It is quite amazing how size has become a major influence in determining performance of Indian organisations. There is no one-size fit all solution or that is how we think.
Operating in a country blessed with abundant Natural Resources and Human talent, our priorities and management styles cannot match with the rest of the World – however great they may be.
It does not necessitate to adopt or replicate what has succeeded elsewhere – as it is good that our economy is still evolving.
Onus is on us to create employment as the burgeoning young population is the major consumption driver. Profits at the cost of employment, for example, is detrimental to the society and economy, and thus to foundries. Otherwise, in the long run we may restrict the size of market ourselves as it has happened in developed economies. At this juncture, we should be delighted to belong to a continuously developing economy rather than being a developed economy. This is simply because a developing economy will always have scope for organisations and population to evolve, adjust and grow which a developed economy may not offer.
While arguing for a decent Exit policy, one of the factors in favour was improvement in efficiency of organisations at the cost of labour. This was based on the fact that such successful organisations will be able to dole out unemployed and displaced population. Many of us are not big fans of such strategies – one cannot imagine the after effects of having large un-employed population.
Indian industrialists should feel proud and happy that we belong to a society that is human dependent. Our growth will continue to depend on human consumption for a market and human availability to cater to the market.
Lets explore the happenings in Indian organisations with respect to certain parameters which may be worthwhile of being measured. These are certainly not prescriptive but an indication of possibilities. As a big fan of Japanese Philosophies in Management (please note – its Management and not just Manufacturing), these are more than mere beliefs:
- Measurements are critical
- If You cannot measure, You cannot improve
- How is integral to What and Why
- How Much then follows and therefore, Measure
- Simplify, Simplify and Simplify
- Either Add Value or Reduce Cost, with focus on end customer
- Give Value for Money, Benefits should be at least 3 times the Cost
- Today is to be Improved Tomorrow
- If You cannot be Better, Be Different
- 3Ps for Organisational Success – People, Product and Processes
- Predict Technology Life Cycle and Beat it
The Measures Follow:
1. Investment:
It is important we decide our market and customer segment first to decide the level of investment in an Industry. Level of investment does not necessarily mean in money terms – it is in terms of people, facility, technology and automation. Different kind of segments and thus their products have completely different expectations. Our attempt to create a common investment platform to cater across segments will either be costly for one segment or inadequate for another segment. It is required to define:
- Market space an organisation wants to operate in
- Needs of this market space in terms of Quality, Cost and Delivery
- Size and growth of this market space.
- Locational advantages / constraints in terms of People and Value Chain
- Cost of capital, scope and need for mechanisation
Though in Indian organisations, People are the biggest and best investment, benchmarking cost per unit of planned annual capacity is essential. This should start from regional level, country level and global level. It will be interesting to note that for a certain level of production in an Indian organisations, investment varies from Rs.25 Crs to Rs.50 Crs and for the same, it is 3 times in certain European Countries.
2. Land Area:
Lowest in terms of Land Area per annual sales dollar is in Japan, that exploits its vertical space very liberally. Amongst the smallest with respect to land area but one of the strongest economies, by default, Japanese ought to be efficient in land usage and no surprise their organisations are small and highly productive.
Vast unutilised land wealth available across our country has not helped us in improving our land returns efficiency. For production industries, very few land zones are categorised and available for use as Industrial Zones. Close to 80% of Indian organisations belong to MSME sector. Therefore, investment in land for organisations has become an expensive proposition compared to investment in other infrastructure – Plant & Equipment. Of course, investment in land is considered never depleting which may help in difficult times as need arises.
But as prudent businessmen focussed on efficiency, production per square metre is an important measure. This will determine production flow and 5S in shop floor. In India, average earning is about Rs 1 lakh per square metre per annum wherein in some of the European Foundries it is Rs 2.5 lakhs and in Japan it is Rs 7.5 lakhs.
3. Man-power:
This is the most widely used and misused measure in the context of Indian organisations. Usually, Indian Managers tend to be believe an absolute measure of human productivity is the right measure and therefore amongst lowest in World. Best in the World is about 15 lakhs per Man-month as against 1.5 lakh per man-month average in India.
It is important to understand that Man-power productivity depends on quality of infrastructure, product mix, process technology and quality of man-power.
While measuring human productivity it is imperative that a relative measure is employed. Despite the rates we get for our products compared to European Counterparts, Japanese and un-subsidized Chinese, our employee cost is about 8% of Product price compared to as high as 25% in Europe and Japan. China is almost the same as ours. Labour cost has always to be a relative measure.
4. Power:
Power cost has a lot of anomalies as it varies across the Country and Countries, though it has major impact on profitability. Right measure will be units per output in rupee terms. This too will depend a lot on product mix, alloy, yield, quality of power, quality of equipment and post production process requirements. Best will be to benchmark rather than going by absolute processes. Another option is to go for a high breed system if volumes warrant so. Units consumption in the best of terms vary anywhere between 3% to 10% of sale value, based on the industry.
5. Interest Cost:
To make profits over and above Indian interest rates in itself is a task. Aspiring to compete with people operating with own funds is a difficult choice, leave alone looking at Global benchmarking in terms of finance costs. We may think this is beyond entrepreneurs and depend on Governmental fiscal intervention.
An apt financial mix will again depend on various factors – starting from our ability to turn around the investments as fast as possible. Apportioning interest costs depends a lot on our market segments and its strength. Interest cost also vary depending on length and width of value chain - anywhere between -5% (people who buy on credit and sell against advance) to +15% (who offer credit on an average of 90days).
6. WIP Levels:
Zero in-process inventory should be the target and this is how many organisations operate in a matured market. It is to be noted that 80% of the market Indian organisations cater to are traditional and are to be considered matured. This is possible as our organisations move up the value chain and offer ready to use products rather than as mere intermediaries. Best is to attempt for a collaborative working with customers. WIP inventory ranges from Zero to 120 days on an average in Indian organisations.
7. Staff Ratio:
There is never an ideal mix in Indian organisations with respect to staff ratio. Typically, in India it is about 10% of total work force. World over this ratio might prevail. But the fact remains the size of the work force itself.
For a 100Cr sales Indian Industry, they employ about 750 people. In some European Organisations it is about 200 people and in Japan this will be around 120 people. Major differentiator is support functions like Finance, HR & Materials management.
We are all aware that Indian Society is becoming an inverted triangle with respect to education. This is a very good opportunity to be leveraged. Given the availability of qualified work force, we can create self-managed workforce and eliminate some of the non-value adding staff functions.
8. Through-put Time:
Through-put time today determines the overall efficiency of an organisation. This is an important measure which ensures turn-around time of working capital employed. It is a measure from procurement to realisation of payment for sales.
Yet again, given our interest costs, Indian organisations should operate at lowest minimum possible. Some organisations that produce proprietary items actually have the best – like 10 days. For such organisations, usually working capital may even be negative.
9. Floor Space Index:
Productive space to non-productive space ratio should be as maximum as possible. Also, we should exploit the vertical space as much as possible. This will drive the efficiency of an organisation in terms of not only floor utilisation but also other resources utilisation.
This is a measure of sales realisation per square metre of constructed space. As usual, Japanese organisations have the highest figures – roughly about Rs.6 Lakhs per square metre per annum.
10. Development Lead Time:
This has something to do with Indian Psyche. We always talk in months wherein the World has moved towards days, if not hours. While Global average is about 25 days for development and prove out of a product, in India it takes about 12 to 16 weeks (based on the complexity of the product) on an average. A cursory understanding of such vast differences is a result of Value Chain Trust, Collaborative working, Concurrent Engineering and leveraging internet
11. EHS Measures:
Going by recent regulatory developments, it is pertinent to establish Environment, Health and Safety Measures. Work Zone measurements in terms of lux level, dust level, and noise levels for example have become critical.
It is also important to conduct periodic assessment of certain health parameters for all workmen and maintain proper records of the same. Statutory norms prescribe the required tests and periodicity. It is better to adhere to them.
12. Product / Market & Customer Portfolio:
Portfolio mix in Indian Organisations in terms of Products, Customers and Markets is beginning to be a vital success factor. Here again there is not a straight forward strategy. However, it is better to limit exposure to a maximum of 30% in each. This measure will cushion sector variations and prevent organisations from being exploited.
These are just indicative measures. Capturing numbers is essential for sustainable success. List can be more exhaustive. As understood from the above, major responsibility to run an organisation efficiently, both lean & mean towards Size Zero lies largely with Management – Meaning Zero Wastes in everything that goes into making a product. How, How Much and How Often to measure rests mightily on Management Commitment. Bench marking should be used liberally and truthfully. Without which measures may not appear realistic and achievable.