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CASE STUDY
The Case Of Vendor Improvement

By R Chandrasekhar

SYNOPSIS:
"They're quite right to worry about that fast-track vendor-improvement initiative; it just isn't linked to the supplier's prices," mused Arnab Roychowdhury on his way back from a meeting at Indo-Nichita. "Aren't we making a mountain out of a molehill?" wondered Rajeev Kshirsagar as he headed back to his room. "I know what they're thinking," chuckled Gautam Niyogi, Indo-Nichita's CEO, as he switched on his PC to check for e-mail from Nichita, the Japanese better half of the joint venture. "The consultant smells an opportunity while my second-in-command thinks I'm mad to teach vendors about quality practices instead of minding my bottomline" Was Indo-Nichita's novel vendor-training initiative really threatening its supply chain instead of improving it? IIT, Bombay's M.G. Korgaonker, Khandelwal Group's M.S. Adige, Sona Koyo Steering's Surinder Kapur, and Goodlass Nerolac's T.R. Venkatesh debate the issue. A BT Case Study.

The rays of the late afternoon sun filtered in through the sheer glass that was the south-western wall of Indo-Nichita's boardroom. It cast 3 long shadows on the whiteboard that stood in the opposite corner, the diagrams on it from the last meeting only half-obliterated. The presence of just 3 people made the room seem larger than it was. Gautam Niyogi, at 3 inches above 5 feet, was the smallest, but he had the word CEO written all over him. Rajeev Kshirsagar--at 38, he was 10 years younger than his boss--was more casual. The third person, Arnab Roychowdhury, was trying hard to look older than his 30 years, which was exactly the average age of senior consultants at Beninger Darkman.

Gautam Niyogi: "Thanks for dropping by at such short notice, Arnab. You haven't met Rajeev Kshirsagar, have you? He's my right-hand man. Rajeev, Arnab is the bright young man whom Sam told me about. Arnab, we want to talk to you about a special vendor education programme that we have been running for over 2 years now. All these months, we thought that it was giving us--and our suppliers--great results. But, over the past few weeks, we have been getting feedback, some direct, some indirect, which suggests that we may have been exaggerating its success. In fact, we may actually have been jeopardising our entire supply chain management process. And that's where we need your help.

Arnab Roychowdhury: All right. Could we start at the beginning? What is this special programme?

Niyogi: It is conduced by our Vendor Improvement Team. Not very imaginatively, we call it the VIT. It is a sort of crash-course we devised to quickly bring our vendors up to global standards. A 7-member cross-functional team made up of our managers offers intensive programmes in manufacturing techniques to our vendors--completely free of cost. It is a parallel process to our regular vendor management programme. And it is really an intermittent effort, not a continuous one.

Roychowdhury: So, the VIT isn't meant to be part of a long-term association with your vendors?

Niyogi: Actually, the whole objective of the VIT is to conduct a short-term programme--10 weeks, to be precise--and to leave it to the vendor to continue with it. You could think of it as a supplement to our official Vendor Development Programme. So, while the overall goal of our partnership programme with our suppliers is joint product development, supervisory training, and strategic planning, the VIT is focused on the shopfloor. You know, manufacturing techniques and that kind of thing

Roychowdhury: Why isn't it part of your formal vendor development programme?

Rajeev Kshirsagar: May I take that, Gautam? You see, Arnab, we're doing this not just for ourselves. Nichita, our Japanese partner, is also using our efforts as a laboratory. If we're successful, they'll ask their companies in other countries to use the same method. If you ask me why they started with us, it is, probably, because our supplier-base is pretty undeveloped. So, it is a good testing-ground for a new system. In fact, that is why they took special care to train 2 of our engineers for 9 weeks, so that they could then come and train our vendors in Japanese systems. But we weren't sure if it would work. So, we did not build the VIT into the other programme. We started out carefully too. We picked--hand-picked, I must add--10 of the medium-sized vendors out of our 128 suppliers to try out the VIT. And it has always been optional. Of course, we have gone on to cover close to 50 vendors now, but we are not sure whether we should continue

Niyogi: Perhaps I should explain a little about how the VIT works, Arnab. Once a vendor firm has agreed, we begin with a half-day presentation to its senior managers, where we try to allay their apprehensions--especially about additional costs, investments, or disruptions--and get them to commit themselves to the"

Niyogi's voice trailed off in Kshirsagar's ears as he recalled the way the whole thing had been explained to him. The man who had done the talking was a manager from Nichita, and he had made a powerful, but dense presentation on how the VIT worked. Kshirsagar tried to relive that session 2 years ago

"The standard presentation begins with a description of what continuous improvement is, and the benefits it brings in terms of cost-reduction and quality-enhancement. After that session is over, the VIT briefs other people in the vendor firm, and undertakes what is called a Factory Assessment. The Assessment is discussed with the supplier's senior management, and used to identify areas of concern and targets for improvement. Although based on the tools, techniques, and experience of Nichita in Japan, the programme has been tailored to meet the specific needs of Indian suppliers.

The next step is the formation of an Improvement Team comprising the supplier's own people. It includes operators and supervisors from the relevant production area as well as from Maintenance, Process Engineering, Quality, and, sometimes, Administration. Next, targets for improvement are established. The team leader prepares the ground for the activity by briefing the members, and making the necessary resources available.

The first week is devoted to training. During the second week, the team splits into smaller groups to analyse and discuss the various processes to be improved. The groups use a combination of hard data and subjective opinions to identify the roots of the problem, and arrive at possible solutions.

In the third week, the individual groups reconvene as a team. The team makes a flow-diagram of each process so that everyone appreciates what is involved, and agrees on the changes that will bring the best benefits. The data that has been collected by the groups is analysed by the entire team.

The period between the fourth and the eighth weeks is spent on implementation. Although the VIT returns often to observe the progress, the responsibility for this phase vests entirely with the supplier's people. The VIT returns full-time in the ninth and tenth weeks to help the team review what it has learnt and achieved, and to ensure that all changes are fully documented. It also discusses the outstanding issues and concerns, and potential improvement projects. The final task is to make a presentation to senior managers, describing the changes achieved and the benefits gained"

Kshirsagar suddenly switched back to what Niyogi was saying as he realised that his CEO was explaining the improvements that had since been made to the process.

Roychowdhury stood for a moment in the long men's room, and recalled the briefing he had been given by his boss, Sampat `Sam' Mathur.

"All right, Arnab, here's your brief. You will be meeting Kshirsagar and Niyogi, who are the CEO and the Vice-President (Operations), respectively, of Indo-Nichita. Just to refresh your memory, which I know is in top gear first thing in the morning, that is the joint venture between Nichita and Indian Automotives. Now, Nichita's management in Tokyo counted some $60 billion in revenues from 23 countries last year while Indian Automotives' accountants put about Rs 1,200 crore in the bank. But don't jump to conclusions, my boy. It is the Indians who run the show here. Nichita only gives them the designs, the technology, and the systems and techniques."

"What's the problem?" Roychowdhury had asked.

"That's what you must find out. All I know is that Niyogi called me last night, and said he was worried stiff about a vendor improvement programme they are conducting at the behest of their Japanese partners. You have to go and find out what the trouble is."

As he prepared to head back into Indo-Nichita's minimalist conference room--was it the Japanese influence or Indian thrift, he wondered briefly--Roychowdhury invoked the photographic memory which had stood him in good stead so many times. Indo-Nichita had begun manufacturing cars in 1994 at a plant near Bhopal. Check. Indian Automotives' two-wheeler plant was at Chennai. Check. Indo-Nichita was a steady, but not spectacular performer since it had managed to increase sales by only about 15 per cent every year. Check. And--how could he forget?--since it was now 5 years since it had started doing business, the joint venture must have indigenised completely by now.

Kshirsagar: "So long as we continued with the routine development stuff, none of our suppliers had any problems. I mean, which manufacturer doesn't do some kind of work in collaboration with its suppliers these days? The problem is, through the VIT, we are essentially telling them to radically--and, in some cases, totally--change the way they do things on their shopfloor. For such changes to really work, it has to be part of the vendor's overall strategy, right? So we have to get involved in their strategy. But that implies that they have to open up their entire business to us so that we can work together

Roychowdhury: Which, of course, they won't since they are not going to tell you what prices they are getting from their other customers, right?

Niyogi: Absolutely. And it isn't just the price-data; it is also all kinds of other information. And that is making our vendors suspicious. They think we want to control them, and rob them off their customers so that they become completely dependent on us. Okay, maybe all of them don't think that way. Some of them are quite progressive, and know what we are trying to do. But there is some resistance. And that is putting many of our relationships at risk, which is something we are worried about. Of course, all our contracts with our vendors are long term. And we chose them after assessing their abilities, and setting cost and quality targets--not through tendering or anything like that. But if we come across as Big Brother to our suppliers, we are in trouble

Roychowdhury: I must ask an obvious question. I presume you must be having some kind of measure for checking how well your vendors are doing, and how efficiently your supply chain is working. So, have you checked on your gains from the VIT as distinct from your regular programme?

Kshirsagar: To be honest, it isn't easy to say. When Indo-Nichita started out in 1994, I understand that the average vendor rating was 35 on a scale of 100. That is up to 60 now although I can't say for sure how much of it is due to the VIT. But, judging from the fact that many of the techniques that have been transferred through the VIT are actually being used, I would say that the VIT has paid off pretty well. Which is why we are hesitant about calling it off altogether

Niyogi: If I may add, the real objective of the VIT was not just to transfer as many techniques as a 10-week programme would allow. We actually want to set off a continuous improvement process. But we're not really sure how much momentum is being sustained after those 10 weeks. We have no monitoring of that. For all I know, there'll be no long-term impact

Kshirsagar: And then there's another fear I have although, I must add, Gautam doesn't share my views here. I feel that the VIT may be stretching our people, whose time would be used better in focusing on our core vendor development work.

Niyogi: Who knows, Rajeev. Maybe you're right. I'm not sure any more. So, can you help us, Arnab?

Is an initiative like the VIT the right approach in helping vendors improve their processes and their output? Should it be linked to the vendor's strategy? Or to the original equipment manufacturer's strategy? Should something like the VIT be pursued continuously, or as a one-off programme? Should its coverage be extended to include non-manufacturing activities? Should it now be improved, or discarded? Or should it be integrated into Indo-Nichita's regular vendor-development strategy?
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