH CoNeX’s green credentials are furthered by the minimal amount of waste generated from defects. Impressively, the cost of defects and in-house errors totals just £200 a year. Twelve month rolling average figures demonstrate the focus on quality which underlines all operations at the Witton factory. On time in full delivery performance stands at 99.86% while the right first time quality scores a steady 99.82%. Furthermore, these results were achieved in markets with a marked lack of scheduling information and constant demand changes. “We can predict that there will always be customer changes at the 11th hour, just not what those changes will be. We study historical demand profiles, variability and volatility in order to have an inventory portfolio coupled with a flexible process to ensure customer satisfaction,” comments Mr Hughes.
Such is CHH CoNeX’s efficiency regime that it now has a track record of winning UK contracts that may have otherwise been sent overseas. To capitalise on such opportunities the company emphasizes its ability to:
1) Offer the customer a product with a small carbon footprint
2) Ensure and aid the reliable transportation of goods and services on-time
3) Allow the company to reduce total aquisition costs to win contracts. This includes coming up with transport solutions such as CHH CoNeX delivering straight to its customers’ customer.
These points are highly valued by the organisation’s customers. “We are using our experience and expertise within the telecoms, industrial and medical sectors, where on time delivery is standard practice, to bring a high standard of service to other sectors. This is helping us to win contracts and move into new product areas,” says Hughes.
He adds: “What we offer is reliability with our percentage of on-time in full rates in the high nineties. This is the norm in the telecoms, medical and industrial industries which have long been core markets for us. The aerospace, defence and security sectors we are moving into average circa 70% on time delivery, which gives us a distinct advantage over our competitors as we look to penetrate these markets.”
Intelligent Stock Control / On Time Delivery
Environment: Field Engineering / Application: Logistics
“By working in partnership with CHH and ByBox we were able to introduce an innovative, efficient online ordering system, reduce our stock holding, improve traceability and tracking and most importantly get the right components to our engineers on time and in the right place. Overall we saved £1 million.”
Environment: Field Engineering / Application: Logistics
Incorrect quantities of components were being shipped to site, preventing engineers from completing projects. This meant a wood screw priced at 2p, became a 47p screw, when additional labour, logistics and engineer downtime were added on. The wood screw was one of 2000 items for the exchange based telecoms product which had huge implications for overall project costs.
CHH CoNeX Solution:
Redesigned the processes. Created an intelligent online stocking solution within 6 weeks.
Partnered with ByBox to provide the secure and reliable delivery routes and locations.
Rolled out and fully operational within 10 months.
Engineers empowered to self order components. Full tracking and traceability. Labour savings of £200,000. Cost of failure (wasted time) savings £500,000. Transport cost savings £250,000.
Analysing the supply chain
Hughes says that it is this reputation and consistent performance that has led to an exciting new opportunity. “Our customer had placed orders for thousands of cable distribution frames (essential components in the infrastructure cabinets on UK streets) from a large manufacturer in India, but was being let down with delayed shipments. Our proven track record for on time delivery coupled with our reputation for high quality were the reasons that we were recommended to this organisation by mutual business associates and why they were convinced to turn to us,” he claims.
CHH CoNeX undertook to research the pre-existing supply chain and process and discovered that before the final product arrived in the UK, it had been well travelled through; Turkey, Hungary and India. Its investigation showed that re-sourcing to a UK supplier not only cuts CO2 emissions but actually reduced the total acquisition cost of the product. Transporting the goods around the world before their arrival in the UK incurred substantial freight and inventory costs which belied the apparent unit cost savings of the various constituent parts.
Allowing buyers to decide on a product by unit price alone would not be in CHH CoNeX’s interests. “We aim to build relationships with buyers where we can highlight how our supply chain solutions and innovative engineering combine to create a lower total acquisition cost than the current state. What we need is open thinking from the buyer in order to see the bigger picture and not just the constituent unit costs. This coupled with an appreciation of impact to the corporate bottom line as opposed to impact to the purchasing department’s objectives is a recipe for success.”
CHH CoNeX looks at the whole supply chain in order to make sales. The company may not be the cheapest supplier of its capabilities globally, but it aims to demonstrate that it can be the most cost effective. This is often achieved by auditing the process that a product will go through and the end result required, as opposed to just looking at a specification. This may result in suggested changes to the processes employed by the customer simply to consolidate multiple activities into the same environment, thus delivering efficiencies. For example: “a competitor was pricing a part at £1.50, but what they didn’t realise was that once received; the part had to undertake further value added activities which added another £5 in cost. Whilst our proposed consolidated product unit cost doubled the original price to £3, when the additional activities were taken into consideration, it actually delivered a total acquisition cost saving of £3.50 per unit,” says Hughes.
Hughes explains that this sales strategy requires “getting all levels of our business communicating with the customer; a multi-level approach. Customer facing engineers are extremely desirable.” Other examples of saving costs through process improvement and being flexible in the approach to clients include measures such as:
- Consolidating invoices for companies to just one per month, rather than transacting 200-300 individually throughout the month.
- Amending a process to move field based engineering activity to the manufacturing process in a controlled factory environment; significant reduction in total cost and improvement in quality
- Eliminating the use of couriers in supporting customers’ field based engineering staff through the deployment of specialist on line material provision and bespoke logistics
(These examples and many more can be seen in the case study section at www.chhconex.com)
As a result of the company’s new strategy, it now undertakes relationship management reviews with its customers. “We didn’t understand the opportunities out there and companies didn’t understand what was on offer from us,” comments Hughes.
Environment: Wireless Communications / Application: Microwave Technology
“CHH CoNeX was the only UK company who fully understood our urgency and requirements and were able to deliver a test ready cable within 3 weeks, which meant that we could start the roll out of our 15,000 sites. In addition since the start of the project 3 years ago there hasn’t been a single failure. Potential failures could cost anywhere from £2,000 to £20,000 per site.”
Customer was not able to close the door of the telecoms rack, due to cable routing issues and the size of the cable bundle. Without the cable, the project for over 5,000 sites could not start, resulting in a potential revenue loss of £30,000 per site.
CHH CoNeX Solution:
CHH CoNeX designed a unique connector to route the cable assembly through 180 degrees, allowing the mating of the connector in a considerably smaller space. Integrity of the signal was preserved.
CHH CoNeX’s solution designed and prototyped in 2 weeks, volume production in 5 weeks. Rack door closed securely. Installation of the cabling and engineer waiting time reduced by 25%. Project slippage was avoided. Customer programme delivered on time within 6 weeks. Total resilience: zero failures in 3 years (9,000 cables supplied).
Looking to the future
CHH CoNeX is targeting sales of £21m by 2014, which is certainly ambitious, representing a doubling of revenues within three years.
CHH CoNeX renewed the lease on its Witton factory for a further 10 years in June 2010. Hughes says that this is a “statement of determination that underpins our commitment to growth.”
One plan is for the business to acquire a contract electronics manufacturer specialising in the population of printed circuit boards. The reasoning behind this is that there is an opportunity to take on more work with “virtually all our customers,” according to Hughes. He adds that the acquisition “can elevate us to the next level as large primes are looking to rationalise their supplier bases.” Whilst the market research and analysis has been done and there is a list of preferred acquisition targets, no firm bids have yet been made.
Looking at the year ahead, the company hopes to gain ISO 14001 and OHSAS 18001 accreditation. The ISO 14001 is an environmental management system that applies to environmental aspects which the organisation has control over and can drive efficiency improvements. OHSAS 18001 is a health and safety certificate to manage risk and reduce the potential for accidents through creating an environment which is safe and a pleasure to work in.
The company continues to see a mass of opportunities in the UK as “customers want the flexibility of having a supplier located in region so that order changes can be accommodated. Additionally the government sponsored drive for the UK to have the best broadband network in Europe by 2015 is manifesting itself in the deployment of fibre optic based networks across the country and driving increased activity and revenue in our traditional markets.”
CHH CoNeX is clearly an ambitious company and in the words of managing director Tim Hughes, “run with the energy of a 21 year-old start-up.”