Sofa manufacturer Quality Furniture Company has overhauled its business, including the implementation of an Oliver Wight Integrated Business Planning programme, on its journey towards class A accreditation.
QFC specialises in mid-priced sofas and began its improvement programme in 2001 following an influx of sofas from China to the UK market.
The company still operates from its 140,000 sq ft facility in Grantham, Lincolnshire, but the way it works is “totally unrecognisable” compared to a few years ago.
QFC produces sofas at a rate of one every 31 seconds, or 4,500 per week, and has annual sales of £21 million.
Its products are sold via high street retailers such as Argos, Tesco, Next and Sainsbury’s, as well as online.
Prior to the arrival of Chinese competitors, QFC had lead times of six to eight weeks, but its data was almost non-existent. The only reports it had were financial and looked backwards. “We physically counted stock,” says David Bramwell operations director, who owns the business alongside managing director Vernon Goldberg.
Staff were also paid on a payment by results basis – by sofa made, rather than by hour, which QFC says was typical for this type of business at this time.
As the market became more competitive though, the company realised if it didn’t change its ways it wouldn’t have a future.
QFC decided the way to differentiate itself from competitors would be to offer shorter lead times, but the company also realised it needed a lower cost base in order to do this.
It began by finding out which customers would benefit from shorter lead times. Most were uninterested at the time as consumers were accustomed to waiting several weeks for furniture, but there were two general retailers which saw value in the proposition.
QFC was already supplying these two customers on four-week lead times compared to the normal six to eight weeks, and together they represented 15 per cent of revenues.
After implementing one week lead times the business grew rapidly meaning QFC had to withdraw from much of its traditional customer base.
One of the two customers bought the other a few years later, meaning 96 per cent of QFC’s business was now with one customer.
“It wasn’t ideal,” says Bramwell, “but it allowed us to reduce costs through having fewer customers and fewer products. We were able to pass on some of the savings to our customers and fend off competition from China.”
The company chose this time to look at outsourcing. It was already buying timber from Estonia, so decided to get the same company to produce frame parts. It also began outsourcing the cut and sew operation to Lithuania which freed up space in the factory where 75 machinists had previously been.
QFC also implemented an ERP system. “It went in on time, on budget and we didn’t change a thing – instead we changed they way we worked to fit the ERP system. Looking back it was a very important decision,” says Bramwell.
From this point, the company changed its business model, moving from make to order to assemble to order. It also implemented a prototype S&OP process and removed the payment by results regime from the shop floor.
The move meant that the company ended up posting a loss, some of which was attributable to redundancy costs as the workforce was reduced from 300 to 180.
At this stage, Bramwell and Goldberg consulted Oliver Wight after attending the company’s management course. They learned they had to rate the business against eight world-class measures, including velocity, new products and stock turns.
Oliver Wight’s first assessment of QFC revealed it to be a Class C business and it was at that point it launched its Class A project, initially allowing 12 months to fulfil the project which the directors now realise was too optimistic.
QFC was advised to establish five task teams to address specific areas: strategic planning, data accuracy and control, measurement, Integrated Business Planning and one set of numbers.
On strategic planning, QFC stated its aim is to be the number one sofa supplier to all major UK retailers who sell from stock – and there are clear strategic objectives on how that will be delivered, with assigned responsibilities, over the next three years.
Data accuracy is improving, helped by the introduction of a measurement culture within the business. This has been a slow process, Bramwell admits, again hindered by culture: “You can list measures and responsibilities, but it just won’t happen overnight. Culturally, we weren’t ready to move at that pace and there was a certain reluctance to measure something unless it would show a good result.”
More recently, QFC has introduced a balanced scorecard, assigned KPI responsibilities and created a measurement room.
One of the key task teams has been for Integrated Business Planning. “We implemented this early on, taking the S&OP process as the basis, but it was initially plagued by over-optimistic demand forecasting,” he says. That has since improved and, following some demand planning training, forecasts are now more accurate.
Management business reviews now incorporate data such as performance versus latest budget, reconciled to a three-year plan; forecasts of profit after tax; variances on volume, margin and overheads. The company also has monthly demand reviews and monthly supply reviews.
The focus on one set of numbers led to the implementation of master production scheduling, which has transformed customer service levels and allows QFC to model the stock position for its customers, effectively offering them a vendor managed inventory service.
Today, QFC still has long cumulative lead times. Its weighted average cumulative lead time for product arriving at Grantham is 78 days, so the company has to commit to materials 11 weeks before they are shipped. But QFC has synchronised the supply chain through the build schedule and there is little fire fighting required.
Master production scheduling is greatly improving visibility for QFC and for its customers and suppliers. QFC is working with key suppliers on vendor schedules to cut lead times even further.
Bramwell says: “We’re beginning to work strategically with customers on three-year plans. Most large retailers are reluctant to share that sort of information, but we’re beginning to see signs that they are willing to look that far ahead – we may not yet be Class A, but we are class leaders so the retailers want to secure supply from us.”
The project has resulted in financial benefits, improvement in cash flow and higher operating profits. Sales per employee are up, as is added value per employee. And improved stock turns mean current business volumes tie up £400,000 less cash than they would have been required previously.
Additionally, the company says some customers are now switching from Chinese competitors to QFC, as “they understand that the total cost of acquisition when buying from China is higher”.
QFC expects to achieve Class A accreditation by the end of the year.