British American Tobacco: Change for the better

South Africa’s manufacturing sector is under pressure at present; the world has become a smaller place and that has increased competition, while the global economy has put production efficiency at a premium. Imagine then the additional, well-documented commercial challenges that tobacco manufacturing faces and you have a perfect recipe for change.Dirk_Eloff_003

At British American Tobacco South Africa (BATSA), part of the British American Tobacco Group of companies, change is a word synonymous with the continued success of a company that celebrated its centenary in 2004. It is a word that has played a significant part in the history of the business and continues to drive operations forward today, as Dirk Eloff, Head of Operations for the South African Area explains:

“Our Heidelberg Factory is one of the big hubs within the EEMEA region of BAT and globally this is an important production facility. We therefore aim to set operational benchmarks here that can be reciprocated across the EEMEA region and by BAT facilities elsewhere in the world.

“It doesn’t matter what you are manufacturing, the principles remain the same: to make a quality product, when the customer wants it, to optimise prices and to do so in a safe and efficient environment. If I look at our Heidelberg plant there are some aspects where we are very competitive and other areas where we have a bit of work to do.”

It is the outstanding work that is driving the latest change at Heidelberg, as Eloff who returned to Heidelberg Factory in February this year, helps to introduce a cellular approach to production.

“We are located about 70 kilometres from Johannesburg and roughly half of our 65 hectare site is currently developed. We are working to maximise our efficiency on the site and just over two months ago we replaced the way we work with a CELL structure. This will enable each area of the plant to become more self-directed and each team will become more self-sufficient and will integrate maintenance into each CELL.”

DSC_1042The change was supported by Eloff’ to reinforce the company-wide benchmarking standards in Heidelberg Factory. Having worked for BAT for over thirty years, Eloff’s experience has taken him around the world and he has seen the CELL approach work successfully in a number of other plants.

“It brings everyone in the factory closer together and there is a greater sense of harmony and a feeling of belonging,” he says. “By working in CELL’s, communication is improved and this concept has the effect of reducing layers within the organisation. It also means that we can more easily introduce incentive schemes based around performance.”

The concept of change is not always readily embraced by a suspicious workforce of course and Eloff has worked hard to establish clear lines of communication that have largely gained the buy-in from the 600 employees in Heidelberg.

DSC_1120“There have been changes that have affected people lives outside of the plant,” he admits, “for example, some staff are now working shifts rather than set daytime hours – but in the end most people understand the benefits of what we are setting out to do and we haven’t lost people in the process. Through our lengthy discussions we have introduced a mindset rather than a skill set change.

“We are already seeing improvements and these will help us to bring down our base costs and enable us to compete for export work within BAT.”

Eloff says that competition is fierce from the various plants across BAT and in 2012 predicts that Heidelberg will produce 27-28 billion sticks of which approximately 30 per cent will be exported across the continent. In addition the site manufactures semi-finished goods including cigarette filters and cut tobacco which are sent to other BAT facilities and BAT-affiliated businesses.

According to Eloff, the Heidelberg Factory has two unusual aspects: a box-making facility – in South Africa products are sold in what is called a shoulder box (sales of products in this packaging amount to roughly 20 per cent of the domestic revenue); the site also operates a metal paper plant which produces bio degradable aluminium foil.

Increasingly the plant has relied on automation and currently operates high speed equipment capable of producing 500 packs a minute while specialist robotics helps to pack both filter and tobacco supplies.

“Over the last five years there has been lots of investment in this plant in all areas. We have upgraded our infrastructure and revised the layout of the plant and machinery to allow for nesting which improves the material flow and efficiency and of course we have also invested in higher-speed machinery. We have a ten year programme for capital expenditure so we will continue to invest in technology,” Eloff describes.

One area that is increasingly causing operational concern is the ever-rising cost of logistics and Eloff is quick to elaborate the importance of devising a Plan B: “Whilst we supply the local market we also export and that means we have had to up our game when it comes to shipping. Logistics is an expensive part of the product and you need to continually look at contingency plans because of issues at the ports. There are often delays due to congestion or strikes and we have to plan alternatives ways to move the product.”

In recent years, the tobacco industry has seen heightened regulation and while the big companies have absorbed the impact of requirements, Eloff says that the trade of elicit tobacco has greatly increased.

“Of course the industry has become more regulated and we are no longer permitted to advertise. With increased excise, cigarettes have become more of a luxury item. The elicit trade of course affects not only the industry but also government as both the industry and government continue to loose revenues.

DSC00009“I would say though that the product quality-wise is far superior to 20 years ago and because of the increasing price people want a quality product. We do operate a laboratory here in Heidelberg factory that helps to improve the product, while we carry out quality control with our tobacco suppliers who generally operate within co-operatives.”

Innovation will continue to propel the industry and by definition BAT’s South African operations, as Eloff explains, “We are already seeing a return (on our investments and changes) – there is no silver bullet but the combination of better infrastructure and happy workforce will help us to improve performance of the plant. The quality numbers are improving and our cost base is down while productivity increases.

“Within the industry there is maybe less money to spend on upgrades than ten years ago but consumers want diversity and factories like ours in Heidelberg need to be flexible for quick changeovers and both management and staff need to understand that it is a different game now.”

The plant is geared towards waste reduction and has won several internal awards for its efforts; although Eloff says there is still room for improvement and there are other sites that have mitigated the need for landfill sites. Presently the recycle rates for Heidelberg are around 90 per cent. With energy supplies less than reliable in South Africa, the facility uses coal to run its boilers but wherever possible is implementing green initiatives.

While Eloff has been connected to BAT for over thirty years; of course the company history traces back much further, as the Rembrandt name became Rothmans. Heidelberg Factory was established back in 1978. BAT and Rothmans merged in 1999 and all production thereafter in other sites transferred to the Heidelberg facility.

The appeal of returning home after twelve years working abroad was too great an opportunity for Eloff to turn down. He also finds the challenge of sustaining Heidelberg irresistible and looks forward to a bright future: “We embarked on changing our organisation to a CELL structure and there are still lots of processes around that which need to be embedded and of course our people are still getting used to the changes. Performance indicators will help our people to settle in to the new way of thinking as they can see the improvements.

“I think the performance of the plant will significantly improve and will deliver more cost effective productivity numbers. We are also well-placed to support local suppliers and to help identify future business leaders as we embrace our Black Economic Empowerment initiatives.”