The Machinist - May 2015

Key to Success

Succeeding in the ‘Make in India’ environment will also require that we look beyond the shopfloor and take a supply chain view of the business.

What do manufacturing companies need to do if they are to thrive in the ‘Make in india’ environment? They will have to worry about capital, skills and culture. Each of these has significant impact on  the shop floor where the outcomes of all these plans, both Government and corporate, will actually face reality. As we shall see, it will also require that we look beyond the shop floor and take a supply chain view of the business.

 

Drive capital efficiency on the shop floor

Any form of growth needs capital infusion to support it. With more and more companies coming in, there is likely to be an increasing demand for capital. Despite a lower inflation level, this will place challenges on lowering interest rates. If so, how efficiently a company uses capital will be key in deciding its ability to succeed and grow.

Our work in CGN, across various manufacturing industries, has shown that there are tremendous opportunities to improve capital efficiency in Indian shop floors. This could be a loss of capacity or lowered productivity. Capacity is lost for a variety of reasons: material non-availability, labour non-availability, rework, machine down time for maintenance or power outage. These are areas where too often we set our standards too low. In one case, we estimated that there was a 30-50 percent capacity increase possible, with little or no investment. By utilising this capacity the company had a potential to drive up EBIT by as much as 8-10 percentage points. This will encourage investors to pump more money in the company and will reduce the need for delayed growth because new capacity has to be installed.

Another area of capital blockage in our shop floors is in inventory. While working capital may be funded by banks,  it is not an efficient use of that capital. One company looked at a program to release capital deployed in inventories to  create new productive assets. So, on the one hand reducing inventories allowed faster response to the market and  reduced space requirements. On the other hand, the same funds could be moved to creating new productive capacity and supporting growth.

 Working with partners along the supply chain will be critical to drive capital efficiency. No matter how good “my shop” is, it will be affected if my supplier is irregular or of poor quality. Similarly, it will be thrown off if the customer is inaccurate in ordering. Capital efficiency cannot be attained in isolation, but only if we reach out and work with our business partners in the supply chain. The concepts of supplier collaboration are well know, but very poorly executed. Small changes in these areas can lead to significant improvements.

Skills cannot be easily bought

Often the pace of growth of any company or manufacturing facility is limited by the ability to staff people. Not just any people, but skilled people. Unfortunately, skilled people cannot be cloned. It takes time for a person to develop and build the experience and expertise that is so valuable to driving the productivity increases discussed in the last section.

Manufacturing units can go out and hire people, but this usually only benefits the people being hired. While they get a higher salary, there is no guarantee that they will be able to deliver the results being sought. Each manufacturing unit is relatively unique, if not because of the machines, but because of the other people and ways of working that  are followed.

What can companies do about this? Focus on people development by tasking senior manufacturing people with the responsibility of oversight, rather than leaving it to the HR department. Develop and invest in programs to accelerate learning of people who join, at all levels and not just at the shop floor. This can be done by a combination of short-term assignments done in parallel with regular work and structured communication on processes being followed. Finally, include step function improvements by bringing in external skills and meshing them with internal teams and give them goals to drive improvements.

What are the critical areas of shortfall in skills? Most companies focus a lot of the training on manufacturing methods. However, manufacturing management and supply chain planning methods usually fall short. The impact of poor design and planning is to drive up the need for headcount and actually makes it more difficult to improve skill levels. The converse is also true. By increasing skill levels in management and planning it is possible to drive up productivity and reduce the number of people needed. This makes it easier to get a better profile of people and to continue to train them better.

Going beyond skills and changing culture

In a conversation with the head of a reputed manufacturing unit, we were discussing about the difference between skilled people and the culture of a shop. He was explaining to me that a shop with a strong and established culture will be able to provide high levels of performance even when new people join or existing people leave. An example of this is a company like Toyota, which even allows people to come and study what they do. You can buy the same machines, you can convince people to join, but you will find it very hard to get the same results because the culture  is unique.

How can you create a culture on the shop floor? Culture forms with repeated behaviour. Behaviour is driven from the top. Whatever a person is “told” to do, formally or informally, they will pick up cues on what the senior leadership actually values. Is it more important to solve a problem in a systematic and sustainable fashion? Or is it more important to get the problem out of the way “somehow”? Is it important that machines are running or is it more important that there are matched sets that can be shipped to customers? Does the leadership appear for every daily meeting and get involved in the discussions or are they “called” by the corporate office?

This can also be seen in how the leadership views the shop itself. Is it a standalone entity or is it a part of a chain that delivers products to the end customer? If the leadership conducts daily shop visits, how often do the leaders walk through a supplier’s shop floor? Or do they meet with the leaders at the OEM or dealer end to discuss possible improvements in how to work together? If a wider and supply chain viewpoint is taken by the leader, the better the impact on the culture of the organisation. These are things which help to set up and develop a culture of excellence and once that gets established, it is very hard to copy.

In conclusion: It works even otherwise!

As a program, ‘Make in India’ has the potential to trigger a surge of growth in manufacturing in India. This is a potential wave that manufacturing companies can ride. However, it will also increase competition both in the marketplace and for scarce resources. Taking a wider supply chain view and driving improvements on capital efficiency, skills and culture can help companies thrive in this environment. The best part is, these capabilities will help companies thrive irrespective of what the Government does.

The author is Partner & Managing Director – Indian Operations, CGN & Associates India Pvt Ltd