Tom Moore drops in on SME acoustic component manufacturer TMAT, to discuss with managing director Jason Lippitt how the firm has leapt out of the recession and tripled revenue since 2009.
To the business analysts and financiers of this world, SMEs make for interesting surveys but are companies that they rarely come into contact with. There seems to be a constant deluge of news reporting on how SMEs are struggling to get access to finance, source raw materials at a sensible price and find skills. But who are these SMEs? The small and medium-sized businesses included in these surveys rarely get to tell their individual story, but become a mere percentage that agrees or disagrees with a question.
“No matter how much you believe in lean manufacturing you don’t really appreciate the impact of it when you work in corporate land.” – Jason Lippitt, Managing Director, TMAT
The term SME has come to hide the actualities of operating as a small business. Jason Lippitt, managing director at acoustic component manufacturer TMAT, gives a frank assessment of how the company has emerged from administration to continue supplying OEMs in the field of agricultural, construction and earth-moving vehicles. The
Chesterfield-based firm makes noise and vibration reduction components for tractors and diggers and is hunting further contracts with the five big OEMs in its field (Fiat, Caterpillar, JCB, John Deere and Komatsu) just three years after entering administration.
TMAT restructured the business, focusing on supplying the agricultural, construction and earth-moving (ACE) vehicle market. It closed two factories in 2008 – one in Telford and one in Loughborough – which primarily supplied the automotive sector.
The problem wasn’t with what TMAT was supplying, but the fact that there were hardly any vehicles to equip as plants put temporary shutdowns in place or slashed production. “There was no revenue stream available,” says Lippitt, “the conveyor belt stopped and the tumbleweed rolled through the automotive industry.”
Factory to fit
Lippitt saw the qualities of the business and decided to team up with a group of venture capitalists to recapitalise the business, dropping the automotive side in favour of the more stable and lucrative margins available in the ACE market.
The Chesterfield site was purposely built 22 years ago and the internal layout was originally designed to support inhouse PU mixing and manufacture of a range of acoustic products primarily for use in the off-highway vehicle markets.
Lippitt explains: “We realised that TMAT could generate significant wealth as long as it was clear about what it wanted to do.” The company stopped making products for the automotive industry, slimmed down and focused on supplying higher-margin products.
The factory is capable of producing 5,000-30,000 units each year, a level that differentiates TMAT from its UK competition as it can be more flexible and take on small contracts. “We can compete with bigger companies as their racetrack is geared up for 200,000 units a year so breaking into their production lines to do a short run or making a oneoff special of a few hundred components is a world of pain for them.”
With this new strategy, TMAT has a competitive factory providing mats, padding, engine covers and other parts for vehicles that cost an average of £100,000.
The manufacture of these goods requires more science and engineering than some people may appreciate, with chemical process, reaction injection moulding and lamination of multiple layered composites all taking place on site.
“The conveyor belt stopped and the tumbleweed rolled through the automotive industry.” – Jason Lippitt, Managing Director, TMAT
The world of OEM procurement
Lippitt has adopted the principle that TMAT’s customer is the farmer or construction worker, and the OEM is just an organisation that it has to work with to make sure that these end users are comfortable and protected from harsh sounds and vibration.
This is an outlook that focuses on quality not price and, as there is a clear focus on the end user. As with many UK manufacturers, TMAT’s strength lies in its engineering ability: offering a solution rather than a part. This incurs obstacles when dealing with the unit price driven world of OEM procurement but TMAT is succeeding where others fail.
Lippitt says that “you’ve got to catch an awful lot of aeroplanes and have an awful lot of meetings” before securing a contract with an OEM. “We’re often faced with commodity buyers,” he explains. “We say we are going to make your cab look beautiful and he says that his job is just to buy the cheapest floor mat.”
The sales pitch states that TMAT sells an acoustic solution, a suite of parts that can be put on the roof, trim and floor or under the bonnet, which combine to improve the safety of people using heavy industrial vehicles.
However, the difficulty lies in dealing with complex chains of procurement while trying to compete as a solution rather than on list part prices. Lippitt says that although TMAT may come in at a higher price for an individual part, it can engineer a solution whereby the whole is cheaper than the sum of parts. “While they may be paying fifty pence for our part, we’ve probably engineered three other components out which were costing a pound,” he says.
The benefit to this is that export orders can mostly be secured in Europe, whether the final destination is China, Brazil, Poland, Italy or France. Around 55% of TMAT’s products are exported, with 45% staying within the domestic market.
Serving up an ace
Lippitt notes that “it is the manufacturing countries that are doing well,” and although continental Europe remains the most likely destination for TMAT’s exports, the £520bn binge on infrastructure projects (both private and public) in Brazil has fuelled growth in the ACE market, with a large proportion of this going towards the 2014 World Cup and 2016 Olympic Games in Rio de Janeiro.
While Lippitt points out that nothing is recession proof, with a touch of realism now inherent in the business landscape, he notes how the ACE market is growing and a good place to be. “The demand for tractors in particular isn’t going to go away as global population continues to rise and there is growing need for food. There is a demand for agricultural vehicles to be more efficient and get an extra couple of Weetabix out of that field, so they need a tractor that isn’t going to leave grains behind.”
With the agricultural space available for growing food facing pressure from the expansion of bio-crops and other uses, it is not simply a case of replacing previous industrial vehicles but innovating to build new ones. As with any form of innovation, this increases margins right along the supply chain.
Countries around the world are improving their standards of health and safety, opening up the markets to Western manufacturers more used to these demands. Fuel efficiency and pest analysis has also led to innovative changes being made to diggers and tractors, leaving TMAT with a new product to provide an acoustic solution for.
“It forces the OEM to make a design change that you may not think would affect us but if they change the engine, we do the under bonnet insulation and the CAB position may change slightly. There may be less acoustic requirements in the cabin because they have made the engine quieter, something that has been a big development over recent years,” says Lippitt.
The company has a system in place whereby it can isolate and localise where mixes of chemicals end up across the plant while keeping things efficient with its piping delivery system. This ensures that high-cost mixtures designed for specialised products are not distributed across the site, something that would push prices up for customers that don’t require the same specifications.
In theory, every customer can have a different formulation. If a customer requires their mats to be UV resistant for 2,000 hours in the sunshine, TMAT can add the relevant ingredient or alter its usual formulation. The reactors are jacketed and insulated to retain heat, keeping the formulation at the right level without incurring additional energy costs and vacuums remove air bubbles from the mix before being used in moulds or 200 tonne presses capable of being heated up to 200°C deg.
Although it doesn’t quite have a glamorous name to suit, TMAT’s unique application of Rigid Polyurethane (RPU) has engineered costs out of reducing the noise and vibration created when operating a tractor or digger. Sitting at the bulk head at the front of the tractor, TMAT has designed a product that was once only structural – sticking the engine to the cab – but has now found added uses.
A large amount of vibration and noise emitted from massive horsepower engines is now captured at the source, allowing for a cheaper solution inside the cab. The material is fireproof, can be drilled and is of high density. Lippitt describes it as indestructible, with the alternative to this rubber part being one made of metal, which is heavier so consumes more fuel. It would also be noisier and carry a lot of the vibration to the operator sitting in the cab, which would then require thicker mats and a more sophisticated acoustic solution from TMAT or one of its competitors.
TMAT is proof that distressed companies are not always failing companies, and with a new strategy in place to take advantage of a skilled and experienced workforce, specialised manufacturing facility and sound technology, revenue has increased every year since the low point in 2009. The increasingly successful SME has forecast £10.2m revenue in 2012, up from the £9.3m achieved in 2011 despite growth flatlining among a number of manufacturers.
A growing order book has led to the need to recruit new staff, with four positions currently available. The size of the workforce at Chesterfield has risen from 77 in December 2009 to 117 today, representing a 52% increase. All employees were involved in the B.I.T (Business Improvement Techniques) course over an 18 month to two year period, which was delivered in house. Performing Manufacturing Operations (PMO) qualifications were obtained by the company’s ambient department in 2009, which has improved quality and reduced waste. This has contributed to the company’s on time delivery in full (OTIF) rising to 98.5% from a figure less than 50% just three years ago. Team leader training and storage & warehouse apprenticeships are currently underway for around 20 employees, along with two new business administration and electrical apprentices.
The company has pumped its recourses into upskilling the existing workforce and training new staff at a time when many SMEs have been reluctant, or unable, to do so. Despite low staff turnover, with 80% of the workforce having a long service history, Lippitt says that TMAT is constantly recruiting. But, like many manufacturers, the supply of skills can’t come quick enough.
“We’ve put blood, sweat and tears into finding people, but the values in our schools are wrong. When I was at school,” he says before stopping to reflect on how he sounds like his father, “Maths, physics and chemistry were the subjects that everybody picked – nobody does it anymore. We are constantly sifting through CVs but there are not enough skilled people that I could possibly take on.”
“At a company of this size you have to learn to run on one day’s inventory and stop people wasting time, materials and everything else.” – Jason Lippitt, Managing Director, TMAT
Lippitt suggests that the term engineer should become more elite so that it reflects the skill level required to carry out the roles that manufacturers are so desperately seeking. “Engineers are revered in in Germany and Italy,” he says. “In those countries it is prestigious to call yourself an engineer but people in the UK think of a man in a brown coat with a spanner. I can’t call myself a chemist unless I’m a chemist, a doctor can’t call himself a doctor unless he’s a doctor, why should it be any different for an engineer?”
The problem stems from the renaming of roles to make them sound better, something that doesn’t fit well with Lippitt’s no-nonsense approach. He feels that young people are not being educated to know how many jobs exist in industry, what they do and the pay for doing it. “I want to go into schools and tell students to do something with science because I pay people £40,000 a year if they know how to put a machine back together,” he states.
“I can’t discriminate on age but there is a bit of positive discrimination going on between the 18 to 24 year-old age bracket and I’m a big advocate of the apprentice scheme,” says Lippitt. “We pay over the minimum apprentice wage as it doesn’t make too much difference to us whether they are on £4.00 p/h or £7.00 p/h, it is more important that we get young people with tons of energy and new ideas into the business.”
Lippitt picks up on cultural differences, “Why hasn’t this country got any chemists?” he asks with exasperation. With the company drastically expanding the size of its workforce to cope with a growing order book, he explains how the process left him frustrated with how the company didn’t receive more interest from young people born and educated in the UK, while other countries accelerate the number of skilled chemists they produce.
Watching the wallet
Lippitt, who describes himself as a ‘proper bluechip corporate boy’ after a lengthy spell at international water chemistry company Kemira, comments that he is enjoying being able to see the results of lean manufacturing that is taught at business school at the corporate firms. “I’m an operations guy but we go through business school and are taught that lean manufacturing is brilliant. They hate waste and this is the way you must work,” he says, setting the scene like an expert storyteller.
He continues: “No matter how much you believe in lean manufacturing, you don’t really appreciate the impact when you work in corporate land. At a company of this size you have to learn to run on one day’s inventory and stop people wasting time, materials and everything else. You can actually see it manifest itself in terms of pound notes there and then on the spot, which is incredible to witness. You don’t get to see that in big organisations because it gets lost. That’s when you understand what lean manufacturing means ¬– it means shortening the gap between money coming in and money going out.”
Using 8 wastes and 5S improvement tools, TMAT carried out a range of process optimisations resulting in reduced inventory managed through Just in Time (JIT). Raw material deliveries spent 27.6 days as stock in 2010, before dropping to 16.9 in 2011, a trend that has continued into 2012 with the average length decreasing to 15.9 days. As well as reducing the amount of space needed for storage, there are added cash flow benefits to operating in this way.
Keeping the company lean so that cash isn’t sitting in warehouses is not only the case at the input stage but also for finished goods. Reduced volume product manufacture has enabled lead times to drop to just one day. It is expected that the resulting labour efficiency gains will improve sales per direct man from £115,000 in 2011 to £125,000 by the end of 2012.
Banking on success
TMAT invested £500,000 to improve facilities, building a new laboratory and acquiring equipment to help it improve its processes and cut costs. Using the in-house development laboratory, under the lead of Dr Ken Kendall, TMAT has engineered its PU Elastomer formulation to improve its physical properties. It has made formulations more abrasion resistant and chemical resistant (hardwearing appropriate for its ever changing working environment), increased its tensile tear strength at the same time achieving an improved physical appearance with more colour and aesthetic possibilities.
TMAT has stabilised the formulation, resulting in a 100% mix pass rate and cutting the amount of waste created by the process and therefore the cost of raw materials too.
Operations manager, Dave Delaney, states, “Process waste reduction activities and implementation of recycling waste streams has reduced landfill tonnage by 33% over the last three years, with a 50% reduction targeted for the end of 2012. The company is looking at further lean improvements as it monitors process waste and product weight, as well as setting landfill waste reductions and the associated cost that comes with having to dispose of materials in this way.
With so many SMEs struggling to obtain finance to support such improvements, the story behind the company’s rapid growth after entering administration starts with Lippitt. While not working for the company, he was aware of TMAT’s problems at the start of the recession and was confident that the company could easily be turned around. He stepped in with his wallet wide open, receiving backing from venture capitalists Andrew Ramsbottom and David Gee from Advent Partners LLP, and with the clear message ‘I’ll manage your investment and give you a return’.
The effervescent managing director explains that the banks were effectively closed for business, so he accepted the fact that venture capitalists charge more but operate more openly and with less red tape.
TMAT has rebanked twice in the last few years in its search of a business-friendly bank that would support the company’s export strategy. Laura Bawden, financial controller, explains that its first bank, Santander, was “a world of pain as it didn’t understand the business and it didn’t want to understand the business.”
Up next was Lloyds, which Bawden found to have good intentions, but committed more promises than money. “It became apparent that they weren’t lending,” remarks Bawden. “We would sit in the room with the bank manager and say, ‘the trouble is that you’re a bank and the only thing you are good for is money and you haven’t got any’.”
Turning to HSBC because of its strong reputation for global banking and its willingness to lend after escaping the need for a bailout when others around them were holding out their hands, Bawden and Lippitt finally found a good banking partner.HSBC has taken time to understand the business and look at the finances and business reports, which led to it making £1.6m available to the business.
“[Santander] was a world of pain as it didn’t understand the business and it didn’t want to understand it” – Laura Bawden, Financial Controller, TMAT
ITV business club member, Lippitt, who you may see on the news a few times a year, adds that it’s odd how banks, which make money from lending money, were not able to do so.
A sound future
Looking at ways the company can use its burgeoning financial muscle to find further profits from its pressed and moulded mats, headliners and trims, Lippitt ambitiously states that the company should be pulling in £20m revenue. He notes that, with a few more big orders from a growing manufacturing sector, it has the skills and the capacity to up production.
There are a few big automotive OEMs interested in resurrecting TMAT’s past business with the sector but its focus remains the ACE market. While the automotive division used similar technology and processes to make smaller, high volume components, automotive became a dirty word.
Despite resurgence in the sector, there is a reluctance to change a winning formula. There is a dangling carrot but a very heavy stick to get hit with if, as has happened in the past, car sales begin to nosedive. Lippitt maintains that it is still difficult to attract money if you write the word automotive in your business plan due to instability around the sector.
On top of this, Lippitt sees the bureaucracy around supplying the automotive sector as pointless hoop jumping when there remains a wealth of opportunities in the ACE market that has served the company so well. “We like to put our efforts into engineering and not bureaucracy,” he says before looking to new horizons with mountains of growth in the BRIC countries.