Case Study: The Case Of The Case Study, Pg 2

CASE STUDY
The Case Of The Case Study
Continued..

THE DISCUSSION

M G Korgaonker M.G. KORGAONKER, Dean, School of Management, IIT, Bombay

It is hardly surprising that Gautam Niyogi, the CEO of Indo-Nichita, is facing several dilemmas. Underlying them are 2 fundamental factors: the absence of a holistic approach to the company's vendor-development initiatives, and an inadequate appreciation of the operational linkages that should reinforce them.

In all fairness, the introduction of the Vendor Improvement Team (VIT) was well-intentioned. This programme had the clear objective of initiating improvements in the vendors' processes and, thereby, bringing them at par with global standards; was structured; and was successful on several parameters. Not only did it serve as a catalyst in improving some customer-supplier relationships, Indo-Nichita also credits it for part of the improvement in its vendors' ratings from 35 to 60 over a 3-year period. Thus, the benefits justify not only the continuation of the programme, but also the expansion of its coverage to a wider spectrum of vendors.

However, being a one-off intervention, the VIT suffers from severe limitations. At the vendor's end, only the members of a cross-functional team were exposed to the process. Neither was it institutionalised nor was it assigned high priority. There is, therefore, no reason to believe that the vendor will continuously progress up the learning curve, or that he will commit substantial resources to it. While a few improvement projects will be implemented in some isolated areas, by themselves, they cannot be expected to usher in a culture of continuous improvement. Unless it is an integral part of Indo-Nichita's vendor-development programme, such an intervention cannot raise the standards of its vendors to global levels.

All the evidence cited by Niyogi suggests that wherever the process has delivered results on a sustained basis, it was primarily due to an organisational commitment, as manifested by its institutionalisation. Arguably, the simultaneous introduction of process innovations in vendor firms without what may be termed a vendor capability improvement strategy is close to impossible. Such a strategy should be based on:

The vendor's role in the buyer's supply chain.
Performance and capability benchmarks and gaps.
Resource needs and availability.
The buyer's position in a competitive environment.

One of the objectives of such a strategy would be to progressively develop vendor-capabilities through certain well-defined stages. One way of classifying them would be:

STAGE I. Approved Supplier status.
STAGE II. Preferred Supplier status.
STAGE III. Supplier Partnership status.
STAGE IV. Design Partnership status.

As the supplier moves through these 4 stages, his capability portfolio will intensify in terms of depth, continuously driving him through the learning curve. He will acquire a greater understanding of the buyer's component strategies, his supplier-measurement and -improvement programmes, and the buyer's expectations of supplier performance. What Indo-Nichita needs to do, therefore, is to define the capability-levels required to qualify vendors at each stage of such a system, and map their present levels onto them.

This will help Niyogi define the capability improvement goals and targets at each stage for each vendor. Further, Indo-Nichita should articulate the parameters it uses for capability assessment. They could include technological status, process capability and control, cost competency, flexibility, dependability, locational logistics, perceived risks, supplier commitment, financial stability, experience and expertise, and product and process quality.

Then, Indo-Nichita should negotiate the acceptance of this strategy by each vendor, clarifying the assistance it will provide at each stage. Only its acceptance will guide the Plan of Action to be followed by each vendor to achieve his specific objectives. The company must also set the time-periods for the vendors to reach the minimum targeted levels at different stages for purposes of monitoring and evaluation. Of course, there is need to evaluate the benefits and the costs involved, both for the vendor as well as Indo-Nichita, and a willingness to support the vendor.

However, the capability-improvement process is not the same as performance-evaluation. Considerably more up-front commitment of resources, support, and involvement on the part of Indo-Nichita will be required for the former, which will pay for itself through sustained high performance in the long run. As such, Project VIT need not be pursued as a one-time, somewhat stand-alone, low-intensity initiative. It should be pursued vigorously as the cornerstone of the company's vendor-development process on an on-going basis, but backed by a well-articulated strategy. And this will enable Indo-Nichita to manage the risks involved in the process effectively.

M S Adige, Executive Director, Khandelwal Group The VIT initiative at Indo-Nichita is, in my view, a step in the right direction. It is rooted in the company's long-term objective of ensuring a vibrant vendor-base in order to achieve the government-stipulated levels of indigenisation over a period of time. In that sense, the link with Indo-Nichita's strategic compulsions is strong. But the risk of the VIT becoming a stand-alone activity--a problem that, interestingly, the company did foresee in the beginning--is now real.

The reason: the VIT has been structured essentially as a one-off initiative, without any provisions for a monitoring mechanism. This is a serious limitation that could undo not only all the good work that has gone into planning and executing the programme, but also the positive spin-offs that have become apparent. The benefits of the VIT are hardly likely to be enduring when it is perceived by everyone--both at the manufacturer and at the vendor--as a temporary event, whose momentum ceases after 10 weeks. It is just like any other Flavour Of The Week programme (Safety Week, for instance), which is good only as long as it lasts. And once the week is over, its flavour dissipates without a trace. Sustainability is important for any improvement process, and Niyogi should rectify this aspect of the VIT immediately to realise its full impact.

How can this be done? In 2 ways. First, by relaxing the rigidity of the composition. The membership-mix of the VIT should be changed at regular intervals of, say, 2 months. A permanent composition, however cross-functional, will not do. You need to rotate the membership depending on the demands that are specific to each vendor. Such an approach would not only bring about the much-needed flexibility in the working of the VIT, but also make its usefulness more relevant.

Secondly, the activities of the VIT must be integrated with Indo-Nichita's other vendor-development initiatives. This would, to some extent, happen automatically when the concept of rotating membership is put into place. It can be reinforced by ensuring that monitoring becomes part of the responsibilities of Indo-Nichita's vendor-development team. Once the 10-week session is over, a team from the company should visit its vendors at intervals of 10 weeks for a review of the initiatives taken. Gradually, the VIT should become a high-intensity cell within the broader framework of vendor-development instead of the stand-alone resource that it is becoming today. It is only then that the benefits of the programme can be sustained. Otherwise, there will be loose ends hanging at every stage at every vendor.

In fact, there are several problems in the structure of the VIT programme. Making participation optional, for example. It is true that there are psychological barriers in vendor-supplier relationships, some of which are unique to the Indian mindset. Which is why the OEM's approach should be less threatening. But making vendor-participation mandatory will drive home the sense of Indo-Nichita's commitment to the initiative. One way of doing so is by restricting the programme only to the company's accredited suppliers, and making participation compulsory. In fact, continued commitment to the VIT's objectives should, over a period of time, become an integral part of vendor evaluation at Indo-Nichita.

In future, the country's car industry is likely to become more competitive, and outsourcing will become a strategic weapon in the armoury of every player. And the VIT offers an excellent opportunity for Indo-Nichita to move towards single sourcing, which is the trend in the global automotive industry today. Apart from being cost-effective, single sourcing will also take care of the problem, as seen by Niyogi, of the lack of fit between the goals of the VIT and the strategic goals of the vendor. When an OEM has a dedicated supplier, the latter's internal operations become a seamless extension of his own operations. In such a setting, the supplier will have little reservations about sharing business information that would otherwise be considered as classified.

No doubt, the VIT has become a success. One piece of evidence: the competencies that the company has built in developing training-modules for managers and supervisors. It is not easy to build such competencies, and it is a measure of the drive and enthusiasm of the members of the VIT that they have built such skills over time. They are valuable given the competitive times that Indo-Nichita will face in future. So, they should be strengthened, not frittered away.

Finally, the VIT programme can be further strengthened through company-wide education, and the sharing of information on the successes achieved through it with the employees of both the company and its suppliers. Encouraging its employees to visit vendors, and vice-versa will go a long way in consolidating the gains of Indo-Nichita's VIT programme.

SURINDER KAPUR, CEO, Sona Koya Steering Systems Every vendor's strategy, irrespective of the products it makes, must be linked to its own mission. And that cannot be other than one that emphasises customer satisfaction through quality-upgradation, cost-reduction, and delivery-performance. It is, therefore, unlikely that a vendor's strategy can ever be in conflict with that of the Vendor Improvement Team (VIT) programme.

If Indo-Nichita's efforts do not synergise with the plans of a particular vendor, that only means that the company has failed to secure the latter's commitment to the programme. It should then review its procedure for vendor-selection by studying such cases, and concentrate on developing suppliers whose top management lend their full support to the quality, technology, and customer satisfaction that Indo-Nichita expects from its vendors.

Of course, the success of the VIT approach is quite evident. In a little under 3 years, the programme has become something that every vendor wants to participate in. Although ratings have also doubled in this period, we must remember that such programmes yield dividends only in the long run. If the improvements in the vendors' plants are sustained, the benefits that will accrue by way of improvements in quality and cost-reductions will help Indo-Nichita.

It will also help forge a stronger customer-supplier partnership between Indo-Nichita and its vendors. But the results of all this will be visible only after 6 years. The key to success is, therefore, sustenance. How can the momentum generated during the 10 weeks of the VIT programme be sustained? Indo-Nichita's tactic of enlarging the VIT's scope by developing customised training-modules is not going to result in sustaining it. At best, they can be used as aids in improving the VIT's performance, to secure the greater involvement of the employees of the vendor, and to consolidate the gains of the VIT. But these modules, by themselves, cannot ensure the continuation of the improvement activities.

If Indo-Nichita's team were to consolidate its experience for developing such packages, there is no doubt about the fact that it will take its focus away from the VIT's objective of "shopfloor improvement projects leading to cost-reduction" and "quality improvement." Preparing the modules will be worthwhile because it will standardise the learnings for future programmes. This will also be useful were the VIT to be replicated in Nichita's plants worldwide later. However, even though evolving training-packs based on the expertise acquired is a good idea, it cannot ensure that the momentum of the VIT is sustained.

Instead, Indo-Nichita, being part of a global auto giant, should take advantage of that, and announce a stated plan of exporting components from its well-performing vendors to Nichita's plants across the world. And the VIT programme can then be integrated into this strategy. For vendors to qualify for exports through Indo-Nichita, sustaining the VIT's improvement-generating activities will become an obvious requirement.

Moreover, the VIT programme will be sustained at the vendor's end only if there is a monitoring mechanism. While there are good reasons for Indo-Nichita to withdraw after 10 weeks, the programme should continue to get the company's support. In fact, improvements are relatively easy to achieve in the short run; it is their continued achievement in the long run that is difficult. Indo-Nichita, in its own interest, should support its vendors so that the benefits of the first improvements are fully realised. Once the VIT completes its schedule, Indo-Nichita's vendor-development team should take over this responsibility.

Anything free loses its value. Suppliers should see rewards in implementing and sustaining the VIT's activities. For this, Indo-Nichita should form clusters of its vendors, each consisting of firms involved in manufacturing different products. The members of each cluster should meet regularly as per an annual plan drawn up by Indo-Nichita's vendor development team. Each member should make a presentation to the group on its achievements and share the learnings. This will foster competition among vendors to do better, apply peer pressure in continuing the activities, and help Indo-Nichita monitor progress even after the VIT has been withdrawn.

Based on the performance of each vendor--calculated by a Factory Assessment Score--Indo-Nichita can offer the opportunity of exporting to Nichita's plants. Then, the company could also hold an annual competition--such as a Quality Circles competition--among its vendors. And the employees of the best-performing companies could be sent to Japan for training or presenting their success-stories to relevant fora. In other words, many motivational packages that will ensure the continuation of the improvements process can be designed, which will make Indo-Nichita's partnerships more rewarding.

T.R. VENKATESH, Managing Director, Goodless Nerolac Paints It is relatively easy to score quick hits in improvement initiatives on the shopfloor. This is particularly true in the case of a medium-sized company which is deploying time-tested efficiency techniques for the first time. In fact, most component-manufacturers in the domestic automotive industry, who are not used to such tools, manage to secure gains in costs and quality during the first flush of any change-initiative. And they are bound to be considerable if the initiative is backed by professional support from an established OEM.

It is during the second phase of change, when the gains already made need to be sustained, that the real mettle of both the vendor and the OEM is put to test. Institutionalising the improvement framework becomes an area of concern, and the organisation faces a hurdle in terms of mindset. For instance, it becomes difficult to pursue the concept of collective working and team-spirit, which is ingrained among Japanese workers and managers, in the Indian context. That is when the disillusionment sets in. If this phase is to be seen through, it may require even-greater involvement from Indo-Nichita.

Indo-Nichita appears to be entering that crucial phase. No doubt the VIT is a well thought-out programme. There are 2 factors which are unique about it. It covers a wide canvas of initiatives within a core of shopfloor activities and, unlike routine vendor-development activities, which usually run on a single track, it puts the vendor's own involvement centrestage. It is hardly surprising that the vendors' ratings have improved over the years, but the law of diminishing returns is beginning to set in. In the absence of a monitoring mechanism which can ensure that the momentum of change is kept up, the VIT programme, clearly, faces an uncertain future.

It is time Indo-Nichita reviewed the programme. There are two reasons why I say so. First, the context of India's automobile industry has changed. When the company introduced the VIT in 1994, it had no option but to rapidly upgrade its vendor's capabilities to match Nichita's global standards. Even if this entailed significant involvement by Indo-Nichita, it was necessary and worthwhile. Five years down the road, the industry is truly global. Thanks to the new tariffs regime, OEMs are no longer under pressure to indigenise. In such a scenario, is it worth its while for Indo-Nichita to devote so much time and effort on vendor-development at the local level?

That is the crucial question that Niyogi and his team must address. Which is, of course, linked to Indo-Nichita's understanding of its sources of competitive advantage. Which brings me to the second issue: where does a programme like the VIT fit into Indo-Nichita's strategy? This is something that Niyogi should re-examine. If the VIT were to succeed in developing local vendors whose performance can match the best in the world, there is every merit in pursuing it to its logical end. If it is merely meant to supplement the company's routine vendor-development activities, the VIT may not be worthwhile continuing with.

When Indo-Nichita can source its components from anywhere in the world at competitive prices, there is no reason why it should pursue vendor-development programmes of any kind at the local level. Why should it consider vendor-development from scratch to be part of its mainstream business activities at all? It is only if single sourcing is part of its corporate strategy, and if a local vendor can, given some support, measure up to the stringent requirements of cost, quality, and delivery-schedules expected of such a vendor that Indo-Nichita should continue with the VIT initiative. I myself do not set much score by single sourcing because it does not provide a frame of reference for benchmarking, which is important in becoming competitive.

Therefore, it is in the context of Indo-Nichita's growth strategy that Niyogi should decide whether or not to continue with the VIT. It is true that the programme has enabled Indo-Nichita to develop competencies in several areas. But they are in the nature of by-products, which do not add value to its core business. Even if it decides to continue with the VIT, Indo-Nichita should not enlarge its scope beyond a point because that could take its focus away from the main business.

However, there are other ways of ensuring that the competencies built up over the years are consolidated. For instance, Indo-Nichita could encourage its component-manufacturers to enter into tie-ups and joint ventures with Nichita's suppliers in Japan. That would be a faster way of upgrading local skills than Indo-Nichita's direct involvement in the process.

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