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December 2011
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Economic Times: Fleetguard Filters is one of the biggest success stories of TOC in India

Supply unchained

Another TOC convert is Bharat Bijlee, whose motor division was facing a problem of constant stock-outs, with demand exceeding supply. The constraint turned out to be insufficient levels of global optimisation across the value chain and high levels of local optimisation at each point of the value chain. "When every department has differing objectives, everyone pushes for their own targets and ends up compromising others," says Sunil Mistry, VP (Motors) at Bharat Bijlee.

For most companies, TOC means a realignment of senior management vision. Pradeep Kapse, former CEO of Eicher Motors, was earlier heading a division of the company called Eicher Demm. Based in Thane, Maharashtra, Eicher Demm (now Eicher Engineering Components) makes gears for heavy vehicle OEMs. However, a prolonged recession from 1997 till 2002 saw the division floundering and operating well below capacity. "We were wondering whether to hold or sell that division off," recalls Kapse, who is currently technical advisor at VE Commercial Vehicles.

Kapse, a long-time manufacturing and operations man, had plenty of career experience in turning around sick units and was well versed in 'lean' principles. But even then, he and his team found it tough to deal with the situation at Eicher Demm. "We blamed the market and slow demand, not ourselves," he says.

In 2003, the division hired Ravi Gilani, founder and managing consultant, Goldratt India, to diagnose the problem. At the time, the company needed revenues of Rs 24 lakh a month to break-even, but was making just Rs 10 lakh. The first thing Gilani wanted to know was the division's 'on time and in full' (OTF) delivery rate. "To our shock, it was around 4%," Kapse says. That revelation shed light on a series of home truths. The team realised they had a dismal OTF rate because they weren't receiving raw materials on time. The reason - they didn't pay their suppliers on time.

That, in turn, was because getting cash from Eicher's corporate office was a lengthy and difficult process. Therefore, the real constraint was cash, not the market.

The immediate step was to remove this obstacle. "Our receivables from customers were high, since they paid us when their customers paid them," explains Kapse, "So we gave them a 3% discount on immediate cash payments, which they passed on to their clients. The cash we got, we passed to our suppliers who in turn, sent us raw materials on time."
Then came the challenging part.

The company made OTF and Sales its two main priorities, with every team from operations to finance, HR and quality, getting targets that were reviewed every week. Senior management's variable pay was linked to these twin parameters. Kapse says, "We didn't invest anything and concentrated instead on sweating our existing resources to the fullest. For examples, key machines that would be switched off during lunch and other breaks were manned in shifts. And we only manufactured whatever we were selling; no surplus inventory that had to be pushed."

Within a month, Eicher's on-time, in-full delivery went to 25% and kept rising in the two years Gilani worked with the firm. Today, the figure is between 95% and 98%. And its OTF rates improved, the company became premium suppliers to its customers, since its competition was struggling. Today, the business unit has grown to four factories now, with combined annual revenues of Rs 300 crore.

It all sounds very straightforward, and that is what consultants say is the best part of TOC. "My wife asks me, 'Why do people pay you for this? This is common sense'. I reply that it may be, but it is not common practice!" says Gilani.

Fleetguard Filters is a case in point. Having grown sales four-fold in the last five years, the Pune-based manufacturer of air, fuel and oil filters for the auto sector is one of India's biggest TOC success stories. Yet, it had to overcome initial skepticism to arrive where it is today. SS Pandit, executive chairman says, "I'd heard about TOC earlier, but my view was, 'If its common sense, why should we pay someone to do it?'"

 


Source : Economic Times « News Highlights


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