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TRANSCRIPT
FURNITURE MANUFACTURING INDUSTRY
MAY 2008
ALBERT BRINK IAN RAYNER EleR
06 May 2008
© Productivity SA 2008
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INDEX
PAGE
1. INTRODUCTION AND BACKGROUND 1
2. THE FURNITURE MANUFACTURING INDUSTRY IN PERSPECTIVE 1
3. PROJECT IMPLEMENTATION 5
4. DISCUSSION OF INFORMATION GATHERED 10
5. RECOMMENDATIONS 21
6. ACKNOWLEDGEMENT 30
ANNEXURE A: PROJECT SCOPE 31
ANNEXURE B: INTERVIEW GUIDE/DATA COLLECTION 32
ANNEXURE C: FRAME OF REFERENCE ORGANISATION AND PERFORMANCE DEVELOPMENT 44
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Wooden Furniture Manufacturing
Numbers Employed 1995 to 2005
42955
40704
38775
4453644246
41469
4059140649
41292 41831
37131
32000
34000
36000
38000
40000
42000
44000
46000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
1. INTRODUCTION AND BACKGROUND
The Steering Committee of the Furniture Development Initiative under the auspices of
The Furniture Technology Centre Trust (FURNTECH) contracted the Cape Town
Regional Office of Productivity SA to execute the following project:
Furniture Manufacturing Industry (Western Cape) Intervention Project. (See Annexure A)
The purpose of this report is to provide the Steering Committee with:
1. Feedback on the outcomes of field research being done amongst a sample of
manufacturers in the Western and Southern Cape.
2. Recommendations regarding actions to be taken to strengthen the competitive
position of the industry in the Western and Southern Cape.
Once the committee has reviewed and decided on the recommendations an
implementation action plan will be drafted for consideration.
2. THE FURNITURE MANUFACTURING INDUSTRY IN PERSPECTIVE
The motivation for the initiative launched by FURNTECH stems from the decline in the
furniture manufacturing industry. GRAPH 1 below clearly illustrates the decline in
employment levels (nationally) for the period 1995 to 2005.
GRAPH 1
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Wooden Furniture Manufacturing
Fixed Capital Input Index
75.1
81.589.5
97.8105.1
110.5
116.1117.9115.5
109.3
100
0
20
40
60
80
100
120
140
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Wooden Furniture Manufacturing
Real Output Index
121.7
113.2102.8
106.2
98.399102.7103.5103.6
111.5
100
0
20
40
60
80
100
120
140
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
The decline in employment certainly didn’t stem from an increase in mechanization
and/or an increased use of labour saving technology. The decline in fixed capital
investment is clearly illustrated in GRAPH 2 below.
GRAPH 2
Despite the decline in employment and fixed capital investment the industry, as a
whole, managed to maintain and marginally increase the real value of output as shown
in GRAPH 3 below.
GRAPH 3
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Wooden Furniture Manufacturing
Capital Labour Ratio Index
90.193.697.9
104.1113.4
121.1127.4126.6119.8
110
100
0
20
40
60
80
100
120
140
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Wooden Furniture Manufacturing
Unit Labour Cost Index
182.2183.1176.4
156
151.2141.3
121.1
119.9
9399.2100
0
20
40
60
80
100
120
140
160
180
200
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
The sustainability of this situation is questionable if one considers the fact that the
industry is becoming more labour and less capital intensive (refer GRAPH 4) and if
one considers the labour cost trends shown in GRAPH 5.
GRAPH 4
GRAPH 5
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Retail Trade Sales (R '000)
(January 2006 - January 2008)
Household Furniture, Appliances & Equipment
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
JANFEB
MRCH
APRIL
MAY
JUNJUL
AUGSE
PTO
CT
NO
VDEC
JANFEB
MRCH
APRIL
MAY
JUNJUL
AUGSE
PTO
CT
NO
VDEC
JAN
The following extract from Productivity Statistics 2006 published by Productivity SA in
October 2007 summarizes the plight of the industry: “Performance of the furniture
industry was weak in terms of both output and productivity growth. Between 1996 and
2005 output increased by a modest 1% per annum and multifactor productivity by a
more noticeable 3.3% per annum.
The malaise of the industry is already noticeable since 1998 when output and
multifactor productivity growth started to falter. There is a clear downsizing trend
visible from the negative string of changes in fixed capital input since 2000,
culminating in the annual average decline of 4.6% per annum in capital inputs from
1996 to 2005.”
Up to this point the review focused primarily on issues relating to internal capabilities to
compete. On the demand side for the product the situation is equally disturbing.
Statistics South Africa in their analysis / review of retail trade sales released on 19
March 2008 states that: “Retailers in household furniture, appliances and equipment
continued to contribute negatively (-1.0 percentage point) to the change in retail trade
sales, a trend that started with the introduction of the new National Credit Act (Act No.
34 of 2005) in June 2007.” This situation can be expected to worsen as interest rate
hikes take effect. GRAPH 6 below clearly shows that retail sales are basically
stagnant.
GRAPH 6
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Information contained in this section of the report paints a rather gloomy picture of
the situation facing the industry. Demand/sales are stagnant/declining, growth in real
output is virtually stagnant, and capital investment is declining. The latter is causing
the industry to become much more reliant on labour efficiency and performance for
its success.
3. PROJECT IMPLEMENTATION
DATA COLLECTION
The acceptance of and support for the final outcomes of any project of this nature is
directly influenced by the nature and extent of the sample of industry players involved
in the study. Great care was taken in obtaining and involving what could be termed a
highly representative sample.
TABLE 1: SAMPLE SIZE
Actual
Number
FIBC database of companies 222
LESS Unavailable businesses (See ** in Table 2 below) 22
Available for participation in study 200
Actual sample 86
Proportion of available businesses involved in study 43%
TABLE 2: ANALYSIS OF UNAVAILABLE BUSINESSES
Reason for Non-Availability Actual
Number
• Not interested 24
• Phone discontinued/fax tone/no answer ** 17
• Didn’t return calls or messages 9
• Cancelled appointments 5
• Duplicate companies (same building, same owners, different entities) 3
• Business closed down ** 2
• Business sold or taken over ** 2
• Irrelevant industry (quilting only manufacturer) ** 1
Total 63
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Table 3 provides information on the business focus of the 86 participating entities
whilst Table 4 provides information on the size of the participants.
TABLE 3: COMPANY ANALYSIS BY RAW MATERIAL & PRODUCT TYPE
Number Percentage of Total
• Solids 36 41%
• Solids and Board 17 20%
• Upholstery 16 18%
• Board only 12 13%
• Bedding 2 3%
• Office 3 5%
Total 86
TABLE 4: EMPLOYMENT LEVELS
Category No of
Companies
Total Employees
all Companies
Average Employees
per Company
Highest Lowest
1-15 34 330 10 15 3
16-50 42 1206 29 50 16
51-100 5 336 67 93 52
100+ 5 1385 277 625 111
Total 86 3257
In addition to the abovementioned participants five regional retail executives were
interviewed to obtain their views on a number of issues relating to furniture
manufacturers. The outcome of this intervention will be dealt with in more detail later in
the report.
Given the contents of tables 1 to 4 it is a fair assumption that the sample of businesses
involved in this study can be regarded as representative of the total population.
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GENERAL INFORMATION REGARDING PARTICIPATING BUSINESSES
No obvious differences were found between the business issues reviewed and the
type of raw material used, nor whether the business makes furniture or upholstered
products.
Observations and comments made are therefore relevant to a typical company from
any raw material or product type grouping.
Businesses generally operate under the daily direction of one, or exceptionally two,
joint owners or partners. “Sleeping partners” are common and often have significant
shareholding in the organization.
Owners’ interest in acquiring or becoming involved in a furniture or upholstery
business stems from any of the following reasons:
• Took over from father, i.e. “inherited” the company.
• Timber (wood) “is my passion” and I started experimenting as a garage hobby.
• I was retrenched and looked around for a business to buy.
• I studied engineering/surveying/accountancy and wanted to be out of the
corporate “rat race”.
• I married into the business.
GENERAL OPERATING INFORMATION
It will have normal working hours of between 40 and 45 hours per week. These times
will not always agree with the starting and finishing time given to us at our visit!!
Popular starting times are 07:30 or 08:00 with a morning and afternoon tea break of
ten minutes each and a half-hour for lunch. An earlier finish of between 13:30 and
15:00 is standard practice on Fridays.
Very little overtime is worked and is limited to urgent order, late raw material delivery,
changed fitting and product specification or high and expected seasonal demand
recovery situations.
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Very little use is made of contract (casual) labour and then only in basic labouring or
cleaning tasks. This happens particularly at year-end (festive season) when general
maintenance and clean-up work is undertaken.
Factory loading is done on the basis of historic knowledge of product completion times
and, if managed at all, is based on monthly turnover achieved as a measure of
effectiveness.
There is an appalling lack of financial management, knowledge and understanding
resulting in a very heavy reliance on bookkeepers – often working part-time – and “off
site” accountants. (In our opinion the fees charged for financial services such as the
preparation of financial year-end accounts are in some cases highly exorbitant and
vary considerably for companies of similar economic complexity.)
The issue of poor financial management is amongst the most important and requires
urgent attention. However, there appears to be very little interest in becoming
reasonably proficient in these matters and owners seem quite happy to leave “money
issues” with external people whilst they concentrate on the manufacturing situation.
This may be an attitude which is difficult to change!
OPERATIONAL FACTORS ASSESSED
The following factors were assessed during the (on average) 2 to 3 hour on-site visits
to each of the 86 sample businesses:
• Number of employees and task capability
• Stock management – particularly raw materials, work in progress and finished
goods
• Production planning and workflow management
• Costing and financial management
• Raw material control
• Sales and marketing
• Production capacities and estimated machinery utilisation
• Compliance with major Health and Safety regulations
• Condition of factory and infrastructure
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• Condition of equipment and machinery
• Capitalisation requirements
• Training requirements
Information given during the data gathering interviews was verified as far as possible.
However, the lack of readily available/easily accessible information was striking at the
majority of (especially) the smaller businesses. On the other hand some of the bigger
participants flatly refused to divulge specifics of what was regarded as ‘sensitive’
operational and/or financial information.
All elements referred to in Figure 1 below were covered in the review process.
FIGURE 1
Staff
Material
Equipment
Finance
Management & Control Processes
Primary Manufacturing Processes
Secondary / Support Processes
OUTPUT OUTCOME
Input Measures
Process Measures
Result Measures
Performance Measurement
INPUTS CONVERSION PROCESSES RESULTS
PRODUCTIVITY IN PERSPECTIVE
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4. DISCUSSION OF INFORMATION GATHERED
4.1 PRODUCT COSTING
Five basic approaches to product costing have been identified. VAT of course is
additive to each system price. The following were the responses to the question:
‘Explain how you determine the selling price for a product.’
1. From experience, compare the “new product” cost with similar ones made
previously. Compare this historic cost and price to what the market will pay. Taking
cognizance of what other manufacturers would charge currently, determine the
selling price and charge accordingly.
2. Calculate the total value of all materials – typically board/timber, hardware and
“bought outs”. Add a variable factor for waste. Multiply up by 3X or 4X to arrive at
the selling price. The factorisation is apparently to ensure recovery of labour and
overhead costs.
3. Calculate the total value of all materials (as above). Add estimated or historic
process manufacturing times and multiply by the actual labour rate paid per
process or a global hourly rate which might or might not include an overhead
portion. Factorise upwards by variable amounts to recover overheads if not already
recovered in the labour hourly rate.
4. Start with a selling price and work backwards deducting material, labour and
overhead costs using the factorised method if applicable. If the calculated margin is
not acceptable, raise the selling price to acceptable levels with reference to market
prices.
5. Total up all projected expenditure for each month and try to ensure sales – prices
of which have been established by any of the four preceding methods – at least
cover the total amount. “Then see what’s left in the bank” as one owner told me.
The approach to costing is in most instances questionable. Whether cost recovery is
sufficient or whether margins are excessive cannot be determined with a high degree
of certainty. The attitude to costing and price determination is: ‘What is lost on one is
made up in the next sale.’ Or, ‘Over time things balance out.’
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The highly competitive and price sensitive market within which most participants
operate necessitates a more formalized and disciplined approach to costing and price
determination. In fact, price determination practices are at best at a Maturity Level 2.
(Refer Annexure C.)
4.2 ADMINISTRATION
Administration is (mostly) done by the owner often assisted by his wife and one or two
clerk/receptionists. Typically the tasks include:
• Checking in raw materials
• Debtors and creditors record keeping
• Wage administration
• Invoicing for jobs completed (usually owner or wife)
• Switchboard duties
• VAT returns (often through a part time bookkeeper)
• General postal duties and obtaining owner’s signature for paying invoices.
All companies except one made extensive use of computers for discharging
administration duties. The lack of an orderly and disciplined approach to mundane
administration often results in inefficiency and rework being done. Processes are
usually very basic and can, at best, be rated as at Maturity Level 2. (Annexure C
refers.)
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4.3 FACTORY ISSUES
The vast majority of factories are rented for amounts between R8 500 and R22 000
per month. The average size is 890 sq metres with a range of 3 800 (highest) and 112
(lowest) and a majority size of 300 to 600 sq metres.
Ineffective utilization of
(expensive) physical space,
limited application of basic
principles of facilities layout,
and inefficient housekeeping
procedures has (in many
instances) a negative impact
on workflow management and
production efficiency in
general.
The factory floor is invariably heavily congested with off-cuts and general rubbish,
much of which is not regularly cleared away.
There is little evidence of compliance with Health & Safety legislation particularly those
of basic protective clothing, first-aid, and fire fighting and fire drill issues. Toilet facilities
are often unhygienic and in need of refurbishment. Rest room areas immediately
adjoin the workplace and are unhealthy and dust contaminated. Lighting is often poor
and walls are coated with fine sawdust.
It is very unlikely that many of the businesses would pass even the least intensive
workplace inspection and a number of them are dangerous to employees and a liability
to the owner(s).
A Health & Safety checklist prepared by Productivity SA has been made available to
some of the companies in the hope that these important productivity related issues
urgently receive corrective action.
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Storage systems consist of properly stacked raw materials augmented by “leaning
against the wall” techniques. Mezzanines are used extensively for storage (dumping)
of raw materials or obsolete stock and occasionally office space. The apparent lack of
an organized and disciplined approach to the storage of material often results in
damage to material and/or finished goods as well as delays when components cannot
be found.
The impact of such potentially unhealthy and ‘disorganized’ working conditions on the
morale and dedication of employees shouldn’t be underestimated.
4.4 CONDITION OF MACHINERY & EQUIPMENT
Machinery and equipment is the backbone of any manufacturing concern. Equipment
is (generally speaking) serviceable and appears to be in good working condition.
Interestingly one would find old heavy and cherished equipment used in the heavy
timber products (Wadkin, Bursgreen, Robinson, etc) and much more modern
computerised equipment in the office/kitchen furniture companies (Astro, Robach, etc).
The computerised programme machines are essentially Optimiser (panel cutting after
break out), Compound Profiler and Automatic Multi-routers (shaping and boring
machines).
Preventative maintenance systems are not in place. Instead a “break and repair”
situation exists as occasion demands. Maintenance records are not kept and
information on machine utilization and downtime is virtually non-existent.
The computerised machines receive excellent and timely technical attention from RSA
agents on behalf of the overseas manufacturer if problems occur.
The competitive edge gained from the availability of modern well maintained
equipment was evident in many instances.
4.5 INVESTMENT IN PRODUCTION CAPACITY
A number of participants indicated that recapitalization of their businesses is needed
but that their financial situation is such that finance cannot be obtained. Information
regarding available government funding appears to be lacking.
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All owners, except one who is expecting delivery of a R0,7m compound profiler, are
adopting a cautious attitude towards capital investment particularly given the current
interest and exchange rates and the decline in consumer spending generally.
Overseas products – particularly those from China and Indonesia – are a significant
threat to the industry. This is expected to intensify as time progresses. This viewpoint
has been confirmed by discussions with retailers.
Increased overseas competition as well as uncertainty regarding the supply of raw
material - there is currently a shortage of good quality pine – is forcing many
participants to hold back on capital expenditure. A pessimistic attitude appears to
prevail within the industry at the present time. The resultant effect is an unwillingness
to make long term commitments such as capital investment in equipment. The long
term impact on the competitive position of the industry is bound to be significant.
4.6 STOCK MANAGEMENT: RAW MATERIAL, WIP, FINISHED
GOODS
Businesses seem to operate on the basis of buying what was considered to be
essential only for an estimated 2-3 months production. Very few companies could give
accurate figures for each of these stock components and total turnover and the
majority were “thumb suck” estimates from which meaningful calculations on stock
turns, yields etc. are not possible.
Despite raw material cost and supply issues businesses often appear to be
undisciplined and careless in managing stock. Waste and pilferage is certainly not kept
in check in many instances. Inefficient managerial control has a detrimental impact on
the financial viability of the business as well as on the ability of the business to do
proper costing and product pricing.
Stock management systems are at a Maturity Level 2 (at best) in most instances.
Bigger businesses are more structured in this respect. Their stock management
systems are (generally) at a Maturity Level 3. (Refer Annexure C for Maturity Level
descriptions.)
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4.7 PRODUCTION CAPACITY & MACHINE UTILIZATION
The period for company visits was between late November 2007 and end of March
2008. The effect of festive season purchasing was therefore past and generally most
companies were not operating at what they considered to be optimum production
levels because of this after-season downtrend.
However, those who reported typical activity levels – notably refurbishment purchases
for hotels and new equipment for housing developments and major office complexes –
were below what could be judged to be an acceptable production achievement rate.
This is a subjective assessment but we are confident that a manufacturing
performance improvement was possible in most of these companies.
The lack of a more formalized approach to planning and recordkeeping was
particularly evident in smaller businesses. Again the bigger organizations are much
more formalized in as far as managing and controlling capacity- and machine
utilization is concerned.
4.8 EMPLOYEE ISSUES
4.8.1 EARNINGS
Earnings per week – basic wage, no bonuses but including special skills “allowances”,
long service awards, etc. these apply to a very small proportion of the employees
only.
TABLE 5
Highest Earnings(R) Lowest Earnings (R)
• Average 1 458 572
• Highest 2 750 1 200
• Lowest 800 280
4.8.2 TRADE UNION MEMBERSHIP
Employees are unionised in all the sampled companies except one. The Union is the
National Union of Furniture and Allied Workers of South Africa (NUFAWSA).
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4.8.3 INCENTIVE SCHEMES OR PAYMENT BY PRODUCTION SCHEME
A small number of turnover (production) related schemes exist but are arbitrarily
decided on frequency and Rand value by the owner. The deciding factors appear to be
target turnover achieved and/or noticeable above par performances from individual
employees.
No schemes based on measured operational standards exist although three owners
were aware of the value and benefits of such a system, especially when linked into an
effective process utilisation and progress control programme.
4.8.4 LABOUR TURNOVER INDICES
(Voluntary resignations/abscondment only). Only 23 of the companies surveyed
recorded any incidents of labour turnover during year ended February 2008.
There were 93 employees who left the employment of these companies, which
collectively employed 843 people. The labour turnover was therefore 11%.
If the figure of 93 is taken over the total employees for the full project sample, the
figure which results is 2,9% and is extremely low.
4.8.5 ACCIDENTS
Of the total companies in the project sample, only 5 reported debilitating accidents
during year ending February 2008. These were eye injury (incorrect goggles used),
loss of/damage to fingers (careless use of saws), and the fracture from a steel
machine shaft.
4.8.6 TRAINING
The issue of training raised intense discussion during on-site visits. Businesses
involved in the study were without exception rather critical of/negative towards
FURNTECH as the main service provider.
The authors of this report were able to distinguish between answers which were
genuine and those which had some degree of facetiousness or malice attached. The
authors do believe that the majority of answers of “Who are they?”, What do they do?”
were genuine - particularly amongst the south-east coast companies.
The criticism leveled at FURNTECH seemed to be centered around:
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• The limited variety of training offered. The range of training offered must be
extended beyond cabinet making and spraying operations according to
participants to the study.
• The need to have a group of trainees before a course could begin. This causes
unacceptable delays in addressing training needs.
• The perceived high cost of training. This includes the direct and indirect cost
associated with attending training at FURNTECH premises which is regarded
by many as inaccessible.
• The relevance of practical training compared to the industry standards.
• Very limited interaction with companies, therefore a low profile is presented.
It must be stated categorically that the need for technical/job specific training is huge.
The future of the industry is going to depend more and more on skill levels and staff
competence. Many participants involved in the study expressed grave concerns
regarding the ‘aging’ of the really skilled and experienced employees and the fact that
new entrants have no knowledge of ‘woodwork’. The reintroduction of artisan training
schemes was raised by a number of participants.
4.8.7 FURNITURE INDUSTRY BARGAINING COUNCIL (FIBC)
All the companies interviewed had heard of the FIBC. It is an organisation that is
perceived to be dominated by the much bigger companies and there is little interest in
participating in the workings of the FIBC from smaller players.
There is a significant amount of resentment at being obliged to join – as is the case
with other Bargaining Councils – but perhaps the range of services available has not
been clearly illustrated to the majority of members?
Clarity via faxes and e-mails on issues like pay increases, holidays, etc. is appreciated
and the need for an organisation that regulates terms and conditions of employment
and prevents a “free for all” is generally but grudgingly accepted as an “on-cost”.
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4.9 MARKETING
Marketing and sales are ultimately the lifeblood of any business. If an organization
cannot attract and retain clients it is bound to ‘fade away.’ The effectiveness of any
enterprise is ultimately measured by the answer to the following questions: ‘Is there a
demand for their product?’ ‘Is what is produced sold?’
4.9.1 MARKETING CHANNELS
The companies usually adopt a multi-pronged approach using two or more channels,
e.g. a company may advertise in magazines, experience referrals and use interior
designers. The data below shows the total responses from the sample companies to
give an indication of the overall magnitude of the various techniques:
TABLE 6: Marketing / Sales Channels
Type Reported Usage
Incidences
• Interior designers 34
• Referrals 32
• Walk into office/factory 17
• Own shop(s) showroom(s) 12
• Independent retailer contracts 12
• Advertising (newspapers, magazines) 8
• Architects 8
• Reps on the road 5
• Shows and expo’s 4
• Agents/brokers 4
• Builders direct 1
It is important to note that most businesses rely on what can be termed a ‘passive
approach’ to marketing. Reliance on interior designers, referrals, walk-in-business, etc.
seems to indicate a preference for a reactive approach to conducting business.
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The table below clearly indicates a rather limited focus on exports as a source of
business. The administrative complexity of exporting goods as well as the stringent
requirements of overseas importers seems to dissuade many manufacturers from
pursuing this option.
TABLE 7: Export Information
• Number of companies with regular quantities to Africa and Europe
10
• Companies whose exports were terminated due to currency exchange problems
3
• In the process of opening an overseas office/showroom 1
• Export initiative under serious consideration 1
Many of the participants – smaller and medium businesses in particular - commented
on the increase of imported goods and the fact that they find it increasingly difficult to
compete for orders from retailers.
Five high street retailers were contacted with the intention of getting a local buyer’s
perspective on the locally manufactured furniture, upholstery and bedding products
available to the wholesale market.
The retailers chosen represented both higher and lower to middle income target
market but responses were the same or similar from each category. Retailers
responses to a number of questions posed are as follows:
Question 1: Are you currently sourcing products from RSA companies? If so,
comment on quality, design, price, delivery reliability, etc.
Answer:
All retailers are sourcing from RSA suppliers but the percentage volumes are
decreasing due to imports increasing. (One retailer has a buyer permanently stationed
in Indonesia sourcing new designs and products from specific geographical areas
within the country.)
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Question 2: What is the major advantage of sourcing your products from overseas?
Answer:
A much higher financial mark-up is possible due to a much lower cost of getting
overseas products onto the showroom floor, i.e. to point of sale. Typically this accounts
for an extra 15% to 25% over “local” products.
Question 3: Are there any further benefits to you from sourcing overseas?
Answer:
• Exclusivity of design and styling
• Reliable deliveries
• Better quality than locally manufactured items.
Question 4: What countries are the biggest sources of your overseas products?
Answer:
China, Indonesia, India
Question 5: In your opinion, what needs to change regarding domestically produced
goods to enable the manufacturers to secure extensive and regular contracts with
retailers?
Answer:
• Narrow the price gap substantially
• Improve quality and service levels
• More innovation on design and styling
As buyers always have the final say in trade matters – it’s their decision to buy or not –
the industry will have to respond constructively to the issues raised.
5. RECOMMENDATIONS
The following recommendations are based on the extensive information obtained from
manufacturers during the period end November 2007 to March 2008. Two broad
categories of recommendations are made:
1. Recommendations aimed at improving the industry’s capacity to respond to
challenges in coordinated and integrated manner. (Category 1 recommendations.)
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2. Recommendations aimed at the individual enterprise level. These
recommendations focus primarily on improving the performance capacity and
competitiveness of individual businesses. (Category 2 recommendations.)
5.1 CATEGORY 1 RECOMMENDATIONS
The following three actions need to be considered as a point of departure:
• Establish a Special Purpose Vehicle (SPV) for the furniture manufacturing industry.
• Develop and maintain industry specific database.
• Establish furniture retail consultative forum.
5.1.1 Establish a Special Purpose Vehicle (SPV) for the Western Cape furniture manufacturing industry
Visits and interviews with many stakeholders in the furniture industry clearly indicated
that there was a lack of cohesion, coordination and cooperation throughout the
industry value chain. This was often confirmed by stakeholders within and outside of
the industry who cited this lack as one of the factors that negatively influenced the
performance of the industry.
Manufacturers and other role players expressed the need for a single representative
voice for the industry in plans and negotiations that would have a positive impact on
the well-being of the industry as a whole.
Purpose/function of proposed SPV
Establish a well-constructed and well-supported representative forum that can become
the preferred voice outside of and within the industry. The forum would also initiate and
lead negotiations on behalf of the industry and become the driver of strategic visions
for the industry.
Objectives
• The SPV would address the complexities of the industry value chain to
obtain greater cohesion, coordination and cooperation from all stakeholders
to improve competitiveness.
• The SPV would become the first line of communication in the industry as
well as with organisations outside the industry.
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Immediate actions required:
• The formulation and formalisation of the SPV with the support of Provincial
Government Western Cape, organized labour and the private enterprise would
need to be finalised once a decision has been taken to proceed with the
establishment.
• The costs of putting the SPV into operation and operating it for the first two years
would only be decided after the stakeholders have signed memorandum of
understanding in which the services and service delivery are finally decided.
REQUIRED ACTION STEPS DUE
DATE RESPONSIBLE
Project approval, TOR, award project
Regional workshops to promote, obtain buy-in, inputs
Framework of operations and structure
Capital and operational cost structure
Regional workshops for final adjustments
Drafting and signing of a constitution/MOU
National workshop to ratify the final design
Raise commitment for seed funding
Appoint steering committee/Board
Timetable for establishment
Register Section 21 company
Procure accommodation and equipment
Appoint CEO
Appoint staff
Inauguration
It is recommended that the Department of Economic Development and Tourism facilitate the implementation of the abovementioned.
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Performance indicators to evaluate the execution of the abovementioned should include the following:
1. The signing of a memorandum of understanding or constitution for the SPV by
relevant stakeholder representatives.
2. The inauguration of an operational SPV.
3. The appointment of a Chief Executive Officer
4. The acquisition of the required facilities
5. The number of successful interventions with stakeholders in any year.
Required resources are as follows:
1. Seed capital of (estimated) R720 000.
2. Operating cost for at least first two years.
5.1.2 Develop and maintain industry specific database.
If the recommended SPV is to achieve its objectives in as far as improving the overall
effectiveness of the industry value chain is concerned it will require detailed
information on issues relating to (amongst others) production capacity, equipment
availability, quantity and quality of human resources, cost structures and customer
bases to name but a few. Without such information it will be extremely difficult to
identify strategic opportunities/threats and to develop meaningful strategic plans.
Objectives
• This project aims to establish a data base that would contain relevant aggregated
information, statistics and comparatives of performance in the furniture industry
that could be used for benchmarking and/or the monitoring of progress.
• To launch an industry survey that would collect and process data from a
representative sample of manufacturers for the past three years in such a way that
would safeguard and guarantee the confidentiality of the data received from
individual participants.
• To establish and maintain a website that would make the aggregated data
available to stakeholders at a fee.
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Immediate actions required:
• Intensive research to uncover and record sources of data that is available on a
regular basis - at least once per year. Organisations such as Customs and Excise,
Statistics SA, Bargaining Councils, the organised structures within the industry and
their will need to be approached.
• The appointment of a highly skilled and independent service provider with a good
track record and who enjoys the trust and confidence of manufacturers should be
undertaken to conduct a survey amongst a representative sample of manufacturers
to obtain company-specific data. Note: A confidentiality agreement between
participants and the service provider could be used to allay fears of company-
specific data landing in the hands of competitors.
• The design of the survey and resultant information made available need to
convince participants of its worth in affording manufacturers a basis from which
they can gauge themselves against the consolidated data of their peer group soon
after completion of the survey. Note: The establishment of the recommended SPV
would assist in creating confidence amongst manufacturers that the establishment
of a data base will assist them in their information needs.
REQUIRED ACTION STEPS Due
Date
Responsible
Proposals from service providers for data base design
Proposal of service providers for web page design
Appointment of service providers
Survey, consolidation industry specific data – three years
Survey of international data on furniture
Trend analyses
Consolidation of information per sub-sector type
Comparative analyses local and international benchmarks
Publish data on Web page
Regional feedback workshops with industry
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Performance indicators to evaluate the execution of the abovementioned should include the following:
• Establishment of a user-friendly website
• Publication of survey data on the website
• The annual number of hits registered on the website
• The number of pages annually downloaded from the website
Required resources: • Research into existing available data and sources of such data: R40 000.
• Subscription to data bases and access to international benchmarking data: Approximately R250 000.
• Design and establishment of a database and website to access database: Approximately R500 000.
Access to a sound database may hold the following benefits for industry members:
• The design and maintenance of an industry-specific data base will enable local
manufacturers to compare their own performance against that of their peers in
order to eliminate their weak points and thus become more competitive against
imports.
• Access to comparative international benchmarking information will enable larger,
smaller and SMMEs to compare themselves with their peers and others for the
implementation of competitiveness improvement plans.
• The use and interpretation of relevant data that from a database will enable the
local industry to identify those products and international markets in which SA
would have a competitive edge. This would enable local manufacturers to establish
and grow in exports into such markets.
5.1.3 Establish furniture retail consultative forum
The extent of growth in the importation of furniture is such that it must be viewed as a
key threat to the long term survival of the local industry. It is imperative for the local
industry to recapture and grow its share of the domestic market as a point of departure
for a turnaround strategy. Higher volumes in the domestic market would stimulate,
improved capacity utilisation and the acquisition of cutting edge technology. This, in
turn could also result in improved competitiveness in the export markets with all the
advantages associated with it.
To assist the manufacturing industry to successfully respond to the increase in imports
it would be essential to actively involve importers and retailers in an ongoing exercise
to:
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• Assess whether local manufacturers (individually or collectively) could meet the
demand of importers/retailers on specific orders.
• Provide local manufacturers with up-to-date retail demand/requirements
information. Closer and timely cooperation between local retailers and
manufacturers could stimulate higher local production. This in turn will facilitate
industry growth and expansion.
Objectives
• Establish consultative forum to which all retailers and manufacturers will be invited.
• Develop a protocol for interaction between local retailers and potential (individual
or collective) suppliers.
• Create and maintain awareness amongst the public value and ‘virtues’ of locally
manufactured furniture. Example: The long term investment value of hardwood
furniture for example could easily be demonstrated via the involvement of the
auctioneering industry.
Immediate actions required:
• Approach all furniture retailers (individually at first) to assess willingness to assist
the local manufacturing industry from the demand side of the value chain.
• Set up and facilitate an initial workshop with interested parties where such parties
can share expectations and learn the dilemmas/challenges faced by all.
• Develop a protocol/operating procedure for future manufacturing- retail interaction
and cooperation.
Performance indicators will include:
• Level of participation in consultative forum.
• Growth in orders being placed by local retailers.
• Changes in importation (volume and value) of furniture – import replacement
levels.
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Required resources:
R200 000 to facilitate structured interaction between all parties which will result in the
establishment of a permanent supplier – retailer industry forum.
The ultimate outcome sought will be the development of an awareness and
appreciation of South African produced furniture and, more important, the long term
durability and value of such products.
5.2 CATEGORY 2 RECOMMENDATIONS
The sustainability and prosperity of an industry starts with the sustainability and
success of each individual business entity and each individual employed by these
entities. The following recommendations are aimed at improving the performance
potential at the enterprise and employee level:
1. Businesses should be presented with and encouraged to implement 5S programs
at business unit level. The 5S intervention framework provides practical guidelines
for a concerted and intensive effort to clean up factories, to instill a more organized
and ‘clean’ system of work, and to ultimately create a safer, more employee-
friendly and consequently more productive work environment. No major resources
are needed for this to happen – only conviction, willpower and effective and regular
monitoring. This recommended intervention will consist of shop floor training for all
and on-site practical implementation support where needed. 5S has proven itself
as a practical approach to waste reduction and the establishment of a more
organized / disciplined productive work environment.
2. Owners and/or operations managers of (especially) smaller businesses are in need
of assistance to implement and maintain sound, not necessarily elaborate and
expensive, production planning and control procedures/systems. Typically these
would include:
• Product costing
• Cash Flow management
• Understanding financial statements and accounts
• Machinery and equipment capacity and utilisation measurements as a means
of order progress control
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• Shop floor productivity measurement and control
• Increasing market penetration compatible with production capacity availability
Training in these and related matters alone will not be sufficient. On-site assistance
will have to complement training. Basic tools, software, checklists, worksheets, etc.
must and can be made available to facilitate practical implementation. The
ultimate objective is to assist ‘skilled manufacturers’ to become more skilled and
competent ‘production managers.’ The rationale behind this recommended action
is quite simple: Improved internal efficiencies, waste reduction and better utilization
of resources have been the foundation of many company turnarounds.
3. Basic Business Skills- and Basic Business Financial training should be provided to
all levels of employee but particularly shop floor personnel. It is they who must also
be persuaded that their future is linked into the financial welfare of the company
and how this situation is influenced by both internal and external factors. The
following quote provide the rationale for this suggested intervention: “If you don’t
understand the rules of the game and you don’t’ know how to read the scoreboard,
you will never get excited about the game.”
Substantial experience has clearly shown that where the aforementioned is
undertaken carefully and thoroughly, many benefits accrue to an organization and
its employees.
Immediate actions required are:
• Put out tenders for the provision of the required training mentioned above and
select suitable service providers.
• Source funding from the relevant SETA to fund (in part or in full) training to
industry members.
• Facilitate and manage the implementation of the suggested training as well as
the on-site implementation support/mentoring.
Performance indicators will include:
• Member participation in and feedback on training and on-site implementation
support/mentoring.
• Actual measured changes in shop floor productivity and efficiency measures.
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• Improved financial performance and sustainability of manufacturers.
Efforts aimed at improving the operational efficiency of industry members cannot be
postponed until such time as Category 1 recommendations are implemented. The
need for the recommended training is simply too big. In the absence of an established
industry SPV it is recommended that PRODUCTIVITY SA be (initially) tasked to take
responsibility for this initiative as an interim measure. Their business focus and
extensive experience in enterprise level / shop floor performance improvement would
support such a recommendation.
Required resources:
R1.25 million to fund training and on-site implementation support / mentoring.
PLEASE NOTE: A quick and effective implementation of the recommended training
can provide a sound platform for proving the potential value of an SPV as such training
and support will ultimately be part of the SPV’s frame of reference.
6. ACKNOWLEDGEMENT
Albert Brink and Ian Rayner of Productivity SA would like to thank the management
and members of FURNTECH for an extremely interesting project and the very
professional way in which our interactions have been handled.
We have been astounded at the variety and beauty of the products and, irrespective
of the shortcomings/problems which characterise the industry generally, there are a
lot of high manufacturing capability entrepreneurs out there who are justifiably proud
of what they make.
We wish them well in their future endeavours.
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ANNEXURE A
PROJECT SCOPE Furniture Manufacturing Industry (Western Cape)
Intervention Project. Brief for NPI for the co-ordination and facilitating of interventions in the furniture manufacturing industry
Nr Key performance area Activities
1 Strategy and vision for WC Furniture Manufacturing Industry
• Interviews and meetings with industry on developments and establishment of Furniture Initiative
• Identifying working groups • Facilitation of workshops
2 Develop business plan and budget • Identifying interventions and programs for implementation including and around the following themes: 1. Skills Development 2. SMME development and BEE 3. Competitiveness 4. Marketing
• Draft of business proposal with budgets 3 Leading and representing the
industry to address specific issues • Identify current blockages challenges in
industry • Develop action plan to address issues
4 Networking, communication and feedback on progress
• Development of communication mechanisms for furniture industry
5 Facilitating interaction, co-operation and partnerships among local businesses
• Meetings and discussions with all role-players in the value chain of the furniture industry to ensure growth and development
• Meetings with other roleplayers (DTI, FIETA, etc.)
6 Implementing of marketing strategy • Facilitation of industry workshop for Furniture Initiative
7 Establishment of Special Purpose Vehicle (SPV)
• Facilitate the establishment of a section 21 Company
• Board of directors structure • Registration of company • Location of co, etc.
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ANNEXURE B
SAMPLE COPY
Site Visit Interview Guide / Data Collection Form
PGWC/FIBC/FURNTECH FURNITURE INDUSTRY INTERVENTION
Interview/Visit date:
SIZE SECTOR:
COMPANY
CONTACT
POSITION
PHYSICAL
ADDRESS TEL: FACTORY ( )
CELL NUMBER
code: FAX NUMBER ( )
POSTAL
ADDRESS XMAS
SHUTDOWN from:
code: to:
HOURS OF WORK:
FACTORY ADMIN
Mon to Thur Mon to Thur
Friday Friday
Total act Total act
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1. STAFFING
a) TOTAL NUMBER OF EMPLOYEES
Direct production
Indirect production
Admin and Sales
Contract
b) UNIONS
BONUSSES
c) TOP PRODUCTION WAGE RATE PER WEEK
LOWEST PRODUCTION WAGE RATE PER WEEK
d) ANNUALISED EMPLOYEE COST
• Production R
• A&S R
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STAFFING (continued)
e) OVERTIME – REGULAR/IRREGULAR
Estimate/actual overtime has worked in last 12 months
Indirect production
Admin and Sales
f) LABOUR TURNOVER % (ESTIMATE OR ACTUAL)
• Production
• A&S
g) NUMBER OF ACCIDENTS PER
ANNUM
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2. PHYSICAL
Building and Infrastructure
a) Number of storeys
b) Storage methods
c) Access points
d) Security systems
e) Floor condition
f) Workflow
g) OHSA etc compliance
h) Book value of property
(and equipment)
i) General cleanliness
j) Rest room conditions
k) Protective gear
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3. PRODUCTION
a) Total square metres of production area
b) Type of manufacturing – batch – continuous flow – one offs
c) Typical value (R) of stock
• Raw Material
• Finished Goods
d) Production cycle times for major products
e) Any preventive maintenance
f) Any bottleneck operations
g) Scrapped products – percentage
h) Reworked products – percentage
i) Is a formal production planning system in place?
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j) Work in Progress levels between processes (at obs time)
Typical Low High
k) Spares, Equipment and consumables stores available
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l) Number of maintenance staff and levels of skill Position
1.
Training (self taught/Tech/Appie)
2.
3.
4.
5.
- 38 -
m) Material handling systems
n) Are there performance and utilization measurement calculations/reporting systems in place?
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o) Nature and operation of any QC systems (ISO ???)
p) Description of costing system
- 40 -
q) Costing procedure and personnel involved
r) Cost structure of top 2 products
Product 1 Product 2
R value % of total
manuf cost R value
% of total manuf cost
Timber or Board
Hardware
Fixers
Outwork
Paint/stain
Coatings
Other 1.
2.
3.
Labour
Overhead
Add
Total cost
Selling Price
- 41 -
4. MARKETING, SALES AND CUSTOMER RELATIONS
a) Marketing system and personnel involved
b) Top 2/3 customers
c) How obtained
d) Regularity of contact and by whom
e) Export – product, yearly value, country, how long active?
f) Warranties given
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g) Orders
• Returned last f.y.e. Sales Value:
R
• Cancelled before shipment last f.y.e. Sales Value:
R
h) Design origination by whom:
Customer Company Both
- 43 -
ANNEXURE C
FRAME OF REFERENCE
ORGANIZATION & PERFORMANCE DEVELOPMENT
1. INTRODUCTION
Business processes are at the heart of organization performance. There is no product or service delivery without a process. Why? A business process is simply how an organization does its work – an organized group of related activities executed to accomplish a particular objective. How well these ‘’groups of activities’ are designed, streamlined, controlled and integrated determines how efficient and effective product and service delivery will be. Poorly designed and fragmented processes have been compared to ‘….a labyrinthine system of poorly joined plumbing, with pipes that leak time, money and customer value.’
The importance of processes and systems to organizational success is well illustrated by the following statement in the Asian Productivity Organization Articles and Commentaries section by Richard Barton, former MD of Business Improvement Advisory Services:
Systems and processes referred to are:
• Primary Processes – those processes which creates and delivers products and services.
• Secondary Processes – those that focus on maintaining resources.
• Tertiary Processes – those that focus on coordination and control within the organization.
The nature, extent and sophistication of processes usually develop over time. The pace of development is usually a function of performance problems and crises created by:
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• The absence (or incompleteness) of properly structured processes.
• Non-conformances to process steps and requirements.
• Changes in the operating environment and/or stakeholder expectations not catered for in current processes.
The concept of ‘process maturity’ provides a useful framework for:
• Assessing the development level of current processes.
• Identifying what needs to be done to move to the next level of development.
As the concept of ‘process maturity’ is central to the recommendations contained in this document it is deemed necessary to briefly explain the five phases of process development and maturity.
2. PROCESS DEVELOPMENT & MATURITY: AN OVERVIEW
The Process Capability Maturity Model (refer Figure 1 below) suggests that business operations and its related processes and practices develops in a staged approach. Moving from Level 1 to Level 5 takes time and requires that specific actions be taken and implemented. Furthermore, no stage of development (growth) can be skipped and each development stage can be recognized by the presence (or absence) of specific practices and actions.
Figure 1
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The basic concept underlying maturity is that mature organizations do things systematically and in an orderly and predictable manner. ‘Maturity’ includes:
1. Predictability which refers to the use of schedules, milestones, and goals that are met. Immature organizations often create schedules, but then often miss milestones or goals by wide margins.
2. Control which refers to the consistency with which goals are met. Mature organizations, unlike their immature counterparts, meet their goals over and over again with very little deviation.
3. Effectiveness which refers to the achievement of the right outcomes in an efficient manner.
LEVEL 1- Initial Organization. Processes are ad hoc, unstructured and ill defined. There are few repeatable processes. People rely on personal methods to accomplish work and very few, if any, measures for analyzing effectiveness and efficiency exists. There is no real foundation for or commitment to improvement. The few processes that may exist is usually abandoned / sacrificed when pressure is experienced. Levels and cost of rework and delays are high whilst customer satisfaction is often low. The motto is: ‘Just get the job done!’ The bottom line: Processes are ad-hoc and ill defined. In fact, few processes are defined and work arrangements are chaotic.
LEVEL 2 – Managed Organization. Work units use locally-defined practices that have proven effective in the past. Basic processes are defined and documented, but activities and work organization remains traditional – functional silos. Managers / supervisors take responsibility for work unit operations and performance and are to an extent committed to improving operations within a functional silo. Work units are (generally) capable of meeting their commitments. Rework is reduced and schedules are met more often. Process cost remains high and customer satisfaction is still not totally acceptable. The bottom line: Basic processes are established and there is a level of discipline to stick to these processes.
LEVEL 3 – Defined or Standardized Organization. Standard processes, measures and training for product and service offerings are in place. Cooperation (integration) between departments, suppliers and customers are established. Broad process jobs and structures are put in place and both productivity (efficiency) and client satisfaction (effectiveness) seems to be improving. Common measures and processes promote organizational learning. The bottom line: All processes are defined, documented, standardized and integrated into each other. LEVEL 4 – Predictable Organization. The organization, its suppliers and clients take organization to the process level. Processes are seamlessly integrated and process variation, performance and capability is understood quantitatively. (Statistical process control is put in place.) Process performance measures and management systems are applied. Process outcomes are predictable. Standardization, reduced variation and quantitative management control practices results in significant improvements in efficiency and effectiveness. The bottom line: Processes are measured by collecting detailed data on the processes and their performance quality. LEVEL 5 – Optimizing Organization. Planned and structured interventions are implemented to continuously improve the performance capability of the organization. Defects and problem causes are systematically eliminated. The bottom line:
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Continuous process improvement is adopted and is based on quantitative measurement and feedback. New ideas and technologies are evaluated and implemented.
Figure 2: Maturity Phases: Quick Reference PHASE
NO. PHASE TITLE DESCRIPTION
1 INITIAL Processes are ad-hoc, often chaotic, and often abandoned when under pressure. Few processes are defined.
2 REPEATABLE (MANAGED) Basic processes are established within functional areas (silos) and there is a level of discipline to stick to the processes.
3 DEFINED All processes are defined, documented, standardized and integrated into each other.
4 PREDICTABLE Processes are measured by collecting detailed data on the processes and their quality.
5 OPTIMIZED Continuous process improvement is adopted and in place by quantitative feedback and from piloting new ideas and technologies.
The positive relationship between business process maturity and performance has been proved beyond doubt. Please Note: Process documentation alone is not enough. It is the foundation for organizing jobs and establishing measures. Process measures and sound job structuring have been shown to have strong relationships to business performance.
Two questions need to be considered.
1. At what level of maturity are the organizations primary-, secondary- and tertiary processes? What is indicating the current level of development / maturity?
2. What are the key actions to be taken to move the organization’s processes to the next level of development / maturity?