Magal Engineering Ltd

Source: Manufacturing Digital

Date :30/07/2007 09:11:02

The enterprising Mr Magal: modern management techniques and lean practices.

Gamil Magal is not the only entrepreneur who specialises in turning round failing companies, but he has to be one of the most unusual. His energy is phenomenal, his grasp of his business is comprehensive and his vision simple, if ambitious.

Written by John O’Hanlon & produced by Sean Quantrill

Gamil Magal is a mechanical engineer who was involved in his first MBO with Coventry Pressworks in 1987, just two years after his arrival in the UK from Israel. Ten years of experience working for established companies such as GKN and Adwest Steering convinced him that the main reasons for the decline of UK manufacturing were poor management and inefficient systems. Since 2002, when he led a buyout of Adwest Engineering from its then owner Dura Automotive Systems, he has acquired and restructured no fewer than ten companies out of liquidation or administration, and these now form the core of his international group. These acquisitions include the Dura companies Western Thomson Controls Ltd, Metallifacture Limited, Adwest Cables Limited in the UK, Dauphinoise Thomson and Bowden SAS in France, and a 45 percent stake in Western Thomson India, in Chennai, India.

In addition, FTW (Tamworth) Sales and Portland Pressings were acquired in 2004, followed by AP Driveline Technology Ltd in 2005. “All of the Magal companies are household names within the automotive industry,” says Gamil. “Western Thomson was the company that invented the thermostat! All of these companies were suffering huge losses when I bought them, and the reason for that was very poor leadership. Within six months I can turn around a company from loss to profit, using the same people, supplying to the same customers, with the same tools and equipment and operating from the same factory. The Magal production system has been tested ten times now in the UK and other parts of the world. I developed the system when I was working for other people; I realised that what was missing was the flow of information from the shop floor that management could use to make strategic decisions and consequently help employees to understand operational and cost issues.”

Simple solutions

He makes it sound so simple. “I like to look at things in a commonsense way,” he says, “so when I saw a management team that didn’t know what was happening on the factory floor, to the extent that they couldn’t even come back and tell me what needed to be changed, I realised that they were creating problems for themselves. They would employ more people to achieve increased production, instead of investigating the reasons for the shortfall and how output could be improved. They would go ahead and spend millions on unnecessary capital, because they couldn’t see that the problem was equipment utilisation, not lack of equipment. The only result is that production becomes even more inefficient!”

As they lost confidence and trust, customers were taking their business elsewhere. It takes some time to rebuild customer confidence, and Gamil is well aware of that. “When we buy a company, we anticipate that turnover will drop by 25 percent during the first year. The first priority of the receiver is to approach the existing customer base and tell them that they will see an immediate price increase of 40 percent - purely to cover their own fees. So the customer isn’t just dealing with an inefficient supplier, he is also faced with increased prices. An automotive customer cannot simply change their source straight away, but they can start to shop around and look at the alternatives, and if they get cheaper quotations for the same contract, they will pull the plug.”

However, customers are starting to realise that when Magal buys a company he will make it viable - and within a very short timescale. In some cases, he can point to quality standards of zero PPM (the automotive industry ratio of defective parts). “If the supplier doesn’t have a handle on quality, then the customer controls the business. Quality is the first issue we resolve. Secondly, we make the employees aware that every task must be carried out on a ‘right first time’ philosophy, to eliminate the cost of reworking.” “The factories” he adds, “should plan to complete production work within five days, to include a half day on Friday for maintenance”. If the car park is deserted on a Friday afternoon, then Gamil knows things are running smoothly!

By the time Magal bought AP Driveline Technology, a company facing imminent liquidation, the system had been thoroughly tried and tested. His team explained and demonstrated to the shop floor staff how the other Magal companies had been transformed. The existing AP management were given the tools to determine their own success. “They don’t need to be outstanding managers to achieve good results: just competent ones. If they are provided with the right tools, the right systems, and perhaps even the right manuals to help them follow standard procedures, and they understand how to use them, the results are almost certainly guaranteed to follow.

AP was purchased from administrators for £1 million. It was, according to Gamil, a ‘basket case’, with high absenteeism and low morale. Magal invested a further £2.3 million in working capital, restructuring, and continuous improvement, and morale improved immediately. “Absenteeism at AP is now at less than one percent, and its employees are unstoppable, they are so enthusiastic. Before, there was a very strong union presence – now the employees are represented through a works council. The Union approached me and said that Magal have done more for the staff at AP than they had ever seen under previous management over the last 40 years. Housekeeping is fantastic and we are achieving serious order volumes at AP. Magal has invested an additional £3 million in AP’s engineering and development division, implementing another test laboratory. There is now a buzz about the place!”

Fit for purpose

Gamil’s policy is to meet the unions head-on, and to work together with them to gain their co-operation. There is usually an initial round of redundancies, but following agreement with the unions, there is generally a guarantee that redundancies will cease and more staff will be taken on in line with the growth of the company. Up to now he has been able to keep his promise – the group headcount has grown by 10% to 1,030 since the acquisition of AP.

The Magal system works, and nobody is allowed to deviate from it – unless, that is, they can prove there is a better way of doing things. “Don’t reinvent the wheel – it is already invented, so just learn how to drive it! But if you think you can find a better way, let us know: we will check it, and if it works, we will roll it out across the group.” An example of this came out of the AP factory, says Gamil, where the legacy manual Kanban system was upgraded to a computerised system driven by WinMan. “The people at AP were more computer literate, and found ways of making the system give more accurate stock reports, stock movement reports, and inventory management, all within one report, and very visible and accurate. We reviewed it, and found it was indeed a better system, so we implemented it in two other companies. As we speak we are just finishing the software changes to that program.”

Gamil is a great enthusiast for WinMan, the ERP software developed in the UK for small to medium sized manufacturers and distributors, because it does the job he wants. “When we were looking for a replacement system we carried out a beauty parade of providers, whose brief was to provide a system that can automate the manual systems we have developed in the past. We didn’t need a system with all the bells and whistles that even makes the coffee, but really does nothing until you already know what you want. You see systems like the one installed by the NHS, costing billions of pounds - yet nobody knows what it is or how to operate it. We definitely didn’t want that.”

Exponential growth

Although there has been a lot of gloom about the European automotive engineering industry in general, and the UK in particular, Gamil is confident that there is plenty of room for growth. “The Magal companies are all good companies, and during the past year we have been appointed a Ford Strategic Supplier, a Renault Supplier Partner, and have won a £10 million contract to supply Daimler Chrysler in Germany with thermostat housing. That contract will start in 2008.” These thermostat components were previously supplied by local supplier Behr-Thompson (historically a member of the Western Thomson family, now a competitor); it was gratifying to find that a UK plant could supersede one located only 15 km from the customer’s entrance gate.

Gamil’s other interests overseas are also doing well. With joint ventures in Turkey, China, and Romania and no doubt others soon to follow, the company is planning for exponential growth. He expects the current turnover of £80 million to grow to £180 million by the end of 2008, and he firmly believes he will reach his strategic target of £400 million as early as 2010. With car production expanding in the emerging markets, and production in low cost countries , his latest venture is Magal Engineering Tech with a new purpose built factory located in Chennai, India, will produce con-rods for Ford. This will be completed in September 2007, and production will commence in October. This new company has already secured another customer in Yamaha, and there are two further large contracts in the pipeline. These contracts will utilise half of the capacity of an automated line bought from a closing General Motors facility in Germany which has been transferred and reassembled in its entirety at the Chennai site.

Returning to the UK, Gamil Magal is certain that his businesses will continue to grow. And if the automotive industry will not support them here then he will find alternatives. “It takes Adwest Engineering three to four years to bring a steering system to market, because it is a safety-critical item. To date, Adwest has been supplying a number of niche markets in the UK such as London Taxi, Land Rover, Bentley and LDV. This product is declining and it due to the time it takes to develop and implement new products, so we decided to diversify. Currently, half of the factory is devoted to making steering systems, while the other half has been equipped with machinery to make products for the construction industry. We are about to close a £10 million project to make the facades for five buildings in Milton Keynes. We source glass, extrusions and build the facades to our own and external designs. However, we produce them in the same way we produce our automotive products – whatever the customer wants, wherever they want it and delivered on time – at a lower cost. The construction industry is not used to that!”