Sponsor - International Factors.
Even the staunchest promoters of Scotland's Silicon Glen would be hard-pressed to explain the success of Keltek Electronics, tucked away in the small market town of Kelso in rural Roxburghshire, an hour or so's drive south of Edinburgh. The factory produces printed circuit board assemblies for more than a dozen well-known names from the worlds of computers and telecommunications. Customers look to Keltek to supply them with circuit boards that it would be uneconomic for them to manufacture themselves, says chief executive Mike Jarman. 'The investment that is required to produce in-house continues to climb - and the make-or-buy decision is increasingly saying "buy",' he explains.
The factory dates back to 1965, and although Silicon Glen originally played a part in the company's growth - IBM's Greenock plant was a customer for many years - Keltek's strategy has been to deliberately withdraw from products that run at too high a volume level, preferring to seek out a more profitable niche in the medium range of the market.
The figures speak for themselves: in the global contract electronics business as a whole, most companies prefer to focus on return on capital measures, averaging a mere 1% return on sales, thanks to the high proportion of bought-out materials. Keltek Electronics, on the other hand, achieves a comfortable 4% return on sales, with strategies in place to raise this figure to between 5% and 7%.
'We're selling capability and capacity, not product,' Jarman is quick to explain, pointing out that customers quickly come to value the factory's responsive production lines, as well as its expertise in design-for-manufacture and test-for-manufacture skills. 'We've made a virtue out of being rural and remote - and have invested heavily in communications equipment, video-conferencing and CAD-conferencing,' he explains. Given that only three of Keltek Electronics' customers are in Scotland, and that one is in Boston, Massachusetts, the strategy would appear to have been successful.
One of this year's unsuccessful entrants proudly showed off its 'world-class office', an area of such unnatural orderliness that it was difficult to see how excellence (or indeed anything) could be pursued at all. The office at Keltek Electronics, however, which is extremely well laid out and adorned with very visible performance measures, is among the best that the judges have encountered in the history of the competition. In the words of one judge, it is 'a joy to discover in an entrant in the small company category'. Organised into distinct cross-functional teams, designers, buyers, engineers and sales staff all quietly get on with the job of serving their nominated customers.
Not surprisingly, it transpires that Jarman and operations manager Jon Brown are both enthusiastic adherents of the what-you-see-is-what-you-get approach to manufacturing known as 'the visible factory'.
The new twist to this approach on the part of Keltek Electronics impressed the judges with its simplicity: instead of simply being thrown away, scrapped parts are put into giant fishbowls on the factory floor; each glass bowl is placed adjacent to the point in the process where the scrap originated. Scrap is thus highly visible which, says Brown, sends a powerful message in itself.
He highlights a recent instance where engineers began to wonder why so many of a particular component had been scrapped at the post-test board rectification stage. The number of scrapped parts was, in fact, well within normal limits, but was nonetheless puzzling.
Each component, it was discovered, had failed on account of a minute pinhole penetration of its outer casing by molten solder which is occasionally expelled through an adjacent hole in the printed circuit board. 'Without the nagging prompt of seeing the components in front of us, we probably wouldn't have probed further,' confesses Brown.
After a management buyout in 1993, Keltek has its sights firmly fixed on growth. The company has recently taken over another similarly sized factory near London, and is aiming to double today's sales turnover figure to £75 million by the year 2000, with 25% of output for export. After that, hints Jarman, a US acquisition is on the cards. It seems that Keltek Electronics, a worthy winner of this year's Best Small Company award, is unlikely to remain a small company for long.
Activity: Printed circuit board manufacture
Task: Service-responsive production of printed circuit boards for demanding major-league electronics companies
Size: 190 employees
Outstanding Features: Linking business strategy to manufacturing capabilities, customer responsiveness, design-for-manufacture and test-for-manufacture skills
Sponsor: International Factors
International Factors is one of the country's leading invoice finance companies, providing funds to over 2,500 clients.
With 12 regional offices in the UK, International Factors offers both tailored and local expertise.
Clients vary from SMEs to international plcs, with 41% based in the manufacturing industry. Invoice finance has grown eightfold as a form of lending since the recession, with an estimated 5% of GDP being generated by companies using invoice finance.