27 October, 2003
© Beep Knowledge System and case owners, 2002-2003
Digital SMEs Cases
Timing of case
Kindrace was founded in 1983 by 3 directors all with transformer industry backgrounds
Geographic setting
United Kingdom, Wales. The main activity of Kinderace is the online banking
services. The eCommerce solution implemented was to use Royline, the Royal
Bank of Scotland's on-line banking service, and sending an automatically-generated
electronic version of each invoice by eMail at the end of every day to
Alex Lawrie, director.
Type and use of ICT
The eCommerce solution implemented was to use Royline, the Royal Bank
of Scotland's on-line banking service, and sending an automatically-generated
electronic version of each invoice by eMail at the end of every day to
Alex Lawrie.
Main contributors
Kindrace Limited is a batch manufacturer of custom designed transformers
and wound components, used primarily for electronics and low-power electrical
applications.
Kindrace was founded in 1983 by 3 directors all with transformer industry
backgrounds. They are a batch manufacturer of custom designed transformers
and wound components primarily for electronics and low power electrical
applications.
Main beneficiaries
The company has a reputation for delivering quality products at competitive
prices to its numerous blue-chip customers.
Background
Kindrace Limited is a batch manufacturer of custom designed transformers
and wound components, used primarily for electronics and low-power electrical
applications. Kindrace was founded in 1983 by 3 directors all with transformer
industry backgrounds.
At the start of the project Kindrace employed 30 people at its 4,000 square foot facility in Port Talbot. This has now risen to 55 employees. They currently have a turnover in the order of £1m. The majority of products are designed to individual customer specifications and manufactured in batches ranging from one-offs to a run of 10,000 or more. Accounts are presently factored with approximately 50 invoices generated each week which are passed to their factoring company, Alex Lawrie.
Kindrace provides an example of a small company that is a perfectly competent manufacturer but which suffers from cash management problems. They work on the basis that they buy what they can pay for. They had a specific interest in using any e-Commerce solutions, which could help them address this area.
Objectives
The project aimed to overcome the following problems:
Cash flow - which was difficult to manage as there was a large degree
of uncertainty as to when their trade debtors would present cheques for
payment.
Unnecessary interest charges were incurred, due to cash flow uncertainty.
To accommodate this, funds had to be transferred from Alex Lawrie, their
invoice factoring company, well in advance.
Resources (apart from ICT)
This case study has resulted from an innovative project undertaken by
the eCommerce Innovation Centre (eCIC) at Cardiff University, entitled
Electronic Commerce in Support of Domestic and International Trade. Funded
by the European Regional Development Fund and British Telecom, the project
aim was to raise the level of knowledge on eCommerce amongst the small
to medium-sized enterprises (SMEs) in South Wales.
The project which was completed at the end of 1998. This case study reflects the experiences of one of the 15 SMEs involved in the trial.
Activities
The eCommerce solution implemented was to use Royline, the Royal Bank
of Scotland's on-line banking service, and sending an automatically-generated
electronic version of each invoice by eMail at the end of every day to
Alex Lawrie.
By sending invoices electronically, Alex Lawrie automatically released
factored funds overnight, making working capital available two days earlier.
Alex Lawrie have also benefited from reduced administration work.
The tangible and proven benefits of this eCommerce pilot have encouraged
Kindrace to look at using eCommerce to automate other manual processes.
The Royline service costs Kindrace £10 per month (excluding transaction fees and call charges) which includes a help-desk service. The on-line service from Alex Lawrie was free and included a PC with a modem and a training course.
The Alex Lawrie Factoring service works in the following way:
- Kindrace is charged 1.4% of their invoice total per annum which is
divided into monthly payments.
- 80% of funds from individual debts are made available to Kindrace once Alex Lawrie receives the invoice details.
If Kindrace chooses to transfer money against a debt that is yet to be recovered, they will be charged interest at 2% above the basic Lloyds bank interest rate (currently 7.25%) until Alex Lawrie recovers it (Lloyds Bank owns Alex Lawrie).
Outputs and results
The new approach has benefits for both parties:
- Kindrace benefits because 80% of invoiced funds become available
two days earlier than if they were using the manual process.
- Alex Lawrie benefits because they receive the details electronically which reduces their administration and clerical effort.
Kindrace uses the facility daily to view the account balance and check uncleared funds but this only takes a maximum of 5 minutes a day. There is a facility to make electronic payments, which they have used, but remains to be used in earnest.
With the on-line service, Kindrace has much tighter control of their bank account and outstanding debts. If they have £60,000 of unpaid invoices they transfer only £60,000 of funds from Alex Lawrie as they know that this will be enough. In addition to this Kindrace is typically able to delay a fund transfer for 5 days and further reduce their interest charges.
With the service, until Alex Lawrie recovers the amount of money invoiced to the Kindrace customer they will charge interest (currently 9.25%) on any uncleared funds that had been transferred to the Kindrace bank account.
Lessons and conclusions
However, it is not the financial saving which is important but rather
the freeing up of time which has allowed the company to implement and
use design software for improved product development. Also the reallocation
of employee time from administrative work to product development is an
important contributing factor to increasing company sales
Background
Kindrace Limited is a batch manufacturer of custom designed transformers and wound components, used primarily for electronics and low-power electrical applications.
Kindrace was founded in 1983 by 3 directors all with transformer industry backgrounds. They are a batch manufacturer of custom designed transformers and wound components primarily for electronics and low power electrical applications. Typically the transformers form part of a set of end-products ranging from vending machines to electronic instruments. The company has acquired a reputation for delivering quality products at competitive prices to its numerous blue-chip customers.
At the start of the project Kindrace employed 30 people at its 4,000 square foot facility in Port Talbot. This has now risen to 55 employees. They currently have a turnover in the order of £1m. The majority of products are designed to individual customer specifications and manufactured in batches ranging from one-offs to a run of 10,000 or more. Major customers are electronic equipment and light electrical machinery manufacturers. They have a full order book and the main reason for joining the project was not to increase sales or improve customer service but to improve their financial management. Accounts are presently factored with approximately 50 invoices generated each week which are passed to their factoring company, Alex Lawrie.
Kindrace provides an example of a small company that is a perfectly competent manufacturer but which suffers from cash management problems. They work on the basis that they buy what they can pay for. They do not want an overdraft facility and as such monitoring and improving cash-flow is a prime objective. They had a specific interest in using any e-Commerce solutions, which could help them address this area.
Objectives
The project aimed to overcome the following problems:
Cash flow - which was difficult to manage as there was a large degree of uncertainty as to when their trade debtors would present cheques for payment. To control this problem, about 5 hours of senior management time was spent each week making frequent trips to the local branch of the Royal Bank of Scotland, to check the account balance and uncleared cheques.
Unnecessary interest charges were incurred, due to cash flow uncertainty. To accommodate this, funds had to be transferred from Alex Lawrie, their invoice factoring company, well in advance. In addition, as a paper copy of each invoice was sent to Alex Lawrie as well as the customer, there was often a delay of several days before funds could be released, restricting working capital further.
Resources
This case study has resulted from an innovative project undertaken by
the eCommerce Innovation Centre (eCIC) at Cardiff University, entitled
Electronic Commerce in Support of Domestic and International Trade. Funded
by the European Regional Development Fund and British Telecom, the project
aim was to raise the level of knowledge on eCommerce amongst the small
to medium-sized enterprises (SMEs) in South Wales. The project which was
completed at the end of 1998, had the support of Cardif County Council,
the Vale of Glamorgan Council, South Glamorgan TEC, Cardiff Bay Development
Corporation and Gwent TEC, all who saw eCommerce of direct benefit to
many small businesses in their area. This case study reflects the experiences
of one of the 15 SMEs involved in the trial.
Activities
They bank with the Royal Bank of Scotland and within the project they
installed the bank’s online banking service, Royline. They subsequently
installed an electronic link to Alex Lawrie.
Royline was initially implemented out of curiosity but its early success
provided the catalyst for the link to Alex Lawrie. The Royline service
costs Kindrace £10 per month (excluding transaction fees and call
charges) which includes a help-desk service. The on-line service from
Alex Lawrie was free and included a PC with a modem and a training course.
The two on-line applications now play an important part in the Kindrace
operation.
The process works in the following way:
When Kindrace creates a paper invoice from their Pegasus accounting system a copy is sent to both their customer and Alex Lawrie. Approximately 85% of the customers which Kindrace describe as ‘established’ subsequently pay Alex Lawrie.
The other 15% consist of one-off orders, which are paid directly. Using
the on-line link to Alex Lawrie, Kindrace now sends the invoice details
electronically as soon as they are created. Following this, 80% of the
value of the invoices becomes available overnight even before the customer
and Alex Lawrie receive the paper invoice.
Previously these invoice funds were made available after the copy invoiced
had arrived by post and was entered into Alex Lawrie’s internal
systems.
Kindrace uses Royline on another PC which provides the on-line banking service (the Alex Lawrie link is used mainly by an administration clerk who sends the invoice details). Royline is used daily and typically involves checking the account balance and uncleared cheques. This is of significant importance because when a supplier is paid, the payment may take time before it will be deducted from the Kindrace account.
Knowing what the precise situation is in respect of cash-flow has always
been a problem and required frequent visits to the bank. Typically Kindrace
used to instruct Alex Lawrie (approximately every five days) to transfer
a specified amount of money to the Kindrace account at the Royal Bank
of Scotland. This was usually via the banking clearing service (CHAPS)
so it can often be cleared the same day. The Royline service has allowed
them to leave this process as late as possible, reducing charges from
their factoring company but still ensuring that they are not overdrawn.
Kindrace now requests funds about every ten days and the amounts can be
more precise as they know the exact requirement to ensure they have enough
funds to cover their debts.
The Alex Lawrie Factoring service works in the following way:
- Kindrace is charged 1.4% of their invoice total per annum which is
divided into monthly payments.
- 80% of funds from individual debts are made available to Kindrace
once Alex Lawrie receives the invoice details.
- If Kindrace chooses to transfer money against a debt that is yet to be recovered, they will be charged interest at 2% above the basic Lloyds bank interest rate (currently 7.25%) until Alex Lawrie recovers it (Lloyds Bank owns Alex Lawrie).
Output and Results
The new approach has benefits for both parties:
- Kindrace benefits because 80% of invoiced funds become available
two days earlier than if they were using the manual process. This is
in addition to the benefits they perceive from factoring. Also the manual
information sent to Alex Lawrie involve more work. Using the on-line
system can save half an hour of administration time a day.
- Alex Lawrie benefits because they receive the details electronically which reduces their administration and clerical effort. Whilst this is not exact computer-to- computer exchange i.e. electronic data interchange (EDI), it is a move in that direction.
Setting up and using the on-line banking service was straightforward. Certainly during the project Kindrace moved forward with their use of IT but they could in no way be called “techies”. Their initial 2 basic 386 PCs were replaced by a Pentium® 166 server with 3 client PCs running Windows 95™ and the banking software was run on one of these machines. They originally received the information and disk from the Royal Bank of Scotland and were able to install the software and link via the modem without any difficulty.
Kindrace uses the facility daily to view the account balance and check uncleared funds but this only takes a maximum of 5 minutes a day. There is a facility to make electronic payments, which they have used, but remains to be used in earnest. At the moment they pay by cheque but would consider using the payment facility once they have obtained the bank account records of all the suppliers. They have no use for the ‘Funds Transfer’ facility simply because they only have one bank account.
The service has been 100% reliable but there is one additional function Kindrace would like. At present they fax wage details to their bank every week and the Royal Bank of Scotland transfers the funds into the employees’ bank accounts. It is possible to transfer funds using Royline as well as store the recipients’ account details. However this version of Royline (aimed at SMEs) only allows 50 transactions to be made per month. Kindrace is trying to pay their employees this way but it will involve a lot more than 50 transactions (the 55 employees are paid weekly). They are waiting to see what will happen when they try exceeding the 50 transactions. The next level of Royline service starts at £25 per month.
Generally the use of on-line financial services by a Director involves about 2 hours of work a week. This is a significant improvement on the previously manual process that took him up to 5 hours a week. Assuming a salary of £20,000, the saving would amount to £10 an hour or approximately £1,560 a year.
Moreover, before using on-line financial services, Kindraces raise £80,000 of invoices and post them to Alex Lawrie. When they arrive two days later 80% of the £80,000 is made available to Kindrace over night (£64,000), while with the service, Kindrace raises £80,000 of invoices which are sent electronically to Alex Lawrie who make 80% (£64,000) available over night.
Another problem was that Kindrace were finding it difficult to keep account of recent and uncleared debts as well as monitoring their bank balance. If they estimated that £60,000 of invoices were unpaid, they would transfer more money (e.g. £64,000) to make sure they could cover these debts.
With the on-line service, Kindrace has much tighter control of their bank account and outstanding debts. If they have £60,000 of unpaid invoices they transfer only £60,000 of funds from Alex Lawrie as they know that this will be enough. In addition to this Kindrace is typically able to delay a fund transfer for 5 days and further reduce their interest charges.
Without the banking service, until Alex Lawrie recovers the amount of
money invoiced to the Kindrace customer they will charge interest (currently
9.25%) on any uncleared funds that have been transferred to the Kindrace
bank account.
If it took 30 days for Alex Lawrie to recover the above debt, Kindrace
would be charged 30 days’ interest on £64,000.
With the service, until Alex Lawrie recovers the amount of money invoiced
to the Kindrace customer they will charge interest (currently 9.25%) on
any uncleared funds that had been transferred to the Kindrace bank account.
If it takes 30 days for Alex Lawrie to recover the above debt and considering
that they are typically able to delay the transfer for 5 days, Kindrace
are charged 25 days’ interest on £60,000.
Considered everything, without the on-line banking sector, this would sum up to £486.58, while with the service it amounts to £380.14.
This highlights how on-line financial services have enabled a saving of £106.44 over a one-month period.
Lessons and conclusions
However, it is not the financial saving which is important but rather
the freeing up of time which has allowed the company to implement and
use design software for improved product development. This has been part
of the company’s plans for a long while but until now they have
just not had the time to do it. Also the reallocation of employee time
from administrative work to product development is an important contributing
factor to increasing company sales. This service allows the Director to
have instant access to bank statements, balances and details of outgoing/incoming
payments. As such the Director is far more assured as to how the company’s
finances are handled.
This is a case of a company not looking to find new customers, using the Internet as a marketing tool or e-mail as an improved communications option. Kindrace have such facilities but it is the simple financial links which have not only saved money but also freed up enough time to allow them to introduce new business processes.
The success of their first e-Commerce implementation has given them confidence that there are alternatives to the traditional manual processes and that they are within the capabilities of most companies.
References and links
www.kindrace.co.uk/
www.opportunitywales.co.uk/0-0-0/3-0-0/3-8-0/3-8-13.htm