Ram is not having a good feeling looking at the P&L for 2013-14. The Profits are down to lower single digits! Infact, in the last quarter the company went in to the negative! With some panic stricken cost cuttings (Or Postponements?) , further damage is avoided to the P&L. Ram’s company experienced CAGR of about 25% continuously for about 5 years till 2011. During the growth period, the purse strings were loosened and the goal was to capture as much growth as it was possible. The slowdown forced Ram to slam down on the brakes! This is leaving scars on the organization in terms of sudden clamp down on all big expenses! Recruitment ban is one of the bigger steps that Ram initiated. The Manpower costs have gone up from around 8% of the turnover to 14% in a matter of about 3 years! ‘During the growth years, the recruitment was perhaps too liberal?’ , Ram is not sure. He always focused on capturing the growth and did not really focus on the Manpower costs so much.
This sudden ban on recruitments has caught most of the functional heads by surprise. They do not seem to have the tools to improve the Productivity in their functions! There is a lot of bad feeling among the employees. They appreciate that the Business has gone down. But, they do not know how to manage their work. A few of the team members have invented a few ways to save time and cost! But with their ideas, they may be sacrificing medium term interests of the Company! The Business Systems team had been dismantled and they have been transferred to Production, Planning and other places where some existing people left. Similar things have happened in Marketing team in the interests of Sales team vacancies! Are they are becoming too focused on the ‘here and now’?
The thought whether he and the organization is over reacting and harming the medium term interests of the company is bothering Ram! He wants to look at the Productivity improvement opportunities in his company!
The Slow down
The Economic Slowdown in the last two years had been painful to many companies! But, may be it is making these companies focus on some fundamental issues regarding their cost structure and their efficiencies! As Ram in the above example, there are many CEOs in the Indian Manufacturing who started looking at their efficiencies!
The lower Productivity of Indian Manufacturing is not a new phenomenon. It had been on the tables of the CEOs of this industry for a long time!
The Productivities of Indian Labour is about 15% of that of Labour in USA. May be we are not looking at it as our costs are lower? Is this advantage going to last forever? Many companies who are witnessing increase in Labour costs do not agree with this. While there is a big difference between the Labour Cost of India and USA to the advantage of India, the profitability of Indian Companies is fast receding!
Cumulative effect of unproductive People
The People Productivity is not just related to the Salary & Wages bill! When Employees are not productive and their work methods are not smart, it will affect every aspect of the business. A Sales person who is not Productive would lose many opportunities in the field! A Stores Manager who is not Productive and not working using a good System will have much higher inventories than necessary! A Production Manager who does not know Lean principles and not using Lean Systems would be inefficient in the Production process! It would consume higher resources to deliver the same! Hence, a Company which is not having skilled employee force and not having a good Work System would have a very low profitability as it grows! When the company size is small, the owner would sometimes be able to control everything in the Company very well and would manage the profitability well. But, the growth years of 2004-2012 have catapulted many Indian Companies beyond this ‘small’ size. Many companies are going beyond the control of the owner. In this situation, the lack of Skills on the part of employees and lack of proper Work Systems is having a huge effect on the company’s profitability!
Why are we less Productive?
The productivity of Indian Labour is an old problem! Why is Indian Manufacturing not focusing on this? Why are we not efficient like Japanese / Americans? Probably the lack of work discipline is one of the big issues. In our society there is inefficiency in many places. Our government lays roads, then digs them up, then lays road again and again they are dug up. I am sure many of the readers would have seen this phenomenon many times in their cities! We see a situation where a road laying or Bridge construction is taken up and the work goes on for years together! Due to this delay a huge traffic would be travelling for longer distance to bypass the construction area resulting in a colossal loss to the Nation as a whole in terms of more petrol and diesel! We see inefficiencies on a regular basis and hence we have come to tolerate them as a normal happening! Are we carrying this attitude to work? Quite possible!
On the part of Managements, there is not enough time spent on designing a good factory, designing a good work system which would help us work with high productivity! We are in perennial hurry to run after the Production or Sales of today! While we can’t get away from the daily realities, are we spending enough time in designing a good work method / a good factory? This is much similar to the way our cities grow! The Town planning does not control the unauthorised construction, they do not lay the Ring roads early enough allowing a disorganized growth of a city. Then, there are struggles on a daily basis in the city in terms of traffic snarls, overcrowding and so on. The Management in many Indian Companies is guilty of this same behaviour in their Companies! While we blame the Government of inefficiency, we do exactly the same in our factories and companies! The shop lay out design is not proper and hence the Raw material travels several times more distance than it should. A lot of material handling also results due to this. The Production does not happen on the basis of Customer need and hence Overproduction happens regularly resulting in too much of Inventories! There can be many examples!
The Office environment is no better! The work is divided in to functions which may not help the cause of continuous flow of work! While functional expertise is needed, how to ensure the work flows between functions in a seamless manner? The finance department does not get the Bills in a smooth manner and hence most of the work happens towards the end of the month. The Dispatches do not happen evenly and hence a lot of work pile up happens toward the end of the month. So, the manpower is always available to do this last minute push! The recruitment methodologies in HR department may not be designed correctly. This results in recruiting misfits or delayed recruitment!
Few bright examples
While this is the situation today, does this mean we as Indians are not capable of working in a productive manner? The truth is far from this.
There are few examples of Indian manufacturing Companies who have improved manifolds in their Productivities. The TVS group, Rane group, Elgi Equipments in the South and many Automotive Companies in all parts of the country have improved their productivities in the last few years. They have implemented Lean manufacturing and improved productivities manifolds.
Productivity improvement is essential
Indian Companies are realizing this importance of improving their work methods and their productivities. The realization is coming fast helped by the slowdown conditions in the past two years! I wish this realization would continue even if the economy starts improving after a few months! An improving Economy may give higher turnover. But, it may not take care of the profitability as much as the Management would like.
Productivity Improvements need to touch every Employee in the organization
The Productivity improvement is needed in every aspect of an Organization. A Manufacturing Organization can be viewed as follows in terms of its’ work:
If we look at it from the point of view of number of people, the centre core is big. But, if you look at it from the point of view of Cost then it can be the reverse.. The majority of the cost is in the Staff category.
The Productivity improvement efforts of many Indian Companies has centred around the shop floor practices. The shop floor aspect is very important and needs to be addressed. But, it is not enough. One needs to address ALL other areas of the organization.
The work in a shop floor is visible and it can be reorganized in to an efficient way in a relatively easier manner. But, the work in the other functions is not as visible. It requires a detailed study using the Industrial Engineering principles of Eliminate, Combine, Re-arrange, Simplify. The flow principle can be used in the Services too. The Software like ERP etc can help in this area of helping to improve productivity of Staff.
DOUBLE YOUR PRODUCTIVITIES!
It always helps to start with a very challenging target in Productivity improvement efforts. Whether the improvement is in Shop floor OR in Offices, the targets should be to at least double the Productivities. This would help in making the team think of bigger ideas to improve the Productivities! In areas where the lean principles were never tried out, the improvement effort can definitely yield 100% improvements! There have been many occasions in the companies quoted elsewhere in this article when they achieved 300-400% Productivity improvements over a period of time.
What is essential to achieve this?
Full commitment from the top management to see the initiative thru.
Co-operation from the employees concerned.
Proper guidance in the Lean principles.
Very often the initiative has to be accompanied with a Behavioural training initiative. The team has to be addressed in a comprehensive manner. As discussed earlier, the problem of accepting less productivity and inefficiency is wide spread in our society and hence it requires a deeper effort if it has to sustain! Many times the people concerned can relapse to their old ways of working if the effort is not addressing the root cause of this behaviour.
It is possible to more than double the productivities of the labour and address the Cost issues of a Company beyond Productivities! Indian Companies have to take this up seriously to sustain their profitability!