Skipper Limited, a ~ 1500 Cr turnover firm was set up in 1981. It is a part of the SK Bansal Group. The company primarily manufactures power transmission and telecom towers, tubular and hi-mast poles, railway electrification structures, solar structures (solar module mounting structures) and electric resistant welded (ERW) tubes. They have 3 manufacturing plants in Kolkata and 1 plant in Guwahati. As a custom manufacturing firm, the company faced many of the chronic problems that are typical in this business,- poor capacity utilization, high working capital investment, poor on time in full performance, customer penalties for delay, and reducing operating margins. These issues also made it difficult for them to take advantage of higher margin export orders that they could secure. So, Skipper partnered with Vector with the primary focus on improving delivery performance while improving plant output and working capital turns. Within a few months of implementation, the following major benefits were realized by adopting “pull” based manufacturing and operations:
|Lead time||Reduced from 2.5 — 3 months to 45 days (50%)|
|Output||Increase of 130%|
|Working capital||Reduced by 20-25%|
|Working capital (days)||Reduced by 47%|
|Inventory||Reduced by 25%|
Well, I think the biggest problem in engineering business, particularly our kind of engineering business, is that the word itself – ‘engineering’ – it is customized manufacturing business, where we don’t have the luxury to produce goods as per our timelines and have it available to the customer when they need it. Our manufacturing starts when the customer gives us a release (of an order), because 100% of the production is customized. This presents huge challenges in terms of having to manage the entire Supply Chain to make sure that all the different components of the finished products are available just in time to meet the customers’ lead time requirements. Thereafter, we have to go through the engineering, the prototype, the mass manufacturing, the inspection, the logistics. All these need to come together just in time with right coordination with the customer, to make sure that we are fulfilling projects on time.
This is the challenge primarily. But there are other challenges as well, associated with customized manufacturing. For example, typically, we have low-capacity utilization across plants. On the other side, we may have a situation where we face over flooding of orders at the same time, when almost all our customers want material just in that one month. When we were unable to meet customer demands, we have had to pay. penalties. This hit our operating margins because in an ever-competitive industry, margins are already squeezed.
Another challenge is that because of these temporary mismatches of capacity utilization, we are placed in a situation where, very often, we have had to give up high margin orders because we are not able to commit delivery schedule to the customer as our required lead time doesn’t meet the customer expectations. We have no choice but to let go of that order, even though it could have fetched a higher margin for the company.
I think one of the challenges we have in our business arises from the fact that we buy only from primary steel producers. These are typically large steel companies, such as the Steel Authority, TATA Steel, etc. Their delivery schedule doesn’t necessarily match our delivery requirements which is driven by the demand of our customers. So, one of the first things that Vector did when they came on board was to help us decouple the raw material from our entire manufacturing process. They helped us design BPR (Buffer penetration report), based on which we were able to identify the key SKUs, which we needed to have available in stock all the time, and a system to replenish that based on consumption. Now, this was a very important step, although we had fears initially that this would lead to increase of inventory. However, our fears were mitigated when Vector consultants helped us reduce inventory in the subsequent stages of manufacturing.
Earlier, when we were doing monthly planning, a large amount of inventory would go into WIP at one time, and that would delay the next set of indents or batches coming into production. By moving into a weekly plan, we were able to cut short the size of inventory going into production, and focus on finishing those loads faster. That was a significant step that helped us bring down the overall lead time.
Also, we’ve gotten into the habit of taking up only clear PRIs (Production release indents). And, so, since we have been enabled to take smaller batches into production, we have the luxury to say ‘no’ to a lot of production, if we feel that they are not yet clear for mass production.
One of the other benefits was that we were able to identify where the bottleneck is in the plant, and release production based on the bottleneck capacity. We were able to subordinate the production to the bottleneck capacity. And I think that also is quite significant because many a times the identification of the right bottleneck would also not happen, and the company would be in the habit of elevating the constraint needlessly when, perhaps, it wasn’t even required.
I would say that in the daily flow meetings and weekly plant reviews the focus is now on the road ahead instead of over-analyzing the past. This has created an environment of positivity. People come to these meetings with a lot of enthusiasm, with optimism about what they are going to undertake in the coming weeks. This is a big shift from the way we carried out our review meetings earlier. That to my mind, apart from the decoupling of the raw material and the monthly to weekly plan, was the third biggest shift that we had. That’s more of a cultural mindset that I am happy to say we have continued across the company divisions. Daily flow and weekly flow meetings are now part and parcel of our regular life.
One is, of course, that management needs to be a science not art. I think that’s the first learning for me personally from having implemented TOC. Typically, in India, I think we’ve all grown up imaging management to be something which only very skilled managers do with a lot of experience and with a lot of flair. We believe that only a capable manager can bring in real results. But I think capability needs to be documented, needs to be put into process so that it’s maintained.
The second learning was that if you want to improve something, you need to start measuring it. I would say that a lot of time we don’t get into the habit of measuring the right matrix. The TOC journey taught me otherwise. If we want to have POOGI or process of ongoing improvement, then we need to be in the habit of constantly measuring what we want to see improved, in the daily flow and the weekly flow meetings. We must make it a point to identify what we would like to see measured afresh. We must identify challenges and then understand the right way of how are we going to measure this now.
Another significant, and I would say, ignored part of management, is removing things that you don’t need anymore. While we are on the journey of POOGI and constantly improving and introducing new concepts, new measurements, we also make it a point to remove old reports and old measurements that we don’t require any more. If this is not done, we keep increasing the work of everyone in the team, and, in the end, people just get tried of making reports all the time.
We’ve certainly been able to reduce our lead time. Initially, where we would talk about a lead time of anywhere between 2.5 – 3 months to customers, now, we are confidently able to give a written commitment to our customers for a lead time of 45 days. Eventually, we would like to bring this down to a 30-day lead time, and I think we should be able to achieve that very soon as well.
Also, the other benefits have been the increase in plant output. We have seen plant output improve by almost 130%, and better working capital returns. Our overall working capital in the system has gone down by at least 20-25%, where, despite having the raw material buffer, we are still able to archive the lower working capital purely because of being able to turn around our batches much faster and being able to bill our clients much faster. This, coupled with the fact that we have been able to reduce batch sizes, has facilitated inventory reduction. So even though there might be a problem that still holds up production after the raw material has been created (because there might have be a customer-related issue, or there might be an internal engineering-related issue), the problem is now impacting a smaller size batch, as opposed to a very large batch that might have gotten impacted earlier.
You know, change is obviously very difficult, particularly in large organizations like ours. It’s painful, and it requires a lot of convincing, and a lot of push from key people at the top. But I’m happy that the team has come forward and adopted that change with open arms. I think that I would say is probably the biggest takeaway, or biggest learning that I’ve had – that any change that is well thought-out, and which has substance and merit, can be implemented, no matter what the resistance is.
Skipper Ltd. - Transforming the Operating Model: Challenges & Mitigation | Vector Consulting Group
View this interview to see Mr. Sharan Bhansal, Director of Skipper Ltd. discuss their learnings after adopting TOC flow principles to overcome challenges in their customized manufacturing business.
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