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Wednesday, 13 March 2019 00:00

Dealing with low Profitability

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Srinivas Rao K 

As I meet more CEOs across the Indian Manufacturing, one discussion that always happens is about the Profitability, how low it is and how it is becoming worse. The Best that I would have heard is ‘holding on to 3%’ for the past 5 years or something similar to that!! Clearly the Party is over for the Indian Manufacturing Companies when they would have made big profits and were high on big top line growth as well. 

 

But, when we look at the efficiencies at which we are working, I do not think we have hit the ceiling. The Labor Productivity in terms of USD of GDP per person employed for India in 1991 was 4789. By 2017 it rose to 17097 (as per World Bank report). During the same period the same parameter for USA improved from about 73000 to 113000. The same number for China rose from 2973 to 27842. We improved our Productivity by about 3.5 times. Chinese improved their Productivity by about 9.4 times. USA improved by about 55%. 

We have definitely improved. But, does not seem adequate and the good news is that there seems to be good room for improvement. Indian Manufacturing should take heart from this fact. We are no where near our peak Productivities. We do seem to be underachieving !

What is required is that we should reinvent ourselves and our Businesses. We should stop looking at small improvement like 15% , 20% and start looking for BIG improvements. How to double our Profitability, How to double our Productivity or improve it by 3 times and so on. There are opportunities available for everyone in the industry as our base is not the best one world over.

How do we do it? 

There can be a few steps in starting this Transformation journey.

 

 

01.  Big Targets: The Company should start believing that Big Targets can be achieved. It has to start with Leadership raising their expectations from their Team. The Leadership has to look around for the best performances in their field. If they can’t find any Better performances then, they have to go back to fundamentals and adapt a Zero based approach for every Cost. 

02.  Need for Change: My observation is that Indian Manufacturing is still in a zone where they think they have a lot of time to change and the need for change is not felt strongly at the Operating levels. A Company needs to have a way of convincing their teams that without change, they cannot survive. 

03.  Taking help: It is inevitable that the companies should use outside help in making Big changes happen. They would need extra energy to start this process and spread it to the whole company. Leaders should use outside help in a mature manner. 

04.  Use Technology : The Teams should be encouraged to use the Technology that is available today. The Ind 4.0 elements can come very handy in making change happen. Indian Manufacturing has to learn this skill.

05.  Model Area: Organization wide changes have to start small. They should be implemented in one model area. This model area should be chosen carefully. Initial success can energize the organization. 

06.  Task force: To ensure Model area succeeds, a full time Task force should be used comprising of Best people in the organization. If Best People are Busy in the regular work, then this initiative will not work. 

07.  Make it happen: The whole organization and leadership should focus on this model area and make it happen. There should be no options here. The result has to come. With this result, the Old Mindset of the Organization has to be broken.  

08.  Spread it to the Organization: The good result has to be spread to the entire organization. For this the Task force earlier formed should be responsible. This full time team is very essential for the success of the initiative. 

 The Leadership in all companies should start focusing on changing the mindset of the people in the company to start believing in BIG improvements. There can be more Change programs at this stage for the whole of the Organization. 

Few Examples

Recently when I was engaged with a company, I had a look at their Manufacturing operations and told them that they should aim at improving People Productivity by at least 2-3 times. There was general disbelief whether this could be done. We started with one Plant and worked with them on the Shop floor to transform couple of lines. We only had to slow down the Plant team and encouraged them to look at the inefficiencies on the shop floor closely. Then, we encouraged them to use some Lean Methodologies. With this help, they could transform these lines and more than doubled the Productivities. After this episode, we had to prove the concept on the shop floors of other plants too. Even the MD of the Company started believing in the BIG targets and started deploying bigger targets to his teams.

In another Company the Quality Losses were 15-20% on the Assembly lines. The target was taken to make it below 2% and ‘Here and Now’ approach was taken up to address the Quality losses immediately. The Senior team stood on the shop floor and the teams were encouraged to Push back the Rejections to the immediate suppliers (Internal or External) immediately. Then, the Root causes were determined and settled. Within about 2 days the Rework / Rejections on the lines came down to 2%. This was later sustained as the Root causes were solved. 

One more example of Quality losses reduction happened in a Foundry where the Losses were accepted at about 10-12% for a very long time. By adopting multiple approaches like Training the Team in Problem solving methodology, addressing the Mindset change and so on the Losses were brought to less than 5%. 

In few other cases, the Ind 4.0 elements were used to drive the efficiency of the Assembly lines and make them ‘Zero PPM’ lines. 

Today the hand held technology that is available can be used to make people in factories more productive. 

There are multiple examples of Drastic reduction of losses over a period of time. There are also examples of drastic increase in Top line. Every time the improvement will not happen overnight. But, it is quite clear that the improvements are possible! Are you game for it ?

 

END

 
 
Read 11 times Last modified on Wednesday, 13 March 2019 16:50

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