Coventry University Manufacturing Strategy for John Crane UK Ltd. M69 EKM - Engineering Strategy Débora Helal 5201026Mannfacturing Strategy Document John Crane UK Ltd. is a manufacturing site located in Slough, England that is part of Smiths Group and responsible for the production of mechanical seals, The company employs 470 people according to EBSCO Company Information and serves mainly the aftermarket sector. In this document, the corporate objectives and John Crane’s strategy were evaluated according to market position, customers served and competitors. As a result of this analysis, order winners and qualifiers were set in order to drive the manufacturing strategy. Thus, in order to present the manufacturing strategy designed for this site, the Table 1 shows the decisions made about Process choice and Infrastructure according to Terry Hill framework. Moreover, aiming to compare the stated John Crane strategy with the one proposed in this document, @ comparison is made in the section C. Also considering the implementation and communication issues rose from the new manufacturing strategy, the section D addresses those aspects. In relation to measure the evaluation of the strategy designed, the section E presents relevant indicators to be applied in the manufacturing site. And (0 conclude, the section F indicates tools to ensure that the strategy remains current within a changing environment.‘amyonys feuonoun,|- ‘swesoneaung pure pasyjentay- BARTON vonnspn8iQ siyauag- seanoaiqo spreansy yoyf pun ssouisng 01 pou “PY 28819 uyor soy MBoRS Tuo NUEEY ~ TIGL, adomg weet: aanoeorg ‘But vungpar Anoode sieak 7 MY yg UF uOHSEISHES saomorsno — aseazout (7| jayur oy Suypiovoe puw areg- | sjanpord wantia-uou :ng-| (OD) Ageujar kroayjaq. steak 7 Ur 10}95 stuauaaiio 2044 pun cinjrs svonpord (OO) eoueuoywos AyPend | ABsowa soz syowru0s aiqeygord ys :P We Koyjod Buteq To ABores3s ©) cord | Mou ye uF aseorouy (1 smog ZU GS soni yiom Alayeg pur wpyway- | pauyquios ing 40 ayy S.toufyOnd tapso saarjoalgg | ut sysoo eonpay (Z| sempazo4d 191A.) anys ‘wais&s ysng- yorpreu arp daay -- s99004 snoop ionpos nodding uoyouns aangonasD ety S210) SPO seoyiior ABognagg Suyyay.} saanoalgo sundwo, ‘Banus Saamsopmunypy “dapagy pur Siawnligy 2940, 1S BUNA m2 2Contents A. DIVISION’S OBJECTIVES.. A. Corporative Profile. A.2 John Crane Group Profite AB Market Trends and Competitors A4 Mechanical Seal Product. A.5 John Crane's Strategy A.6 John Crane’s Objectives rou 7 B. JOHN CRANE’S MANUFACTURING STRATEGY... B.1 Corporate Objectives and Marketing Strategy... B.2 Order Winners and Order Qualifiers... B.3 Process choice.. BA Role of Inventory B.S Make or Buy. B.6 Capacity on. B.7 Functional Support. B.8 Manufacturing Planning and Control. B.9 Quatity Assurance and Control B.10 Manufacturing Systems Engineering..... B.11 Clerical Procedures. B.12 Salary and wage agreements B.13 Organisation and Work Structure. STRATEGIES COMPARISON IMPLEMENTATION AND COMMUNICATION ISSUES ..... STRATEGY EVALUATION MEASURES... = mo. STRATEGY IN CHANGING ENVIRONMENTS ... REFERENCESTable of Figures Figure 1 - Smiths Group holdings. Figure 2 — Smiths’ revenue by geographic area/countries. Figure 3 - Smiths Group Strategy and Indicators (adapted from Smiths 2013) Figure 4 - Product Life Cycle (Johnson, Whittington and Scholes, 2012:34).. Figure 5 — Smiths’ strategy logic, Figure 6 - John Crane portfolio and revenue percentage by product line. Figure 7 — John Crane Revenue by sector. *A ftermarket. Figure 8 ~ John Crane’s Mechanical Seal example. Figure 9 - The growth/share (or BCG) matrix (Johnson, Whittington and Scholes, 2012:151). vo Figure 10 ~ Three generic strategies (Johnson, Whittington and Scholes, 201 Figure 11 ~ Strategy Performance Measures for John Crane...Table of Tables ‘Table I ~ Manufacturing Strategy for John Crane UK Ltd. Table 2 - Competitors’ Overview... Table 3 ~ Corporate Objectives and Marketing Strateg: Table 4 — Order Qualifiers and Order Winners for John Crane... 13A. DIVISION’S OBJECTIVES 4m order to develop the John Crane UK Ltd. objectives, it is necessary to evaluate the current corporate level objectives and strategy, the matket segmentation and the competitors, which are presented in the following A.1 10 A.3 sections, A.1 Corporative Profile ‘The John Crane UK Ltd. is part of the John Crane Group, the largest division of Smiths Group. The Smiths Group is a global technology ‘company that holds five divisions represented in the Figure 1 and “delivers products and services for threat and contraband detection, medical devices and communications markets worldwide”. (John Crane n.d.) om Smiths Group Grove Smite! sateen, Sm etek VY VY Saat pa VY Energy Healthcare Terrotism conmuntations respaceand Business Divisional 32% mm 189% 8% % Revenue 25.0% 166% aa ax sos% —ROCE Figure 1 - Smiths Group holdings The tevenues are distributed according the geographic areas and countries showed in is from North America and Europe and the major divisional revenue is from John ‘gure 2, and considering the fact that the majority of the Smiths’ revenue Crane Group, it can be assumed that the main markets served by John Crane are the major Smiths’ markets. However, according to the Annual Report (Smiths 201 3), 16% of the Group revenue is from emerging markets, with John Crane presenting the highest proportion with 21.5% of the 16% revenue.USA and Canada ‘= Europe and UK s Rest of the World Japan China Figure 2 - Smiths’ revenue by geographic area/countries With the clear objective to increase long-term value for shareholders, the Smiths Group presents a six-part strategy showed Figure 3 that drives the five company's divisions. Enohancing f } Transforming Allocating, Driving top- inane Smithsintoa Promoting Z capital to line growth: ‘through world-class culture of snauselpe als, ‘maximise operational eae responsibility balance sheet redans efficiencies effectively cn me i: ‘i ace 1. Operation code! eee LOvepined sores A coetiot Decne BI lta on — retamning ant ‘proving: eed ‘to the divisions, decom toht | | preteen tthe ses Sema ee ae oe ae a = om Eo stevens 2 treomapoe cise! focus onlow ae ‘tects pgm SSSEE acne = Figure 3 - Smiths Group Strategy and Indicators (adapted from Smiths 2013) 2[PageFrom the Figure 3 and considering the fact that the main objective is to increase the sharcholder value, it is expected that higher margin growth and revenues and better cash management will enable better results for the investors. In this way, with the savings from reducing operational costs and increased efficiency, money will be raised to invest in further acquisitions and expansions and to fund new product introductions, which will provide long-term security for the business. Moreover, new acquisitions will generate more sales and then increase the revenue, as new product introductions will help to grow the margin once that new products normally present higher margins due low rivalry according to Figure 4. ‘Therefore, as emphasized by the Chief Executive in the Annual Report, the priority is in the operational costs that will enable the execution of the whole strategy and then deliver the main objective that is increase the shareholder value. In order to depict the Smiths’ Strategy logic above explained, the Figure 5 is presented. Market awrnaty’ Loire: ‘Increasing ral» Stranger buyers: Extreme ray Nai Fgh grawth Slower growth Lew grewtn Typ mary ‘iterentision ‘andes’ an@gomecsis andstandar exits Typict_ | imovatin hey buporn bul nee Managerial an pret, tl Cem rive trees ‘mirybamere fname strenghh “higher enty Co Grom any hey Feta | cectre Ker Morse share ey red cal hy Figure 4 - Product Life Cycle (Johnson, Whittington and Scholes, 2012:34)Savings from reduced operational costs fond increased ‘efficiency gira, developement, Aequistons and pansion Management of ‘iuh flow and Balance shest Increased margin groth ‘ond revenue increased shareholder value Figure 5 — Smiths’ strategy logic A.2 John Crane Group Profile Founded in 1917, the John Crane history began to take off with the manufacturing of the world’s first automotive mechanical seal. Due the core technology and innovation, the company started to produce seals for markets such as nergy, industry and automotive. Afier be acquired by Tl Group that posterior merged with Smiths Group, today the John Crane Group has 19 manufacturing sites in 15 countries and is a global business with a presence in more than 50 countries with the (ed States, (John Crane n.d.) headquarter established in Chicago, Un ‘The products and solutions that John Crane Group offer is result of acquisitions made since 1998, being the group's portfolio composed by engineered mechanical seals and sealing support systems for use in pumps, compressors and other rotating equipment, complemented by engineered bearings, filters, power transmission couplings and artificial lift as illustrated in Figure 6. 4[ Pave— John crane Group we os — — on oN Mechanical and Hydrodynamic Power Transmission tron systems ee Seal Suppor Systems ‘earnge ‘Couptngs 168% om om a6 10% Revenue Vw 7 ed ~ key product Figure 6 - John Crane portfolio and revenue percentage by product line Considering the divisional and product revenue percentage in 2013 from the Figure I and Figure 6 respectively, the Mechanical Seals and Seals Support Systems were responsible by approximately 25% of the total Smiths Group revenue. In this way, the Mechanical Seals and Seals Support Systems represent an important product in the Smiths Group and therefore a strategic element to achieve the corporate objective due the amount of money raised by sales and the potential savings. For the present case study, the focus will be on Mechanical Seals, once that John Crane UK Lid., a manufacturing site of mechanical seals sited in Slough, England, with 470 employees (EBSCO 2014) will be analysed and have designed an operational strategy. Regarding to markets about the John Crane Group, the revenue is distributed between Aftermarket, which is splitted in Oil, gas & petrochemical, Chemical & pharmaceutical, Distributors and General industry, and OEM market, as illustrated in Figure 7. = 1-0EM = 2-Oil, gas & petrochemical* 3-Chemical & Pharmaceutical* = 4 Distributors* = 5 General industry? Figure 7 — John Crane Revenue by sector, *Aftermarket 5|PageConcerning the geographical target markets served by John Crane, according to Figure 2 and as mentioned previously, it is assumed that John Crane major market is sited in North America, UK and Burope due the proportional revenue amount by division and geographical area, However, as stated in the corporative strategy and actions done by Smiths Group, John Crane is also targeting emerging markets such as Brazil, China, India and South Korea, ‘The main John Crane’s customers are the “major companies in the energy services sector inclading production, transmission & storage, refining, power generation and petrochemical as well as pump and compressor manufacturers.” (Smiths 2013) Represented mainly by public and private petrochemical groups and considering the sales importance of this sector according Figure 7, the major John Crane’s customers include Chevron, BP, China Petroleum, Suncor/Petro Canada, Valero, Petrobras, ExxonMobil, Gazprom, TOTAL, Sabie, PDVSA, Pemex, Saudi Arameo, Shel and Petrom. Moreover, the growth in 2013 in Smiths’ sales reflects the inereased OEM and aftermarket sales for oil, gas and petrochemical sectors due renewals and large new contracts. (Smiths 2013). However, according to Figure 7 “approximately two-thirds of John Crane's sales stem from the aftermarket servicing and support of existing installed equipment, while the remaining one-third are from the design and supply of products to original equipment manufacturers.” (Smiths 2013) Therefore, in respect to Mechanical Seals product, it is assumed that the major demand is from the aftermarket service and concentrated more for the oil, gas and petrochemical segment, A.3 Market Trends and Competitors In the study seleased by Frost & Sullivan (2013) regarding Mechanical Seal secior tends, the findings indicate that the oil & gas, chemical and pharmaceutical sectors, together with market expansions in emerging economies, will continue to lead the demand for mechanical seals worldwide. However, markets such as BU and USA are reaching maturity levels considering the product life eycle from the Figure 4, and therefore they are now demanding more after-sales services and improvements in product efficiency and performance. Regarding to market share of mechanical seals, John Crane is the market Jeader with 30%, and the main competitors are Flowserve and Eagle Burgmann 6\PageIndustries. According to competitors’ revenue by sector and similarity in the geographic area, the main competitiveness with John Crane is in the aftermarket segment in the General Machinery Industry (Oil and Petrochemical) in Europe and Japan for Eagle Burgman and Oil and Gas sector for Flowserve especially in North America, Europe and Latin America. The competitor's overview is expressed in the Table 2. Competitor “Revenue by segnrent Geographic ‘Market Main Strategy targeted Fagle 38.4% - Automotive and Japan, China, India and For General Industrial Burgmann Construction Machinery Europe Machinery Industry, the Industries Industry strategy is to expand. 27,1% - General Machinery ‘mainly to Southeast Industry Asian markets in Oil & 9,9% Marine Industry Petrochemical sector. 4.1% Aerospace Industry 2013 Revenue: £m 605 Flowserve 41% - Oil & Gas ‘North America (33%), Expand to emerging 22% - General Industries Europe (21%), Asian markets such as Africa, 19% - Chemical Pacific (20%*), Middie China, India, Latin 14% - Power Bast and Africa (16%*) America, the Middle 4% - Water and Latin America East and Russia due Aftermarket sales (10%) business opportunity represented 41% of total *Sales by region and low-cost soureing, sale 2012 Revenue: £m 2840 ‘Table 2- Competitors’ Overview ‘The similarity with John Crane’s strategy concerns in the expansion for emerging economies but, as mentioned in the market study by Frost & Sullivan (2013), it would be expected as the action for the long-term sustainability for all companies. Although, for Flowserve strategy, lower costs focus can be understood as one of the company’s objectives and, once that this competitor presents a wider market and stronger revenue, it can be considered as the major John Crane’s ‘competitor. A.4 Mechanical Seal Product One important aspect regarding the Mechanical Seals is the fact that the products follow an industry standard. In John Crane mechanical seal’s portfolio, some of the products are qualified according the API 682 standard, which concems to T|PageMechanical Seals and Supply Systems Standard elaborated by the American Petroleum Institute (APD. Figure 8 ~ John Crane’s Mechanic Seal example According to the John Crane website, for the buyer it is necessary to know the configuration required for the mechanical seal in order to choose the type and the specifications from the John Crane’s portfolio. Moreover, from the sales and services centres, products can be bought in single or more quantities. A.5 John Crane's Strategy For John Crane’s Mechanical Seals, considering the high market share (30%) and the mature markets that the major revenue is from, the position of this product in the Smiths’ BCG Matrix can be established in the Cash cows or high market share and low market growth according Figure 9. Market-share High Market growth Figure 9 - The growth/share (or BCG) matrix Johnson, Whittington and Scholes, 2012:151) 8 [PaveAs a result of a high market share, the business unit should be profitable (ohnson, Whittington and Scholes 2012) and, analysing the Revenue Percentage and the Retum on Capital Employed (ROCE) in the Figure 1, John Crane business is the bigest in terms of revenue and the second more profitable division, with a 25,7% ROCE. in this way, the corporate strategy and the cash cow position indicates that the division is cash provider in funding investments {0 another products development and/or divisions. Therefore, taking into account the need for stable prices and quality to enable the sustainability of the high market share, the John Crane's competitive strategy will be considered as 3a Cost Focus in a view of the Porter generic strategies from the Figure 10. ‘Competitive advantage lowertane teentlon ' 2 Conteledership | Osterentoen Compote E Seon : x Hatrow 2 Toroe! | coufocu | Diebamtatn Figure 10 ~ Three generic strategies (Johnson, Whittington and Scholes, 2012:112) Despite the global market served by John Crane, the competitive scope will be focused on big companies of the energy sector, once that the major demand is based on this segment that is a commodity and can be more predictable, As a consequence of the static and not complex energy environment, the focus on the big energy companies will enable bigger contracts and business security once that can be based on historical analysis and forecasts and the expectation is that the demand for energy will grow, Moreover. the high level of standardisation and the long term contracts in the aflermarket sector enable the demand to be smooth and 10 keep lower the ‘operational costs. In relation to sales level, it is expected growth due the new contracts firmed. However, concerning the scope it is worth to note that the currently segments O[Pageserved will be continued to be included, but the marketing efforts will be focused on energy sector. Regarding the competences, John Crane will continue to serve its customers with the capability to manufacture high quality products at reasonable prices with high level of after sales services in order to maintain the current market share position. ‘Thus, considering that the drives of corporative strategy are market expansion, new product introduction and reduction of the costs, the John Crane’s strategy wilt seek to keep the position of cash cows by focusing on the energy sector and reducing operational costs in order to maintain the price, increase the cash raised for additional investments and therefore enable the corporate strategy completion. A.6 John Crane’s Objectives With the purpose of set a clear direction for the business unit, drive the functional areas objectives and meet the corporate strategy, the main business unit objective is increase the Retum on Capital Employed (ROCE) in 5% in 2 years. Once that the cash cow position requires maintain the prices meeting the same or higher quality standards, this main objective will be broken down into those that seek better utilisation and management of the assets, which will affect on costs and therefore meet the corporate strategy. Furthermore, the higher profitability due the growth of ROCE will enable higher casb to fund new product introductions or group expansion, which also is a corporate objective. Considering the current business ROCE of 25,7%, the amount of 5% of growth is considered tangible once that lower percentage could not push the functions and higher could squeeze operations and impact on quality. In order to break down the main objective and once that keep the price and quality levels are keys priorities to cash providers, the secondary business objective is to reduce costs in 5% in 2 years, The amount to be reduced is based on price adjustments that materials and labour can suffer in this period, and, seeking to maintain the price and considering the competitors force, 5% of reduction in costs can provide competitive adjustments in the final price after 2 years and also enable higher profitability, As a result of this objective, all the departments will seek to decrease their costs, operationally be more efficient and review performance such as utilisation, productivity and materials management. However, it is worth to note that some investments in John Crane’s equipment and infrastructure may be required in order to 10|Pageenable the business to meet the demand for high-profit items or enhance the efficiency. In order to orientate the focus market strategy and enable more cash generation, the first marketing objective is regarding sales and aims to increase the number of new contracts for energy sector in 7% in 2 years. As a result of this, objective, the demand and market share will be ensured for a medium term and for the operational levels the objective will enable, for example, better production scheduling which impacts in efficiency and therefore costs, The amount of 7% to be increased is based on the need to protect the current market share (30%) from potential growth that competitors can have and then reach the John Crane’s position. Regarding to effectiveness and the need for high quality standard products, the second marketing objective is to increase customer's satisfaction in 6% in 2 years. The purpose of this objective is to drive the business to maintain the reputation of high quality products once that standards should be followed for the majority of the products and price is not one order winner, Furthermore, when broken down in the functional levels, the objective will be impacted by quality metrics such as quality conformance, rejections and lead time, those also affect costs. PageB. JOHN CRANE’S MANUFACTURING STRATEGY B.1 Corporate Objectives and Marketing Strategy Based on the Terry Hill framework for operations strategy development (Hill & Hill 209:40), the corporate objectives were set at the level of the business unit according to section A.6. Moreover, the market strategy regarding segments served, product and sales Ievel was designed in the section A.5 and the objectives were developed in section A.6, In this way, in order to fit the objectives in the Terry Hill framework, the Table 3 is showed with the John Crane's objectives and marketing strategy. Corporate Objectives Marketing Strategy Product focus: mechanical seals Market: big companies on energy sector Strategy: keep the market share Objectives: 3) Inctease ROCE in 5% in 2 years 4) Reduce costs in 5% in 2 . 1) Increase in 7% new contracts for energy sector years , in2 years 2) Increase customer's satisfaction in 6% in 2 years ‘Table 3 ~ Corporate Objectives and Marketing Strategy B.2 Order Winners and Order Qualifiers In order to fulfil the Terry Hill framework and guide the manufacturing strategy development, the order winners and qualifiers for John Crane’s customers are presented in the Table 4. The criteria for order winner and qualifiers are based on those which keep the companies on market and enable products win orders, respectively (Hill & Hill 2009244). Moreover, in the Table 4 the order qualifiers were assessed as Qualifiers (Q) and Order-losing Sensitive Qualifiers (QQ), while the order winners were evaluated according the relevance across 100 points. 12|PageOrder Qualifiers Order Winner Price q Product Range 5 Quality QQ After sales support 50 Conformance Delivery reliability QQ Technical Support 35 Table 4 — Order Qualifiers and Order Winners for John Crane Price: the customer will compare one price to another to check if it is within. an acceptable range considering also other aspects such as after sales service provided and product features, In this way, the cheapest product will not be an order winner but one order qualifier; even though the company competitiveness is based on which price the market can bear. Quality conformance: once that most of the products follow international standards and specifications, the quality conformance is essential to keep the company in the market and to ensure competitiveness due the lack of trust and reputation that quality problems can bring, Thus, considering the focus on big customers and the importance to keep their reputation and quality standards, the quality conformance is Vital and therefore classified as order-losing sensitive qualifiers. Delivery Reliability: once that the product mechanical seal is an equipment in industrial facilities for both OEM and maintenance market and, considering the energy sector and the costs of each hour without producing, the delivery reliability is one key element for customers” satisfaction and to preserve the relationship, Based on these facts, the delivery reliability is considered as order-losing sensitive qualifiers. Product Range: the product range can be considesed as the ability to offer different specifications and range of products for the customers. For the mechanical seals, the John Crane’s portfolio presents 11 types and, a part from the standards and concerning the OEM market, the capability to manufacture and offer different specifications is also an essential element and therefore one order winner. Another concern is regarding supplier rationalisation, once that nowadays companies seek to reduce the number the suppliers and then the ability 10 meet all or most of the customers’ needs became a competitive advantage, Regarding the weight, the product range is not the most important order winner once that not all the customers can consider it as essential. 13|PageAfter sales support: considering the technical aspects regarding the mechanical seals and the facilities were they are installed, the responsiveness of afier sales support is one important element due the same reason of delivery reliability, i.c., the cost of each hour or time unit without working. The expertise through the right extent of the after sales support is also important and, as it concems people's knowledge and then a company advantage, the support is considered order winner for the customers. ‘This order winner is considered as the most important once that it is expected that all the customers will ask at least once for after sales support, Technical Support: concerning the OEM market, the technical liaison and support capability is an order winner due the need for “support product development, particularly towards its introduction in the early stages of its manufacture”. (Hill é Hill 2009:96) In this way, the companies that can provide this service have the advantage and therefore will win the competition in the market. However, as a complementary ability in support the customers, the technical support is considered the second most important order winner. B.3 Process choice Based on the mechanical seal from Figure 8 and in the machinery and metal forming operations required, the process chosen that best fits to these operations is baich. Regarding the options, project or jobbing are not appropriated because the products are small and transportable, not one-off and repetitive, ic., standard and with a demand that will require the exact form again. Even though the OEM market can demand customised products, there is a significant level of similarity between operations of standard and personalised products. In this way, batch process is more suitable, once that batch process can provide similar items on a repetitive basis in low to large volumes and, considering the John Crane case, the volume of all the batches is insufficient to justify dedicate processes. Concerning the operations of machinery and metal forming required, the batch process will enable division of the operations task into a series of appropriate steps and equipments to determine the most effective manufacturing route. (Hill & Hill 2009:145) As a result of the divided process, the batch process will also enable flexibility such as for OEM market due different process routes that can be created. Once that machinery and forming require set-up, each order is completed in each 14|Pagebatch in order to use efficiently the assets and therefore meet the business cost objective. Regarding volume, with the objective of increase the number of contracts with big customer, the order volumes tend to increase and then enable better utilisation and some economy of scale, Once that the volume required in orders may be situated ‘between low and medium, the process of line becomes inappropriate because it requires big volumes and standard products to enable investments in infrastructure and equipment. Moreover, the batch is viable to provide flexibility to order sizes, product change and new product introductions, while line process cannot support. However, as a consequence of inherent characteristics of batch process, the production can have waiting between processes and prioritising of jobs that use the same resources, The medium or long-term contracts stated in the marketing objective though can enable better production scheduling, minimise the batch effects and help to decrease costs, which then meet the business objectives. Moreover, as a result of larger mumber of contracts and more demand for energy, the batch process also supports incremental changes in the capacity which requires not big investments and therefore contributes to maintain the ROCE and the cash cow position of the business. Concerning the product range order winner, the process of batch is more suitable once that different manufacturing routes can done through the processes and in this way enable diverse products operations and volumes. Regarding the order qualifiers, the criteria on time delivery and quality conformance perfect fit to batch characteristics according Hill & Hill (2009:162) once that the level of inventory is medium and then can support high levels of service and delivery to customers. Furthermore, due the need for set up and the impact on utilisation and in lead time, the production will execute make-to-stock strategy. Despite the need to serve on time the customers and meet the delivery reliability, the inventory levels and the costs will impact on ROCE, which depicts a trade-off that should be evaluated according to lead time and historic demand. Relating to batch-related hybrids and considering the focus on ROCE and operational costs, investments in big machines centres are not viable, once that less specialised equipments can provide more manufacturing flexibility and are cheaper. Although, aiming to decrease costs, improve efficiency in the operational level and set the best layout format, movements studies regarding product family and historic 15|Pagevolume are required in order to indicate whether operations can be grouped according 10 product similarity (cells) or process function. B.4 Role of Inventory From the sales and marketing perspective and considering the production strategy Make-to-Stock, the inventory role will be the “customer agreement” (Hill & Hill 2009:321) in order to ensure that the demand is met, the lead time is reduced and therefore the order qualifier delivery reliability is fulfilled. From the operations perspective, the inventory role is “cycle” (Hill & Hill 2009:321) because it helps to reduce set up costs and allows different batch sizes, which is a requirement due the product range and different demands. In this way, the inventory will increase the production run lengths but will minimise set up costs, increase the utilisation due better scheduling and therefore meet the cost corporate objectives, Considering that the level of inventory for batch process is often medium to raw material and high to work in progress (WIP), it is expected an optimised inventory levels as a result of more contracts due the more aceprate forecasts and better quality production scheduling and capacity planning. B.5 Make or Buy In order to focus high profitable products items and cope with volume variation and inventory levels, the purpose is to combine make and buy strategy. Considering the technical expertise and the wider range of products required by the Order Winner, the focus on higher profitable items will enable to maximise return on intemal resources and capabilities that the business performs best. In this way, the inventory levels and waiting time will be decoupled and the “outsourcing” will also build barriers against competitors due the partnerships created and the strengthened internal core competences, As a result of the bartiers, the market share can be ensured and therefore the marketing objectives can be met. Morcover, the combined strategy can enable better John Crane’s planning capacity and the use of suppliers” expertise, which can result in better performance to operations, increased capacity to wider product ranges and shared investments. 16|PageHowever, as a consequence of buy decision, the quality may be compromised and the John Crane’s reputation can be affected. In order to cope with this issue, the outsourcing strategy relies on a progressive increased amount of work transferred to suppliers with the purpose to build trust and reliability to the suppliers’ process, beginning with not critical products and small order quantities. B.6 Capacity According to Hill (2005), for the batch process capacity, the unit of measurement should be stated in equipment and staff hours. In this way, the utilisation (hours planned x hours worked) and the equipment and employees efficiency (expected output x real output) are the key performance measurements once that they directly impact on costs. In fact, as mentioned in previous sections, the corporate cost objectives were stated in order to reach lower levels through the influence on utilisation and efficiency performance, Moreover, it is known that the decision of buy some products or outsourcing some operations affects the capacity planning once that it drives the amount of investment in infrastructure and equipment required and the subcontracting can enable delaying on investments. In addition, the capacity will also be affected by the capabilities required by range of products and once that it is one order winner, it should be taken in account when evaluating the capacity and make or buy decisions. Regarding to size of the site, the operational unit due the batch process will not run large amount of products per batch or benefit from economies of scale very often, In this way, also considering the make-to-stock production strategy, WIP, inventory levels and the intemal distribution costs, the operational unit requires space and not a small size, On another hand, the cell or fimetional layout, the volume per batch and the nature of the operations do not require huge spaces, Then, the size can be established as medium and expecting the shop floor area to be around 30000 m2, Including some inventory area for raw material and finished goods, the total space expected is around 45000 m2. Conceming the timing of capacity, the best approach to John Crane's operational unit is the proactive strategy (Hill 2005). As a result of this approach, the capacity is planned proactively due the marketing strategy of growth on sales and the fact that the scale of changes in capacity can be incremental and the control difficulty 17|Pagemedium level and therefore worth to be considered. Moreover, considering the cash cow position of the business, adopting reactive approach could mean give opportunity to competitors take part of the John Crane’s market share and therefore impact in the execution of the whole corporation strategy. In relation to location, due costs and taxation of the sites’ place and the distance to customer that may impact on the inventory levels, the locality can directly affect the cost and ROCE objectives and the order qualifier delivery reliability. In this way, aiming to establish the site close to big customers and to reach the major number of them as possible, tivo different locations are need. ‘The first location is in Europe in the low cost countries such those located in the east. The decision should be taken according to political stability, government incentives and infrastructure, once that basically 95% of the products will be exported. With this site, it is expected to reach the European, Aftican and Arabie markets. Regarding to the second location and considering that 49% of the demand is from North America, the manufacturing site should be located in USA due the amount of revenue generated there and the number of customer reached. The location in the country is according to costs and infrastructure closeness, once that the production will also serve Asian and South American markets. Concerning the afier sales support, the services centres should be spread around the world and close to customers, once that the centres are independent of manufacturing site, B.7 Functional Support Once that John Crane business unit plays a key role in the Smiths group regarding cash funding and profitability, itis essential to align the functional support with the corporate objectives. In this way, in order to ensure that the support functions are aligned with the group objectives, a cross-functional team formed by managers from each function will be created. As a result of the team, each manager will be able to break down the objectives in lower levels according the demand of each function. Furthermore, the team alignment enables an efficient way to deliver functional objectives that support the corporate strategy and match with other areas” perspectives and plans. 18|PaueB.8 Manufacturing Planning and Control ‘As mentioned previously, the production will follow the make to stock strategy in order to replenish the inventory and always meet the customer demand and delivery reliability. Considering the lead time, set up time and the need to immediately serve the customer due the maintenance situation and costs of non- production, the inventory will also provide to operations a better scheduling and utilisation if compared to Make-to-order. Regarding the operations management, the focus will be on the finished goods inventory considering the need to always search for reduce the level and lead times in order to meet the ROCE objective. Concerning materials planning, the choice will be a result of a combination of time-phased and rate-based materials planning (Hill & Hill 2009). Considering that the product type is a mix of standard and special, the range is between narrow and wide and the batch volume is medium, the combination will suit better to John Crane’s material planning once that it can be divided to standard and special product demands. As a result of replenishment of inventory and the Make-to-stock strategy, the shop floor control approach chosen is push. Seeking to keep the inventory in optimal levels to reduce costs and improve ROCE and, based on forecasts and medium to tong term contracts, the push system also matches with the order qualifier delivery reliability and is more suitable to medium to wide range of products that might not be all standard, Although, the push system results in a more complex control and production scheduling and, in this way, requires higher number of staff and employees than in the pull system, B.9 Quality Assurance and Control According to Hill and Hill (2009:317), for the batch process the task in quality assurance is to evaluate if conformance levels are met, Considering the quality conformance order qualifier and the international standards that some products should follow, the quality assurance and control play @ key role in keeping the cash cow position, I9|PageOnce that the responsibility of inspection and quality control fimetions is the quality conformance, the proactive approach is more suitable in order to ensure quality, reduce rework and scraps and therefore meet the cost and market share objectives, In this approach, the processes are continually monitored and it seeks to achieve the minimum retumed products and defects and, in order to ensure that the management structure supports it, the quality assurance and control will be only one tam, Moreover, in order to establish the appropriate quality monitoring and also considering time demanded and efficiency objectives, the quality conformanee will be set for 100% of products in only key processes even though all the processes will be periodically assessed by samples. B.10 Manufacturing Systems Engineering According to Hill and Hill (2009163), for batch process the most important operations management perspective is situated between technology know-how and business criteria. In this way, decision regarding the process cannot be taken in isolation, once that the process implicates in capacity, quality control and therefore in the manufacturing system engineering. Seeking to maintain the cash cow position and to not require high investments in infrastructure and equipment, the machinery equipment will be for general purpose in order to also provide flexibility. Although, few Numerical Control machines for critical operations are viable due the reliability and quality conformance required for the products and the significant quantity of machinery processes needed for the whole product manufacturing, Regarding quality assurance, some quality inspections can require more automated equipment in the metrology laboratory, such as coordinate measuring machines and 3D imaging. Concerning production control, boards should be located in the shop floor in order to facilitate the communication about some Key Performance Indicators and to implement visual management, 20|PageB.JE Clerical Procedures Considering the quality conformance and after sales order qualifier and ‘winner, respectively, the clerical procedures should seek to serve the customer with a high quality service in the right time, In this way, the business values and ethics are driven by the customer satisfaction as stated in the marketing objectives and, in order to sustain the long term business reputation, the values and ethics also reinforces the focus on employee health and safety and welt being, B.i2 Salary and wage agreements In complement to clerical procedures, the wage agreements will be based on fair amounts according to the market and the well being policy. In this way, looking for tangible motivation that may be related to money, the salary will also include rewards linked to the company objectives, i ‘The reward system will be implemented through targets about quality, rework and utilisation, while the well being policy will be related to benefits, such as pension ., customer satisfaction and costs. programmes. B.13 Organisation and Work Structure Aiming to be responsive to customers and also secking 10 avoid roles that might not add value, the organisation structure will be functional divided and hierarchical, once that centralised controls and bureaucratic style is more suitable to batch process. (Hill & Hill 2009) ‘As considered in the functional support section, the manager will compose a cross-functional team in order to ensure alignment between functional and corporate objectives, Morcover, “the operations manager's role will be bound up with 2i|Paueappreciating and recognising critical issues” (Hill & Hill 2009:169) and proving coordination throughout, Regarding the workforce, all the employees should be skilled due the quality conformance requirements and customer satisfaction objective. Also considering the NC machines and the issues that can rise from the flexibility capabilities, in the shop floor all the operations require qualified workforce and staff. 22|PageC. STRATEGIES COMPARISON According to the Annual Report (Smiths 2013), the business strategy “is built around four core priorities: to expand the installed base, build-out selected growth markets, maximise aftermarket performance and drive continuous productivity.” In this way, in comparison with the manufacturing strategy developed in this report, there are some similarities that can be expressed in the focus on maximise the aftermarket performance and the continuous productivity. Regarding the aftermarket performance, the similarity between both strategies can be explained due the significance of this market in total division revenue, which enabled similar conclusions about which market should be targeted. Moreover, after the analysis using the BCG matrix and the conclusion about cash cow position, the manufacturing strategy developed sought to focus on costs controls and efficiency, which in the real John Crane’s strategy is stated as continuous productivity. In addition, the Annual Report (Smiths 2013) also indicates the savings and decreased costs are concentrated on “site rationalisation with a particular focus on manufacturing footprint to support future growth while lowering costs; organisational effectiveness through broadening management spans of control; and the upgrading of information systems (o improve decision-making and to support the next stage of globalisation.” (Smiths 2013) Comparing with the manufacturing strategy designed, once again the similarity is about costs and rationalisation of resources. As a result of both strategies, the focus on costs will provide the maintenance of current John Crane’s position to fand further investments to sustain the group, which is described as “support future growth while lowering costs”. Although, the infrastructure strategies seems to be incompatible, once that it was proposed centralized and bureaucratically organisation structure and the reat strategy indicates horizontal broadening. Concerning marketing and operations strategy, according to the Annual Report the increased profit generated by John Crane Group in 2015 was a result of combination of higher volumes, better sales mix and pricing. Comparing with the manufacturing strategy developed, another similarity is presented with the marketing objectives, once that they seek to increase the number of contracts and therefore enable higher volumes and better utilisation for operations. Moreover, the product range was stated as one of the business order winner and, regarding the better sales mix described as the strategy to increase profitability, it also indicates another 23|Pagesimilarity between the real and designed strategies and therefore same market interpretation, Regarding to the manufacturing site location, the currently John Crane sites are situated in Europe, North America, South America and in four countries in Asia, In comparison with the strategy developed and the proposition to set the sites in Europe and North America, it can be presented an incompatibility regarding Europe and similarity about North America. According to the John Crane website, there are 8 manufacturing sites in Europe but only one situated in more in east part. As an interpretation for this fact, it can be understood the need for be located near the big customers or the skilled man power required, once that 6 of 8 are situated in Germany, italy, UK, and France. For ‘the manufacturing strategy proposed, the focus wes on cost and the customers reached. In relation to North America, the similarity between both strategies concem about the 7 of manufacturing plants are located in USA. 24|PageD. IMPLEMENTATION AND COMMUNICATION ISSUES To contextualise the implementation issues, for the execution of the manufacturing strategy proposed it is considered that two new plants for mechanical seals will be opened in the East Europe and USA and the currently site in Slough, England, will keep running another products from John Crane’s portfolio. ‘As a result of a new plants and considering the requirement for achieving the motivation and different needs of the new employees, in the new sites reward and wages system will seek to embrace both motivators and hygiene factors. For the first factor, the reward system based on Key Performance Indicators for each function will induce responsibility and achievements and provide recognition. Regarding the Hygiene factors, the well being policy through wages and benefits system will provide a health and motivator work place. Moreover, the combination of the both motivational factors can enable to cover from physiological to esteem needs according to Maslow’s hierarch needs. For the reward system, it is essential that the objectives and indicators are set in a clear understanding through easy communication such as boards and with an achievable target. Moreover, aiming to ensure strong implementation of the policies and rewards systems and therefore reach motivators to generate better results, the implementation strategy relies on the approach top-down. Due the bureaucrati¢ and centralised organisation chosen due the batch process, the top-down approach is more appropriated once that provide example from the top for all the company in regards to actions that meet the Key Performance Indicators and therefore company objectives. Regarding to the Slough manufacturing plant, the implementation of the manufacturing strategy in the new plant will also affect the starus-quo of the British site, Considering that the fact of moving a product manufacturing to another site can be interpreted by the employees as a signal that the plant will be closed, the communication issues are essential to ensure the same quality standards and keep the motivation among people. In regatd to the British site, the nature of change will be incremental and resulted by realignment of strategy, which results in an Adaption change. In this way, the main implications will be on Capacity, due the change in the availability of the resources, and in the Preservation, once that organisational resources and characteristics need to be maintained to ensure the same quality standards and work place. Thus, in order to cope with these issues, the leadership should consider the usage of change 25|Pagemanagement tools and ensure that communication are always clear and frequent in order minimize doubts and the effects on performance. 26|PageE. STRATEGY EVALUATION MEASURES For the strategy evaluation measures, the Figure 11 summarises the indicators that will rule the performance of the proposed strategy in the corporate, business and functional levels and also shows the order winner or qualifier related. 4 ; Order aoe asics Functional Winner and ee ay ‘Qualifier Figure 11 — Strategy Performance Measures for John Crane Group ROCE: Once that it is necessary to ensure the long term value for shareholder, the relationship between profitability and capital employed can be sensitive to return on investments made and therefore can show efficiently the performance of each division Business ROCE: With the purpose to keep the cash cow position and therefore maintain the profitability with the current assets and liabilities, the business ROCE is a key performance indicator whether the right strategy has been implemented and in the right way. Market share: Also aiming to ensure the cash cow position, the market share is, a strategie indicator that can quick assess the market reaction about the strategy implemented. 27|PapeInventory turnover: Considering that the inventory impacts negatively the ROCE but can add value for customers once that they require delivery reliability for a product range, the inventory will be evaluated in order to meet the order winner and qualifiers and also control the capital employed in the finished goods inventory. Driving departmental and team measures, the inventory turnover can be broken down in product availability, SKUs, inventory holding (£) by each product, inventory levels and the percentage of orders delivered on time. Capacity Utilisation and Efficiency: As emphasized previously with the another indicators about the need to keep the business cash cow position, the Capacity utilisation and efficiency measures seek to push the business to look at costs and therefore to ensure competitive price and delivery reliability. Regarding to lower levels indicators, the capacity utilization and efficiency can be measured by labour and overhead costs, equipment efficiency, equipment and overall utilisation, lead time and orders delivered x orders planned. Customer Satisfaction: Seeking to keep the reputation and quality standards, the customer's satisfaction complements the costs and performance indicators by evaluating the strategy under the customer perspective. In this way, the order winner after sales and technical service are met and focused, while the quality conformance order qualifier can rule operational indicators such as materia! yield and defect units. Number of contracts: Also ensuring to keep the market share and help the operations with a more predictable demand, the number of contracts indicator meets the price order qualifier once that costs can be saved or set in the contracts. In this way, in order to measure the results of the strategy to growth the number of contracts, combined indicators regarding sales, profitability and product scheduling deviations can be set. 28|PageF, STRATEGY IN CHANGING ENVIRONMENTS Despite the fact that the strategy is designed to ensure long term successful, it does not mean that the same strategy can suit the whole life of the company. In is time- another words, the need for periodical strategy review is required because i phased and is related to the environment that is always changing, In this way, seeking to analyse the validity of the current strategy and how it is fitting in the context and reaching the demand, it is necessary to periodically review factors in the “mecro-, industry and competitor/merket environments”. (Johnson, Whittington and Scholes, 2012:41) ‘As a result of the evaluation, opportunities and threats for the organisation are identified and the current strategy can be assessed. Once diagnosed that it is necessary to redefine the strategy, a new cycle regarding the Terry Hill framework can be executed, However, in order to assess the macro-environment, the PESTEL factors can be used once that key drivers of change can be identified, Moreover, regarding the middle layer formed by industrial sector, the Porter five forces identify the industry or sector attractiveness and the SWOT analysis evaluate the intemal strengths and ‘weakness. Thus, combing the outputs of these three methods, the company can assess the current strategy considering the corporative strategy direction and evaluating the key drivers of change, how they affect the markets targeted, if there are new order winners and what is the best business strategy profile that can meet them, 29|PageREFERENCES = Eagle Burgman Group (2014) Annual Report. 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