Cook Medical: Manufacturing is all about people

Barry Thomas is one of Australia’s most successful manufacturers. His Brisbane-based company, Cook Medical, is at the forefront of the medical device field. Cook Medical Australia reported $164 million in revenue in 2011. This included $76 million in export sales of product manufactured locally in Australia, $8 million in sales of locally manufactured product into the Australian market and $78 million in sales of imported product from other Cook companies outside of APAC.

How does Cook Medical thrive when other manufacturers are going to the wall?

Thomas, who received a 2012 Australian Export Heroes award from the Australian Institute of Export, has some simple advice: watch your input costs, keep management structures flat, make sure you are either making money out of the dollar or hedging yourself and, most importantly, look after your employees. It’s about making sure the people you have on board are the right fit, and then taking care of them so that they stay.

“It’s about having a workforce that’s working with you to maintain manufacturing,’’ Thomas says.

Thomas, director Asia-Pacific for the US based company and managing director of Cook Medical Australia. It has offices in China, Japan, India, Singapore, Malaysia, and Hong Kong and had sales in the APAC region of $310 million in 2011. Cook Medical Australia’s revenue from the APAC region grew 28.5% in 2011.

Thomas is scathing in his assessment of companies like Qantas, which recently announced it was sacking 500 employees. That was shortsighted and self-destructive, he says. Looking after employees is one of the keys to success at Cook Medical, it’s what keeps it ahead of other manufacturers.

“One of the things from my perspective, and it works for us, and I know this flies in the face of a lot that’s going on, is to try and engage the workers you have working for you in the process as well. If you do that, they understand the business. You do that rather than using the Qantas model of just laying people off,’’ Thomas says.

“At Qantas with their maintenance workers, they just put out a press release that said we are holding an information event in one of the hangers at Avalon airport and encouraging these people that there are jobs for them in the mines.”

“When you think about it, we’re saying if you don’t have a job, you can go and work in the mines. We haven’t even thought of the families of these people.”

“It’s unreasonable and it’s spin. It’s not 500 workers you’re putting off, it’s 500 displaced families.”

His comments coincide with news that more than 2,000 jobs will be axed after electrical and refrigeration engineering company Hastie Group collapsed under an estimated $500 million of debt.

Cook Medical now employs about 600 people in Australia. It has a low turnover of staff because it works almost as a family company.

When Cook Medical has to restructure and lay off staff, it doesn’t do it the Qantas way.

“We are moving one of our products to the US. We have reached a point where it’s better to move it to a bigger facility. We have a number of employees there.”

“Over the last year and a bit, possibly 18 months now, we offered them redundancies. We offered them training courses. They got to do any training course they wanted and we would fund that. We have been very open with them all the way through about what we were doing. They have also had the option of getting jobs that have come up elsewhere in the organisation. We have even allowed them to go and try out in those jobs to see if they liked it.”

That doesn’t mean the company can’t cut staff when it has to. But it needs to be strategic in the way it goes about it, he says.

“I am not saying you can’t look at your business and look at your costs and maybe there is shedding you need to do but to go in holus bolus and close it down is wrong.”

Thomas has implemented a system where the company pays for its employees’ health insurance. Indeed, the insurance cover extends to everyone in an employee’s family.

“We provide top hospital insurance for every single employee in our company which has had the effect of less sick days, and certainly a healthier workforce, and we pay fringe benefits tax on every single dollar of it as well,’’ he says.

“Also they feel well cared for. It provides a morale that is very positive around the workplace.”

The health insurance is a flat fee paid to Bupa every year. It’s easy to manage.

It’s a key part of the company strategy, he says.

“We have got a very stable workforce, we have a strong enterprise agreement in place and we have been able to work very well with the employees. It’s very much a family type partnership. Those things contribute, they’re all little pieces and together they help give you a viable business,’’ he says.

“In our case, we are manufacturing a medical device so quality is a very important component of what we do. We plant these things in human beings and so our employees are highly skilled. You don’t bring people on and put people off at will, so to speak. Once they are trained, you really want to hang on to them.”

“We have a lot of women in our workforce and we have a lot of women with children and families, so it’s very important for us to continue to employ them.”

The canteen at the Brisbane headquarters is subsidised.  “The employees just pay food costs,’’ he says. “People will come in and take a roast dinner, have it boxed and take it home. We are quite happy to do that.”

Cook Medical also has a profit sharing scheme, right across the board. “If I get $400 each month, every employee gets $400. It’s not leveraged against your salary or who you are in the organisation. Everybody participates at the same level and we are totally transparent about that.”

That also sends a signal to the rest of staff that they are valued. And open communication with all staff is a premium. “We are very much transparent and open. Every month I go around the building into each of the area and update the staff on what we are doing and what we are on about, how the business is going in Australia, how it’s going in APAC and how it’s going in the world,’’ he says.

“Every Friday morning we have a meeting with the customer service staff and the functional staff in the office to give them an update about what’s going on. Our staff feel engaged in the business.”

“By and large most of the population know that times are tough. They are not living in a vacuum so there is nothing wrong keeping them up-to-date with what’s going on. We found that works for us.”

Much of it is the Cook ethos. Cook Medical, the world’s largest privately owned medical device manufacturing company, was established in the United States in 1963. Privately owned, it is still run as a family business.  It was established in Australia in 1979.

In keeping with the business model, management structures through the company are kept flat. “I answer to one guy in the United States who answers sideways to the company chairman,’’ Thomas says.

“Under me, there’s a country manager for China, a country manager for Japan and a country manager for South Asia, a CFO for Asia-Pacific, an IT director for Asia-Pacific, an HR director for Asia-Pacific and then essentially local management.”

The beauty of that, he says, is that it speeds up decision-making and allows the company to be more responsive to markets. “You can rapidly get decisions done. There is not a lot of hierarchy in the way of doing things. You can communicate directly across the organisation and you are carrying a huge cost burden.”

Most of the time, he says, tough decisions – like the one about the company expanding into China during the global financial crisis – come down to very simple conversations.

Strategic decisions have been very much the mark of his management style. Thomas came to Cook Medical in 2001 and was sent to the United States in 2003 to lead the newly established Aortic Intervention business unit. He returned and became managing director in 2009.

His strategy was simple: expand in Asia. He recognised it as the big growth market. The company established new offices in Korea, Thailand and India, expanding offices in Beijing, Shanghai, Japan, Taiwan, Malaysia, Singapore, and Hong Kong and entering buy out agreements with the 10 distribution companies around Asia.

Significantly, it is Asia that’s driving the growth of Cook Medical’s Australian arm. While the dollar is having an impact, the company has hedged itself by importing inputs and products from the Cook companies. “We can naturally hedge what we’re exporting versus what we’re importing. That helps us out, no doubt. For long-term viability, companies might want to look at where they source their raw materials from and options to distribute as a way to combat issues with the dollar. The other thing is looking at all of your inputs in the manufacturing process and looking at ways to manage your cost side as best you can and looking to your efficiency side.”

He says one of the key features of the Cook strategy is the way it takes the long view, much like the Chinese and their five year plans.

“One of the disadvantages of public companies is that their whole planning process is so short, it’s the quarterly return to shareholders that driving every decision,’’ he says.

“We look at our business differently. We have a five year plan and we’re looking at that five year plan and we know we’re going to need these workers. I want to continue to manufacture in Australia and work on the market so I need my employees and I need those skills and I need my plant and equipment up-to-date to take advantage of that.”

“If you look at the Qantas model, they are going to close that maintenance down and outsource it offshore. They are never going to get it back. It’s lost forever. I believe that’s short-term thinking.”