Archive for October, 2011
To match the festive Diwali – plus – long – weekend mood, we decided to share links to two feel-good ads that we’ve noticed over the last few months :
‘Reason to Believe’ from Coke; a great ad, we’ve mentioned it before (on our facebook page), a pick-me-up message during turbulent economic times
‘Hum mein hai Hero’ from Hero Moto Corp; stirring and inspiring, and makes it impossible to forget the new brand name.
Happy Diwali ! Have a great weekend.
- Escape Velocity Team
This is undoubtedly the trickiest part in labor intensive industries. Laborers have become more and more demanding in recent years in India. If you don’t meet their demands, there are units waiting which will.
There are a few things that I’ve come to believe matter most in this aspect of production management
- Hierarchy – Dealing via the right channels
- Tone and Language
- Assigning responsibility, power to execute and accountability
- Fault identification
- Hierarchy – Dealing via the right channels
Most corporates pride in the fact that they have a flat organization and people can walk right into any room they want. However, when it comes to production units, this idea might backfire.
“A worker needed a leave so he asked his supervisor for one. The supervisor was short of resources to run machines in his unit so he denied the leave. The worker bypassed the supervisor and walked into the owner’s room and the owner unknowingly approved the leave. The supervisor was left stranded and was not able to arrange for a backup operator leading to machine shutdown for the entire leave duration. Each time he was questioned on low efficiency levels by the owner, he alluded to the leave granted by the owner.”
In production units, it is important to ask and take into confidence the supervisor/technician when making any decision about the labor they are handling/ involved with.
- Tone and Language
“A listed company’s production unit manager slapped and abused a couple of laborers for mishandling a machine. This led to a large-scale walkout. Nearly all of the workers found opportunities in nearby SME production units who were willing takers for them.”
Language and tone have to be kept in check when handling labor. A smart man manager taught me how to make the worker admit himself that he committed a fault. He used to do a detailed fact-finding and Q&A session with the labor. He raised his voice at times but was careful not to get personal or use instigating words. At the end of the fact-finding, he used to ask the laborer “You’ve seen how much loss we have suffered because of the mistake.” Laborers responded to him.
It is important not to get too analytical with workers. Sometimes you have to let the little mistakes go so that one can question and raise objections on bigger mistakes.
“A large textile processing unit manager made it a point to help out workers in time of need. He used to constantly ask his labor if they needed help with anything. Labor respected him a lot and would agree to anything the manager said. They treated the unit as their home.”
“A 65 year old man once came and resigned in front of an owner saying the owner’s son didn’t respect him. The owner asked what did his son say that instigated the resignation. He said the son said to him “Beta aise nahin karte (Son don’t do this). His objection was on the word “Son”. He said he could take that from the owner but not from his son who was much younger.”
Tone and Language tends to be critical when handling labor and any slip-up can be very costly.
- Assigning responsibility, power to execute and accountability
In a production unit, one needs to assign responsibilities to the right person and give him sufficient rights to execute the same. This is important since this lets you raise questions later on any faults/defects without getting the answer that there wasn’t enough authority given to prevent the fault/defect.
“A quality checker in a factory was told to ensure that as soon as he found more than 100 meters of fabric on the machine, he was to cut the fabric so that it can be checked on a continuous basis and defects can be avoided in running fabric. However, for this the checker needed helpers. The helpers came under the purview of the technician who first focused on efficiency and then on such “trivial” issues. The helpers would turn their backs on the checkers as soon as the technician called them and they would be away for hours. The checker was not able to control the cut and was reprimanded by the factory owner who had issued the order. The checker responded asking for a couple of helpers under him. The issue was resolved by asking the technician to assign couple of his helpers permanently to the checker.”
Accountability can only be placed on a person if he has the powers needed to execute his duty. Very few employees in production units go out of their way to ensure work gets one. Most would try once or twice and then use the lack of a response as a reason that they couldn’t do as asked. The conditions for performing one’s duty have to be created by the production manager.
Once one has created conditions one can raise questions in case of shortcomings/defects. However, even in this case “tone and language” have to be kept in mind while doing so.
- Fault Identification
The most amusing and frustrating time is when a fault occurs in production units. Fingers point in all directions. Figuring out who is responsible can become very difficult at times. One needs complete knowledge of the production process to know where and who is responsible and whether the defect could have been avoided at any level. The manager gets promoted to a “detective” in this case
“In a production unit, a machine went awry and started producing defective products. The process continued for 10 hours. The technician responded saying he was busy handling something else and the quality checkers should have raised the issue with him. The checkers said they mentioned it to the technician who ignored them. The owner had created a rule that the quality log was to be signed by the technician and it was his duty to review it every 10 hours. The owner checked the log and it had a clear mention of the event. He immediately reprimanded the technician and cancelled off all production incentives to the technician that month.”
I’ll end this section with an amusing incident:
“A worker walked to the owner of a weaving unit and said, “I need some leave and an advance since my grandmother died”. The owner replied, “I have three written applications which suggest that your grandmother has died repeatedly in the past. At least kill someone else this time.” The worker replied “Sir, please clear my dues. I’m leaving permanently.” The owner replied “Go ahead and take your leave” and gave the worker an advance. I asked him why, “You know he’s lying and you’re encouraging it !” He said “The worker’s good. I can’t lose him. There’s already a huge shortage. He’s probably going to have to kill many more grandmothers before I let him leave ! ”
Large capital expansions have ensured increasing opportunities for workers. This is the age of the worker (Karl Marx wouldn’t have imagined capitalists ending up with a socialist outcome) and one has to be smart to ensure his workforce stays with him.
To be continued….
“Quality sells and how”. But quality comes at a cost. People don’t mind paying the extra buck for quality. The cost can be made up for by the premium that a market is willing to pay for quality.
Let us first see how much an SME can be impacted by quality. Most SMEs work on credit and are generally mid-level suppliers to either larger players/retailers/brands. Apart from the fact that these players don’t place orders with SMEs who are not quality conscious, the SMEs end up getting large debits on goods which are not up to the quality standard of their customers. This eats up any cost savings incurred by supplying sub-standard material.
For a corporate, brand value depends a large extent on quality. Two garment brands X and Y have similar product lines (polyester-cotton blends). X invests widely in branding with major stars such as Shah Rukh Khan donning its garments. The other is conservative with respect to advertising however it spends heavily on quality. Both get the fabric and garments manufactured from outside. Y has a team of 6-7 people which keep on monitoring the fabric and the garment quality. Y’s sale is much higher than that of X since the garment quality is relatively better on multiple parameters such as color fastness, weaving defects, garment shrinkage after wash etc.
How does a production unit ensure quality? There are simple steps which units take to minimize quality defects.
- High Quality Raw Material (RM)
The RM used must be of top-notch quality. Any compromise on the RM can have a disastrous impact on the finished product. Finished products also have manufacturing costs attached to them. Sub-standard finished products may end up with a high discount price which discounts both the RM price and the manufacturing costs and could lead to a heavy loss. Good RM also has a positive effect on efficiency and can inherently lower manufacturing costs.
“A unit in Tarapore procured yarn from X which was INR 15 cheaper per kg than the best quality yarn available in the market. Each meter of processed fabric consumed 160 grams hence was effectively INR 2.5 cheaper per meter. Manufacturing cost inclusive, the fabric was worth INR 70 so the INR 2.5 was an additional margin of 3.5%. The cheaper yarn led to streaks in the fabric and the fabric was sold as a cheaper lot at INR 45, a loss of INR 25 per meter. The unit also failed in its commitment of timely delivery to its customer since they had to remake the fabric. Needless to say, the unit never purchased yarn from X again.”
The above example is not to illustrate that cheaper RM is necessarily of lower quality. It is just to show any compromise on RM quality can be disastrous in terms of value loss and customer perception.
Units tend to standardize RM quality over time by fixing vendors. Production Managers prepare a list of vendors who supply RM, shortlist the top few in terms of quality. Once the shortlist is prepared, purchase can then be made on the basis of price.
Large RM batches must also be tested for basic parameters before taking them in production.
- Quality Checks at various manufacturing stages
Many SMEs are averse to taking on quality checkers since they add to running costs. However, quality checkers can be critical in minimizing value loss.
Most manufacturing processes always have intermediates and are continuous processes. If the intermediate products are checked, any quality defect can be captured and fed back to the start of the manufacturing process so that defects can be avoided in new batches. Defects are generally due to unexpected working of machines, errors by human operators or problems in RM. If captured early on in the process, one can modify the working to minimize further loss. Also, the manufacturing process for intermediates which have been damaged can either be avoided or modified so that one faces minimal cost of production for “B/C Grade” products and hence minimal loss.
Too many quality checks may however be counter-productive both with respect to cost and timely delivery. It is the role of the production manager to identify where the manufacturing process is defect-prone and quality checks are necessary.
- Creating a culture of quality in the production unit
It is not just the production manager and the quality checkers who are responsible for quality. The entire unit must be involved in this process.
Efficiency and quality can sometimes be mutually exclusive outcomes. Technicians, in such cases, tend to over-emphasize efficiency and underplay quality. It is necessary to make the technicians, supervisors and laborers believe that quality is an important and critical perspective.
Technicians and quality checkers in most units are at loggerheads with each other. This is an expected outcome since incentives for the technician are designed to promote efficiency. It is hence important for the production manager to achieve a balance between efficiency and quality.
“In a fabric manufacturing unit, the fabric being manufactured had minor defects. The technician was not able to identify the cause and he let the machine run since any shut-down would lead to loss in efficiency. The checker was adamant that he won’t let the machine run. The production manager had to intervene and clarify that any quality defects will not be tolerated.”
These are a few steps that in my experience can lead to better quality manufacturing. Once word spreads that a particular unit is quality conscious, there is no shortage of customers.
To be continued….
High efficiencies are the “success” mantra of effective production management. Technicians in production units are always struggling for higher and higher efficiency levels. As we often read, operating closer to capacity helps units cover costs and compete effectively with other units.
Take the process of yarn twisting. It is a fairly routine process in textiles.
As a sample calculation, the raw material for a particular yarn is worth ~INR 100 per kg. Twisted material sells at ~INR 116 per kg. Consider a twisting unit where the capacity is 50 tons per month. Let’s consider two months, one when the actual production is 45 tons, and one where it drops to 30 tons.
Note three changes:
a) When production volumes dropped, labor charges shot up to INR 5.33/kg INR 3.55/kg; of course, this may be offset by some component of work-force being variable.
b) Overheads per kg have also increased to INR 1 from INR 0.67 when production dropped.
c) Therefore, one ends up making INR 2.67 per kg (~2.4% of sale price) vs. INR 4.87 per kg (~4% of sale price), a fall of 1.6%.
The above example simply illustrates a universal truth of production management. Operating close to capacity is critical for any production unit if one wants to maintain margins.
How does one do that? There are a few things one should always try to maintain in his/her unit:
1. Minimize changeovers
In a particular textile unit in Tarapore, whenever the quality changed, the settings of the machine needed to be adjusted. This adjustment cost technicians at least 45 minutes (a loss of 3% in efficiency). Moreover, the first couple of hours the machine never ran at full speed since the quality had to be set on that machine. This cost an efficiency loss of a further 2-3%. The owner decided to run only two qualities. His conversion costs when he did that reduced by about 1-2%. He passed on part of this advantage to his customers and the cost advantage was so great that he was able to acquire new customers and off set any loss in market caused due to discontinuation of some qualities.
Changeovers in any production unit take time. To minimize this time, one needs to operate a limited number of qualities. Also, one needs to optimally build inventory so that one is able to respond to orders for different qualities and run a single quality for the longest possible period of time.
2. Machine Spares
Never be stingy when it comes to having machine spares. “This motor is not working”, “Machine belt is not working”. Repairs take time. The machine may stay closed when this repair is being undertaken however salary and overhead costs will keep on running. The cost of spares turns out to be lesser when compared to the costs of efficiency loss.
3. Efficiency Initiatives
The argument of carrot and stick in production units is never ending. However, consider the present situation. NREGA guarantees an income of INR 140/ day doing almost nothing in villages. Compare this to workers in production units earning about INR 240-250/ day. One would say that there is still an incentive of INR 100/ day. But, the costs of living for a laborer in production units tend to be higher in production locations than in their villages. The net advantage might not be that great. Laborers are aware of this.
The above argument is one which is widely discussed among production managers who are lamenting the lack of labor in their factories. If the stick were to be used even after this huge shortage of labor situation, resignations would follow.
The carrot seems to be a better way to tackle efficiency in the present scenario. What efficiency initiatives also end up doing is providing a greater earning to the labor per day. The unit ends up getting higher production and ends up benefitting. A “win-win”! However, these schemes need to be designed very well lest they prove to be negative.
Two laborers were running two machines close to each other in a unit. There was an incentive on efficiency. The quality on both the machines was also the same. The supervisor set the same standards for both the machines. However, the pre-processed raw material was better on one machine. Both the laborers realized this and were hell bent on running the better one. A simple solution was to change the standards and that was done.
But here, one needs a sharp supervisor who is well aware of these differences and can adjust the initiatives accordingly to achieve maximum output.
4. Data maintenance and gathering
Log books detailing efficiency losses and reasons for the same need to be maintained. These also need to be reviewed from time to time. The review helps in arranging for better spares, identifying mechanical and/or labor situations.
Ask any unit technician about how his unit performs. His first comment would usually revolve around the efficiency of his unit. It is very important to a unit and more often than not, decides the survival of the unit in the long run.
Coming up next: Part 3 – Quality Control