CASE STUDIES
The Principles of Production Planning
Continued...SOLUTION A
R A Rajendra Prasad,
CEO, Bajaj Electricals
 Sudhir Easwaran, the CEO of Sanket
Forgings, definitely has a difficult task ahead of him. Transforming a unit is a
formidable task for any leader; the challenges are different from those posed by a
greenfield venture. The mandate given to him-increase exports to tide over the vagaries of
the domestic market-is relevant given the present slowdown in industrial growth and the
recession in the automotive sector. And Easwaran, who is keen on implementing new ideas,
could well benefit from the experience he gained during his 6-year stint at a Fast Moving
Consumer Goods company even as he is trying to grapple with the problems at Sanket
Forgings.
As I see it, the supplier's failure to execute Shruthi
Motors' order on time has to do with larger organisational issues-vision, teamwork, and
morale-and the lack of planning. Which are all common to family businesses. Forecasting is
particularly difficult for generic products; it can never be precise. Custom-made
products-like forgings-require short-to-medium-term data on order-bookings from different
customers, which can then be used as a basis for drawing up schedules.
It is important for all upstream activities-from raw
materials procurement to the shipping of finished goods-to stick to these plans while
allowing for slight variations. The temptation to churn out units in large numbers, with
the objective of utilising the capacity of manufacturing-lines, is a common failing of
most shopfloors. And Sanket Forgings has fallen into this trap. This should be curbed
despite the initial problems that could crop up. Mohan Nair, the consultant, makes this
point tellingly, arguing that manufacturing should be based on pull (customer demand)
rather than push (capacity utilisation).
Periods when capacities have to remain idle can be a boon in
disguise for any organisation. They need not, necessarily, be periods of inactivity. Freed
from the tension of having to meet day-to-day targets, managers can engage in a little bit
of rebuilding so that, when the company turns the corner, it is in better shape to take on
the competition. For instance, training programmes for the work-force to make it
multi-skilled; re-designing the plant layout for optimal use of space and better
workflows; and reengineering processes for reduced time-cycles can all be initiated. Any
effort that helps in tying up the loose ends in operations is bound to yield benefits in
the long run. Unfortunately, Sanket Forgings has been hobbled by a rigid managerial
mindset.
A situation where estimates made by the Marketing Department
are off the mark by as much as 80 per cent is alarming. I can sympathise with the
predicament of the Production Controller, Vikram Das. When plans fluctuate wildly, the
flow of materials is also expected to be switched off and on, causing problems along the
value-chain. The most immediate, and visible, impact is felt in terms of either a shortage
of raw materials, or a pile-up of both processed and semi-processed inventory. Worse is
the impact on the morale of employees and vendors; it throws the normal functioning of the
unit out of gear. This effect can only be partially mitigated, but there are severe
limitations.
Interestingly, even assuming that the Marketing Department
did not provide reliable forecasts, there is no justification for such high inventory
levels. Easwaran has done well to raise the point about the need to cut them down to
reasonable levels. The introduction of the Offset Planning System-which is based on the
premise that all planning must be done with reference to a 12-week cycle-was meant to
address this specific issue. And the system seems to have worked since inventories have
dropped substantially over the last 5 months. However, both Easwaran and Nair need to
address 3 questions:
Was the procurement of raw materials curtailed during this
5-month period?
Is each type of raw material common to all forgings?
Was the raw material required different from the stocks in June?
Answers to each of the questions will provide an insight into
the complexity of planning that is needed. In his anxiety to bag the order from Shruthi
Motors, and secure a place in the buyer's accredited list of suppliers, Sunil Parikh, the
Vice-President (Marketing), seems to have acted without really consulting his colleagues.
This is a dangerous step as the other members of the management team will feel the
pressure to execute the order even while they are apprehensive about the resources at
their disposal. Little wonder, then, that the resultant alienation among the various
departments has caused a near breakdown of operations.
It is no use blaming the Offset Planning System for the
failure to deliver the order on time. I am afraid these managers are not exposed to the
basics of a planning process. I suggest that Easwaran organise training-sessions for his
managers by hiring the services of a consultant. This is where a vision statement for
Sanket Forgings will be necessary. It is essential to spell out the long-term objectives
of the company in a language that is understood by everybody.
The roles and responsibilities of each member need to be
defined so that each employee is clear about not only his, or her, sphere of activity, but
also understands, and appreciates, how interdependent the members of a working group are.
Procedures can be laid down for each set of activities; documenting it would prove
invaluable as a reference-point. The fact that most managers are old-timers, and that
there is a singular lack of systems and controls in place adds a new dimension to the
problem. Such a situation is fairly common in other organisations, but it is rarely
acknowledged and much less acted upon. I hope it will be at Sanket Forgings.
SOLUTION B
Shreekant Gupta,
Executive Director, Marico Industries
 Sudhir Easwaran, the new CEO
of Sanket Forgings, is on the right track. The questions he has raised are appropriate.
But they must be prioritised, and addressed in the following order:
- Why can't the marketing forecasts be made more accurate?
- Why should the purchase lead-times be 8 weeks?
- Why do the production lead-times have to be 3 weeks?
- Can't Sanket Forgings keep some fast-moving end-products in
stock?
- Can't the company outsource to prune costs and lead-times?
MARKETING FORECASTS. It is noteworthy that
the manufacturing function works under relatively stable conditions in any enterprise. By
contrast, the operations of both the Marketing and the Purchase Departments are vulnerable
to the vagaries of external business conditions. There are several issues in the latter's
day-to-day working which are beyond their direct control. This is where the point made by
Easwaran becomes relevant. He is right in wondering what value-addition, if any, is being
provided by the Marketing Department if its forecasts are based merely on the confirmed
orders on hand.
Normally, purchase departments hesitate to provide any
indications until the entire process of scheduling and sequencing is completed. In fact,
you could well have a situation wherein an order is placed by an automobile manufacturer's
purchase department only after the colour of the automobile is decided. It is, therefore,
the responsibility of the Marketing Department to know the client's downstream process
comprehensively: from raw material inventories to Work-In-Progress to finished goods.
This data provides early warning to the supplying
organisation. Also, an insight into the tentative production plan of the client can be
used for forecasting future orders at the supplier's end. It is imperative for Sunil
Parikh, the Vice-President (Marketing), and his team to work more closely with their
client organisations. Only then can the marketing function at Sanket Forgings add real
value to the process. Which will enhance the credibility of the marketing forecasts they
come up with.
PURCHASE LEAD-TIMES. Eight weeks is too long
a period. Cutting it down requires a new mindset which questions the unquestionable, and
takes an irreverent approach to the sacred cows in an organisation. The results usually
take time to surface. It is worth recalling the experience of Toyota Motors in this
context: the shopfloor of Japan's largest auto company used to take 3 hours for exchanging
dies. Now, it is less than a minute. But it took the Japanese company over 8 years to
achieve that remarkable breakthrough.
While that calls for a separate managerial initiative, Sanket
Forgings should, in the meantime, look at some possibilities. For instance, the top
management should talk to the suppliers of high lead-time items, and advocate the need to
compress time-cycles, or keep a higher inventory of such items. One way could be to change
its source of such items. A trade-off between various costs becomes an important
consideration here. Alternatively, suppliers of high lead-time items should be asked to
maintain their stocks in Sanket Forgings' own warehouse.
PRODUCTION LEAD-TIMES. Similarly, Easwaran
must set aggressive standards for production lead-times. Some approaches:
- Don't chop and change the plan frequently. The plan must be
frozen for 3 weeks, and no changes should be made.
- Cut down on set-up times. There are a number of
tried-and-tested techniques, like Single Minute Exchange of Dies, which are available
off-the-shelf as part of a Total Quality Management programme.
- Work in tandem rather than sequentially. This offers unlimited
opportunities for compressing time-cycles. Not all items on the shopfloor are produced
sequentially; there are a number of items that can be made simultaneously. Sanket Forgings
should identify the latter to reduce manufacturing lead-times.
- Outsource long lead-time and low value-added sub-assemblies or
operations. Sanket Forgings must realise that it cannot be the best at doing everything
in-house.
Clearly, the 12-week time-cycle has to be reviewed. The
production planning cycle has to be split into a manufacturing planning cycle and a
procurement cycle as the quality of inputs required for both are different. The objective
of the annual planning exercise would be to look at capacity availability; it should also
determine the strategy for unexpected orders. The trade-offs between the opportunity from
an unexpected order and the cost of idle capacity will help Sanket Forgings take an
objective view of rush orders.
RUSH ORDERS. If rush orders are a norm
rather than an exception, and they are caused by an inherently volatile market, the
approach should be to have a flexible manufacturing factory, and work on a JIT basis.
There are tools and techniques to design a JIT-based flexible factory. Another option is
to hybridise the production planning system. Some finished products, which sell regularly,
could be kept in stock rather than made to order through the Offset Planning System.
It is also evident that the managers of Sanket Forgings are
used to executing their functional roles rather than working as part of a cohesive,
well-knit team that is tuned to common corporate objectives. In fact, I see a need for a
culture-building initiative. Such a transformation can only be brought about by
formulating a vision, which stipulates what the organisation stands for, its values and
its goals, and the manner in which it seeks to attain them. Culture-building takes time,
but it should be high on the list of the CEO's priorities. Without a new mindset, I don't
see how Sanket Forgings can meet its global aspirations. |
