Case study

CHAPTER 18 MaNagiNg risk aND rEcOVEry 643

● risk mitigation actions include:

● Mitigation planning

● Economic mitigation

● containment (spatial and temporal)

● Loss reduction

● substitution.

❯ How can operations recover from the effects of failure?

● recovery can be enhanced by a systematic approach to discovering what has happened to cause failure, acting to inform, contain and follow up the consequences of failure, learning to fi nd the root cause of the failure and preventing it from taking place again, and planning to avoid the failure occurring in the future.

CASE STUDY Slagelse Industrial Services (SIS)

slagelse industrial services (sis) had become one of Europe’s most respected die casters of zinc, aluminium and magnesium parts and a supplier for hundreds of compa- nies in many industries, especially automotive and defence. The company cast and engineered precision components by combining the most modern production technologies with precise tooling and craftsmanship. slagelse industrial services (sis) began life as a classic family firm by Erik Paulsen, anders’ father, who opened a small manufactur- ing and die-casting business in his hometown of slagelse, a town in east Denmark, about 100 km south-west of copenhagen. He had successfully leveraged his skills and passion for craftsmanship over many years while serving a variety of different industrial and agricultural customers. His son, anders, had spent nearly 10 years working as a production engineer for a large automotive parts supplier in the Uk, but eventually returned to slagelse to take over the family firm. Exploiting his experience in mass manufac- turing, anders spent years building the firm into a larger scale industrial component manufacturer but retained his father’s commitment to quality and customer service. after 20 years he sold the firm to a Uk-owned industrial con- glomerate and within 10 years it had doubled in size again and now employed in the region of 600 people and had a turnover approaching £200 million. Throughout this period the firm had continued to target its products into niche industrial markets where its emphasis upon product quality and dependability meant it was less vulnerable to price and cost pressures. However, in 2009, in the midst of difficult economic times and widespread industrial restructuring,

the firm had been encouraged to bid for higher volume, lower margin work. This process was not very successful but eventually culminated in a tender for the design and pro- duction of a core metallic element of a child’s toy (a ‘trans- forming’ robot).

interestingly the client firm, alden Toys, was also a major customer for other businesses owned by sis’s cor- porate parent. alden Toys was adopting a preferred sup- plier policy and intended to have only one or two purchase points for specific elements in their global toy business. They had a high degree of trust in the parent organization and on visiting the sis site were impressed by the firm’s depth of experience and commitment to quality. in 2010, they selected sis to complete the design and begin trial production.

‘ Some of us were really excited by the prospect…but you have to be a little worried when volumes are much greater than anything you’ve done before. I guess the risk seemed okay because in the basic process steps, in the type of product if you like, we were making something that felt very similar to what we’d been doing for many years .’ (sis Operations Manager)

‘ Well obviously we didn’t know anything about the toy market but then again we didn’t really know all that much about the auto industry or the defence sector or any of our traditional customers before we started serving them. Our key competitive advantage, our capabilities, call it what you will, they are all about keeping the customer happy, about meet- ing and sometimes exceeding specification. ’ (sis Marketing Director)

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644 PART FOUR DEVELOPMENT

been ‘poisoned’ while playing with the end product. The threat of litigation was quickly levelled at alden Toys and the whole issue rapidly became a ‘full-blown’ child health scare. a range of pressure groups and legal dam- age specialists supported and acted to aggregate the individual claims. although similar accusations had been made before, the litigants and their supporters focused on the recent changes made to the production process at sis and in particular the role of alden Toys in manag- ing its suppliers. ‘[i] t’s all very well claiming that you trust your suppliers but you simply cannot have the same level of control over another firm in another country. I am afraid that this all comes down to simple economics, that Alden Toys put its profits before children’s health. Talk about trust…parents trusted this firm to look out for them and their families and have every right to be angry that board- room greed was more important! ’ (Legal spokesperson for Us litigants when being interviewed on Uk TV consumer rights show).

Under intense media pressure, alden Toys rapidly convened a high-profile investigation into the source of the contamination. it quickly revealed that an ‘unau- thorized’ chemical had been employed in an apparently trivial metal cleaning and preparation element of the sis production process. although when interviewed by the Us media, the parent firm’s legal director emphasized there was ‘ no causal link established or any admission of liability by either party ’, alden Toys immediately with- drew its order and began to signal an intent to bring legal action against sis and its parent. This action brought an immediate end to production in this part of the oper- ation, and the inspection (and subsequent official and legal visits) had a crippling impact upon the productivity of the whole site. The competitive impact of the failure was extremely significant. after over a year of produc- tion, the new product accounted for more than a third (39 per cent) of the factory ’s output. in addition to major cash-flow implications, the various investigations took up lots of managerial time and the reputation of the firm was seriously affected. as the site operations manager explained, even their traditional customers expressed concerns: ‘ It’s amazing but people we had been supply- ing for thirty or forty years were calling me up and asking “ [Manager ’s name] what’s going on?” and that they were worried about what all this might mean for them…these are completely different markets! ’

QUESTIONS 1 What operational risks did SIS face when

deciding to become a strategic supplier for Alden Toys?

2 What control problems did SIS encounter in implementing this strategy (pre and post investigation)?

The designers had received an outline product speci- fication from alden Toys during the bid process and some further technical detail afterwards. Upon receipt of this final brief, a team of engineers and managers confirmed that the product could and would be manufactured using an up-scaled version of current production processes. The key operational challenge appeared to be accessing sufficient (but not too much) capacity. Fortunately, for a variety of rea- sons, the parent company was very supportive of the project and promised to underwrite any sensible capital expendi- ture plans. although this opinion of the nature of the pro- duction challenge was widely accepted throughout the firm (and shared by alden Toys and sis’s parent group) it was left to one specific senior engineer to actually sign both the final bid and technical completion documentation. By early 2011, the firm had begun a trial period of full-volume pro- duction. Unfortunately, as would become clear later, during this design validation process sis had effectively sanctioned a production method that would prove to be entirely inap- propriate for the toy market, but it was not until 12 months later that any indication of problems began to emerge.

Throughout both North america and Europe, indi- vidual customers began to claim that their children had

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