Fellowes talks exclusively to OPI about its Chinese supply issues and how it aims to win back market share in the shredder category
It has been a tough six months for Fellowes. On 7 August 2010 its Chinese joint venture partner shut down shipments out of its main Changzhou manufacturing facility, cutting off the supply of its core line of shredders.
After a successful three-and-a-half-year relationship, the joint venture took a turn for the worse when Fellowes’ partner, Jiangsu Shinri, changed leadership in late 2009. Fellowes’ former partner was replaced by another member of the family.
According to Chairman and CEO Jamie Fellowes, the new regime at Shinri was trying to usurp control of the JV business from Fellowes in order to gain financial benefit.
As efforts with the Changzhou authorities to resolve the dispute proved fruitless and with Fellowes denied access to the Changzhou facility, the company was ultimately forced to put its Chinese employees on furloughs. The JV company eventually ran out of cash and became bankrupt.
Prior to the August shutdown Fellowes had managed to build up safety stocks of its shredders. This helped to mitigate the initial impact of the supply cut-off. To its credit, the company also immediately notified its customers to make changes in 2011 catalogues and retail placements.
"These steps did demonstrate our sincerity to help our customers through this, but the bottom line is that our supply chain broke down," said Jamie Fellowes. "We take great pride in supply chain execution. We apologise to our customers."
He added: "The customers have been more supportive and empathetic than we had reason to expect."
EVP John Fellowes oversees the Business Machines business and has been focusing on driving the recovery of the business.
He says that Fellowes has been working to a three-part plan in order to restore its supply chain back into the marketplace.
The first of these has been to work with four shredder manufacturers – three in China and one in Germany – to bring ‘bridge’ shredders to market in a short timeframe. These products started to ship in December and will continue to launch through March.
"These shredders don’t have all our patented features, but they perform well and according to our claims," noted John Fellowes. "We are intent and committed to preserving the integrity of our brand."
The second initiative is to relaunch its core shredders which have been blocked since August 2010. During the second half of 2011, Fellowes will begin shipping these machines from its 14 global distribution centres to its customers. The company estimates that about 70% of the market will be covered for January 2012 catalogues.
To ensure a fast recovery, Fellowes is working with two Chinese assembly manufacturers in order to achieve this and will move the production of its high-end commercial shredders back into its own US factory.
"The security of our supply chain is pre-eminent in our minds and we have been extremely selective in terms of our manufacturing partners," stated John Fellowes. "We are especially excited about bringing the high performance machines back to the US. The tolerances and precision required is better suited to US technology."
The third part of Fellowes’ plan involves its technical innovation strategy and new product launches.
"We are working even during the recovery phase to invest in technical innovation and designs which we’ll be bringing to the marketplace in 2011 and 2012," said John Fellowes. "We believe this will bring back the momentum we had before our current problems."
Fellowes is aware that it will have to work hard to regain its former position in the shredder category. "We understand that we have lost market position and we need to provide compelling arguments in order to regain that space," said Jamie Fellowes. "We will be investing in consumer brand marketing and launching new products alongside the return of the core machines."
It has helped that Fellowes has been able to retain all key managers in the China and US teams, including operations, quality, engineering and product development staff. It believes these key people will ensure quality and execution in the relaunch of its machines.
"It has been a difficult environment for all of us and I am extremely proud of the way our people have handled the situation," commented Jamie Fellowes.
While Fellowes has naturally felt a financial impact, the CEO maintains that this is very manageable and will not impair the company’s plans for growth and expansion. He points out that Fellowes has continued its shredder media campaign in the US, for example, during the supply chain interruption.
"We have a debt-free financial structure and we are privately-held so our stock price is not volatile. We are able to withstand a shock like this," he stated.
"In the six months since the shutdown of our shipments from Changzhou, we have continued to operate profitably each month; the cash surplus on our balance sheet has not been eroded."