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Supply Chain Management of Jackpot Enterprises Inc. -
January 12th, 2011
Since its founding 150 years ago, John Brown has changed its emphasis several times. It began manufacturing steel files, shifted to rails and rail coach springs, then to shipcladding and shipbuilding, and finally, in the 1950's to general construction. John Brown has been a consistent leader within its various realms and has weathered depressions and other financial crises successfully. However, in the late 1970's and early 1980's the company's fortunes fluctuated dramatically, eventually leading to a near collapse. Trafalgar House--the British construction, natural resources, and shipping and aviation conglomerate--resuscitated John Brown in 1986 with an £80 million takeover.
Born in Sheffield, England in 1816, the company founder was the son of a slater. John Brown attended a local school, and when he was fourteen his father pushed him to learn the linen drapery craft. John Brown refused flatly; he wanted to be a merchant, and to that end entered the local firm of Earle Horton & Co. as an unwaged apprentice.
Earle Horton & Co. went into the steel business and offered Brown a partnership in 1837. Unable to collect the capital needed to join the firm, he had to refuse the offer. The firm's owners then made a second offer: for £500, Brown could be the firm's sales agent. Brown convinced a local bank to back him this time, and at age 21 he became a traveling salesman with a horse and gig. He carried his cutlery samples and drummed up so much business that he made enough money to start his own enterprise. Brown resigned from Earle Horton & Co. and set up the Atlas Steel Works, manufacturing crucible steel files.
In the 1840's the railways' rapid expansion gave great impetus to the steel industry in England. More tracks were being laid and more coaches built all the time, creating a seemingly unlimited demand for steel. In 1848, Brown invented and patented the conical spring buffer for railway coaches, which increased both safety and comfort. His invention made Brown's name and fortune; he worked a representation of it into the company seal and later, when he was knighted, into his crest. The successful Atlas Steel Works continued growing, and in 1856 Brown transferred all of his works to a larger site he had purchased from a failed business. That year he renamed the firm Atlas Steel & Spring Works.
In the following years Brown began manufacturing iron from ore in his own six puddling furnaces. The other, typically conservative, merchants in the area thought he was crazy not to order the iron needed for steel production from Sweden and Russia, the main sources at the time. Nevertheless, Brown's iron was good and cheap, and he was soon producing 100 tons a week.
The last of Brown's three remarkable innovations was adoption, in 1858, of the Bessemer process for convertng iron to steel. Once again the move went against conservative opinion, and again it was successful and lucrative. Brown began selling Bessemer-made steel rails in 1861.
Shortly after introducing the new rails, Brown made a secret examination of a French warship to inspect the French "iron cladding," which usually consisted either of several thin pieces of plate riveted together or of single rolled-iron plates. Determining that he could do the job better, John Brown built a rolling mill, and in 1863 was the first steelmaker to roll 12-inch armor plate for warships. After files, then rails and springs, the company had now embarked on its third phase, shipcladding, which would develop into shipbuilding. The HMS Warrior was the first battleship to sail with Brown's armor. Brown spent over £200,000 developing the armor plate manufacturing business, and expanded his works to 21 acres. During the decade beginning in 1857, Brown's workforce grew from 200 to 4,000. Turnover expanded from an initial £3,000 to nearly £1 million in 1867, when John Brown was cladding three quarters of Britain's warships in iron.
In 1859 Brown took two partners. The move had excellent results for the company but ended in personal disaster for Brown himself. William Bragge was an engineer, and John Devonshire Ellis was from a family of successful brass founders in Birmingham. By 1864 they had turned the firm into a limited company called John Brown & Co., with a capital of £1 million. Ellis contributed his own invention, the compound armor plate of rolled iron with a steel face. He also knew how to run a company, which Brown did not. Brown considered the company his own; after all, it had been his innovation and energy that founded the venture that now bore his name. Brown disliked working with people he considered outsiders--though they were, of course, shareholders--and having the directors criticize his decisions on expenditures. The increased tension damaged both the company and John Brown's health. In 1871 Brown resigned, leaving J.D. Ellis to take over as head of the firm. In the next several years Brown tried to form a few other companies, all of which failed. He died, impoverished, at age 80 in 1896, to the expressed sadness of his old partners.
J.D. Ellis remained chairman until retiring in 1906. During his tenure he brought both his sons, Charles Ellis and William Henry Ellis, into the company. The former took over as managing director from his father in 1892 and held the post until 1928. Under J.D. Ellis the company bought a joint interest in Spanish iron mines in 1872 to secure a steady supply of iron ore. John Brown later bought the Aldwarke Main & Car House Collieries and started mining coal.
In the last decades of the nineteenth century, several factors threatened John Brown's success. The British railway companies began to import cheaper supplies from foreign companies, new labor laws reduced workers' hours and raised their wages slightly, Britain had a rail strike, coal prices were depressed, and finally, there was a long coal strike. John Brown survived all these difficulties and the depression of 1894-5 through careful management, and at times managed to do quite well.
The company bought the Clydebank Engineering & Shipbuilding Co., the most successful shipyards in the United Kingdom, in 1899. With this acquisition John Brown entered the shipbuilding industry, shifting its focus yet again. The next year the company produced a Japanese battleship, a Cunard steamship, and five destroyers. Ships John Brown built later included the Lusitania, the Aquitania, the Tiger, the Repulse, and the Hood.
John Brown and another Sheffield steel company, Thomas Firth & Sons, exchanged shares in 1902 and agreed to work together. While the companies continued under separate management until they merged in 1930, their boards shared many directors. In 1908, the firms established the Brown Firth Research Laboratory in Brearley, where chrome stainless steel and "Staybrite" stainless steel were developed. The latter is still used throughout the world.
The company bought the Coventry Ordnance Works in 1904 but saw little profit from the enterprise until the First Lord of the Admiralty, Winston Churchill, began to place orders for gun mountings on warships in 1910. Business was good through World War I, after which John Brown sold the Ordnance Works and bought Craven Tasker Ltd., makers of several kinds of vehicles.
Ship and gun orders dropped drastically in the years after the war, of course. Foreign competition in the steel industry and workers' strikes in industry in general compounded Brown's difficulties. Ironically, with everyone else in the world hoping for continued peace, John Brown was worried about where to get more orders for ships and armaments. A few came from Australia, but it was not until the 1931 order from Cunard Lines for the Queen Mary that John Brown's fortunes would begin to improve. Canadian Pacific soon ordered a liner, Cunard ordered the Queen Elizabeth, and the British government ordered two sloops, two destroyers, and a 9,000-ton cruiser. Profits were over £100,000 for 1934.
The company made a move into another new realm in 1936 when it bought a large block of shares in Westland Aircraft Ltd. at Yeovil. The following year John Brown purchased the Markham & Co., Ltd., engineering firm. Markham was well known for its machinery, especially its tunneling machines, which were used in excavations for the London and Moscow Undergrounds and the Paris Métro. Throughout World War II, John Brown and Markham were, not surprisingly, at full production. The former built ships totalling a third of a million tons, and the latter made midget submarines.
As a result of the British government's nationalization of the collieries after the end of the war, Brown consisted mainly of steel and tool works, a shipyard, and Markham Engineering. The company faced the need for modernization and conversion to some sort of peacetime production. Shell, gun and bomb manufacturing came to a halt. John Brown converted its armor plate shops to handle heavy engineering weldments and manufacturing. In 1947 the company formed a Canadian subsidiary and purchased Hispeed Tools and A. Wickman. A new division formed to build oil refineries took the name Constructors John Brown (CJB). The shipyard remained the largest part of the company, employing over 6,000 people and building, among other craft, the royal yacht Britannia. In the 1950's Brown's Cravens subsidiary produced rolling stock cars for railways around the would. It began making modern cars for the London Underground in 1959. The company expanded into Australia, South Africa, the United States, and Zimbabwe (then Rhodesia) in that period.
By the end of the 1950's, the company's profits had climbed to almost £2 million, where they hovered until 1965, when Japanese shipbuilding began to threaten Brown's market. John Brown responded by modernizing its Clydebank shipyards and by beginning to make gas turbines and pipelines, as well as by increasing its emphasis on general construction. In the second half of the 1960's, Brown received the order for the QEII, and CJB was building factories in Sweden and the USSR. Nevertheless, by 1971 profits were only up to £3 million. Three years later, CJB. posted huge losses on three fixed-price contracts, causing a group loss of £2 million. By 1978, the losses had turned around and Brown had a cash reserve of nearly £20 million.
The company's seesawing fortunes continued for some years, with large contracts followed by sudden losses. Eventually the company became known in financial circles for its dramatic rises and falls. In 1982 Brown announced deals worth £104 million and bought Olofsson, a U.S. machine tool manufacturer, for £44 million. Profits for 1982 were £14.2 million, much higher than at any time in the previous decade. However, the company's £25 million share issue that year was a failure. Furthermore, reorganization and layoff costs, and the loss of contracts in Argentina during the Falkland Islands War wiped out most of the record profits. The next year, pre-tax losses were £9 million, and the company began to try to sell part of John Brown Engineering. By the middle of the year, losses for the group totalled £26.7 million and the chairman resigned. Many of the company's problems were results of the U.S. government's opposition to western firms working on the Soviet pipeline; Brown had several large contracts to supply for and build lengths of the pipeline.
After the near collapse, a rescue package was put together, involving new management, a £70 million recapitalization, asset sales, and layoffs of more than 7,000 workers. Key to the rescue was the £80 million takeover by Trafalgar House in 1986.
Brown's engineering and construction divisions remain its largest. In 1986 Brown received contracts to build two British Nuclear Fuels plants, as well as one for a polypropylene project for the USSR. The latter is a plant with a 100,000-ton annual capacity to be situated near Stavropol. Scheduled for completion in 1990, it will increase the Soviet Union's polyester fiber production by 40% within its first two years of operation. Also in 1986, the Markham division provided large-scale tunneling equipment for main sewer bores in Cairo. Based largely on that unit's efficiency, Markham received a contract to build two even larger units for excavation of the rail tunnel under the English Channel.
At the same time, the engineering division compiled its best order list in many years; its most notable project was a large gas turbine order for China. In addition, the division hoped privatization of power in Britain would open up a major new market. Toward that end, it began to develop new business areas such as flue gas desulphurization.
In September 1987 Brown announced it would sell its Craven Tasker and East Lancashire Coachbuilders units, its only ventures in the road transport industry. Though the two had combined annual revenues of £25 million, Brown managers had determined that the road transportation industry was now outside its major business areas.
The plastics machinery business has become the fastest growing part of the group. The weak dollar of the late 1980's allowed the plastics division to make important inroads into the U.S. market.
John Brown has fared well since Trafalgar House acquired the company in 1986, but given Trafalgar's policy of letting its constituent companies carry on their own management, it cannot yet be said with certainty that Brown's troubles are over. However, with the support of such a powerful new owner, the company undoubtedly has a better prospect for the future than it would have had left on its own.
Principal Subsidiaries: Bone Markham Ltd.; Brecon Construction Co., Ltd.; John Brown Engineering Ltd.; Carmodine Ltd.; Dollain Ltd.; Firth Brown Tools Ltd.; Eric Johnson, Stubbs & Co., Ltd.; Penroyson Ltd.; Roxby Power Engineering Ltd.; Sanctuary Holdings Ltd.; Wickman Ltd..