Interview: K. Mahesh

60 MINUTES: INTERVIEW WITH K. MAHESH
"Component-Makers That Change Will Survive, The Others Will Die"

He postponed a hip replacement surgery so that he could be around when the Deming auditors came calling on his plants in Chennai and Madurai in the first week of September. A month on, K. Mahesh, CEO of Sundaram Brake Linings, isn't just glad he put off the surgery. He's grinning from ear to ear. But, then, he has good reason to. His company has just won the prestigious Deming Prize for 2001-the manufacturing world's equivalent of the Nobel Prize. That makes SBL the only brake lining manufacturer in the world, the second company in India (group company Sundaram Clayton is the other), and only the fifth outside Japan to have won the coveted award, named after Edwards J. Deming, an American mathematician who taught post-war Japan quality. In Delhi recently, Mahesh spent an hour of his Sunday afternoon talking to
BT's R. Sridharan about his road to Deming. Excerpts:

Even until a few years ago when I last visited your plant, the Deming Prize didn't seem to be on SBL's radar.

Deming was not our goal, we never thought we'd get there, but not that we didn't deserve one (laughs). We started on our change programme almost 14 years ago and since then have been improving our manufacturing systems largely by reading and implementing, but also with some help from experts such as (Yoshikazu) Tsuda san, (Sueo) Yamaguchi san and Dan Jones. Maruti was good enough to include us in the original quality cluster, which got us in touch with Tsuda san.

But you are right. Even three years ago, Deming was not even a dream at SBL. You know the cover you did on Sundaram Clayton winning the Deming Prize (see BT November 22, 1998), I had it in my bedroom on my shelf. I just used to look at it and say ''great job (Clayton has) done''. Frankly, the fact that we have finally won the Deming Prize hasn't fully sunk in. In fact, when I congratulated my men after we received the news, I put in a caveat. The point is that customers are going to expect more from you because you are now a Deming company. And if anything goes wrong they'll say ''what, you are a Deming company and still having problems?'' So our responsibility goes up.

I am sure tens of companies apply for the Deming award each year. What is it about a Rs 80-crore brakelining manufacturer that impressed the award committee?

I don't think they look at the size of the company at all. I think what the committee really looks at is the way Total Quality Management is implemented in the company. That includes the CEO mindset, how the management handles labour-is it paternalistic or adversarial-and how do you handle your customers, not just the original equipment maker but also the retail customer. Then they look at whether you are living in harmony with nature. Thanks to my wife, we have 14,000 trees between the two plants in Chennai and Madurai.

But did it help that SBL is relatively a small company?

In the initial stages TQM is top driven. I have spent a lot of time on the factory floor. And, touch wood, we haven't lost a single day's work in the last 25 years because of labour strike. Like my father said, you look after the worker, they'll look after the company. And I guess it does help if you have fewer people to manage.

"My driving ambition is that we must be the No. 3 brakelining manufacturer in the world."

What has been the biggest challenge in getting people to believe in TQM?

The mindset, and especially that of the senior managers. When we initially changed, we lost two people (out of 10 senior managers). But we let them go. At that time I was hands on, putting pressure on my team. Workers are the easiest to change. For instance, where seven people were working on a machine earlier, only two do now. So, I asked one of the senior workers what he thought of the changes. He said ''It's become so simple, why didn't you do it earlier?'' But I gave them assurance 14 years ago (when things were going downhill at SBL) that the management will be objective. I told VRJ (V.R. Janardhanam, President of SBL), ''look, we've screwed it up. 85 per cent of the problem is created by us, the management; 10 per cent is government related, and only 5 per cent that of the workers. I apologised to the workers. Since then, we haven't looked back.

How do quality initiatives like TQM translate into bottomline gains?

Our raw material cost used to be 52 per cent of sales six years ago, now it is 26 per cent. Our scrap rate used to be nearly 8 per cent, now it is 1.75 per cent. Customer returns in terms of parts per million (PPM) is down from 12,000 to 500. All this adds to your profits. Year before last, our profits were 11 per cent of sales. Last year the business dropped, and our profits fell to 6.5 per cent. But remember that the last three years there were no price increases. At the same time, input costs have gone up.

Why do foreign stock markets reward quality leaders like Toyota with superlative market value, whereas the only two Deming prize winners in India are quoting at abysmal levels?

Well, I have no idea how stockmarkets in India work or what they value. My book value is Rs 120 and the shares are quoting at Rs 84 or so. I think there are some fundamental problems in the auto industry. OEs need to work more closely with vendors. There are times when we have done deep analysis and discovered a better way of doing something, but haven't been able to convince the tier one vendor to implement it. So, there's no question of our being able to influence the OE. What we are hoping is now that we've got Deming, I am going to tell them ''hey, guys, we got the Deming because we are doing something right. Why don't you listen to us for a change.''

Besides, there's a perception that manufacturing companies are dead. And that the auto sector is not going to come back. So, anybody supplying to the auto industry is bad too. To be honest, if I could buy back, I would and take the company private. At least then I can look at long-term issues. The Indian markets are driven by factors I don't understand.

There's a steady shift towards modular supplies of components. Are Indian vendors ready for such a shift?

There will not be a single tier one Indian company...period, end of story. There will be the Boschs, the Federal Moguls and the TRWs who'll be the number one. All the design work will be done in Detroit, Toyota City or wherever the OE is. Typically, the tier one vendor will be close to these locations. So, Indian component-makers will be either tier two or tier three. But to me the bigger question is whether many of our companies will survive in tiers two and three.

In that case why do companies like Clayton and SBL seem to be an exception in the industry, when they should be the norm?

It's unfortunate. When I was the president of ACMA, I used to tell our members, ''Guys, export so that you can trim your ship better''. But nobody listened. When I told them about the Acma Centre for Technology and how we'll be offering TQM help just the way Tsuda san has for us, we had problem roping in 14 members at Rs 4.5 lakh a year. The problem is that the CEOs don't get involved. There's a ''chalta hai'' attitude that the industry needs to get rid of. Component-makers that change will survive, the others will die.

What about SBL? Are you going to try and become at least a tier one supplier?

To become an OEM supplier in brakelining in America or Europe is tough, because it is a safety critical item. But we are working on it. It takes a minimum of 18 months to two years to get approvals. Now that we have Deming, OEs will take us more seriously. Things like QS 9000 and ISO 14001 (quality certifications) are mandatory, so there's nothing special about them.

We should be able to go into Japan now, because the companies there know the value of Deming. We want to go away from brakelining into assemblies. For example, in two wheelers, TVS-Suzuki said take the whole lot. Venu (Srinivasan, CEO) said I don't want to make brakes. You take castings from Sundaram Clayton (another of Srinivasan's companies), and you machine it. So now we've started in-SITU moulding of brake shoes. So, I do see SBL becoming tier one in two-wheelers for Suzuki. Once I become that I can talk to other OEs. That apart, we are looking at diversifications I can't tell you about right now. But they'll have to do with other commodity items and automobiles. I love exports, so they'll be export oriented.

But how will you manage the technology aspect if you are going to focus on vehicle-makers abroad?

Nearly a fifth of my gross block is in R&D. How many companies in India have that? We are spending 3.5 per cent of our sales on R&D, average last four years. We spent Rs 1.2 crore and got an electron microscope. It was actually Tsuda san's suggestion that we get one. He says one should understand raw material. And you won't believe how much our knowledge about our raw materials has increased. Now, we are doing a lot of fundamental research. And like Tsuda san told me once, you don't need to have a joint venture to succeed in research.

TVS group companies have been excellent as manufacturers. Now you are trying to become marketers. How is the transformation going to happen?

I'll talk about my company. We have five guys handling exports. For a company like ours that's a big number. One of my friends abroad is retiring. He's an excellent marketing man, and he's a local guy, which is a big help.

We already have a man in America, and now I want to put another one in Europe. Besides, we have some 55 dedicated distributors for the export markets. So, we know what it entails. But we have been dragging our feet over it because we wanted Deming to happen first. That now gives us a totally different kind of leverage.

But can you ever get to a stage, where you can force OEs-like Intel does-to say 'SBL inside'?

What do you think I am looking for? I know we have to be one of the best in the world. My driving ambition is that we must be No. 3 heavy-duty brakelining manufacturer in the world. Now we are No. 5. We'll get there. You know I am cocky as an Indian. Why can't you sell a branded Indian product where they want an Indian product? It can be done. Fine, three years on I'll be passing the baton on. But mind you my son, who graduated from the Stanford business school and worked with McKinsey for two years, has joined Toyota in Kentucky. So, I'll have a guy who thinks TQM. He's working with the Toyota Supplier Support Centre, which does consulting and troubleshooting for Toyota and its suppliers.

I've had the opportunity to see and write on your quality systems first hand. I think you as the CEO do a lot of the driving: criticising, praising and even taunting your team. When you retire will TQM lose steam at SBL?

I pulled back four years ago. I don't look into daily work any more. I only look at kaizen improvements (continuous improvements) and talk to workers. After TQM started moving, I moved on to total productive maintenance (TPM). When that gained momentum, I moved on to lean. If anything goes wrong, I wave a flag and draw my men's attention to it. In two to three years, the SBL quality system will become institutionalised like the Toyota Production System, with all the documentation.

Will the TVS group's aversion to wide shareholding be a stumbling block in its future growth?

I can talk only about my company. I was glad when I bought out Abex's stake in my company six years ago. I can sell anywhere in the world under my own brand name, and I am actually competing against Abex in the US. We all never wanted to go public. We were forced to by the MRTP. But I would not like to have a foreign partner, because it's like having a crutch. You are dependent on him for knowhow. But I am looking for know-why. Sure, my rate of growth may be slower, it won't be the Hindu rate of growth, but it will be based on a knowledge they can't take away. But I am open to strategic alliances.

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