Introduction Manfield Coatings Company Limited (Manfield) was a niche player in the paint and coatings industry. producing customised industrial coatings for various industrial products such as toys. mobile phones. TV cabinets, washing machines, etc. As a supplier to manufacturers of such products, Manfield had to meet not only stringent safety and quality standards but also customers' requirements for short production lead-times. To meet such demands, Manfield had developed a quality management structure that delivered its core value of "Prompt and Reliable" supply and service. In recognition of its commitment to quality, the Company gained ISO 9001 certification in 1997, received the Certificate of Merit in the Hong Kong Industry Department's Quality Award in 1999, was awarded Q-Mark Licences from the Q- Mark Council from 2000 onwards, and was awarded the Certificate of Merit in the Hong Kong Management Association's Quality Award, the 2000 version of 1809001 and the Encouragement Award of China National Quality Award in 2003. But Mr. Yuen Shu-Wah, Manfield's founder and Managing Director, was not resting on his laurels. In 2003, Manfield submitted an application for ISO14001, and approval was pending. Manfield Coatings: Stressing Quality from Day One' Yuen was a chemical engineer by training. Before establishing his own company, he worked for a UK paint company, where he learned to become an expert in paint. By the early 1980s, Hulpke, John F.. 199%. Manfield Coatings, Hong Kong, China: new century. new challenges? http:/home.ust.hk/-mnhulpke/yuen.doc Vincent Mak prepared this Case wider the supervision of Dr. Chi Kin (Bennett) Tim for class discussion. This Case is not intended to show effective or ineffective handling of decision of business processes. This Case is part of the Trade & Industry Department SME Case Serves funded by the Hong Kong Special Administrative Region Trade and Industry Department SME Development Fund. Any opinions, conclusions or recommendations expressed in this materialevent (by members of the project team) do not reflect the views of the Government of the Hong Kong Special Administrative Region, Trade and Industry Department of the vetting committee for the SME Development Fund. 20803 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise (including the Internet) . without the permission of The University of Hong Kong Ref. 04/189CYuen saw that there was demand in Hong Kong for high-quality paint that could support local production. And at one point, he convinced his employer to build a plant in Hong Kong. However, the UK firm eventually changed its mind. So, in 1982 Yuen quit and started Manfield Industrial Company, the non-limited forerunner of Manfield Coatings Co. Ltd., with just HK$200,000 (US$25,000) and five people (including Yuen himself). The limited company was incorporated in 1986. Manfield's first customers were in the toy-manufacturing industry. With Yuen's expertise, Manfield was able to meet the customers' colour and quality specifications, and the relevant safety standards, exactly (customers in the toy industry generally followed the European EN71 or the American ASTM standards regarding the heavy-metal content of its products). Yuen commented, "While we have to be competitive, price-wise, we never really compete on price." Even when its paint was used on inexpensive products, Manfield was still adamant about quality. Given such tenacity regarding quality, Manfield soon established a reputation for quality and professional service, and its customer base also expanded to include manufacturers of electronics and kitchenware, which set very high standards. Under Yuen's leadership, the Company continued to expand. However, during the heydays of the Hong Kong economy in the mid-1980s, Yuen experienced great difficulty in hiring staff. As he recalled, "For almost a year we had an ad running in the Hong Kong newspapers, seeking non-experienced labourers to be trained as colour-matchers. Only 10 responded, of whom only four reported for duty. All of those four left within a few days to take other jobs!" In 1986, a factory was opened across the Chinese border in Shenzhen, with only semi- processing capabilities and a limited capacity. It took time to gradually train up the workforce, expand the capacity and capability, and instil a quality culture in the Shenzhen facility. Nonetheless, when most of Yuen's customers also moved their manufacturing plants in early to mid-1990s, Manfield was well established to serve them. By 1995, the combined workforce of Manfield in Hong Kong and its production arm in Shenzhen reached 480, and its annual turnover was in excess of HK$150 million (US$19.2 million). That year, Yuen was awarded the Hong Kong Young Industrialist Award. Embarking on the Road to Quality Management While most of Manfield's customers were in Hong Kong or Mainland China, the Company's products were sold all over the world. As competition among manufacturers became keener, their demand to their suppliers, in turn, got higher as well. As Yuen recounted, "In the old days, customers would be satisfied with a five-to-seven-day order lead time; soon they started asking for shorter lead-times." By the mid-1990s, Manfield was able to achieve an order-to- delivery lead-time of three days, but customers were still demanding even shorter lead-times. In 1996, Yuen attended the Chiang Foundation Manufacturing Leadership Training Programme held at the University of Southern California in the United States. At the time, Yuen realised that Manfield was having similar problems to those that Chrysler (one of the biggest car manufacturers in the US) once had, e.g., a lack of co-ordination between functional departments and an inability to respond quickly to challenges. Yuen knew that Manfield needed to be "big and efficient". He also learned how United Parcel Services handled 1 1 million packages, offered a 24-hour worldwide delivery guarantee and provided customers with information about the real-time status of each delivery. He realised that "big and efficient" was achievable, though it required good planning, determination andcommitment. Upon his return, Yuen immediately discussed this with his senior management, and the decision was made to embark upon the road to quality management. The first goal was to become ISO 9001-certified. Soon afterwards, outside consultants were hired to provide training and to set up a quality management system. This. fortunately, was backed by Manfield's continual investment in and use of management information systems. Nevertheless, "unless the mindset improves, we can never make real achievements," said Yuen. Thus, significant emphasis was placed on training. For one thing, managerial staff members were expected to effectively carry out managerial duties such as planning, organisation, human resources allocation, command and control [see Exhibit 1 for the complete training programme for managerial staff]. For another, training and education for all employees had to be comprehensive, i.e., not only did it have to include job-specific and related training, it also had to communicate Manfield's value system and way of thinking. Later in 1997, Manfield was audited and successfully certified for ISO 9001 (version 1994). The same year, the motto "Prompt and Reliable" was made the centrepiece of Manfield's service strategy. ISO 9001 states generic requirements for management systems implemented by any organisation in any activity. In other words, such requirements are about the processes that an organisation employs to produce or deliver its products or services, not about the products or services themselves. ISO 9001 does not give specific requirements for specific products or services. In real terms, Manfield made significant progress in enhancing productivity. To Manfield, productivity enhancement was achieved by leveraging cost controls very effectively in order to maximise value creation. To its customers, the greatest value was speed. Previously, a one-day order-to-delivery lead-time was nearly unattainable. In the second half of 1997, Manfield successfully fulfilled 222 one-day orders, compared to only three in the first half of the year. For two-day orders, the number fulfilled rose from 79 in March 1997 to 459 in December 1997. The average monthly rate for delayed deliveries fell from 15.15 per cent in 1996 to just 1.68 per cent in 1997. These achievements did come with some degree of trade- offs in production costs. Such trade-offs, however, were carefully evaluated and were done without compromising the value to customers or employees' salaries and benefits. Quality Management at Manfield Coatings In the ensuing years, Yuen continually pitched the Company against audits and examinations through award applications. According to Yuen, this achieved two purposes: first, it helped them see areas of weaknesses where they did not normally see; second, it created a further drive for all staff to improve their performance and attain their targets. In the process, the quality management system at Manfield took shape. (The major milestones in Manfield's road to quality management are listed in Exhibit 3.)Leadership Yuen understood well that the drive for quality had to come from the top. He expected and encouraged his managers to be innovative, whilst carefully assessing the associated risks.' To facilitate discussions among managers, a breakfast room was set aside for managers only. However, to foster an open environment, there was only one common lunch room for all levels of staff. Various types of training (management, quality, etc.) were also provided to managers in a purpose-built training room. Human Resources Staff members were an indispensable part of the quality system. To ensure that they understood their roles and responsibilities well, specific job specifications and job descriptions were provided. The progress of individual skills and abilities was monitored by skill tables. Training programmes for employees were mostly customised, and were provided or facilitated by internal staff through lectures, group discussions and presentations. There was also no annual budget for training - if there was a genuine need for a certain type of training, it would be arranged and provided. In the Shenzhen factory, there was also a large meeting hall that could accommodate up to 1,000 people, thus enabling a monthly training session for the entire workforce. Information and Analysis Manfield implemented an information system with over 100 terminals of various functions. As Yuen put it, there was a lot of data to handle, ranging from formulas to inventory, and from unique customer requirements such as test reports, labelling, etc., to automatic prompts and alerts. The Company had to have an effective information system to handle and process data efficiently and to minimise human error. In addition, production data were collected on a regular basis to generate key performance indices (including customer satisfaction indices and productivity indices) [see Exhibit 5]. These indices were reviewed and scrutinised regularly and were tabulated alongside details of the previous 12 months' performance for benchmarking purposes. Continuous Improvement Continuous improvement was another important part of Manfield's quality management system. Each year, the Annual Company Quality Objectives designated improvement projects for Company-wide involvement. At departmental level, significant issues or areas of weakness were identified and targeted as objectives for departmental improvement. Quality Improvement Groups were established to tackle these tasks. Emphasis was also placed on self-initiated improvement schemes, including Quality Circles and an Employee Good "Hong Kong Management Association, (2003). HKMA Quality Award Report Summary; http:/www.hkma.org.hk/qa/Manfield_Summary_03.pdfSuggestion Box. Quality achievements were reported, recognised and rewarded during special sessions or at Annual Staff Meetings held at the Company's meeting hall. Process Management In order to meet customers' ever-tightening delivery schedules, smaller production lot sizes and quality demands, Manfield made efforts to manage and control the process flow more effectively. This began with clear process description and definition. For instance, design processes were clearly defined with input requirements, sample trials and adjustments, and product confirmation. Similarly, key production and delivery processes were tied to explicit performance requirements and were depicted clearly with flow charts. The key performance indices were then closely monitored and tracked by each responsible department. To help encourage and reinforce this quality-focused mindset, a Company-wide bonus scheme tied to the performance targets was also put in place. A Tripartite Joint Venture Manfield had been attempting to make more efficient use of its production capabilities in Shenzhen by partnering with overseas partners that had the necessary technology but that did not have a facility in Mainland China. During an award presentation ceremony and exhibition in 1999, a fellow awardee introduced its German partner Weilburger Coatings to Manfield. Weilburger, in turn, introduced its Japanese partner Cashew Chemical Company, which was looking for a facility in China. While Manfield was looking for overseas partners that could provide technology, Weilburger and Cashew were looking for a partner in China that had the same commitment to quality. In June 2000, the joint-venture company, named Weilburger Manfield Limited, was established, with all three companies as the joint-venture partners. A self-registered company in Hong Kong and a separate trading entity under the management of Manfield, Weilburger Manfield Limited was responsible for sales of the joint-venture products manufactured by Manfield under licence from Weilburger and Cashew. The company successfully passed 16 customer quality audits in 2002. This included a stringent two-day audit conducted by Motorola. By achieving a higher audit score than a major competitor, Manfield's paint sales to the mobile phone industry increased sharply and the turnover of the joint-venture company showed remarkable growth. Manfield Coatings: 2002/03 By 2002, Manfield's turnover was more than double what it had been 10 years previously [see Exhibit 4]. From 1998 to 2003, the rate of delayed deliveries fell from 0.5 per cent to less than 0.1 per cent; the rate of complaints fell from 0.98 per cent to less than 0.63 per cent, and productivity in the production department rose from 143.27 kg per person per day to 182.37 kg. Manfield's overall wellbeing was encapsulated in the Hong Kong Management Association's Quality Award 2003 summary report." [Manfield) enjoyed a dominant paint supplier position in the traditional core business of metal toy stoving enamel and pad printing inks.... Supported by various schemes and training, the participation rate and adoption rate of the good suggestion scheme is very high. This reflects that employees are highly involved in the improvement process leading to continuous improvement of the company. On-time delivery, one of the most important performance(indicators) valued by customers, is better than benchmarked and is highly appreciated by customers. In addition, the company strategy of joint venture and technology transfer to move rapidly into new market has yielded high business growth and brought new source of profit. These combined factors enable the continuous increase in turnover and profit by the company despite the harsh and difficult business environment world-wide.EXHIBIT 1 TRAINING PROGRAMME FOR MANAGERIAL STAFF IN 1997 1. Quality, 5S, Communication, TOM Management, Encouragement, Time Management, Interpersonal Relations 3. Chain of Command, Crossing Territory, Management of Daily Operations, 36-Hour Management Course 4. How to be an outstanding officer? 5. Inter-departmental reliance 6. Establishing Company Mission Statement, Declaration of Company Culture; How to be a good trainer 7. Seven Habits of Highly Effective People EXHIBIT 2 NUMBER OF SHORT ORDER FULFILLMENT AND OVERALL ORDER OVERDUE RATES Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Avg. No. of One-day 21 50 37 orders in 997 No. of Two-day 70 74 270 454 494 407 459 orders in 1997 Delayed Delivery 2.74 0.55 1.21 3.74 3.51 1.77 1.40 0.87 0.66 1.88 1.10 0.71 1.68 Rate 1997 (%) Delayed Delivery 11.6 15.7 21.5 12.6 32.7 34.0 13.5 5.2 12.4 13.2 5.9 3.5 15.15 Rate 1996 (%) EXHIBIT 3 MAJOR QUALITY MANAGEMENT MILESTONES 1997: Establish the motto "prompt and reliable" and trial attempts; drastically reduced the overdue delivery rate; sharply increased "one-day orders"; certified for ISO 9001: 1994 1998: Established Company mission statement and culture statement; awarded certificates of merit in quality and in productivity 1999: Awarded certificates of merit in quality and productivity 2000: Awarded Productivity Award; awarded Q-Mark; Hong Kong Laboratory Accreditation Scheme accredited heavy-metal-content testing laboratory; founded the joint-venture company Weilburger Manfield Limited 2001/02: Training of personnel and setting up work system to ensure conformance to quality standards of Weilburger Coatings' and Cashew Chemical Company's licensed products 2003: Awarded Quality Award by Hong Kong Management Association and China Association for Quality; certified for ISO 9001:2000EXHIBIT 4 FINANCIAL HIGHLIGHTS Net Profit Shareholders' Return on Turnover Equity Year ( Based on ( Based on Equity 1993 Index of 1993 Index of Based on ( Based on 1993 Index of 100 100) Actual 100) Figures ) 1993 100.00 100.00 100.00 14.94% 994 98.08 189.12 115.62 25.05% 1995 131.21 242.55 138.93 26.73% 1996 133.77 257.49 164.63 23.95% 1997 141.00 308.99 195.15 24.25% 1998 141.92 285.78 222.71 19.65% 999 160.77 414.70 241.42 26.30% 2000 171.72 378.50 247.60 23.41% 2001 171.24 392.43 271.37 22.14% 2002 206.36 414.72 307.54 20.65% EXHIBIT 5 SELECTED STATISTICS ( Based on 1997 1997 1998 1999 2000 2001 2002 2003* Index of 100 No. of Employees 100.00 104.87 110.68 115.74 121.92 140.27 151.88 Confirmed Rate of N/A 100.00 Delayed Delivery 86.11 121.67 38.84 19.33 18.61 Confirmed Rate of Complaints 100.00 122.50 106.35 89.16 95.21 90.00 78.56 Average Daily Output per Person 100.00 104.36 118.19 126.51 125.19 129.78 132.82 per 8-hour Day in Production Average Monthly Output per 100.00 93.14 101.84 107.63 100.70 101.04 108.23 Employee Overall Output 100.00 97.67 112.70 124.56 122.75 141.71 164.37 "Based on data up to September 2003 Source for all exhibits: Manfield Coatings Co. Ltd