Business
A businss is a legally recognized enterprise or organized activity that obtains, creates or manufactures products or services and then sells them to customers on a continuing basis. Running a business requires leadership and includes management of finances, personnel, procurement, manufacturing, marketing and sales. This is true for a large corporation, as well as a one-person operation.
If you are an entrepreneur, business owner or manager, you need to know how to run your organization effectively to expand or grow the business. The purpose of these lessons is to give you a start at improving your business skills.
After completing the lessons, you should be able to operate your business in a way that you will have greater profits, reduced costs, and a competitive advantage, such that you can become a champion in your field. If you have any questions,
Definitions of Basic Business Terms
If you are involved in business, there are various words and terms used in business that you should understand. The following list defines major business terms. The list is by no means comprehensive, but it gives a good background on what certain words mean in business. It is worthwhile to understand the terms used, when studying business.
Questions you may have include:
• What are the basic terms?
• What do they mean?
• How are they used?
Basic terms
A business is an enterprise or entity that provides products or services to customers. Business is doing commercially viable and profitable work. Commerce is buying and selling products or services.
A business: A legally recognized organization or organized effort that operates with the objective of earning a profit from the sale of goods or services
Alliance: Close association of groups or businesses
Business: The activity in which you participate in order to earn money (i.e. "I'm in the computer business.")
Client: A regular customer that receives your professional services
Commerce: The buying and selling of goods
Company: Usually considered a business that has employees.
Contract: A formal agreement to do work for pay
Consultant: A person hired to give advice to business management
Contractor: One who agrees to do perform a service or deliver a product for a fee
Customer: The person or company that purchases and pays for product or service; note that the customer may not be the user of the product; also note that some companies think in terms of internal and external customers
Delivery: When the product is delivered to the customer or the job is completed
e-Commerce: Buying and selling done over the Internet
Employee: A person working for a company
Enterprise: An industrious, systematic activity, especially when directed toward profit; A business organization
Firm: A commercial partnership of two or more people, especially when unincorporated
Internal customer: The person or department within a company that provides you or your area with money in exchange for delivery of products or services
Marketing: The commercial functions involved in transferring goods from producer to consumer
Product: Something produced; goods
Proposal: A formal document given to customer that outlines proposed work to be done by the business
ROI: Return-on-investment; how much money a business gets from a capital investment that is intended to improve profits
Service: Work done for others; changing the state of a product, which is then delivered; for example, cleaning a dirty floor results in "delivering" a clean floor to the customer
Supplier: The person or company that provides goods or services needed to do your job
User: The person or company that uses a purchased product or service; could also be called the consumer
Basic Steps in Starting a Business
by Ron Kurtus (3 October 2004)
A business is an organized activity to sell a product or service to various customers on a regular basis. To start a business enterprise, you first need a good idea and a plan of action. Then you must implement your plan by gaining financing, getting the product or service to sell, finding prospects, selling and making the exchange.
Questions you may have about this are:
• What is the criteria for being in business?
• How do you get a good idea?
• How do you implement your plan of action?
Criteria for a business
The criteria for being in business is that you provide a product and/or service on a regular basis to a number of customers.
Selling on regular basis
A person selling a car or other property is involved in a business activity, but since it is a one-time operation, it is not considered a business enterprise. If the selling is done on a fairly regular basis, it can then be classified as a business.
Selling to more than one person
With providing services in exchange for money, a person usually does it on a regular basis. For example, a boy who mows lawns during the summer in his neighborhood is in business. On the other hand, if the boy is mowing the lawn of only one neighbor, he is no longer in business. Instead, he has a job.
Idea
Every new business starts with a great idea. Usually, the entrepreneur is motivated by wanting to run his or her own business and making a lot of money. There may be other personal motivations such as self-expression or wanting to make a difference in society.
Typically, the entrepreneur hears about something in an area of interest and skill that triggers the idea of a product or service that would be in demand.
Henry Ford saw others making cars and felt he could do it better and cheaper. Steve Jobs saw some of the new personal computers and got the idea of making his own version of user-friendly computer. Michael Dell saw how personal computers were being made and thought it would be a good business to get into.
Plan of action
The next phase in starting a business is to develop a plan of action. In many cases--especially when substantial funding is required--a formal business plan is written. But there are many businesses that start with informal plans that may change as the situation requires.
Next the plan is implemented.
Funding
Some entrepreneurs get funding to begin their businesses from their own savings. Others may present their business plan to venture capitalists to get seed money.
Get product or service
The product may be purchased or built. The entrepreneur may make him- or herself or hire others to make the product.
The service may be done by the entrepreneur or people may be hired to perform the service.
Get prospects
Marketing efforts are required to find prospective buyers and make them aware that the product or service is available, as well as the benefits and advantages of the goods.
It is necessary to meet with the prospects to demonstrate the product and convince them to buy.
Make exchange
Once the customer is convinced and a price is negotiated, you make the exchange. You deliver the product or service and they pay for it.
Repeat process
Some of the profits will pay for more products and marketing efforts, resulting in more demonstrations and sales. The business is up and running.
Measuring Your Business
by Ron Kurtus (revised 9 August 2000)
To improve your business, you must be able to truly verify that improvement. Some companies have a large amount of business but yet show diminishing profits. Others have such a great profit margin that they are pricing themselves out of business. What is needed is a good means of measurement. As quality guru W. Edwards Deming once said, "What you measure, you improve."
When to measure
Measuring how your business is doing should be made both before and after any improvement program. Obviously, the exact same measurement method and conditions should be used in both cases.
Do not assume the present company performance metrics are valid. Often they are skewed or overlook not-so-obvious areas for improvement.
Broad metrics
First look at very broad metrics for your business, such as cost and customer satisfaction.
Cost
How much does your product cost you? This includes the cost to make or purchase the product plus sales, delivery, service and repair costs. These are hard figures that are caused by many factors that can be improved.
Often companies do not include the cost to service and repair their products in the overall cost. Of course your profit is what the customer pays less your overall cost.
Customer satisfaction
How satisfied is the customer with the product? Will the customer buy from you again? Does the customer refer your company or business to others, giving you word-of-mouth advertising?
This measurement is often a soft metric, depending on opinions and surveys. Often the truth is difficult to determine. The amount of advertising necessary to get in business is an indirect measure of customer satisfaction in many cases.
Ask your customers if they are happy with your products and services. Find out where customers heard about you. Keep track of how much business is repeat business, as opposed to new business.
Specific metrics
Within the broad metrics there are more specific metrics that can be taken. These will point to areas where improvements can be made.
Costs from suppliers
The cost of goods from suppliers should be measured. Comparison of the prices for goods versus key items should be made:
• Timeliness - do you deliver when promised?
• Turnaround time to deliver goods
• Reliability of supplier to deliver
• Reliability and quality of product
• Percentage of rejected or unacceptable product
Cost of workers
Workers are essentially internal suppliers. A similar list of metrics apply to them:
• Timeliness
• How fast do they work?
• How reliable is the worker?
• What is the quality of his product?
• How must time and material does he waste?
Cost of process
The same metrics that apply to your suppliers apply to your business with respect to your customers. Much of this has to do with your internal processes and how you run your business.
Organizing Your Business
by Ron Kurtus (revised 14 February 2000)
A first step in improving your business is to make sure it is well organized. It is surprising how many businesses have been careless about this step. Some such companies may be mildly successful, but they could be even more profitable if they paid attention to the basics of organization.
Questions you may have about this are:
Starting point
Whether you are starting a new company or improving an existing one, it is important to have a business mission, concept, and vision.
You need to define the purpose or mission of your business. Much of this has to do with the motivations of the leadership. Then you must have a business concept, model, or terrific idea of some product or service that will sell. Finally, in order to improve, you must have a vision or goal of where you want to end up.
Organization methods
Once you have established or re-defined the groundwork for your business, you can use various methods and standards to improve the operation and organization of your business.
ISO 9000 standards
A very good way to organize the way your business operates is by following the ISO 9000 standards. You do not necessarily have to become certified in ISO 9000, but you can still use the standards as a guide in how to effectively operate your business.
(Details are explained in later lessons in: Organize Your Business with ISO 9000.)
Re-engineering
Re-engineering has been a management fad in recent years. Unfortunately, it has been misapplied and used as a way to eliminate workers. A business or company that has been in existence for a while usually has an operation structure in place. It may be necessary to drastically alter that structure and re-organize and become more effective.
Benefits
Organizing is a form of planning. It has been shown that setting a good structure can make any organization more effective and efficient.
Good organization results in reducing losses due to duplicate work or unclear objectives. All personnel do better work, because they know what they should be doing and what their place is in the scheme of things.
A well-run company is in a stronger position in the competitive marketplace. Not only are profits higher, but repeat business is enhanced.
Saturday, October 24, 2009
Total Quality Management (TQM)
Total Quality Management (TQM)
Total Quality Management (TQM) is a combination of quality and management tools aimed at increasing business and reducing losses due to wasteful practices. An important part of TQM is its a philosophy toward continually improving your business and products.
A number of quality initiatives have arrived since TQM started in the 1980s. The most recent is the Six Sigma program, which is quite similar to TQM. We follow the Kurtusian philosophy of TQM that was developed for the U.S. Air Force space programs.
There is a need for people who will champion the cause of improving the way business is done through effectively implementing TQM within a company. Your knowledge and skills in this area can help advance your career while improving your business. If you have any questions,
Basic Principles of Total Quality Management (TQM)
by Ron Kurtus (28 May 2001)
The basic principles for the Total Quality Management (TQM) philosophy of doing business are to satisfy the customer, satisfy the supplier, and continuously improve the business processes.
Questions you may have include:
• How do you satisfy the customer?
• Why should you satisfy the supplier?
• What is continuous improvement?
Satisfy the customer
The first and major TQM principle is to satisfy the customer--the person who pays for the product or service. Customers want to get their money's worth from a product or service they purchase.
Users
If the user of the product is different than the purchaser, then both the user and customer must be satisfied, although the person who pays gets priority.
Company philosophy
A company that seeks to satisfy the customer by providing them value for what they buy and the quality they expect will get more repeat business, referral business, and reduced complaints and service expenses.
Some top companies not only provide quality products, but they also give extra service to make their customers feel important and valued.
Internal customers
Within a company, a worker provides a product or service to his or her supervisors. If the person has any influence on the wages the worker receives, that person can be thought of as an internal customer. A worker should have the mind-set of satisfying internal customers in order to keep his or her job and to get a raise or promotion.
Chain of customers
Often in a company, there is a chain of customers, -each improving a product and passing it along until it is finally sold to the external customer. Each worker must not only seek to satisfy the immediate internal customer, but he or she must look up the chain to try to satisfy the ultimate customer.
Satisfy the supplier
A second TQM principle is to satisfy the supplier, which is the person or organization from whom you are purchasing goods or services.
External suppliers
A company must look to satisfy their external suppliers by providing them with clear instructions and requirements and then paying them fairly and on time.
It is only in the company's best interest that its suppliers provide it with quality goods or services, if the company hopes to provide quality goods or services to its external customers.
Internal suppliers
A supervisor must try to keep his or her workers happy and productive by providing good task instructions, the tools they need to do their job and good working conditions. The supervisor must also reward the workers with praise and good pay.
Get better work
The reason to do this is to get more productivity out of the workers, as well as to keep the good workers. An effective supervisor with a good team of workers will certainly satisfy his or her internal customers.
Empower workers
One area of satisfying the internal suppler is by empowering the workers. This means to allow them to make decisions on things that they can control. This not only takes the burden off the supervisor, but it also motivates these internal suppliers to do better work.
Continuous improvement
The third principle of TQM is continuous improvement. You can never be satisfied with the method used, because there always can be improvements. Certainly, the competition is improving, so it is very necessary to strive to keep ahead of the game.
Working smarter, not harder
Some companies have tried to improve by making employees work harder. This may be counter-productive, especially if the process itself is flawed. For example, trying to increase worker output on a defective machine may result in more defective parts.
Examining the source of problems and delays and then improving them is what is needed. Often the process has bottlenecks that are the real cause of the problem. These must be removed.
Worker suggestions
Workers are often a source of continuous improvements. They can provide suggestions on how to improve a process and eliminate waste or unnecessary work.
Quality methods
There are also many quality methods, such as just-in-time production, variability reduction, and poka-yoke that can improve processes and reduce waste.
Using TQM for a Competitive Advantage in Business
The Total Quality Management (TQM) philosophy of doing business emphasizes lowering costs by reducing waste, helping suppliers provide quality products and satisfying the customer with quality goods and services. Companies that can produce goods at lower costs than their competitors, while delivering quality products that satisfy their customers will have an advantage over those companies that do not duplicate those feats. Implementing TQM can help a company gain a competitive advantage in their business.
Questions you may have include:
• How can a company reduce costs?
• What does helping suppliers and workers do?
• How does customer satisfaction give an advantage?
Reducing costs
Achieving lower costs for getting or making products gives a company a great competitive advantage over their competition.
Getting products - case study
Wal-Mart has formed alliances with their suppliers, such that they are able to purchase goods at a discount that their competitors cannot achieve. The result is that Wal-Mart is able to offer products at such low prices that have actually driven many competitors out of business.
Making products - case study
Japanese automobile manufacturers Toyota and Honda have greatly lower worker pension and healthcare costs than the "Big-3" American manufacturers, General Motors (GM), Ford and Chrysler. This is true even for the Toyota and Honda facilities in the United States.
The cost per car for worker benefits paid by is $1360 for GM, $735 for Ford and $630 for Chrysler. Meanwhile, it costs Toyota $180 and Honda $106 per car. This results in much higher profits or lower prices for the Japanese autos.
Also, the Big-3 each have about 18,000 in "excess workers" that drive up their costs.
The Japanese auto manufacturers are winning the competition in terms of reduced costs.
Manufacturing cost reduction
Companies want to reduce the cost of getting or making their products. A major portion of the cost of goods involves wasteful practices that result in scrapped parts and returned goods from dissatisfied customers.
By continually improving the processes involved in making the product or delivering the service, a company can be more effective in reducing losses due to waste. This will allow the business to deliver products at lower prices while still achieving a good profit. Competitors may not be able to meet those prices.
Eliminating errors is a major goal. An extension of TQM is the Six-Sigma approach that seeks to eliminate errors to 6 parts in a million (six sigma deviation).
Getting lower cost, quality good from suppliers will also reduce costs.
Helping suppliers
A company's workers and suppliers provide the input that determined the cost and quality of the products being made. The company that empowers its workers and suppliers and helps them achieve these goals will have a competitive advantage over the company that browbeats its workers or suppliers.
Quality supplies
The first part of providing the customers with quality goods involves purchasing those products from suppliers or getting quality parts to make your own product. An important aspect of Kurtusian TQM is to help the supplier provide quality to your company.
Often companies browbeat their suppliers into providing goods at low costs. Wal-Mart has been known to be very tough on suppliers, even driving some out of business if they did not bend to Wal-Mart's demands. Other companies have also used such negative tactics.
By working closely with suppliers, you can provide a partnership where you get the quality supplies needed to gain your competitive advantage.
Quality workers
Your workers proved services that allow you to make quality products. Others deal with the customers and provide quality service to those customers. Courteous sales representatives can make for a pleasant buying experience for the customers.
Some companies demand much from their workers and even if they pay them well, they do not have a truly motivated staff. Some companies even demand that the sales people smile and act friendly, even if they don't feel like it.
Making the workers part of the team and helping them provide quality work can give you a good competitive advantage on competition that may have an unhappy workforce.
Customer satisfaction
A customer that is satisfied or even pleased with the products and services received, sees them as value-added. They will be glad to return to the company to purchase other items. They will refer others to the company.
This is not only true in sales to individuals, but it is also vital in corporate sales. In selling product or providing supplies to another company, you need to make sure the material is to specification and gives them the assurance that they can count on your company to provide such quality good in the future.
Customer satisfaction is the ultimate advantage a company can have over their competitors.
Applying TQM in a Church
A church, temple or place of worship is also a nonprofit business operation that has to remain financially viable. Applying our Total Quality Managment (TQM) principles to the operation of your church can help in maintaining its success. The three parts of implementing TQM are a focus on satisfying the customer, helping the suppliers provide quality goods and services, and continually improving the church's business processes.
Questions you may have include:
• How do you satisfy the customers?
• How do you help the suplliers?
• How do you improve processes?
Satisfy the Customer
Although they are usually called parishioners or church members, those people who attend your church and give donations are in essence your customers. The goal of your church should be to satisfy those customers by providing them with a high quality religious service that satisfies their needs and expectations.
You want repeat attendance
Like in any business—profit or nonprofit—a satisfied customer will become a regular customer and will also tell others about the business. You want your parishioners to attend church regularly and to bring their friends to the church.
Not only will satisfied attendees to your church come more often and give referrals, but they may also donate more money.
Find reason for attending service
In order to effectively satisfy those attending your church service, you should know why they come in the first place.
Most people attend religious services in order to receive spiritual guidance, assurances, and lessons. They attend to get food for their souls. There are some people who attend a specific church for social, political, or even business reasons. There are others who go only to appease their spouse or perhaps their parents.
Some of the more successful churches have ministers who are charismatic or entertaining orators or preachers. People come to hear the message and be inspired by the minister.
You need to find out why people come to your church, as well as why some did not return. Sometimes a survey or questionairre will provide that information. You may also get suggestions on how to improve the church experience for your members.
Give the customer what he wants and needs
If the attitude of the church is to provide a service to its members and guests, the activities will be to give those people what they came to church for in the first place.
Some years ago, the Catholic Church threatened parishioners with damnation if they did not attend church regularly. This was opposed to the TQM concept of providing a service that would cause them to want to return to recieve more spiritual food. The Church later found their approach no longer worked very well.
Help the suppliers
Another aspect of applying TQM in a church is to help your suppliers provide you with quality goods and services. The objective is to get quality goods on time and at the best price. Also, you want to reduce waste and costs.
Churches receive products and services from external suppliers and companies. They also receive internal services, such as musicians, ushers, chaplains, and youth leaders.
Selecting good suppliers for the church is important. But also, you need to deal with them in a manner that makes them want to do a good job for you. Just because you pay someone money does not mean that you have a right to be demanding.
Make your suppliers want to do business with your church. Find ways to help them and thank them. This will improve the operation of the facility and reduce the chances for problems.
Continuous improvement
Although you may think your church operation is running smoothly, there are always things that can be improved. Seek ways to streamline the operation of the church to make the best use of the money available. Also find ways to better satisfy the congregation and suppliers.
Not only must a church satisfy its customers, but they must also try to continually improve. Is there something they can do better in the church service or in Sunday school or such? You can look at ways to improve the use of your church property. You can try to make the services tighter and more professional.
You can survey the congregation to see if there are areas that need improvement. Is the sound system sufficient? Is the parking good enough? Are there services that the church can provide the community? Are there areas of waste where you are losing money and don't even realize it?
Seek to continually improve the way you do your church business.
Total Quality Management (TQM) is a combination of quality and management tools aimed at increasing business and reducing losses due to wasteful practices. An important part of TQM is its a philosophy toward continually improving your business and products.
A number of quality initiatives have arrived since TQM started in the 1980s. The most recent is the Six Sigma program, which is quite similar to TQM. We follow the Kurtusian philosophy of TQM that was developed for the U.S. Air Force space programs.
There is a need for people who will champion the cause of improving the way business is done through effectively implementing TQM within a company. Your knowledge and skills in this area can help advance your career while improving your business. If you have any questions,
Basic Principles of Total Quality Management (TQM)
by Ron Kurtus (28 May 2001)
The basic principles for the Total Quality Management (TQM) philosophy of doing business are to satisfy the customer, satisfy the supplier, and continuously improve the business processes.
Questions you may have include:
• How do you satisfy the customer?
• Why should you satisfy the supplier?
• What is continuous improvement?
Satisfy the customer
The first and major TQM principle is to satisfy the customer--the person who pays for the product or service. Customers want to get their money's worth from a product or service they purchase.
Users
If the user of the product is different than the purchaser, then both the user and customer must be satisfied, although the person who pays gets priority.
Company philosophy
A company that seeks to satisfy the customer by providing them value for what they buy and the quality they expect will get more repeat business, referral business, and reduced complaints and service expenses.
Some top companies not only provide quality products, but they also give extra service to make their customers feel important and valued.
Internal customers
Within a company, a worker provides a product or service to his or her supervisors. If the person has any influence on the wages the worker receives, that person can be thought of as an internal customer. A worker should have the mind-set of satisfying internal customers in order to keep his or her job and to get a raise or promotion.
Chain of customers
Often in a company, there is a chain of customers, -each improving a product and passing it along until it is finally sold to the external customer. Each worker must not only seek to satisfy the immediate internal customer, but he or she must look up the chain to try to satisfy the ultimate customer.
Satisfy the supplier
A second TQM principle is to satisfy the supplier, which is the person or organization from whom you are purchasing goods or services.
External suppliers
A company must look to satisfy their external suppliers by providing them with clear instructions and requirements and then paying them fairly and on time.
It is only in the company's best interest that its suppliers provide it with quality goods or services, if the company hopes to provide quality goods or services to its external customers.
Internal suppliers
A supervisor must try to keep his or her workers happy and productive by providing good task instructions, the tools they need to do their job and good working conditions. The supervisor must also reward the workers with praise and good pay.
Get better work
The reason to do this is to get more productivity out of the workers, as well as to keep the good workers. An effective supervisor with a good team of workers will certainly satisfy his or her internal customers.
Empower workers
One area of satisfying the internal suppler is by empowering the workers. This means to allow them to make decisions on things that they can control. This not only takes the burden off the supervisor, but it also motivates these internal suppliers to do better work.
Continuous improvement
The third principle of TQM is continuous improvement. You can never be satisfied with the method used, because there always can be improvements. Certainly, the competition is improving, so it is very necessary to strive to keep ahead of the game.
Working smarter, not harder
Some companies have tried to improve by making employees work harder. This may be counter-productive, especially if the process itself is flawed. For example, trying to increase worker output on a defective machine may result in more defective parts.
Examining the source of problems and delays and then improving them is what is needed. Often the process has bottlenecks that are the real cause of the problem. These must be removed.
Worker suggestions
Workers are often a source of continuous improvements. They can provide suggestions on how to improve a process and eliminate waste or unnecessary work.
Quality methods
There are also many quality methods, such as just-in-time production, variability reduction, and poka-yoke that can improve processes and reduce waste.
Using TQM for a Competitive Advantage in Business
The Total Quality Management (TQM) philosophy of doing business emphasizes lowering costs by reducing waste, helping suppliers provide quality products and satisfying the customer with quality goods and services. Companies that can produce goods at lower costs than their competitors, while delivering quality products that satisfy their customers will have an advantage over those companies that do not duplicate those feats. Implementing TQM can help a company gain a competitive advantage in their business.
Questions you may have include:
• How can a company reduce costs?
• What does helping suppliers and workers do?
• How does customer satisfaction give an advantage?
Reducing costs
Achieving lower costs for getting or making products gives a company a great competitive advantage over their competition.
Getting products - case study
Wal-Mart has formed alliances with their suppliers, such that they are able to purchase goods at a discount that their competitors cannot achieve. The result is that Wal-Mart is able to offer products at such low prices that have actually driven many competitors out of business.
Making products - case study
Japanese automobile manufacturers Toyota and Honda have greatly lower worker pension and healthcare costs than the "Big-3" American manufacturers, General Motors (GM), Ford and Chrysler. This is true even for the Toyota and Honda facilities in the United States.
The cost per car for worker benefits paid by is $1360 for GM, $735 for Ford and $630 for Chrysler. Meanwhile, it costs Toyota $180 and Honda $106 per car. This results in much higher profits or lower prices for the Japanese autos.
Also, the Big-3 each have about 18,000 in "excess workers" that drive up their costs.
The Japanese auto manufacturers are winning the competition in terms of reduced costs.
Manufacturing cost reduction
Companies want to reduce the cost of getting or making their products. A major portion of the cost of goods involves wasteful practices that result in scrapped parts and returned goods from dissatisfied customers.
By continually improving the processes involved in making the product or delivering the service, a company can be more effective in reducing losses due to waste. This will allow the business to deliver products at lower prices while still achieving a good profit. Competitors may not be able to meet those prices.
Eliminating errors is a major goal. An extension of TQM is the Six-Sigma approach that seeks to eliminate errors to 6 parts in a million (six sigma deviation).
Getting lower cost, quality good from suppliers will also reduce costs.
Helping suppliers
A company's workers and suppliers provide the input that determined the cost and quality of the products being made. The company that empowers its workers and suppliers and helps them achieve these goals will have a competitive advantage over the company that browbeats its workers or suppliers.
Quality supplies
The first part of providing the customers with quality goods involves purchasing those products from suppliers or getting quality parts to make your own product. An important aspect of Kurtusian TQM is to help the supplier provide quality to your company.
Often companies browbeat their suppliers into providing goods at low costs. Wal-Mart has been known to be very tough on suppliers, even driving some out of business if they did not bend to Wal-Mart's demands. Other companies have also used such negative tactics.
By working closely with suppliers, you can provide a partnership where you get the quality supplies needed to gain your competitive advantage.
Quality workers
Your workers proved services that allow you to make quality products. Others deal with the customers and provide quality service to those customers. Courteous sales representatives can make for a pleasant buying experience for the customers.
Some companies demand much from their workers and even if they pay them well, they do not have a truly motivated staff. Some companies even demand that the sales people smile and act friendly, even if they don't feel like it.
Making the workers part of the team and helping them provide quality work can give you a good competitive advantage on competition that may have an unhappy workforce.
Customer satisfaction
A customer that is satisfied or even pleased with the products and services received, sees them as value-added. They will be glad to return to the company to purchase other items. They will refer others to the company.
This is not only true in sales to individuals, but it is also vital in corporate sales. In selling product or providing supplies to another company, you need to make sure the material is to specification and gives them the assurance that they can count on your company to provide such quality good in the future.
Customer satisfaction is the ultimate advantage a company can have over their competitors.
Applying TQM in a Church
A church, temple or place of worship is also a nonprofit business operation that has to remain financially viable. Applying our Total Quality Managment (TQM) principles to the operation of your church can help in maintaining its success. The three parts of implementing TQM are a focus on satisfying the customer, helping the suppliers provide quality goods and services, and continually improving the church's business processes.
Questions you may have include:
• How do you satisfy the customers?
• How do you help the suplliers?
• How do you improve processes?
Satisfy the Customer
Although they are usually called parishioners or church members, those people who attend your church and give donations are in essence your customers. The goal of your church should be to satisfy those customers by providing them with a high quality religious service that satisfies their needs and expectations.
You want repeat attendance
Like in any business—profit or nonprofit—a satisfied customer will become a regular customer and will also tell others about the business. You want your parishioners to attend church regularly and to bring their friends to the church.
Not only will satisfied attendees to your church come more often and give referrals, but they may also donate more money.
Find reason for attending service
In order to effectively satisfy those attending your church service, you should know why they come in the first place.
Most people attend religious services in order to receive spiritual guidance, assurances, and lessons. They attend to get food for their souls. There are some people who attend a specific church for social, political, or even business reasons. There are others who go only to appease their spouse or perhaps their parents.
Some of the more successful churches have ministers who are charismatic or entertaining orators or preachers. People come to hear the message and be inspired by the minister.
You need to find out why people come to your church, as well as why some did not return. Sometimes a survey or questionairre will provide that information. You may also get suggestions on how to improve the church experience for your members.
Give the customer what he wants and needs
If the attitude of the church is to provide a service to its members and guests, the activities will be to give those people what they came to church for in the first place.
Some years ago, the Catholic Church threatened parishioners with damnation if they did not attend church regularly. This was opposed to the TQM concept of providing a service that would cause them to want to return to recieve more spiritual food. The Church later found their approach no longer worked very well.
Help the suppliers
Another aspect of applying TQM in a church is to help your suppliers provide you with quality goods and services. The objective is to get quality goods on time and at the best price. Also, you want to reduce waste and costs.
Churches receive products and services from external suppliers and companies. They also receive internal services, such as musicians, ushers, chaplains, and youth leaders.
Selecting good suppliers for the church is important. But also, you need to deal with them in a manner that makes them want to do a good job for you. Just because you pay someone money does not mean that you have a right to be demanding.
Make your suppliers want to do business with your church. Find ways to help them and thank them. This will improve the operation of the facility and reduce the chances for problems.
Continuous improvement
Although you may think your church operation is running smoothly, there are always things that can be improved. Seek ways to streamline the operation of the church to make the best use of the money available. Also find ways to better satisfy the congregation and suppliers.
Not only must a church satisfy its customers, but they must also try to continually improve. Is there something they can do better in the church service or in Sunday school or such? You can look at ways to improve the use of your church property. You can try to make the services tighter and more professional.
You can survey the congregation to see if there are areas that need improvement. Is the sound system sufficient? Is the parking good enough? Are there services that the church can provide the community? Are there areas of waste where you are losing money and don't even realize it?
Seek to continually improve the way you do your church business.
Thursday, October 15, 2009
LIST OF LIBRARY BOOKS/TITLES
WEL-COME TO MY LIBRARY
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The Rajive Gandhi College of Management Studides Library include a good number of books in all management subjects. The prime aim of the library to provide User satisatisfactory Services and also to Support Teaching activities in the college.
LIST OF TITLES
- An Introduction To Statistical Methods---By Gupta, C B & Gupta, Vijay
- Accounting for Mangement Text and Cases---By Bhattacharya & Deardon
- Advertising management---By Batra Rajeev
- Analysis and Design of Information System---By Senn, James
- Business statistics---By Gupta, S. C
- Business Law For Management---By Bulchandani
- Business Statistics---By Beri
- Business Statistics---By Sharma, J. K
- Business Statistics---By Bhardwaj, R. S
- .Business Optimisation Through Supply Chain Management---By Sharma Anand
- Business Ethics---By Murthy
- Business legislations---By Kumar, Niraj
- Basic Marketing---By Perrault & Mccarthy
- Brand Management---By Gupta
- Business application of Computers---By Oka Milind
- Business Law ---By Kapoor, N D
- Business Process Re-Engineering---By Bhat
- Blink (9.99 Pond)---By Gladwells, Malcohn
- Company Law 11th Ed---By Majumdar, A K & Kapoor, G K
- Company Law---By Avatar Singh
- Cost Accounting For Managerial Emphasis---By Horngreen
- Collins Dictionary of Business---By Christoper Pass
- Compensation Management---By Bhatia
- Company Law 11th Ed ---By Majumdar, A K & Kapoor, G K
- Company Law---By Avatar, Singh
- Cases and Problems on Quantitative Techniques---By Jhamb, L. C
- Communication Skills For Effective Management---By Ghanekar
- Communication Skills---By Rao
- Communication Skills---By Sen
- Commentary on Consumer Behaviour---By Chunawala
- Consumer bahaviour---By Schiffman & Kanuk
- Consumer relationship Management---By Kulkarni , M. V
- Dhirubhaism---By Krishnamurthy, A G
- Dynamics of Industrial Relation ---By Mamoria
- Developing Communication Skills---By Mohan
- Emotional Intellegence ( $7.99)---By Goleman
- Essential of Management---By Koontz, Herold
- Elements of Informarmation Technology---By Oka Milind
- Essence of Drucker---By Drucker, Peter
- Essentials of H R M & Industrial Relations ---By Subba Rao
- Entrepreneurship---By Hisrich, Robert
- Essentials of Marketing Research---By Aaker David A Kumar V
- E-Business: Roadmap For Success---By Kalakota, Ravi & Robonson, Marcia
- Economic Environment of Business---By Mishtra and Puri
- Effective Human Resource Training and Development Strategy ---By Rattan Reddy
- Entrepreneurship Development and Project Management---By Sarwate
- Ethics In Management---By Sherlekar
- Ethics, Indian Ethos and Management---By Balachandran
- Economics---By Samuelson, Paul & Nordhous William
- Elements of Corporate Law---By Maheshwari
- Enterprice Application---By Murthy
- Financial accounting---By Sontakke, K
- Financial Derivatives and Risk Management---By O. P. Agrawal
- Financial Accounting: A Managerial Perspective---By Narayanaswamy R
- Financial Management: Theory and Practice---By Chandra Prasanna
- Financial Management---By Khan. M .Y & Jain, P, K.
- Financial Management---By Pandey, I .M.
- Fundamentals of Financial Management---By Sharan
- Financial Accounting: Reporting and Analysis---By Stice Earl K Stice James D
- Financial Management---By Brigham
- Fish---By Lundin, Stepehn
- Good To Great---By Collins, Jim
- Human factors in organizational management---By Kaila, H. L
- Human Resource Management---By Bhattacharya D K
- Human Resource Management---By Dessler Gary
- Human Resource Management: Text and Cases---By Rao V S P
- Human factors in organizations new paradigms---By Kaila, H. L
- HRD skills for organizational excellence---By Pai, Satish
- Heart at work---By Canfield, Jack
- Human resource and managerial perspective for the new millennium---By Pai, Satish
- Heart over matter---By Kapoor, Virendra
- How to prepare and implement organizational manual---By Tripathy, J. D
- International Business---By O. P. Agrawal
- International Business Management---By Pherwani, Gautam
- International Business :Text and Cases---By Subba, Rao
- India Unbound---By Gurucharan das
- Intenational Marketing Management : Indian Perspective---By Varshney, R L
- Industrial Relations---By Venkatratnam
- I'm OK You're Ok---By Harris, Thomas
- Introduction to Computer --- By Norton Peter
- .India: 2020 a vision for the new millennium---By APJ Abdul Kalam
- Indian Economy---By Agarwal
- International Finance---By Avadhani
- Indirect Taxes :Law and Practice---By Datey, V. S
- Information Systems Today :why is Matters---By Jessup & Valacich
- Ignited Minds---By Abdul Kalam
- International Marketing 10th ed---By Cherunilam, Frrancis
- Introduction To Computer---By Leon, Alex & Leon, Mathews
- Imagining India: Ideas For The New Century---By Nilekani, Nandan
- Integrated Marketing Communication---By Niraj Kumar
- Introduction To Information Technology ---By Rajaraman
- Leadership Wisdom---By Robin Sharma
- Leaders at all Levels---By Ram Charn
- Let us C---By Kanetkar
- Managerial Economics---By Bhivpathaki, D.
- Managerial economics---By Mithani
- Managerial Economics :Concept & Cases---By Mote & Paul & Gupta
- Managerial Economics---By Petersen
- Microeconomic Theory---By Dwivedi D N
- Microeconomics for management studies---By Dholakia, Ravindra
- Macroeconomics : Theory and Policies---By Dwivedi D N
- Marketing of Financial Services---By Avadhani
- Management: A Competency-Based Approach---By Hellriegel Don & Jackson Susan E
- Managing For The Future---By Peter Drucker
- Modern Management---By Certo,
- Management---By Stoner & Freeman
- Managerial Accounting ---By Jawaharlal
- Management: Text and Cases---By Rao, V.S.P & Hari Krishna
- Management Information Systems: Conceptual Foundations, Structure,and 109.Development---By Davis Gordon B & Olson Margrethe H
- Management Information System---By Jawadekar
- Management Information System---By Lauden
- Management Information System:Text & applications---By C S V Murthy
- Management Information Systems---By O'brien James A & Marakas George M
- Marketing Research: With A Changing Information Environment---By Hair Joseph F & Bush Robert P
- Marketing Management---By Saxena, Rajan
- Marketing Research---By Luck & Rubin
- Marketing Research---By Rajendra Nargundkar
- Market Research ---By Sontakki
- Marketing Management---By Bose
- Marketing Management and Research---By Gupta P. K
- Marketing Management ---By Karunakaran
- Marketing Management---By Kotler, Philip & Keller
- Modern Production/ operations Management---By Buffa, E S
- Material Management---By Bhat
- Management Information system---By Prasad L M
- Market Research---By Malhotra Naresh
- Manufacturing and operations Management---By Jhamb, L. C
- Materials and Logistics Management---By Jhamb, L. C
- Mathematics and Statistics For Management ---By Mittal
- Monastery, Sanctuary, Laboratory: 50 Years of Iit- Bombay---By Manchanda, Rohit
- Marketing Management Planning, Implementation & Control: Global Perspective Indian Context---By Ramaswamy V S & Namakumari S
- Marketing of Non-Profit Organisation---By S.M.Jha
- Managing Human Resources---By Gomex
- Managing Human Resources---By Snell / Bohlander
- Management: Value oriented holistic approach---By Sherlekar
- Marketing Reserach---By Kulkarni , M. V
- Organisational Behaviour---By Ghanekar
- Organizational behaviour: A new look concept, theory ad cases---By Kumar, Niraj
- Operation Research---By Taha
- Options, Futures and Other Derivatives---By Hull
- Operations Management---By Gaither, Norman
- Operation Research---By Kapoor, V K
- Organisational Behaviour---By Aswathappa
- Organisation Theories and Structure and Design---By Bhattacharya,& Dipak Kumar
- Organizational Behavior---By Luthans Fred
- Organizational Behavior---By Prasad, I M
- Organizational Behavior---By Robbins Stephen P
- Personnel / Human Resource Management---By Decenzo & Robbins
- Personal Management---By Mamoria
- Principles of Operations Research with applications on Managerial Decisions---By Wagher, Harvey
- Production & Operation Management ---By Chary S N
- Practical Problems In Costing : Text book for cast and Works Accountants---By Purandare, Milind
- Product Management---By Chunawala
- Production Planning and Control---By Jhamb, L. C
- Performance Management System---By Sharma
- Project management---By Sontakki, V. C
- Principles of management---By Ramasamy, T
- Production and Operation Management---By Muhlemans
- Production and Operation Management---By Patel, Chunawala
- Production and Operation Management---By Aswathappa
- Production and Operation Management---By Bedi, Kanishka
- Psycholgy---By Baron, Robert
- Quantitative Techniques in Management and economics---By Chakravarty, Palak
- Quantitatives Methods and Operations research---By Bhat, K & Sridhara
- Quantitative Techniques in Management---By Vohra, N D
- Quantitative Techniques For Decision Making---By Gupta M P & Khanna R B
- Quantitatives Techques For Decision Making---By Anand Sharma
- Quantitative Techniques For Managerial Decision---By Sharma, J .K
- Research Methodology: methods & techniques---By Kothari C R
- Rural Marketing ---By Krishnamoorthy
- Rural Marketing ---By Rehman
- Re-engineering organizational productivity: Challenges ahead---By Pai, Satish
- Retail Marketing Management---By Kulkarni , M. V
- Retailing Management - Text & Cases---By Swapna Pradhan
- Retail Management---By Barry, Bermans
- Retail Management---By Gibson, Vedamanai
- Supply Chain Management---By Bhivpathaki, D. P
- Supply chain management: Strategy, planning and operation---By Chopra, Sunil
- Supply Chain Management---By Sahay, B. S
- Strategic Market Management---By Aaker David A & Kumar V
- Strategy and business Landscape---By Ghemawat, Pankaj
- Services Marketing---By Zeithmal
- Statistics For Management---By Levin Richard I & Rubin David S
- Statistical and Quantitative Methods---By Dhaygude
- Strategic Management---By Jeyaratham
- Structured Systems Analysis and Software Engineering---By Johri
- Srategic Management and Marketing---By Narendra Singh
- Students Guide To Accounting Standard---By Rawat, D S
- Statistics a First Course---By Sander, D H
- Students' Guide To Income Tax ---By Singhania Vinod K
- Sales power: The silva mind method for sales professionals---By Silva, Jose
- Services marketing: Concept practice and cases---By Shajahan, S
- Sales and Distribution Management---By Chunawala
- Security Analysis and Portfolio Managent ---By Avadhani
- Security Analysis and Portfolio Management---By Fisher Donald
- Seven Habits of Highly Effective People ($ 8.25)---By Covey Stephen
- The Seven Spiritual Laws of Success---By Chopra, Deepak
- The Art of Living : Vipassana Meditation by Goenka---By Hart, William
- The One Minute Manager: Free Up Your Time---By Blanchard
- Text Book of Research Methodology in Social Science---By Tripathy, P C
- The complete idiat's guide to winning through negotiation---By Ilich, Jain
- The silva mind control method of mental dynamics---By Silva, Jose
- The silva mind control method for business manager---By Silva, Jose
- The silva mind control method---By Silva, Jose
- The silva method think and grow fit---By Silva, Jose
- Thesarus---By Oxford
- Theory and Problem In Production and Operation Management---By Chary S N
- Understanding Organization Behaviour---By Pareek, Udai
- Working it out at work---By Hay, Julie
- White Tiger---By Adiga, Arvind
- Wings of Fire : An Autobiography---By Abdul Kalam
- World Class Manufacturing ---By Bhat
- Webster's Universal : Thesarus---By Webster
- Webster's Universal :English Dictionary---By Webster
- Webster's Universal : Spelling , Grammar & Usage---By Webster
Monday, October 5, 2009
COMPETITIVENESS OF INDIAN MANUFACTURING
COMPETITIVENESS OF INDIAN MANUFACTURING
Findings of the 1997 Manufacturing Futures Survey
Pankaj Chandra
Trilochan Sastry
Indian Institute of Management
Vastrapur, Ahmedabad 380015
chandra@iimahd.ernet.in/sastry@iimahd.ernet.in
July 1998
Appeard in Vikalpa, 23, 3, 25-36, 1998
Acknowledgement: We are very grateful to the firms that have participated in this survey. Without their support this study would not have been possible. We are also thankful to Prakash Vaidya for able research support. This project was funded by a grant from Research & Publications, Indian Institute of Management Ahmedabad.
Abstract
This paper reports the findings of a survey to study the competitiveness of Indian manufacturing sector. The paper conceptualizes these findings in terms of priorities of Indian manufacturing firms, the programmes that they undertake to reach their objectives, and the outcome or the performance of these firms. We also present some international comparisons based on a similar study done in the USA. The paper highlights the role of innovation and supply chain management, as a part of any robust manufacturing strategy, in developing world class operations.
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I Introduction
How competitive are Indian manufacturing firms? What are some of the key manufacturing issues that leaders of Indian manufacturing are concerned about? What kinds of initiatives are being taken by these firms to improve their competitiveness? How do these leaders perceive their own strengths and weaknesses? What will make Indian manufacturing world-class? These were some of the many questions we have been seeking to answer through the 1997 Manufacturing Futures Survey. While changes have been numerous at the firm level we wanted to examine to what extent they have achieved their objectives and met the emerging competitive needs. Another key question we address is whether our industry is gearing up to realise its full potential or whether firms are satisfied with limited success. The survey measures broad trends in the Indian manufacturing sector and assesses its competitiveness through a variety of self-answered questions in a sample survey. Appendix 1 describes the methodology. The larger purpose of this study is to disseminate good practices across the industry and to help firms to benchmark their performance. An closely related issue is our standing vis-à-vis the best in the world. In this report, we also present some of the key practices and characteristics of world class plants.
The cost structure of Indian plants shows that materials constitute 66 percent of total costs, direct labour 10 percent and overheads 24 percent. This implies that initiatives to control manufacturing costs may need to focus on reduction in material costs and overheads. However, traditionally the focus has been on managing labour costs. Efforts to control material related costs may need to address several issues including rejects and rework on the shop floor, identifying alternative materials, and better materials management and sourcing. An underlying implication is that all
3
sources of uncertainty to materials need to be eliminated or reduced. Otherwise costs of high inventories would go up. Interestingly, the break-up of the manufacturing cost for USA was 55 percent, 31 percent and 14 percent for the three factors respectively. The emphasis on labour cost is therefore hard to explain.
In the following sections, we describe the findings of a nation-wide survey of top executives in manufacturing organizations. In the next section we describe the new competitive challenges that Indian firms face followed by the manufacturing strategies that these leaders have devised for their firms in order to face the competition. We then examine how effective these strategies have been in the past, compare these strategies with those of US firms, look at the future in term of efforts needed to improve manufacturing and effectively manage the entire supply chain, and finally, present conclusions of the study.
II New Competitive Challenges
Today, Indian firms are facing a very different competitive scenario as compared to the past. They are facing competition from imports and from MNCs in the domestic markets. Several firms also have to compete as new entrants in global markets. Earlier, firms would segregate these two markets and serve them with different quality products and services, while perhaps compromising on quality in the home market. This is no longer possible. Therefore, many strategies that may have worked in the past are not likely to succeed in the future.
The new competition is in terms of reduced cost, improved quality, products with higher performance, a wider range of products, and better service - all delivered simultaneously. A lot
4
has already been written the in business press about many of these issues. However, Indian firms have quite often followed an opportunistic approach to growth as opposed to a capability driven approach that seeks to strengthen key aspects of manufacturing. Consequently, firms have paid very little attention to their shop floors in the last few decades. There have no doubt been notable exceptions to this and some firms have systematically built up their capability in the recent past. Firms have also started paying attention to quality, but it is not clear whether enough is being done about faster throughput and delivery, introduction of a wider range of products, and better service. It would not be incorrect to say that we are still struggling to get the “quality” right and that firms will perhaps focus on other issues at a later date.
The Indian market place has been witnessing a quiet revolution where old products are being substituted by better ones. In fact, for the first time, products and services are being introduced to meet certain customer needs that were only partially met in the past. One implication of this rapid introduction of new products is the pressure on manufacturing facilities to profitably produce a larger variety in smaller volumes. Firms have to search for new processes, new materials, new vendors, new shop floor layouts, new ways of reducing cycle times, new designs, new channels etc. to deliver these products and services . In addition, manufacturing firms are being increasingly required to integrate services with products to meet customer needs. The real challenge is therefore to improve substantially on several dimensions, including quality, technology, shop floor practices, supply chain coordination, and new product introduction over a short period of time.
5
III Manufacturing Strategies
The 1997 survey shows that to improve their competitive position, Indian firms will give the highest priority to quality improvement in the next five years. Figure 1 shows the relative importance given to four sets of issues by Indian firms on a 7 point scale, with higher scores indicating higher priority. These are Quality, Operations, Structural Changes, and Innovation & R&D. Quality for purposes of this research, comprises conformance quality or adherence to specifications, performance quality of products, product reliability and product durability. Operations related practices were those that improved the distribution network and performance, on-time delivery, ability to handle production volume changes, product support, and after-sales service. These practices can usually be changed or improved without fundamental changes in the manufacturing system. For instance, production volumes can often be increased by the use of overtime, or by operating an additional shift. On the other hand Structural Changes, which include fast delivery capabilities, low prices, and ability to change product mix, often require major changes in manufacturing. For instance, to substantially improve delivery performance of a wide variety of products, firms would need to cut down on production throughput times, reduce set up times, improve scheduling, and in some cases, change the manufacturing system or bring in new equipment. These changes require much greater effort and often take time to implement. Innovation and R&D included new product introduction, broadening the product line, making design changes and customizing the product. Quality is the number one competitive priority, followed by Operations, Structural Changes and finally, Innovation & R&D.
However, there is a close link between Quality and Structural change, and between Quality,
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5.0 5.5 6.0 6.5
Group I: Quality
Group II: Operations related
Group III: Structural change
Group IV: Innovation & R&D
Figure 1: Competitive priorities of firms: group averages
Innovation and R&D. For instance, quality often cannot be improved without major changes in production processes. In discrete part manufacturing, the use of some key ideas from the Toyota Production System, which in turn require changes in layouts, process improvements and so on, have helped several firms across the world to improve quality. An exclusive focus on quality tools like SQC and SPC, or on programs like TQM and TPM without some basic changes may not achieve the desired purpose. However, this is currently not a priority, and it is not clear whether this link between quality and other required changes is well understood. Similarly, quality is largely a function of design. Without attention to product design, it is unlikely that improvement can be sustained. The recent interest in Business Process Re-engineering within the manufacturing function is more encouraging since it focuses on making some required fundamental changes.
Figure 2 gives a relative ranking of various manufacturing priorities of Indian firms. At the top of the list is the ability to provide consistent quality with low defects. It is being widely recognized that by reducing defects, firms can improve not only on price but also on delivery and flexibility parameters significantly as lead times reduce drastically. World class firms are
7
now targeting six-sigma quality levels and are measuring defect in parts per million (or ppm). Figure 2 shows that firms are planning to pay attention to several aspects of manufacturing, and this is encouraging.
4.0 5.0 6.0 7.0
Conformance quality
Broad distribution
Product reliability
On-time delivery
Fast delivery
Performance quality
Product support
Broad product line
After sales service
Product durability
New products
Low price
Product mix changes
Product customization
Volume changes
Design changes
Figure 2: Competitive priorities of firms (degree of importance over next five years)
Interestingly, firms also perceive quality (as shown in Figure 3) as their key strength with respect to their primary Indian competitor. The Figure shows how firms have rated themselves with respect to domestic competition on a 7 point scale where a score of 4 indicates that they are as good as the competition, and higher scores indicate that they are better. These firms rate their ability to introduce new products and offer flexibility (in terms of managing volume changes or design changes or product mix changes) as being relatively low.
The competitive gap, or the difference between stated importance & strength, gives an idea of areas that require maximum attention in order to make manufacturing more “market driven”. The largest gap is for broad distribution, followed by fast and on time delivery, developing new products, offering consistent quality with no defects, and reducing costs (Figure 4).
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4.0 4.5 5.0 5.5
After sales service
Product durability
Product support
Product reliability
Performance quality
Conformance quality
Product customization
On-time delivery
Broad product line
Broad distribution
Product mix changes
Fast delivery
Design changes
Volume changes
Low price
New products
Figure 3: Perceived competitive strengths of firms (degree of strength relative to Indian competitors)
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6
Broad distribution
Fast delivery
On-time delivery
New products
Conformance quality
Low price
Product reliability
Broad roduct line
1 Product mix changes
Performance quality
Volume changes Design changes
Product support Product customization
Product durability After sales service
Figure 4: Competitive gap (difference of future priorities and current strengths)
It seems that the manufacturing strategy of most firms is focused on improving product and process quality, after sales service and on delivering products on-time. However, as mentioned
9
earlier, improvements often require more fundamental changes in the way manufacturing is organised. Firms on the other hand are currently giving low priority to these fundamental changes which require changing processes, developing the ability to change product mix rapidly or investing in R&D to develop new processes and products.
On the other hand, in the United States, Innovation and R&D has the highest priority followed by structural changes. We discuss this issue in greater detail in the Section on International Comparisons. Interestingly, most Indian firms believe that they are at least as good as, or better than their foreign competitors on price, flexibility, quality, service and product design capabilities. This is seen in Figure 5 which has a 5 point scale, and where any score above 3 shows that the firm considers itself to be superior to foreign competitors. It is obvious that the average Indian firm’s perception of its abilities differs considerably from its status in the global market place. This perception could be because many firms are not directly competing with MNCs in the same product market segments, or due to an inherent bias when firms are asked to rate themselves.
3.0 3.5 4.0 4.5 5.0
Quality
Service
Flexibility
Price
Product design capability
Delivery
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Figure 5: Comparison with foreign firms on various factors
Manufacturing companies have recently invested in a variety of improvement programmes or activities in order to enhance their competitiveness. Table 1 gives the changes in emphasis on various manufacturing related programmes. It lists the top ten programmes that Indian managers implemented in the last two years and compares them with the top ten initiatives that they will focus on in the next two years. It is evident that firms are investing in training their employees (note: worker training was accorded the eleventh position in terms of future emphasis) and on making their workers cross functional. In addition, firms believe that their investment in information technology (IT) in manufacturing will increase in the future. What is not clear is how they plan to use this information for better decision making. While managers have rated functional teamwork quite high in their list of priorities, they have given low priority to “reconfiguration of plant layouts” - a step necessary for implementing functional teamwork. Perhaps may firms have already made some of these changes. Automation in the form of robots, CIM, CAM, FMS,
Initiatives in the Past Initiatives in the Future
1. Work Enlargement 1. Continuous Improvement
2. Management Training 2. Management Training
3. Continuous Improvement 3. Manufacturing Strategy
4. Worker Training 4. Information System within Business Unit
5. Supervisor Training 5. Total Quality Management
6. ISO 9000 6. Supervisor Training
7. Manufacturing Strategy 7. Information System within Manufacturing
8. Quality of Work Life 8. ISO 9000
9. Functional Teamwork 9. Cross Functional Teams
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10. Cross Functional Teams 10. Functional Teamwork
Table 1: Changes in emphasis: Top ten manufacturing initiatives of the past and the future
automated inspection etc., have been rated in the bottom ten in terms of future importance.
The absence of some practices that have become synonymous with world class manufacturing from the top ten list in Table is noticeable. Just-in-time manufacturing has still not found acceptance in Indian firms. This could be because of several hurdles encountered while trying to implement such programs, or in some cases, due to poor understanding of JIT or pull production systems in the industry which has led to “unfavourable” myths developing around it. Other practices that have not been given adequate importance include forging customer and supplier partnerships, strategic outsourcing, use of statistical process control (SPC) effectively and continuously, value engineering and product re-design, use of CAD/CAE systems etc. Moreover, inadequate attention from top managers has sometimes not allowed firms to develop manufacturing into a competitive strength. Manufacturing related interventions are sometimes done piece meal, in line with the fads of the time. A well defined strategy with a clear understanding of the sequence of manufacturing programmes that must be implemented is missing.
It must be mentioned that Indian industry have “islands of excellence,” i.e., firms that have recognized the need to change and have a well thought out plan of action to become competitive. Such firms have started implementing practices that are employed by world class plants. However, many firms do not seem to have a coherent plan about what needs to be done. For instance, in discrete part manufacturing, one possible route could be to first implement house-
12
keeping and preventive maintenance programs, followed by conversion of manufacturing to flow shops, introduction of quality systems, setup reduction, and ISO certification, with the eventual goal of getting close to just-in-time manufacturing systems.
House Keeping involves maintaining a proper discipline in demarcating parts, tools & equipment locations, cleanliness etc. (including 5S Tools); preventive maintenance of equipments (including TPM) follows a regular schedule for machine & tool checkups instead of doing maintenance during breakdowns; flow manufacturing involves process flow analysis and cellular production layouts to smoothen flows of material on the shop floor and reduce WIP; quality systems include SPC and process capability analyses; setup reduction further enhances process effectiveness by trying to reduce changeover times and thereby increasing the flexibility of firms; and ISO certification helps the firm strengthen its internal systems. Finally, JIT manufacturing facilitates a pull based production control, reduces investments in inventory, drastically cuts throughput and delivery times, improves quality on a sustained basis, and makes new product introduction much easier. Similarly, a well thought out plan is required for continuous production or process industries. Establishing a program that implements these practices in a defined sequence allows the development of process discipline that is necessary to become a competitive manufacturer. Moreover, improvements of the nature mentioned above require little capital investment except those in training, instrumentation and calibration, and some changes in tooling and layouts.
IV Manufacturing Performance
The first question that needs to be asked is, given the above mentioned manufacturing strategy of Indian firms, how well have they performed ? It would also be useful to identify areas where
13
intervention has been most beneficial and where it has not been successful. The 1997 survey shows that, over the last two years, there has been a marked improvement in the performance of firms on a variety of factors. Improvements in quality, especially, within the plant have been significant. In fact, 77 percent of firms that were surveyed reported an increase in profitability while 87 percent of firms claimed to have increased their market share. While these improvements should be viewed in terms of the low base value in many cases, the fact remains that the Indian industry has been changing rapidly for the better.
Figure 6 shows the extent of improvement in Indian manufacturing firms over the last two years. The maximum improvement has occurred in the productivity of direct production workers (about
0% 5% 10% 15% 20% 25% 30% 35% 40%
Worker productivity
Customer return rates
Profitability
First pass yield
Customers' perception of quality
On-time delivery
Manufacturing to design changes
Manufacturing cycle time
Speed of new product development
Delivery lead time
Finished goods inventory
Market share
Changeover times
Procurement lead time
Raw materials inventory
Work-in-process inventory
Raw material defect rates
On-time completion of new prod. projects
Average unit production cost
Figure 6: Percent improvement on various manufacturing performance indicators over the last two years
38 percent). There could be a variety of reasons for the same: improved as well as increased emphasis on training of workers, incorporation of faster machines that also require fewer workers, etc. This has been followed by reduction in customer returns, improvements in first-
14
pass yields and in the overall perception of quality by customers. Other dimensions that are worth mentioning
in terms of improvements are on-time delivery, speed of response on the shop floor to design changes and reduction in manufacturing cycle times. It is apparent that shop floor improvement programmes, in many firms, are proving to be beneficial. However, there are three disturbing trends. First, though the mean improvement scores for factors like productivity of direct labour, customer return rates and profitability were the highest, the variance was also very high. Thus many firms have done well on these factors, but several others have not. In fact, 9 percent of firms have reported a decline in productivity of production workers, 13 percent have seen an increase in return rates and 23 percent of firms have witnessed a loss in profitability in the last two years. Second, there has not been adequate improvement on inventory levels, i.e., raw material, work-in-process (WIP) and finished goods. In this case, 27 percent, 26 percent and 27 percent of sample firms have reported an increase in raw material, WIP and finished goods inventory respectively, over the last two years. This increase is not entirely explained by a corresponding increase in turnover. Third, the pre-occupation with labour productivity is evident although on the average, labour is only 10% of total cost. This is reflected in the fact that improvements in costs are relatively low compared to other improvements. More attention to materials and overheads which comprise 90% of costs is perhaps needed.
Therefore, we may have gained in some areas, but may be losing on others. Many of our firms have not yet been able to tightly control inventories across the supply chain. They still appear to be using inventories to meet demand rather than developing quick response manufacturing to meet changes in market needs. The relationship between batch sizes, WIP and lead times is very
15
close. Increase in batch sizes leads to higher WIP and longer leadtimes. The key is to perform process analysis, de-bottleneck, reduce setup times and synchronize order release with throughput rates. In short, manufacturing has to become process oriented.
A summary of manufacturing performance of the sample firms is given in Table 2. It provides a comparison on various indicators across industry types (e.g., automotive, consumer goods, electronics, engineering & machinery, textiles and process industry). We also present averages on these indicators for the entire sample as a whole. Some of this data can be benchmarked against overall industry averages from a similar survey done in the USA in 19941. Performance appears to be varying across industry types. Interestingly, for the period under study, Indian firms on the whole had a higher growth rate in sales (in unit as well as rupee terms) as compared to firms in the US though the pre-tax profit ratio was lower for the Indian firms. This lower realization of profits might indicate hidden costs due to low first pass yields, low inventory turns, high outstanding accounts, long lead times, etc. in Indian firms.
As can be expected, capacity utilization in the process industry is higher than that in discrete part manufacturing. The consumer goods, electronics, and engineering & machinery industries stand out in terms of low capacity utilization. The inventory turns in the process industry is quite low implying that working capital is tied up in this sector for longer periods of time. Often process
Indicators Automotive Consumer Electronics Engineering Textile Process Overall Overall
Goods & (India) (USA)
Machinery Mean Mean*
1 Source: Kim, J.S. and M.T. Frohlich (1994) “Summary Results From the 1994 U.S. Manufacturing Futures Survey,” Boston University’s Manufacturing Roundtable, Boston University, mimeo.
16
Annual sales revenues 292.7 248.0 160.9 162.8 601.1 1096.6 393.4 4327.5
(RS. crores) (286.5) (171.3) (237.8) (341.0) (1197.3) (384.4) (941.6)
Net pretax profit ratio (profit/sales) 9.6 (5.0) 7.5 (4.6) 9.8 (6.7) 11.6 (7.8) 5.1 (6.8) 12.0 (9.5) 9.9 (7.2) 11.8
* 100
Growth rate in unit sales (% ) 13.7 (14.7) 13.5 (6.6) 17.9 (10.5) 8.0 (13.1) 12.2 (5.5) 9.4 (17.7) 11.9 7.7
(12.5)
Growth rate in rupee sales (%) 26.5 (14.3) 20.4 (10.0) 15.9 (12.1) 25.7 (21.2) 24.4 (10.4) 15.9 21.5 6.4**
(16.9) (16.0)
Market share of primary product 33.6 (30.8) 35.0 (19.0) 18.3 (14.1) 28.6 (17.9) 36.3 (41.2) 13.8 26.5 34.1
(%) (10.5) (20.6)
Capacity utilization 80.0 (11.0) 70.3 (11.6) 69.6 (38.4) 64.2 (37.6) 90.6 (1.59) 91.7 76.1 73.7
(21.7) (27.5)
On-time deliveries (%) 80.8 (14.6) 84.8 (8.2) 75.0 (24.0) 80.2 (11.1) 93.0 (4.5) 92.9 (7.3) 83.7 88.9
(13.7)
Average manufacturing lead time 19.2 (9.0) 21.3 (40.3) 13.3 (10.5) 74.7 (51.3) 19.2 (23.4) 30.0 39.5 -
(days) (38.8) (45.4)
Annual inventory turns per year 8.0 (3.4) 6.6 (3.7) 5.3 (2.5) 6.4 (6.6) 8.12 (6.7) 6.4 (3.0) 6.6 (4.7) 11.2
First pass yield (%) 74.4 (41.3) 75.4 (29.4) 82.3 (16.9) 91.0 (7.5) 96.0 (5.4) 92.8 85.6 -
(12.7) (21.2)
Sales from new products (% of 22.7 (29.0) 24.3 (20.4) 44.5 (34.7) 12.8 (13.6) 52.8 (29.4) 16.1 25.4 -
annual sales) (13.4) (25.3)
Cash-to-cash cycle (days) 50.3 (64.1) 41.3 (31.2) 61.0 (53.6) 116.5 (78.4) 76.6 (59.4) 72.0 75.0 -
(58.8) (64.4)
Value of existing backorders (% of 10.4 (13.6) 17.5 (17.5) 10.1 (9.9) 62.9 (45.1) 26.0 (42.5) 9.6 (11.8) 30.1 -
annual sales) (37.7)
Value of outstanding accounts 9.8 (6.1) 13.1 (10.5) 21.8 (9.9) 21.6 (10.4) 14.2 (13.7) 15.7 (8.1) 17.2 -
receivable (% of annual sales) (10.4)
* Overall mean values for US industry is given for the year 1994; ** reflects growth rate in dollar sales
Table 2: Mean (standard deviation) values of manufacturing business unit performance by various industry
industries feel compelled to operate their plants continuously even when the demand is low thereby building up inventory. Inventory turns across are low - an issue which has been discussed earlier as well. Firms sometimes tend to keep expensive resources like machines busy all the time
17
in order to recover their fixed cost. This approach, stemming from an accounting view of manufacturing, often adds inventory, schedules production in large batches, and prevents firms from being market driven. Similarly, the first pass yield is relatively low in the automotive, consumer goods and electronics industries.
Many firms in the textile sector seem to be doing well financially but modern manufacturing practices and their benefits are yet to take roots here. Average cash to cash cycle (i.e., total elapsed time from the date that a firms paid its suppliers for materials to the date it was paid by its customers for the products that were made from the same materials) ranges from over one month in the consumer goods industry to over two and half months in textile and slightly less than four months in the engineering & machinery sector. A similar picture emerges if we look at the value of outstanding accounts. There is scope for improvement on these dimensions.
V International Comparisons
We now examine how we stand in comparison to the US industry for which a similar survey was done in 1994. As seen in Figure 7, the importance given to different aspects of manufacturing is different in the two countries. The data shown there is the difference in the level of importance of Indian firms and the US firms on various attributes. Each attribute value (on a scale of 1 to 7) was first normalized for each country before computing the difference. The US is paying more attention to several Innovation and R&D type of issues like product customisation, new products, design changes, and to issues which require manufacturing to be more flexible like product mix changes, production volume changes, and finally, low price. Indian industry on the other hand is paying attention to more basic issues like broad distribution, after sales service, product
18
reliability and durability. Indian industry is also interested in broadening their product line; however, to do that, they would need to invest in R&D, which is currently not a priority. To some extent these differences reflect the current realities and requirements. In the future, the Indian industry might need to change some of its priorities, especially if it wants to compete globally.
-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5
Broad distribution
After sales service
Broad product line
Product durability
Performance quality
Fast delivery
Product reliability
Product mix change Product support
Conformance quality
Volume change
Product customization
On-time delivery
New products
Low price Design changes
Figure 7. Comparison of manufacturing priorities between India and the US
Figure 8 shows the ten programs which are most important for US firms and least important for Indian firms. Here there are really significant differences in issues like design for manufacturability (DFM), supplier partnerships which now include global partnerships, worker training, business process re-engineering (BPR), cross functional teams and JIT. The numbers in the figure are the difference between the normalized values of different attributes of US frms and Indian firms.
19
0 0.2 0.4 0.6 0.8 1
DFM
Supplier partnership
Worker training
FMC/FMS
BPR
CAM
Work enlargement for workers
Cross-functional teams
JIT
Recyclable materials
Figure 8. Programs which are the most important in the US and least important in India.
There are significant differences in terms of payoffs from manufacturing programs carried out in the two countries. The top ten programs where Indian industry reported greater payoffs than the US industry are shown in Figure 9. These include improving quality of work life, outsourcing, teamwork, benchmarking, new processes and training. These programs seem to be aimed at bringing manufacturing up to a basic minimum standard. In contrast, Figure 10 shows the programs where the US industry reported greater payoffs. These include programs like JIT, SQC and SPC, CAD/CAE, DFM (design for manufacturability) and relocation or closing of plants. Although some of these options may not be practical in India at least at this point of time, programs like JIT, SPC and DFM have shown quite clearly that they substantially improve manufacturing costs, quality and flexibility.
The differences in priorities and in the type of programs in the two countries reflect perhaps
20
0 0.2 0.4 0.6 0.8 1 1.2 1.4
Improving quality of work life
Outsourcing manufacturing
Reconditioning physical plants
Work enlargement for workers
Remanufacturing/Reverse logistics
Functional teamwork
New process for old products
Benchmarking
Supervisor training
Management training
Figure 9. Programs where Indian companies got better payoffs than US companies
0.5 0.7 0.9 1.1 1.3 1.5 1.7
Closing/Relocating plants
JIT
DFM
FMC/FMS
CAD/CAE
Continuous improvement
CAM
Cross-functional teams
SQC/SPC
Reconfiguring plant layout
Figure 10. Programs where US companies got better payoffs than Indian companies
different stages in the evolution of a manufacturing firm. Indian firms seem to be clearing up some basic issues like improving existing products and delivering them to the customer more effectively. US firms on the other hand have moved to the next level and have a different set of concerns.
21
VI Towards the Future: Innovation
Innovation is widely seen as delivering long term benefits to an organization. In this context, innovation includes any new or substantially improved products that have been commercialized or any new or substantially improved manufacturing processes that have been used for the commercialization of products. Figure 11 shows the nature and extent of benefits that sample firms have enjoyed from innovation in the past with 7 denoting very high benefits and 1 denoting
Past Benefit Future Importance
3.0 4.0 5.0 6.0
Improve product quality
Improve working conditions
Meet government regulations
Lowering material cost
Lowering overhead cost
Create new domestic markets
Reduce environmental damage
Lowering labour cost
Expand foreign markets
Shortening production cycle time
Figure 11: Potential advantages from innovation (past benefits and future importance)
little or no benefits. The firms have also reported the future importance of these benefits via innovation. The top three benefits of innovation in the past have been improvement in product quality, improvement in working conditions & safety and ability to meet government regulations. Interestingly, product quality remains the top focus for innovation even in the future. However, the potential for maximum benefits of innovations are expected to come through product design changes, design for manufacturability, shortening of production cycle times, developing or expanding into foreign markets, and reduction in overhead costs
22
While almost all the firms recognize the benefits of innovation, very few are investing adequate resources to make such programmes successful. On the average, the sample firms invested barely 0.84 percent of their sales revenue on internal research & development, 0.15 percent on acquiring externally developed technology, 1.15 percent on training for the implementation of new technology, 2.57 percent on toolings and other engineering changes to start-up new technology and 0.93 percent on coordination for commercializing new technology. These amounts are woefully inadequate given the relatively low turnovers in the Indian industry. As Figure 12 shows, Indian firms do not plan to change these patterns of investment significantly to develop
4.4 4.6 4.8 5.0
Training for implementation of new technology
Tooling and other engineering changes for new technology
Conducting research & development internally Acquiring externally developed technology
Coodinating function for commercialization of technology
Figure 12: Projected investments (over next two years) in activities involved in innovation
long term capabilities. In this Figure, a score of 4 indicates that firms plan to invest about the same amount in each of the innovation activities as they did in the past two years. The maximum score of 7 represents a plan to invest “much more” in the future.
VII Supply Chain Management
Supply chain management deals with the process of coordinating the flow of information and goods to customers across a network of suppliers, manufacturers and distributors. Two factors 23
often affect the bottom lines of firms significantly - uncertainty in demand or in availability of men, materials and machines; and long lead times. This is often not well understood in the industry. It has been seen that by improving the flow of information across the supply chain and by reducing cycle times, firms are able to reduce the impact of uncertainty. As we have seen in an earlier section, Indian firms have started paying attention to reducing lead times. However, availability of information on current inventory levels, flow of materials, as well as demand forecasts to different functions within a firm remains poor. As a result, coordination across functions is based either on inaccurate data or personal contacts. This leads to high inventories and delays in most supply chains. There is an absence of a systems approach to planning across the chain.
Most firms in the sample rate the capabilities of their suppliers lower than those of their distributors. Figure 13 shows the difference between the current capabilities of the suppliers of firms and those of their distributors. The key concern that firms have relates to inventories. On a scale of one to seven, the firms on the average rate the ability of their suppliers to optimize inventory levels as 4.18 and those of its distributors as 4.98. Both these figures are not very good, and there is scope for improvement.
The supply chain of an Indian firm has an interesting structure. The mean (median) values for
24
0.0 0.2 0.4 0.6 0.8
Optimize inventory levels in the chain Introduce new products
Rapid response to changes - in demand volume
Minimize cost to end users
Meet users' quality requirements
Improve on-time delivery to users
Reduce supply chain cycle time
Figure 13: Difference between current capabilities of suppliers and distributors
number of suppliers per firms, number of regional distributors and number of approved retailers were around 436 (112), 210 (15), and 35,077 (200) respectively. By international standards, firms still have far too many suppliers. This adds to problems of coordination, delivery, quality and cost. A smaller supplier base sometimes allows firms to work closely with suppliers and raise the level of the entire operations in terms of product quality, cost and even product design. The data shows that about 43 percent of firms had less than 100 suppliers. Similarly 46 percent firms had less than 100 distributors and 23 percent of firms had less than 100 approved retailers. As the chain progresses from the suppliers to customers, the number of entities increases. While development of capabilities in suppliers becomes crucial, effective coordination of flows & information is the key to successful channel management.
25
Total No. of
27 Suppliers
24 Total No. of
Regional Distributors
21 No. of Approved
18 retailers
Frequency
15
12
9
6
3
0 500 than
100
- - 1000 2000 5000 10000 10000
0 100
- - -
-
500 1000 2000 More
5000
Figure 14: Distribution of various entities in Indian manufacturing supply chain
VIII Becoming World Class Manufacturers
The focus of this survey has been to understand how top managers are trying to develop a coherent strategy for improving the manufacturing competitiveness of their firms. We also try to identify factors that these top managers find important in order to enhance the performance of their operations in the future. It can be clearly stated that our firms are going through a “quiet” quality revolution - quality systems are being developed and put in place, measurements are being refined and people are getting trained. The benefits are also obvious. However, the distribution of firms with significant quality programs is highly skewed. A few firms have progressed by leaps and bounds where workers plot control charts and practice SPC, their managers are trained in TPM (often in Japan) and are implementing the same, process capability of their machines is strictly monitored (with world class cpk levels above 1.33), in-process defect
26
rates are in the range of 200-700 ppm, and customer return rates are less than one per cent. On the other hand, a large number of firms is struggling with housekeeping, monitoring quality problems, training of managers but not of workers. There are two related observations: first, in a large number of firms the understanding of quality tools is superficial - as a result, progress beyond a certain level is slow; second, many firms are not consistent in their emphasis on quality which results in employees not taking it very seriously.
Some firms have improved their performance on lead time, and have started simplifying the flow of information and material. However, in discrete part manufacturing, most firms have not adequately addressed some difficult issues like drastically cutting lead times by changing the mode of operation from push to pull, reducing setup times, converting job shops to flow shops or using cellular layouts. Very few implementations of JIT are found in our plants - partly due to the fact that we are unable to contain the impact of uncertainty, partly due to high setup times and partly due to the fact that many managers still do not understand the basics of JIT. There is a widespread feeling that JIT simply transfers inventory to suppliers, or that it does not deliver any benefits, especially in India. However, JIT goes far beyond inventory reduction and improves quality, lead times, cuts cost and makes manufacturing more flexible and responsive. Cellular manufacturing is also not a priority for similar reasons. On the positive side, the recent interest in business process re-engineering is encouraging because it is process oriented and helps bring about fundamental changes.
One area of concern is the management of inventories across the supply chain. Most firms have not appreciated the advantage of coordinating various decisions and plans across different
27
entities in the chain - the suppliers are optimizing locally, the plants are optimizing locally and the distribution channels are doing the same. As a result, inventories remain high with working capital being tied up for longer periods of time, there are delays in delivery and the overall cost across the chain remains high. Decisions that seem to be good for one entity turnout to be bad for the entire supply chain. More information has to flow between entities in the supply chain and more decisions have to be made collectively. Many firms are still reluctant to help their suppliers improve their capabilities.
Investments in innovation and R&D activities continue to be very low. Indian manufacturing managers must be aware of the potential dangers of becoming over-dependent on borrowed technology (i.e., products, processes as well as practices). It must be recognized that in the future, firms can stay competitive only through their own innovations. A one time import of technology might be useful, but continuous dependence on borrowed technologies may not be feasible in the future with several multinational corporations themselves entering the Indian market. For firms in the export market, a certain level of strength in manufacturing and R&D is even more important. Put simply, there is no world class company in the manufacturing sector which does not have world class manufacturing and innovation.
One factor that may be partly responsible for the inadequate attention to innovation and continuous improvement is a lack of the right type of training to workers. Whenever firms have paid attention to workforce training, benefits have followed. The authors have documented a number of such cases. Training of workers has been a significant contributor to improvements in several other countries. The automotive sector in India seems to have appreciated the need for
28
worker training. One of the worst training records can be found in the textile sector. As a result the former is quite modern while the latter is very outdated.
Finally, we must get into the habit of benchmarking our performance. The perception of our top managers that their plants are at least as good as their global competitors’ plants is a little disturbing. Benchmarking reveals a lot of information on our strengths and weaknesses and several world class manufacturing plants have used this as a starting point in their improvement efforts.
Manufacturing in India is at a critical juncture. Many of our firms are already on the way to becoming world-class, and several others are standing at the threshold. But the average firm is still very far from this threshold. A fundamental issue here is our view of manufacturing. The traditional view that manufacturing is a support activity for marketing or finance, and therefore needs little top management attention is perhaps no longer there in Indian firms. However, a more subtle view still persists. Thus, top managers often want to invest in one large effort to improve manufacturing. After that, they want to go back to their traditional concerns. Meanwhile, international competitors are continuously working on improving manufacturing, bringing in new products, and making manufacturing more flexible and responsive. These firms view manufacturing and R&D in a different way: they recognise it as one of the key sources of their competitive advantage. Therefore, they are continuously honing and perfecting their skills and capabilities in manufacturing. A senior executive of a well known international company, widely acknowledged as the industry leader in manufacturing, said at a conference “ it seems we
29
enjoy a good reputation. But internally, we know our weaknesses and are constantly striving to overcome them.”
To effectively institutionalise a culture of continuous improvements, top management must have a well thought out manufacturing strategy. Instead, companies often rely on a massive one time effort or a series of piece meal efforts. Top management must understand the strategic dimensions of manufacturing as well as it understands marketing or finance. Very often, top management’s involvement in manufacturing is confined to approving capacity expansion plans, approving budgets for equipment purchase, training, or for hiring consultants. But evolving a strategy and carrying it through requires much more than that. Companies that have successfully done this have either become industry leaders worldwide, or have established a secure and profitable niche. They have realised that competitors can quickly imitate marketing or financial strategies, but it takes several years to duplicate a manufacturing advantage.
30
Appendix 1: Details of the Survey Methodology
This survey was based on the Manufacturing Futures Survey questionnaire that was developed initially by Boston University and is now administered in many countries around the world. The questionnaire for the survey comprised six sections, namely, Business Unit Profile, Manufacturing Strategy, Competitive Health Check for Manufacturing, Managing Innovation for Competitive Advantage, Integrated Supply Chain Management and Thinking Differently about Manufacturing Strategy. There were three types of questions in the survey instrument - those which required firms to rate various aspects of their operations vis-à-vis their competitors; those that required firms to rate the nature of past & future interventions in manufacturing in order to improve the competitiveness of their units; and some that required firms to give information on various performance parameters.
The survey instrument was mailed to managing directors of 700 select medium and large firms in the India. These firms were chosen from various sources - they represented a cross-section of size, industry type, and performance. The response, however, was extremely poor. Follow-up letters were sent to all these firms and phone calls made to many in order to remind them of the questionnaire. Duplicate copies of the questionnaire were mailed to many firms. Finally, the number of valid questionnaires that we used for analysis was 56. This number itself provides a lot of information on Indian firms ! Interestingly, our sample consisted of firms that have been generally performing well according to many published sources. Whenever, comparisons were made with US firms, the data was first normalized by the mean and standard deviation of each attribute score for each country to reduce any systemic biases.
31
Findings of the 1997 Manufacturing Futures Survey
Pankaj Chandra
Trilochan Sastry
Indian Institute of Management
Vastrapur, Ahmedabad 380015
chandra@iimahd.ernet.in/sastry@iimahd.ernet.in
July 1998
Appeard in Vikalpa, 23, 3, 25-36, 1998
Acknowledgement: We are very grateful to the firms that have participated in this survey. Without their support this study would not have been possible. We are also thankful to Prakash Vaidya for able research support. This project was funded by a grant from Research & Publications, Indian Institute of Management Ahmedabad.
Abstract
This paper reports the findings of a survey to study the competitiveness of Indian manufacturing sector. The paper conceptualizes these findings in terms of priorities of Indian manufacturing firms, the programmes that they undertake to reach their objectives, and the outcome or the performance of these firms. We also present some international comparisons based on a similar study done in the USA. The paper highlights the role of innovation and supply chain management, as a part of any robust manufacturing strategy, in developing world class operations.
2
I Introduction
How competitive are Indian manufacturing firms? What are some of the key manufacturing issues that leaders of Indian manufacturing are concerned about? What kinds of initiatives are being taken by these firms to improve their competitiveness? How do these leaders perceive their own strengths and weaknesses? What will make Indian manufacturing world-class? These were some of the many questions we have been seeking to answer through the 1997 Manufacturing Futures Survey. While changes have been numerous at the firm level we wanted to examine to what extent they have achieved their objectives and met the emerging competitive needs. Another key question we address is whether our industry is gearing up to realise its full potential or whether firms are satisfied with limited success. The survey measures broad trends in the Indian manufacturing sector and assesses its competitiveness through a variety of self-answered questions in a sample survey. Appendix 1 describes the methodology. The larger purpose of this study is to disseminate good practices across the industry and to help firms to benchmark their performance. An closely related issue is our standing vis-à-vis the best in the world. In this report, we also present some of the key practices and characteristics of world class plants.
The cost structure of Indian plants shows that materials constitute 66 percent of total costs, direct labour 10 percent and overheads 24 percent. This implies that initiatives to control manufacturing costs may need to focus on reduction in material costs and overheads. However, traditionally the focus has been on managing labour costs. Efforts to control material related costs may need to address several issues including rejects and rework on the shop floor, identifying alternative materials, and better materials management and sourcing. An underlying implication is that all
3
sources of uncertainty to materials need to be eliminated or reduced. Otherwise costs of high inventories would go up. Interestingly, the break-up of the manufacturing cost for USA was 55 percent, 31 percent and 14 percent for the three factors respectively. The emphasis on labour cost is therefore hard to explain.
In the following sections, we describe the findings of a nation-wide survey of top executives in manufacturing organizations. In the next section we describe the new competitive challenges that Indian firms face followed by the manufacturing strategies that these leaders have devised for their firms in order to face the competition. We then examine how effective these strategies have been in the past, compare these strategies with those of US firms, look at the future in term of efforts needed to improve manufacturing and effectively manage the entire supply chain, and finally, present conclusions of the study.
II New Competitive Challenges
Today, Indian firms are facing a very different competitive scenario as compared to the past. They are facing competition from imports and from MNCs in the domestic markets. Several firms also have to compete as new entrants in global markets. Earlier, firms would segregate these two markets and serve them with different quality products and services, while perhaps compromising on quality in the home market. This is no longer possible. Therefore, many strategies that may have worked in the past are not likely to succeed in the future.
The new competition is in terms of reduced cost, improved quality, products with higher performance, a wider range of products, and better service - all delivered simultaneously. A lot
4
has already been written the in business press about many of these issues. However, Indian firms have quite often followed an opportunistic approach to growth as opposed to a capability driven approach that seeks to strengthen key aspects of manufacturing. Consequently, firms have paid very little attention to their shop floors in the last few decades. There have no doubt been notable exceptions to this and some firms have systematically built up their capability in the recent past. Firms have also started paying attention to quality, but it is not clear whether enough is being done about faster throughput and delivery, introduction of a wider range of products, and better service. It would not be incorrect to say that we are still struggling to get the “quality” right and that firms will perhaps focus on other issues at a later date.
The Indian market place has been witnessing a quiet revolution where old products are being substituted by better ones. In fact, for the first time, products and services are being introduced to meet certain customer needs that were only partially met in the past. One implication of this rapid introduction of new products is the pressure on manufacturing facilities to profitably produce a larger variety in smaller volumes. Firms have to search for new processes, new materials, new vendors, new shop floor layouts, new ways of reducing cycle times, new designs, new channels etc. to deliver these products and services . In addition, manufacturing firms are being increasingly required to integrate services with products to meet customer needs. The real challenge is therefore to improve substantially on several dimensions, including quality, technology, shop floor practices, supply chain coordination, and new product introduction over a short period of time.
5
III Manufacturing Strategies
The 1997 survey shows that to improve their competitive position, Indian firms will give the highest priority to quality improvement in the next five years. Figure 1 shows the relative importance given to four sets of issues by Indian firms on a 7 point scale, with higher scores indicating higher priority. These are Quality, Operations, Structural Changes, and Innovation & R&D. Quality for purposes of this research, comprises conformance quality or adherence to specifications, performance quality of products, product reliability and product durability. Operations related practices were those that improved the distribution network and performance, on-time delivery, ability to handle production volume changes, product support, and after-sales service. These practices can usually be changed or improved without fundamental changes in the manufacturing system. For instance, production volumes can often be increased by the use of overtime, or by operating an additional shift. On the other hand Structural Changes, which include fast delivery capabilities, low prices, and ability to change product mix, often require major changes in manufacturing. For instance, to substantially improve delivery performance of a wide variety of products, firms would need to cut down on production throughput times, reduce set up times, improve scheduling, and in some cases, change the manufacturing system or bring in new equipment. These changes require much greater effort and often take time to implement. Innovation and R&D included new product introduction, broadening the product line, making design changes and customizing the product. Quality is the number one competitive priority, followed by Operations, Structural Changes and finally, Innovation & R&D.
However, there is a close link between Quality and Structural change, and between Quality,
6
5.0 5.5 6.0 6.5
Group I: Quality
Group II: Operations related
Group III: Structural change
Group IV: Innovation & R&D
Figure 1: Competitive priorities of firms: group averages
Innovation and R&D. For instance, quality often cannot be improved without major changes in production processes. In discrete part manufacturing, the use of some key ideas from the Toyota Production System, which in turn require changes in layouts, process improvements and so on, have helped several firms across the world to improve quality. An exclusive focus on quality tools like SQC and SPC, or on programs like TQM and TPM without some basic changes may not achieve the desired purpose. However, this is currently not a priority, and it is not clear whether this link between quality and other required changes is well understood. Similarly, quality is largely a function of design. Without attention to product design, it is unlikely that improvement can be sustained. The recent interest in Business Process Re-engineering within the manufacturing function is more encouraging since it focuses on making some required fundamental changes.
Figure 2 gives a relative ranking of various manufacturing priorities of Indian firms. At the top of the list is the ability to provide consistent quality with low defects. It is being widely recognized that by reducing defects, firms can improve not only on price but also on delivery and flexibility parameters significantly as lead times reduce drastically. World class firms are
7
now targeting six-sigma quality levels and are measuring defect in parts per million (or ppm). Figure 2 shows that firms are planning to pay attention to several aspects of manufacturing, and this is encouraging.
4.0 5.0 6.0 7.0
Conformance quality
Broad distribution
Product reliability
On-time delivery
Fast delivery
Performance quality
Product support
Broad product line
After sales service
Product durability
New products
Low price
Product mix changes
Product customization
Volume changes
Design changes
Figure 2: Competitive priorities of firms (degree of importance over next five years)
Interestingly, firms also perceive quality (as shown in Figure 3) as their key strength with respect to their primary Indian competitor. The Figure shows how firms have rated themselves with respect to domestic competition on a 7 point scale where a score of 4 indicates that they are as good as the competition, and higher scores indicate that they are better. These firms rate their ability to introduce new products and offer flexibility (in terms of managing volume changes or design changes or product mix changes) as being relatively low.
The competitive gap, or the difference between stated importance & strength, gives an idea of areas that require maximum attention in order to make manufacturing more “market driven”. The largest gap is for broad distribution, followed by fast and on time delivery, developing new products, offering consistent quality with no defects, and reducing costs (Figure 4).
8
4.0 4.5 5.0 5.5
After sales service
Product durability
Product support
Product reliability
Performance quality
Conformance quality
Product customization
On-time delivery
Broad product line
Broad distribution
Product mix changes
Fast delivery
Design changes
Volume changes
Low price
New products
Figure 3: Perceived competitive strengths of firms (degree of strength relative to Indian competitors)
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6
Broad distribution
Fast delivery
On-time delivery
New products
Conformance quality
Low price
Product reliability
Broad roduct line
1 Product mix changes
Performance quality
Volume changes Design changes
Product support Product customization
Product durability After sales service
Figure 4: Competitive gap (difference of future priorities and current strengths)
It seems that the manufacturing strategy of most firms is focused on improving product and process quality, after sales service and on delivering products on-time. However, as mentioned
9
earlier, improvements often require more fundamental changes in the way manufacturing is organised. Firms on the other hand are currently giving low priority to these fundamental changes which require changing processes, developing the ability to change product mix rapidly or investing in R&D to develop new processes and products.
On the other hand, in the United States, Innovation and R&D has the highest priority followed by structural changes. We discuss this issue in greater detail in the Section on International Comparisons. Interestingly, most Indian firms believe that they are at least as good as, or better than their foreign competitors on price, flexibility, quality, service and product design capabilities. This is seen in Figure 5 which has a 5 point scale, and where any score above 3 shows that the firm considers itself to be superior to foreign competitors. It is obvious that the average Indian firm’s perception of its abilities differs considerably from its status in the global market place. This perception could be because many firms are not directly competing with MNCs in the same product market segments, or due to an inherent bias when firms are asked to rate themselves.
3.0 3.5 4.0 4.5 5.0
Quality
Service
Flexibility
Price
Product design capability
Delivery
10
Figure 5: Comparison with foreign firms on various factors
Manufacturing companies have recently invested in a variety of improvement programmes or activities in order to enhance their competitiveness. Table 1 gives the changes in emphasis on various manufacturing related programmes. It lists the top ten programmes that Indian managers implemented in the last two years and compares them with the top ten initiatives that they will focus on in the next two years. It is evident that firms are investing in training their employees (note: worker training was accorded the eleventh position in terms of future emphasis) and on making their workers cross functional. In addition, firms believe that their investment in information technology (IT) in manufacturing will increase in the future. What is not clear is how they plan to use this information for better decision making. While managers have rated functional teamwork quite high in their list of priorities, they have given low priority to “reconfiguration of plant layouts” - a step necessary for implementing functional teamwork. Perhaps may firms have already made some of these changes. Automation in the form of robots, CIM, CAM, FMS,
Initiatives in the Past Initiatives in the Future
1. Work Enlargement 1. Continuous Improvement
2. Management Training 2. Management Training
3. Continuous Improvement 3. Manufacturing Strategy
4. Worker Training 4. Information System within Business Unit
5. Supervisor Training 5. Total Quality Management
6. ISO 9000 6. Supervisor Training
7. Manufacturing Strategy 7. Information System within Manufacturing
8. Quality of Work Life 8. ISO 9000
9. Functional Teamwork 9. Cross Functional Teams
11
10. Cross Functional Teams 10. Functional Teamwork
Table 1: Changes in emphasis: Top ten manufacturing initiatives of the past and the future
automated inspection etc., have been rated in the bottom ten in terms of future importance.
The absence of some practices that have become synonymous with world class manufacturing from the top ten list in Table is noticeable. Just-in-time manufacturing has still not found acceptance in Indian firms. This could be because of several hurdles encountered while trying to implement such programs, or in some cases, due to poor understanding of JIT or pull production systems in the industry which has led to “unfavourable” myths developing around it. Other practices that have not been given adequate importance include forging customer and supplier partnerships, strategic outsourcing, use of statistical process control (SPC) effectively and continuously, value engineering and product re-design, use of CAD/CAE systems etc. Moreover, inadequate attention from top managers has sometimes not allowed firms to develop manufacturing into a competitive strength. Manufacturing related interventions are sometimes done piece meal, in line with the fads of the time. A well defined strategy with a clear understanding of the sequence of manufacturing programmes that must be implemented is missing.
It must be mentioned that Indian industry have “islands of excellence,” i.e., firms that have recognized the need to change and have a well thought out plan of action to become competitive. Such firms have started implementing practices that are employed by world class plants. However, many firms do not seem to have a coherent plan about what needs to be done. For instance, in discrete part manufacturing, one possible route could be to first implement house-
12
keeping and preventive maintenance programs, followed by conversion of manufacturing to flow shops, introduction of quality systems, setup reduction, and ISO certification, with the eventual goal of getting close to just-in-time manufacturing systems.
House Keeping involves maintaining a proper discipline in demarcating parts, tools & equipment locations, cleanliness etc. (including 5S Tools); preventive maintenance of equipments (including TPM) follows a regular schedule for machine & tool checkups instead of doing maintenance during breakdowns; flow manufacturing involves process flow analysis and cellular production layouts to smoothen flows of material on the shop floor and reduce WIP; quality systems include SPC and process capability analyses; setup reduction further enhances process effectiveness by trying to reduce changeover times and thereby increasing the flexibility of firms; and ISO certification helps the firm strengthen its internal systems. Finally, JIT manufacturing facilitates a pull based production control, reduces investments in inventory, drastically cuts throughput and delivery times, improves quality on a sustained basis, and makes new product introduction much easier. Similarly, a well thought out plan is required for continuous production or process industries. Establishing a program that implements these practices in a defined sequence allows the development of process discipline that is necessary to become a competitive manufacturer. Moreover, improvements of the nature mentioned above require little capital investment except those in training, instrumentation and calibration, and some changes in tooling and layouts.
IV Manufacturing Performance
The first question that needs to be asked is, given the above mentioned manufacturing strategy of Indian firms, how well have they performed ? It would also be useful to identify areas where
13
intervention has been most beneficial and where it has not been successful. The 1997 survey shows that, over the last two years, there has been a marked improvement in the performance of firms on a variety of factors. Improvements in quality, especially, within the plant have been significant. In fact, 77 percent of firms that were surveyed reported an increase in profitability while 87 percent of firms claimed to have increased their market share. While these improvements should be viewed in terms of the low base value in many cases, the fact remains that the Indian industry has been changing rapidly for the better.
Figure 6 shows the extent of improvement in Indian manufacturing firms over the last two years. The maximum improvement has occurred in the productivity of direct production workers (about
0% 5% 10% 15% 20% 25% 30% 35% 40%
Worker productivity
Customer return rates
Profitability
First pass yield
Customers' perception of quality
On-time delivery
Manufacturing to design changes
Manufacturing cycle time
Speed of new product development
Delivery lead time
Finished goods inventory
Market share
Changeover times
Procurement lead time
Raw materials inventory
Work-in-process inventory
Raw material defect rates
On-time completion of new prod. projects
Average unit production cost
Figure 6: Percent improvement on various manufacturing performance indicators over the last two years
38 percent). There could be a variety of reasons for the same: improved as well as increased emphasis on training of workers, incorporation of faster machines that also require fewer workers, etc. This has been followed by reduction in customer returns, improvements in first-
14
pass yields and in the overall perception of quality by customers. Other dimensions that are worth mentioning
in terms of improvements are on-time delivery, speed of response on the shop floor to design changes and reduction in manufacturing cycle times. It is apparent that shop floor improvement programmes, in many firms, are proving to be beneficial. However, there are three disturbing trends. First, though the mean improvement scores for factors like productivity of direct labour, customer return rates and profitability were the highest, the variance was also very high. Thus many firms have done well on these factors, but several others have not. In fact, 9 percent of firms have reported a decline in productivity of production workers, 13 percent have seen an increase in return rates and 23 percent of firms have witnessed a loss in profitability in the last two years. Second, there has not been adequate improvement on inventory levels, i.e., raw material, work-in-process (WIP) and finished goods. In this case, 27 percent, 26 percent and 27 percent of sample firms have reported an increase in raw material, WIP and finished goods inventory respectively, over the last two years. This increase is not entirely explained by a corresponding increase in turnover. Third, the pre-occupation with labour productivity is evident although on the average, labour is only 10% of total cost. This is reflected in the fact that improvements in costs are relatively low compared to other improvements. More attention to materials and overheads which comprise 90% of costs is perhaps needed.
Therefore, we may have gained in some areas, but may be losing on others. Many of our firms have not yet been able to tightly control inventories across the supply chain. They still appear to be using inventories to meet demand rather than developing quick response manufacturing to meet changes in market needs. The relationship between batch sizes, WIP and lead times is very
15
close. Increase in batch sizes leads to higher WIP and longer leadtimes. The key is to perform process analysis, de-bottleneck, reduce setup times and synchronize order release with throughput rates. In short, manufacturing has to become process oriented.
A summary of manufacturing performance of the sample firms is given in Table 2. It provides a comparison on various indicators across industry types (e.g., automotive, consumer goods, electronics, engineering & machinery, textiles and process industry). We also present averages on these indicators for the entire sample as a whole. Some of this data can be benchmarked against overall industry averages from a similar survey done in the USA in 19941. Performance appears to be varying across industry types. Interestingly, for the period under study, Indian firms on the whole had a higher growth rate in sales (in unit as well as rupee terms) as compared to firms in the US though the pre-tax profit ratio was lower for the Indian firms. This lower realization of profits might indicate hidden costs due to low first pass yields, low inventory turns, high outstanding accounts, long lead times, etc. in Indian firms.
As can be expected, capacity utilization in the process industry is higher than that in discrete part manufacturing. The consumer goods, electronics, and engineering & machinery industries stand out in terms of low capacity utilization. The inventory turns in the process industry is quite low implying that working capital is tied up in this sector for longer periods of time. Often process
Indicators Automotive Consumer Electronics Engineering Textile Process Overall Overall
Goods & (India) (USA)
Machinery Mean Mean*
1 Source: Kim, J.S. and M.T. Frohlich (1994) “Summary Results From the 1994 U.S. Manufacturing Futures Survey,” Boston University’s Manufacturing Roundtable, Boston University, mimeo.
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Annual sales revenues 292.7 248.0 160.9 162.8 601.1 1096.6 393.4 4327.5
(RS. crores) (286.5) (171.3) (237.8) (341.0) (1197.3) (384.4) (941.6)
Net pretax profit ratio (profit/sales) 9.6 (5.0) 7.5 (4.6) 9.8 (6.7) 11.6 (7.8) 5.1 (6.8) 12.0 (9.5) 9.9 (7.2) 11.8
* 100
Growth rate in unit sales (% ) 13.7 (14.7) 13.5 (6.6) 17.9 (10.5) 8.0 (13.1) 12.2 (5.5) 9.4 (17.7) 11.9 7.7
(12.5)
Growth rate in rupee sales (%) 26.5 (14.3) 20.4 (10.0) 15.9 (12.1) 25.7 (21.2) 24.4 (10.4) 15.9 21.5 6.4**
(16.9) (16.0)
Market share of primary product 33.6 (30.8) 35.0 (19.0) 18.3 (14.1) 28.6 (17.9) 36.3 (41.2) 13.8 26.5 34.1
(%) (10.5) (20.6)
Capacity utilization 80.0 (11.0) 70.3 (11.6) 69.6 (38.4) 64.2 (37.6) 90.6 (1.59) 91.7 76.1 73.7
(21.7) (27.5)
On-time deliveries (%) 80.8 (14.6) 84.8 (8.2) 75.0 (24.0) 80.2 (11.1) 93.0 (4.5) 92.9 (7.3) 83.7 88.9
(13.7)
Average manufacturing lead time 19.2 (9.0) 21.3 (40.3) 13.3 (10.5) 74.7 (51.3) 19.2 (23.4) 30.0 39.5 -
(days) (38.8) (45.4)
Annual inventory turns per year 8.0 (3.4) 6.6 (3.7) 5.3 (2.5) 6.4 (6.6) 8.12 (6.7) 6.4 (3.0) 6.6 (4.7) 11.2
First pass yield (%) 74.4 (41.3) 75.4 (29.4) 82.3 (16.9) 91.0 (7.5) 96.0 (5.4) 92.8 85.6 -
(12.7) (21.2)
Sales from new products (% of 22.7 (29.0) 24.3 (20.4) 44.5 (34.7) 12.8 (13.6) 52.8 (29.4) 16.1 25.4 -
annual sales) (13.4) (25.3)
Cash-to-cash cycle (days) 50.3 (64.1) 41.3 (31.2) 61.0 (53.6) 116.5 (78.4) 76.6 (59.4) 72.0 75.0 -
(58.8) (64.4)
Value of existing backorders (% of 10.4 (13.6) 17.5 (17.5) 10.1 (9.9) 62.9 (45.1) 26.0 (42.5) 9.6 (11.8) 30.1 -
annual sales) (37.7)
Value of outstanding accounts 9.8 (6.1) 13.1 (10.5) 21.8 (9.9) 21.6 (10.4) 14.2 (13.7) 15.7 (8.1) 17.2 -
receivable (% of annual sales) (10.4)
* Overall mean values for US industry is given for the year 1994; ** reflects growth rate in dollar sales
Table 2: Mean (standard deviation) values of manufacturing business unit performance by various industry
industries feel compelled to operate their plants continuously even when the demand is low thereby building up inventory. Inventory turns across are low - an issue which has been discussed earlier as well. Firms sometimes tend to keep expensive resources like machines busy all the time
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in order to recover their fixed cost. This approach, stemming from an accounting view of manufacturing, often adds inventory, schedules production in large batches, and prevents firms from being market driven. Similarly, the first pass yield is relatively low in the automotive, consumer goods and electronics industries.
Many firms in the textile sector seem to be doing well financially but modern manufacturing practices and their benefits are yet to take roots here. Average cash to cash cycle (i.e., total elapsed time from the date that a firms paid its suppliers for materials to the date it was paid by its customers for the products that were made from the same materials) ranges from over one month in the consumer goods industry to over two and half months in textile and slightly less than four months in the engineering & machinery sector. A similar picture emerges if we look at the value of outstanding accounts. There is scope for improvement on these dimensions.
V International Comparisons
We now examine how we stand in comparison to the US industry for which a similar survey was done in 1994. As seen in Figure 7, the importance given to different aspects of manufacturing is different in the two countries. The data shown there is the difference in the level of importance of Indian firms and the US firms on various attributes. Each attribute value (on a scale of 1 to 7) was first normalized for each country before computing the difference. The US is paying more attention to several Innovation and R&D type of issues like product customisation, new products, design changes, and to issues which require manufacturing to be more flexible like product mix changes, production volume changes, and finally, low price. Indian industry on the other hand is paying attention to more basic issues like broad distribution, after sales service, product
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reliability and durability. Indian industry is also interested in broadening their product line; however, to do that, they would need to invest in R&D, which is currently not a priority. To some extent these differences reflect the current realities and requirements. In the future, the Indian industry might need to change some of its priorities, especially if it wants to compete globally.
-2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5
Broad distribution
After sales service
Broad product line
Product durability
Performance quality
Fast delivery
Product reliability
Product mix change Product support
Conformance quality
Volume change
Product customization
On-time delivery
New products
Low price Design changes
Figure 7. Comparison of manufacturing priorities between India and the US
Figure 8 shows the ten programs which are most important for US firms and least important for Indian firms. Here there are really significant differences in issues like design for manufacturability (DFM), supplier partnerships which now include global partnerships, worker training, business process re-engineering (BPR), cross functional teams and JIT. The numbers in the figure are the difference between the normalized values of different attributes of US frms and Indian firms.
19
0 0.2 0.4 0.6 0.8 1
DFM
Supplier partnership
Worker training
FMC/FMS
BPR
CAM
Work enlargement for workers
Cross-functional teams
JIT
Recyclable materials
Figure 8. Programs which are the most important in the US and least important in India.
There are significant differences in terms of payoffs from manufacturing programs carried out in the two countries. The top ten programs where Indian industry reported greater payoffs than the US industry are shown in Figure 9. These include improving quality of work life, outsourcing, teamwork, benchmarking, new processes and training. These programs seem to be aimed at bringing manufacturing up to a basic minimum standard. In contrast, Figure 10 shows the programs where the US industry reported greater payoffs. These include programs like JIT, SQC and SPC, CAD/CAE, DFM (design for manufacturability) and relocation or closing of plants. Although some of these options may not be practical in India at least at this point of time, programs like JIT, SPC and DFM have shown quite clearly that they substantially improve manufacturing costs, quality and flexibility.
The differences in priorities and in the type of programs in the two countries reflect perhaps
20
0 0.2 0.4 0.6 0.8 1 1.2 1.4
Improving quality of work life
Outsourcing manufacturing
Reconditioning physical plants
Work enlargement for workers
Remanufacturing/Reverse logistics
Functional teamwork
New process for old products
Benchmarking
Supervisor training
Management training
Figure 9. Programs where Indian companies got better payoffs than US companies
0.5 0.7 0.9 1.1 1.3 1.5 1.7
Closing/Relocating plants
JIT
DFM
FMC/FMS
CAD/CAE
Continuous improvement
CAM
Cross-functional teams
SQC/SPC
Reconfiguring plant layout
Figure 10. Programs where US companies got better payoffs than Indian companies
different stages in the evolution of a manufacturing firm. Indian firms seem to be clearing up some basic issues like improving existing products and delivering them to the customer more effectively. US firms on the other hand have moved to the next level and have a different set of concerns.
21
VI Towards the Future: Innovation
Innovation is widely seen as delivering long term benefits to an organization. In this context, innovation includes any new or substantially improved products that have been commercialized or any new or substantially improved manufacturing processes that have been used for the commercialization of products. Figure 11 shows the nature and extent of benefits that sample firms have enjoyed from innovation in the past with 7 denoting very high benefits and 1 denoting
Past Benefit Future Importance
3.0 4.0 5.0 6.0
Improve product quality
Improve working conditions
Meet government regulations
Lowering material cost
Lowering overhead cost
Create new domestic markets
Reduce environmental damage
Lowering labour cost
Expand foreign markets
Shortening production cycle time
Figure 11: Potential advantages from innovation (past benefits and future importance)
little or no benefits. The firms have also reported the future importance of these benefits via innovation. The top three benefits of innovation in the past have been improvement in product quality, improvement in working conditions & safety and ability to meet government regulations. Interestingly, product quality remains the top focus for innovation even in the future. However, the potential for maximum benefits of innovations are expected to come through product design changes, design for manufacturability, shortening of production cycle times, developing or expanding into foreign markets, and reduction in overhead costs
22
While almost all the firms recognize the benefits of innovation, very few are investing adequate resources to make such programmes successful. On the average, the sample firms invested barely 0.84 percent of their sales revenue on internal research & development, 0.15 percent on acquiring externally developed technology, 1.15 percent on training for the implementation of new technology, 2.57 percent on toolings and other engineering changes to start-up new technology and 0.93 percent on coordination for commercializing new technology. These amounts are woefully inadequate given the relatively low turnovers in the Indian industry. As Figure 12 shows, Indian firms do not plan to change these patterns of investment significantly to develop
4.4 4.6 4.8 5.0
Training for implementation of new technology
Tooling and other engineering changes for new technology
Conducting research & development internally Acquiring externally developed technology
Coodinating function for commercialization of technology
Figure 12: Projected investments (over next two years) in activities involved in innovation
long term capabilities. In this Figure, a score of 4 indicates that firms plan to invest about the same amount in each of the innovation activities as they did in the past two years. The maximum score of 7 represents a plan to invest “much more” in the future.
VII Supply Chain Management
Supply chain management deals with the process of coordinating the flow of information and goods to customers across a network of suppliers, manufacturers and distributors. Two factors 23
often affect the bottom lines of firms significantly - uncertainty in demand or in availability of men, materials and machines; and long lead times. This is often not well understood in the industry. It has been seen that by improving the flow of information across the supply chain and by reducing cycle times, firms are able to reduce the impact of uncertainty. As we have seen in an earlier section, Indian firms have started paying attention to reducing lead times. However, availability of information on current inventory levels, flow of materials, as well as demand forecasts to different functions within a firm remains poor. As a result, coordination across functions is based either on inaccurate data or personal contacts. This leads to high inventories and delays in most supply chains. There is an absence of a systems approach to planning across the chain.
Most firms in the sample rate the capabilities of their suppliers lower than those of their distributors. Figure 13 shows the difference between the current capabilities of the suppliers of firms and those of their distributors. The key concern that firms have relates to inventories. On a scale of one to seven, the firms on the average rate the ability of their suppliers to optimize inventory levels as 4.18 and those of its distributors as 4.98. Both these figures are not very good, and there is scope for improvement.
The supply chain of an Indian firm has an interesting structure. The mean (median) values for
24
0.0 0.2 0.4 0.6 0.8
Optimize inventory levels in the chain Introduce new products
Rapid response to changes - in demand volume
Minimize cost to end users
Meet users' quality requirements
Improve on-time delivery to users
Reduce supply chain cycle time
Figure 13: Difference between current capabilities of suppliers and distributors
number of suppliers per firms, number of regional distributors and number of approved retailers were around 436 (112), 210 (15), and 35,077 (200) respectively. By international standards, firms still have far too many suppliers. This adds to problems of coordination, delivery, quality and cost. A smaller supplier base sometimes allows firms to work closely with suppliers and raise the level of the entire operations in terms of product quality, cost and even product design. The data shows that about 43 percent of firms had less than 100 suppliers. Similarly 46 percent firms had less than 100 distributors and 23 percent of firms had less than 100 approved retailers. As the chain progresses from the suppliers to customers, the number of entities increases. While development of capabilities in suppliers becomes crucial, effective coordination of flows & information is the key to successful channel management.
25
Total No. of
27 Suppliers
24 Total No. of
Regional Distributors
21 No. of Approved
18 retailers
Frequency
15
12
9
6
3
0 500 than
100
- - 1000 2000 5000 10000 10000
0 100
- - -
-
500 1000 2000 More
5000
Figure 14: Distribution of various entities in Indian manufacturing supply chain
VIII Becoming World Class Manufacturers
The focus of this survey has been to understand how top managers are trying to develop a coherent strategy for improving the manufacturing competitiveness of their firms. We also try to identify factors that these top managers find important in order to enhance the performance of their operations in the future. It can be clearly stated that our firms are going through a “quiet” quality revolution - quality systems are being developed and put in place, measurements are being refined and people are getting trained. The benefits are also obvious. However, the distribution of firms with significant quality programs is highly skewed. A few firms have progressed by leaps and bounds where workers plot control charts and practice SPC, their managers are trained in TPM (often in Japan) and are implementing the same, process capability of their machines is strictly monitored (with world class cpk levels above 1.33), in-process defect
26
rates are in the range of 200-700 ppm, and customer return rates are less than one per cent. On the other hand, a large number of firms is struggling with housekeeping, monitoring quality problems, training of managers but not of workers. There are two related observations: first, in a large number of firms the understanding of quality tools is superficial - as a result, progress beyond a certain level is slow; second, many firms are not consistent in their emphasis on quality which results in employees not taking it very seriously.
Some firms have improved their performance on lead time, and have started simplifying the flow of information and material. However, in discrete part manufacturing, most firms have not adequately addressed some difficult issues like drastically cutting lead times by changing the mode of operation from push to pull, reducing setup times, converting job shops to flow shops or using cellular layouts. Very few implementations of JIT are found in our plants - partly due to the fact that we are unable to contain the impact of uncertainty, partly due to high setup times and partly due to the fact that many managers still do not understand the basics of JIT. There is a widespread feeling that JIT simply transfers inventory to suppliers, or that it does not deliver any benefits, especially in India. However, JIT goes far beyond inventory reduction and improves quality, lead times, cuts cost and makes manufacturing more flexible and responsive. Cellular manufacturing is also not a priority for similar reasons. On the positive side, the recent interest in business process re-engineering is encouraging because it is process oriented and helps bring about fundamental changes.
One area of concern is the management of inventories across the supply chain. Most firms have not appreciated the advantage of coordinating various decisions and plans across different
27
entities in the chain - the suppliers are optimizing locally, the plants are optimizing locally and the distribution channels are doing the same. As a result, inventories remain high with working capital being tied up for longer periods of time, there are delays in delivery and the overall cost across the chain remains high. Decisions that seem to be good for one entity turnout to be bad for the entire supply chain. More information has to flow between entities in the supply chain and more decisions have to be made collectively. Many firms are still reluctant to help their suppliers improve their capabilities.
Investments in innovation and R&D activities continue to be very low. Indian manufacturing managers must be aware of the potential dangers of becoming over-dependent on borrowed technology (i.e., products, processes as well as practices). It must be recognized that in the future, firms can stay competitive only through their own innovations. A one time import of technology might be useful, but continuous dependence on borrowed technologies may not be feasible in the future with several multinational corporations themselves entering the Indian market. For firms in the export market, a certain level of strength in manufacturing and R&D is even more important. Put simply, there is no world class company in the manufacturing sector which does not have world class manufacturing and innovation.
One factor that may be partly responsible for the inadequate attention to innovation and continuous improvement is a lack of the right type of training to workers. Whenever firms have paid attention to workforce training, benefits have followed. The authors have documented a number of such cases. Training of workers has been a significant contributor to improvements in several other countries. The automotive sector in India seems to have appreciated the need for
28
worker training. One of the worst training records can be found in the textile sector. As a result the former is quite modern while the latter is very outdated.
Finally, we must get into the habit of benchmarking our performance. The perception of our top managers that their plants are at least as good as their global competitors’ plants is a little disturbing. Benchmarking reveals a lot of information on our strengths and weaknesses and several world class manufacturing plants have used this as a starting point in their improvement efforts.
Manufacturing in India is at a critical juncture. Many of our firms are already on the way to becoming world-class, and several others are standing at the threshold. But the average firm is still very far from this threshold. A fundamental issue here is our view of manufacturing. The traditional view that manufacturing is a support activity for marketing or finance, and therefore needs little top management attention is perhaps no longer there in Indian firms. However, a more subtle view still persists. Thus, top managers often want to invest in one large effort to improve manufacturing. After that, they want to go back to their traditional concerns. Meanwhile, international competitors are continuously working on improving manufacturing, bringing in new products, and making manufacturing more flexible and responsive. These firms view manufacturing and R&D in a different way: they recognise it as one of the key sources of their competitive advantage. Therefore, they are continuously honing and perfecting their skills and capabilities in manufacturing. A senior executive of a well known international company, widely acknowledged as the industry leader in manufacturing, said at a conference “ it seems we
29
enjoy a good reputation. But internally, we know our weaknesses and are constantly striving to overcome them.”
To effectively institutionalise a culture of continuous improvements, top management must have a well thought out manufacturing strategy. Instead, companies often rely on a massive one time effort or a series of piece meal efforts. Top management must understand the strategic dimensions of manufacturing as well as it understands marketing or finance. Very often, top management’s involvement in manufacturing is confined to approving capacity expansion plans, approving budgets for equipment purchase, training, or for hiring consultants. But evolving a strategy and carrying it through requires much more than that. Companies that have successfully done this have either become industry leaders worldwide, or have established a secure and profitable niche. They have realised that competitors can quickly imitate marketing or financial strategies, but it takes several years to duplicate a manufacturing advantage.
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Appendix 1: Details of the Survey Methodology
This survey was based on the Manufacturing Futures Survey questionnaire that was developed initially by Boston University and is now administered in many countries around the world. The questionnaire for the survey comprised six sections, namely, Business Unit Profile, Manufacturing Strategy, Competitive Health Check for Manufacturing, Managing Innovation for Competitive Advantage, Integrated Supply Chain Management and Thinking Differently about Manufacturing Strategy. There were three types of questions in the survey instrument - those which required firms to rate various aspects of their operations vis-à-vis their competitors; those that required firms to rate the nature of past & future interventions in manufacturing in order to improve the competitiveness of their units; and some that required firms to give information on various performance parameters.
The survey instrument was mailed to managing directors of 700 select medium and large firms in the India. These firms were chosen from various sources - they represented a cross-section of size, industry type, and performance. The response, however, was extremely poor. Follow-up letters were sent to all these firms and phone calls made to many in order to remind them of the questionnaire. Duplicate copies of the questionnaire were mailed to many firms. Finally, the number of valid questionnaires that we used for analysis was 56. This number itself provides a lot of information on Indian firms ! Interestingly, our sample consisted of firms that have been generally performing well according to many published sources. Whenever, comparisons were made with US firms, the data was first normalized by the mean and standard deviation of each attribute score for each country to reduce any systemic biases.
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