It has been three years since Straight purchased its Hull factory and became a manufacturer. Founder and chief executive Jonathan Straight explains how this changed the business
At Straight, we began to calculate our carbon footprint quite early on, but our impact was ridiculously small because all the manufacturing activity was technically someone else’s problem. We felt that the right next step was to encourage all of our key suppliers to calculate their impact on our behalf and then to work to reduce this.
As it happens, it was an acquisition of a wheeled bin business that proved to be the catalyst for change. Straight had been involved in the wheeled bin market since the early 1990s as a distributor for the Dutch Hartman Group. And in 2003, the Group began representing Helesi, a Greek wheeled bin producer with a factory in Bradford.
As market share grew, the potential for profit was being seriously compromised. We really needed to have wheeled bins following the same production model as our other products. But the model did not work for wheeled bins and we found that not only did we need to own the tooling but also the machine in order for this to stack up.
Straight then had the opportunity to buy Helesi’s UK operation in 2010. The Helesi assets - machines and bin moulds - were taken in by Powell Plastics in Hull, which ran them for Straight.
So we found a mid-path between being a virtual manufacturer and making things ourselves. It was interesting to see how getting closer to actually producing what we sold could make the margins more interesting - and give us more of a say in what materials we were able to use.
For example, the Helesi wheeled bins had always been made in virgin plastic, but we found that we could use recycled plastic and meet the stringent performance targets as before.
We were taking something like 60% of what Powell Plastics were making. With the addition of wheeled bins, suddenly the figure was 80%. What is more, something like two thirds of all of our production was now coming from this one factory.
I felt that this was not a healthy state of affairs for either party and the company’s board was in full agreement. Most of the shares in Powell were owned by two gentlemen who were long retired from the business and there was a window of opportunity to buy it. In the Summer of 2010 and after several months of negotiations the deal was completed.
By this point the Group had committed around £5m to the vertical integration project and now had its own production facility. Most injection moulded product was being made in the Hull plant. But the failure of another key supplier, Gem Plastics, heralded further swift action.
Gem was our key supplier for all of our blow moulded products, covering such ranges as water butts, compost bins and dustbins. There was no obvious home where we could have these products made, so we decided to take the plunge and start doing this in house. This move required a further £2m investment. Total funds committed to the project were now more than £8m but 75% of all of the Group’s requirements was coming from the one site, which by now had been significantly expanded.
So it was now time to stamp our own personality on this business and we began to look at how we could improve in a number of different areas. The initial concerns of the Board were in areas of Health & Safety and Quality: establishing suitable committees and investing in the changes required.
A number of developments in materials reuse and recycling have also taken place. The overall use of recycled material in the plant was 50% at the point Straight took over. Recycled material was blended with virgin plastic based on an assumption that there was insufficient material available in the market. We dispelled this myth and now typically use recycled plastics for more than 90% of the time. The only time we don’t is if the customer doesn’t want it, we are making a colour that can’t be matched or there is nothing suitable available on the market.
The blow moulding section includes in-line recycling where all trimmings are immediately granulated and fed back into the moulding machines, generating no waste at all.
One of the first actions on acquiring the factory was to look at the feasibility of using renewable energy for all of the manufacturing. There was insufficient space for a large enough wind turbine and the factory roof could not support sufficient solar PV cells. But we found that we could buy in energy that was 100% renewable. It costs us quite a bit more and we don’t get the benefit of the CO2 reduction, nonetheless, it is the right thing to do.
When Straight purchased the Hull factory there was almost no recycling on site and waste was a cost rather than a revenue generator. Now, there is source separation of pretty much anything and more than 90% of all site arisings are recycled.
The financial health of the business has suffered since the process of vertical integration started. However, 2013 has heralded the start of better things. The investment in the two key acquisitions made was significant and the return on that investment has not been quite as immediate as the Group had anticipated. Whilst the efficiency of the factory was being improved, profits were dented and the share price fell as a consequence.
By the middle of last year the factory was performing very well, showing a marked improvement from the first half to the second half of the year. The second half of 2012 was overshadowed by a delay in monies coming through from DCLG which effectively paralysed the municipal market. But since the awards were made last November, trading has been much improved.
What we are seeing now is the perfect combination of a well-oiled factory and sales at suitable levels for us to thrive.
We have seen some good results this year to date and we have shown that the plant can be consistently profitable. It now has our personality stamped all over it. The job is not complete, but we continue to make improvements each day that goes by.
Background: Evolution of the business
The Straight business model has evolved through its history with all production being outsourced until relatively recently. Beginning as an agent for UK plastics producer Paxton, then becoming a distributor for a number of international plastics manufacturers, Straight found that demand was outstripping the ability of suppliers to deliver. Tooling was placed with third party moulders, then the business model changed to it being a manufacturer under licence.
Following the successful floating of the business on the London Stock Exchange Alternative Investment Market, the acquisition of Blackwall in 2005 gave the Group its own tooling for its core product range for the first time. Some of those moulds used under license were then acquired. But all production was still carried out by other suppliers.
Whilst this was a successful model, the Group lacked control over precisely what was being made and how and the environmental credentials of what was being produced began to be of key interest to the Group Board – which eventually led to it acquiring a wheeled bin business and a factory.
View from the factory floor
Straight Operations Director, Mark Halford, summarises what has been achieved in almost 3 years of ownership of the plant:
Efficiency: removal of under-performing machines, outsourcing then sale of non-core, overly complex standard product ranges such as shelving, first aid boxes and hobby boxes.
Introduction of Overall Equipment Effectiveness (OEE) and other KPI measurement systems, backed with action plans and continuous improvement initiatives, has led to a 35% increase in factory outputs since re-structure.
Factory capacity shrunk by one-third; workforce reduced to 71 from 128; however a strong order book combined with OEE improvements has led to plant running in 2013 to date at 101% of the 12 months prior to re-structure.
Economic performance: The whole point of vertical integration was to increase group gross margins. This has been driven largely by the above, but the 2011/12 movement to reprocessed materials saved almost 7,000 tonnes of virgin materials.
Some of the benefit was passed back to the market but even this enabled Straight to consolidate its leadership position in the face of increased competition. Volatility of earnings has also been reduced through opting for more predictable reprocessed material supply chains.
Quality: The move to 100% recycled material presented difficult supply chain challenges that had not been met within the previous outsourced business model. The main issues are availability and quality.
Previously, expensive prime materials were blended to solve production processing issues in real time, removing traceability and creating quality issues of their own. Removal of the blend option meant working with material suppliers to develop precise specifications for our products and our process.
The relationships developed have also extended into partnerships in targeting specific supply chains of used materials for reprocessing for specific contracts, mainly around the issue of colour.
Integration has made it possible to bring the manufacturing and commercial 9001 quality systems closer together, to the extent that they will be formally combined by the end of 2013.
Culture: Factory now fits our; manufacturing employees now 100% focused on Straight products.
We have built a ‘one company’ culture of quality, H&S, works committees and other participative forums, personal training matrices and a strenuous monthly briefing programme where a board member addresses each employee on a face-to-face basis. None of this existed prior to take-over.
Environmental Impact: Movement from less than 50% reprocessed material to 90%+; green energy for 100% of our needs; energy monitoring programme that has led to removal of most energy-consumptive machines; commencement of zero waste-to-landfill initiative that has already yielded impressive results.