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British motorcruiser and motoryacht builder Fairline Boats is only halfway into a three-year lean-manufacturing implementation, but already the pay off is considerable. Sales and profits continue to climb, while the establishment remains the same. Phil Draper reports.

MARCH 2007

Celebrating its 40th anniversary this year, Fairline Boats, which ranks as the UK’s third-largest boatbuilding entity behind competitors Sunseeker and Princess, and probably seventh in Europe, has never been more successful. Its consolidated sales for calendar 2006 ended up at £125 million on the delivery of getting on for the usual 300 or so boats. In value terms that equated to a growth of around 21 per cent for the year and 34 per cent for the past two years. And this year’s forecast is for £130 million, which when achieved will equate to a 39 per cent growth over three years.
More significantly still is the efficiency gains those numbers throw up. Fairline currently employs around 1,200 people, much the same number as a year ago, which means it has managed its growth without increasing its direct labour costs at all. As a consequence for calendar ’07 its net profits look set to double.
So how’s this all been possible?
Two words. Lean manufacturing.
Oh and two more. Hard work.

'“Lean is not about anyone having to work harder,” says Derek Carter... “It is about working smarter.”'

What is now commonly referred to as ‘lean’ manufacturing is not just some plug-in solution, although there are certainly plenty of clearly identifiable tools and techniques involved in its implementation. Rooted in assorted production technology concepts of the past — such as JIT (just-in-time), Right First Time and Value Engineering to name but three — it is first and foremost a culture, an evolution of best practices. But the real essence of it is the elimination of waste, which can be defined as that which does not add value. And the approach extends to just about every area of a business. It can be applied to people, processes, materials and equipment. Broadly, however, waste comes in two forms. There is cost-based waste and time-based waste.
“Lean is not about anyone having to work harder,” says the company’s chairman and managing director of the past 11 years, Derek Carter, who together with fellow directors successfully concluded an MBO with the financial backing in May ’05 of 3i, one of the UK’s largest private-equity investors. “It is about working smarter. Certainly there was plenty of scope for a leaner approach at Fairline. Apart from the people we employ, we generally buy in annually around £60 million worth of materials, equipment and services.”
Fairline’s path to lean really coincided with the retirement of the company’s longstanding and very capable production director some two to three years ago. When it came to considering a replacement Carter and his board recognized an opportunity for fundamental change. “We reasoned that if we were to survive long-term in what is a relatively expensive UK manufacturing environment, we would need to improve our game considerably. Our profit expectations particularly needed to shift north in line with other luxury goods industries… We needed to be a lot leaner, pure and simple… But with no one in-house with ‘lean manufacturing’ expertise, coupled to the fact that thus far there has been very little marine industry adoption of such practices, we realized we would need to look beyond out own industry for the necessary talents. An obvious place to look was the automotive sector, which is really where the lean movement began…”
For those unaware, the phrase ‘lean manufacturing’ was first coined in a book describing the production system developed by the Motor Corporation in Japan. The landmark title, first published in ’90, was The machine that changed the world by James P Womack, Daniel T Jones and Daniel Roos. It charts the success of Toyota. And to give an idea just how far it has come, for instance, note that while it made a significant US$13 billion profit last year, the Ford Motor Company actually made a US$12 billion loss. And the two giants produce broadly similar car volumes globally — something like eight to nine million cars a piece. Indeed Toyota looks set to wrestle the title as the world’s biggest automotive producer from General Motors in the not-too-distant future.

'“The marine industry in many ways is so far behind the car industry...”'

“It was always going to be a challenge attracting the right people,” says Carter. “The marine industry in many ways is so far behind the car industry. But as it turned out we were very lucky. We managed to attract two top guys from that sector, both of whom were in place with us by August ’04. And both of whom were obviously motivated by the difference their skills and experience could make to what is a relatively small business in comparison to their former employers.”
Fairline’s new manufacturing director is David Hurst, who until his most recent appointment had spent virtually his whole career in the car industry. Indeed his ‘lean’ credentials couldn’t have been much better. He had previously spent 10 years with none other than Toyota, which included a fair amount of time in Japan where he had been immersed in its lean culture. He says his working world then was very different. His stint with Toyota ended with him responsible for half its ultra-efficient Avensis and Corolla plant in Burnaston, near Derby, UK, which was begun from scratch in ’90. At the end of his time there it was producing a finished car every minute for 16 hours a day, five days a week.
“It is difficult to get a better grounding in production engineering than a car plant,” says Hurst. “Cars are very complicated and there’s an awful lot to go wrong… As it happens I’ve got a degree in engineering and an MBA, and prior to Toyota I’d had seven years experience with Jaguar, but it was Toyota that taught me everything I know about production management… A key feature of Toyota Burnaston was an ‘Andon’ system, essentially a cord that runs the length of the line. If any worker had a serious problem they could pull that cord and stop the line… Pulling it was a cry for help and meant everyone’s attention was focused where it was needed… It was very effective. If that line stopped for more than 10 minutes I would know immediately. If it ever stopped for more than half an hour the boss would know… The time that the line stops more than pays for itself… And that plant is now one of the most efficient in Europe… It delivers cars that are essentially fault-free… I know it’s that building-it-right-first-time cliché, but believe me it’s oh so true… We are now applying some of those concepts to Fairline’s operation.”
The new supply-chain director Matthew Taylor’s curriculum vitae is equally impressive. Prior to his present job, he had spent time with the likes of Nissan and tool specialist Black & Decker, both big high-volume manufacturing entities.
From the outset Hurst and Taylor began communicating the essentials of lean thinking to the workforce, getting the message across as to what that meant on the ground and how it would impact each and every one of them. They ensured manufacturing and supply-chain paths were put on converging courses.
The essentials for lean manufacturing, according to David Hurst, are relatively simple. The ideal lean environment would see no inventory, single-piece flow and immediate feedback. From the outset I identified four or five really important areas that required change and decide to concentrate on sorting them out above all else… We won’t go beyond those until we’ve got them right…

'“The way Fairline’s production has always been organized here, with its autonomous halls and so on, really lends itself to a lean approach...”'

“While there was obviously a heck of a lot to do here,” says Hurst, “certain elements were actually ideally suited to lean implementation… The way Fairline’s production has always been organized here, with its autonomous halls and so on, really lends itself to a lean approach. The lines are progressive, flowing. Each line is essentially a single-piece-flow system from start to finish. Discreet operations with no inventory between them is best, as obviously any inventory holding between stages is simply waste… Each line having its own joinery department line-side is pure lean… Such things make for a very short feedback loop, which are essentials as far as worker pride is concerned… The pride aspect becomes a lot harder when the success of your activity is impacted by some remote supply team. Physical distance slows the feedback loop… Not knowing the person who delivers their products to you enables the company team spirit to be lost. Having something as fundamental as the joinery function adjacent to the line means any problems are relayed back to source almost immediately. If the joinery function was centralized that feedback loop would be stretched and the link less effective.”
One of the essential things that David Hurst needed done was the analysis of what his workforce actually did. This he describes as ‘job, a man, a day’ — effectively asking ‘who are you?’, what job are you doing?’, and ‘what do you need to achieve today?’. It is essentially critical path stuff. It wasn’t a ‘method study’ approach, which tries to tell people precisely how to work each task. Such things are not lean and tend to be de-motivating. Toyota Burnaston doesn’t use method studies and has no industrial engineers on its staff. The idea behind the job-a-man-a-day approach is about identifying tasks and then making sure everyone concerned — the individuals and the teams they’re involved with — understand what needs to be achieved. The teams can learn their own best practices.
A key driver was identifying the goals. Available time divided by the output volumes required, known as TAKT times, dictate basic line pace.
Take the relatively new Targa 38. There are 244 workings days a year and the required output is 44 boats a year. Therefore, the TAKT time is 5.5 days. Then its build programme can be broken down into seven obvious stages, each of which takes around five days. So there is a 35-day throughput. With things organized in this way there is no scope for work-in-progress inventory to get caught between the stages, which would increase the throughput times.
“Another of the first things I did was to increase the number of supervisors,” says Hurst. “Smaller workgroups are so much more effective… The ‘Five Ss’ concept spells it out — separate, strengthen, scrub, sustain and systemize — all of which help improve work groups’ safety, working environment and productivity. The supervisor ratio used to be 1:17 at Fairline, which is really too high. We’re now around 1:12, which is much better, and I’d would like the ratio to be even lower eventually — say, 1:10. We have around 100 supervisors throughout the company just now. And then we set about making sure everyone would know what the goals were and how their performance impacted the company as a whole.”

'The Airbus operation proved particularly interesting from a Fairline standpoint... Both operations have their similarities...'

Another early initiative from Hurst saw Fairline take some 50 foremen and supervisors to Airbus Industries’ UK-based wing building plant in Broughton, near Chester. One of the 16 or so Airbus plants around Europe, it used to rate bottom in terms of efficiency within that group, but thanks to a new purpose-built facility, one conceived from the earliest stages to function on lean principles, it now rates in second place. It is that operation that, among other major wing assemblies, will be handling the new A380 ‘Super Jumbo’ wings and had its efficient been in question it almost certainly wouldn’t have secured that role. That Airbus operation proved particularly interesting from a Fairline standpoint. Both operations have their similarities. For example, both have long process times and highly skilled people. Indeed their TAKT times are directly comparable.
In all the Fairline delegation spent two days at Airbus Broughton, where time was fairly evenly split between classroom and factory-floor sessions. That experience worked wonders. It effectively created 50 lean ‘champions’, who could then take the message home and share it.
Communication is vitally important for a lean-manufacturing environment.
For instance, each work group holds a five- to 10-minute meeting at the start of each shift, which normally begins at 07.30 and finishes anytime after 16.00 Monday to Thursday, with a half day on Friday. A degree of flexibility is allowed within the 38.5-hour working week, which all contributes to workforce empowerment.
Visibility is vitally important at every level of Fairline now. For example, big boards and a myriad charts and tables are used all over the company. Each of the small work groups has its own ‘Work Board’ and interestingly manages its own display material. The morning meetings tend to be held round the boards. And these boards don’t have to use stuff generated by some remote planning office either. Teams make their own charts and tables. The idea is to make sure everyone is fully involved in the process and fully aware of what they’re meant to be doing and how their team is ultimately performing. Beyond communicating the obvious production targets against actual performance and quality markers, graphs, charts and tables indicate all manner of things that influence team performance — everything from accident rates to how much is being spent on consumables such as hand-cleaners and sandpaper — all to encourage good housekeeping.
The first line to get the lean treatment was the one building the Phantom 50, which at the time was probably one of the least efficient Hurst recalls. “We ended up dissecting what went on in that hall into ‘Hours 1-8’ and ‘Processes 1-5’. Such was the success of that implementation that around 700 hours were removed from a previous 5,400-hour production process. Moreover, by the end of the first full ‘lean year’, the line had reduced end-of-line defects by around 50 per cent and its still falling, which means a lot less rework is now required. “Improvements like that go straight to the bottom line,” says David Hurst.
To help accelerate the implementation throughout the company, a firm of consultants (KM&T in the UK — which is said to stand for Knowledge Management and Transfer) was brought in at the beginning of 2006 — and a team of six engineers spent much of the year helping to train staff in the necessary procedures. In all 12 days of off-line training was given to the 100 or so supervisors — so, say, 1,200 man-days in all. It was an expensive business. In all Fairline spent around £1.6 million with that one firm and all within its ’06 financial year.

'“Improvements like that go straight to the bottom line,” says David Hurst, Fairline’s manufacturing director.'

Meanwhile Matthew Taylor was getting stuck into honing the supply-chain side of things. The biggest potential waste as regards this area is not having required materials, components or equipment items in place where and when they are needed. That can waste a lot of people’s time.
“Employing 1,200 people means potentially if things go wrong on the supply side we can end up with significant numbers of people twiddling their thumbs,” says Derek Carter. “And that can mean wasting a great deal of time and money.”
Beyond wasting people’s time, the other big potential waste area is stock and precisely the expense of paying for things before they’re needed. On that score it comes down to not only the amount of capital that can be tied up, but also the amount of space required for warehousing and so on. So what Matthew Taylor took on was a complete review of procedures.
“Getting it right as regards the supply-chain is really JIT with zero inventory,” says Matthew Taylor. “We don’t start by trying to reduce things by, say, 10 per cent. What we do is work out how close we can get to the theoretical minimum… We need to get the process right, before we begin making it efficient… The specifics are that I have 10 days of firm horizon to play with prior to the build commencing… So around 25 per cent of the items are bought on fixed 10-day lead times… That includes items such as generators and windscreens down to quite small items… So we never have to give suppliers a firm commitment before we have a firm order position…”
Fairline’s stores carry around £4.5 million worth of stock, but increasingly this is being delivered directly to the lines rather than via centralized warehousing. Ideally, of course, the inventory would be zero, but that is unrealistic in the real world.

'“The mantra I like to put across is the ‘Zero Principle’ — meaning zero admin, zero delay and zero error…”'

“There is always a trade-off between decreasing inventory and increasing frequency… Purchasing is a strategic role. Supply is an operational role, says Matthew Taylor. “And the two are rather unhappy bedfellows… I will be happy enough when we’ve got the inventory value down to nearer the £1 million mark or say one weeks’ worth as the inventory ‘turns’ around £50 million a year… As we improve our systems, inventory tends to naturally track down anyway… Reducing the cash tied up in inventory means the money can be spent elsewhere… The mantra I like to put across is the ‘Zero Principle’ — meaning zero admin, zero delay and zero error… The more paperwork that is involved, the more time and money is wasted. To that end a reduction in the sheer volume of suppliers helps… Ideally any single product or group of similar products would be single-sourced. The key is mutual benefit and interest. We have had suppliers with whom we had no meaningful relationship… We didn’t know them and they didn’t know us. That is not efficient.”
A third area that is benefiting enormously from lean principles is the 33-strong design and engineering department. “Thanks to the lean approach, says Derek Carter, we have been able to slash the time it takes to bring new products to market… We did that by analyzing our traditional design path and cutting out the time wasted… It has had a huge impact… We have looked at how we work with various suppliers to the process. For instance, we have been making more and more use of CNC equipment, which has meant mould production is so much quicker… For example, with the new Targa 64, we have managed to take as much as 10 months out of the process…”
Technical director Adam Greenwood agrees lean methods have had a huge impact on his end of the business. New-model development work is so much more efficient. “We only began down the lean path a year ago,” says Greenwood. “But already we can see huge benefits. The lean approach has really helped us eliminate what used to be a rather disjointed process and turned it into a more predictable, phased process… What we do now fits so much better into the corporate strategy and works so much faster — and all without extra resources… And faster not only means faster to market, but also surprisingly allows more time for creativity… The secret is having a defined process wherever every one knows precisely what they need to achieve and when… It’s all about time management, about visibility. We communicate that process to everyone in a similar fashion to what goes on in the halls… It’s all about involving the right people at the right time; and not just the designers, it means everyone that impacts a project, inside and outside the company. It also means there is clear ownership (responsibility) of project functions… The way we used to do things was so much more confused… For instance, people would come off one project too late to be involved earlier enough on the next one… Certainly it is a major advance for us and means our goals — releasing winning products on time and on budget — a lot easier.”
Certainly new models have also had a lot to do with his company’s sales successes. The newest two in the line-up are the Targa 38, which was unveiled at the ’06 London International Boat Show in January, and the Phantom 48, which was shown for the first time at the ’06 Southampton International Boat Show in September. And the new Targa 44, which is notable for the fact that it is Fairline’s first product to have been designed for Volvo Penta IPS units, will be launched at Southampton ’07.
Beyond that, we can soon expect to see the introduction of a Targa 64 to replace the Targa 62 in May/June this year. Also in the pipeline are a Squadron 55 and a smaller entry-level model. Even further down the tracks is even bigger Targa, probably a 76, and ultimately we are likely to see something as big as a 26m (85ft). Indeed a Squadron 85 should finds its way into the range with the next two years. When it launched its current flagship, the Squadron 74/78 Custom, a few years ago it believed it would have to establish a coastal operation to build bigger, but it seems going a bit bigger while still delivering by road is feasible.
“Ultimately we see our core market as being 9-26m (30-85ft),” says Derek Carter. “Within that sector the business remains a production operation. Bigger than that and the business becomes more or a semi-custom building scene, which is not how we see ourselves. That end of the business requires a very different production approach… It would also have meant establishing a facility on the coast and that would be difficult, as gravitationally all our structure is round the Oundle and Corby areas.”

'“Lean manufacturing transformed Toyota… And it is transforming us,” says Carter. “But bear in mind there are different ways to cash the lean cheques…”'

Overall, Derek Carter sums up the lean impact as profound. “Lean manufacturing transformed Toyota… And it is transforming us,” he says. “But bear in mind there are different ways to cash the lean cheques… For instance, it is not just about saving time. A key point is what we choose to do with that saved time… Lean doesn’t have to mean employing less people… It can mean more capacity… For instance, at the end of ’05 we had sales revenues of £102 million and employed 1,200 people. At the end of ’06 we had sales of £125 million and still only employed 1,200… Obviously there was a choice to be made during that year. We could have decided to cut the number of staff for a given volume of output, but as it was we took the gains as extra capacity — 21 per cent additional output to be precise. That sort of thing can be done in a growing market, which happily our sector is still… A good example of how we have used that extra capacity is the whole year postponement we have made to our new NV3 (Nene Valley 3) facility. Work was originally scheduled to begin on that in March ’06, but the extra capacity we’ve acquired through lean has meant we haven’t had to begin work on that project until now, a year later… Not spending the £8 million we had earmarked for that project for a whole year represents a substantial saving.”
And there are other ways to cash those lean cheques. Not only can it translate to extra capacity, but also to a much better bottom line…
“Once the obvious lean gains are made, the process shifts to the next phase,” says Derek Carter. “And that is all about continuous improvement… The obvious stuff is the low hanging fruit. The continuous improvement stage is all about having to go higher up the tree… For 2008, for example, our plan will see us add a little more freed-up capacity, more physical capacity as NV3 comes on stream, which will allow us to add a 12th production line, but we aim to do that with no more heads… Providing market conditions don’t take a turn for the worse, we expect our sales to be around £145 million to £150 million for ’08.”
As for the year ahead, Derek Carter says his team will be deliberately flattening the business off a bit in terms of total sales. “Having grown 34 per cent in two years, we need to give the Fairline machine time to catch up and settle down,” he says. “But having said that the ’07 numbers will still be up a little, probably somewhere around £130 million, and more importantly we will show considerably better profitability… Our bottom line should be in excess of 10 per cent come the end of ’07, which will release a whole lot of cash… That’s up from the ‘sevenish’ we were doing the year before… But bear in mind we are still only halfway into what will be a three-year lean implementation process, never mind the continuous improvement thereafter… Over the next two years we should see net profits nearer 15 per cent or so, which is really where a luxury brand operation like ours needs to be in terms of returns…”
Certainly any profitability increases at Fairline will benefit everyone. There is a profit-share scheme in place that sees 10 per cent of all profits distributed among the entire workforce!
For more, www.fairline.com.

© Phil Draper