Cost Cutting through Root Cause Analysis

WICMA - Magazine Feb 2015

I want things cheaper so when I bought this pair of jeans from a retail outlet I was gushing at the discount I got compared to a branded one which I had bought earlier. It is a different thing that the fitting was not right and the material felt rough. But I sidetracked those concerns considering the savings. However, after few rounds of wash, the stitching started getting frayed and the material stretched unevenly. In the end I was pretty upset that my great bargain deal was such a flop. Well, it was bound to be for obvious reasons!

Everyone wants everything cheaper these days but the best of the quality. How much cheaper? Honestly, most people don’t know the answer to this question so anything lesser than the price currently being quoted is great. Why don’t people know how much cheaper? Because they don’t have the capability to figure out the method to calculate or are too lazy to do the legwork.

This is a constant demand in our packaging business too. Customers want cheaper cartons while insisting that we stick to their quality requirement. Most purchasers consider this to be the easiest way of saving costs. There are quite a few reasons; one of them being priority of payment. Packing material suppliers are the last ones to be considered while scheduling payment. There is too much competition in this segment and the work is not rocket science hence, every supplier can be replaced easily (well most of the time).

But the chief reason is lack of hard work and analysis. If one really wants to save costs, they need to fundamentally change the product and processes not the 1 or 2% of the packaging cost. There are ample scope for improvements and waste reduction if the basic product itself is analyzed and redesigned. But this requires serious involvement and hard work. It requires time and resolve to conduct root cause analysis. There is need for data collection, analysis, testing and rechecking. Most people are hence content with reducing the packing material cost which is least hard work and creates the illusion of saving and becoming cost competitive! It is when more international biggies come into the market will these companies realize what is competitive edge?

Businesses do not understand that there are other ways of properly reducing packaging costs. One good idea is to put some serious brains into design and drawing specifications. The designer quite often simply copies an existing template and changes dimensions. If you ask why they need BS of 20 and not 15, rarely will you get a clear answer. Often the specifications are more than what is truly required which jacks up the price. Everyone wants to play safe by adding unnecessary buffer and to cover for shortcomings.

Another way is to focus on advance planning. Now the larger buyers want “just-in-time” since they do not know what they want and when. If a corrugator is given proper forecast of requirement then they can build up inventory to meet the delivery dates instead of stocking up for anything anytime. Inventory turns will be more and the carrying cost will be less.

Let us take an example of Company A and B.

Company A has random requirements and n-number of carton sizes designed and developed by people over a period of time. They are not following any forecast method to identify which type of cartons will be required when. When the item is ready or nearing completion, the carton suppliers are asked to deliver the cartons. At the time of seeking payment, Company A delays at random without any reason. Often they feel humiliated if the suppliers follow up for payment or show a laid back approach towards releasing payment. The adage – customer is king is often taken too literally by many buyers. But they forget that the kingdom prospers due to its many subjects and not just the king.

Company B has created a standardized set of cartons to pack all their items in atleast one of them. (This is what today’s E-commerce companies are practicing). They have a clear system of tracking which items are being ordered, manufactured and are at what stage of completion. There is a visibility of status in the process. This company also has a data stating how much time is needed to make one item and ship. Based on this, whenever an item goes into production, all the relevant suppliers are intimated of the same. This gives every supplier time to plan their production and delivery schedules. Company B also believes in sharing historical data, future plans and planning schedules on a regular basis with their suppliers. Taking a step forward, they also communicate the material receipt and payment processing dates creating good levels of transparency and timely information delivery.

It is obvious that the supplier of Company B is not going to stock too much inventory and buy as required. They will also supply as per the time schedule and have a fair idea of the payment cycle. Continuous procurement will also help the supplier to plan production at their end. Payment and order cycle reliability automatically will impact cost of production and price of the item. Company B will surely demand good quality at lower rates and get it too.

The reliability of timely payment trumps all the other options. If a supplier is assured of timely payment and the commitment is honored regularly, the offered rates will be automatically cheaper. However, no one sticks to the payment cycle, everyone delays and hence, somewhere there is a compromise in quality or buffering in costs.

How is China so competitive in the manufacturing sector? Cost cutting as a means to remain competitive is a shallow approach. There are larger economic factors at play which pushes up the price. Fuel costs, taxes, cost of operating a business, lack of infrastructure, the labor market all contribute to the increasing costs. If these are contained, automatically our products can become cheaper in the global arena. We need some serious root cause analysis and structured approach to cutting costs as an organization and not squeeze the ever dispensable packaging material supplier.

Though it can also be argued that these suppliers lack organized approach towards pricing, quality and need to work in a framework of specified price band like many paper mills supplying Kraft paper. Is there a scope for improvement amongst us corrugators?  

Book Review: Arlene Dickinson's All In

Published in DNA Sunday Edition 08.02.2015.

How Vapi Industries Association is Creating Sustainable Growth and Environment

Convergence of Industry, Community and Environment

Published in SME WORLD Feb 2015 Issue

We often read about the three generation concept of first as the creators, second as the sustainers and the third are either re-creators or destroyers. Amy Chua has also mentioned something similar in her book and so did Latesh Shah profess in his magnetic talk on “Let Money Follow You” at the recent InEXPO organized by Vapi Industries Association.

Manifestation of this thought is evident in how Vapi Industries Association (VIA) is shaping up off late. This 42 year old association has come a long way in addressing the issues of the industries and now moving onto larger concerns beyond the narrow boundaries of their factory premises and business concern. Treasurer of VIA Shri. Prakash bhai Bhadra said, “Our seniors had the vision to organize the industries of Vapi under an umbrella organization and this generation is looking at specific theme – based issues to focus on and take the organization ahead to newer levels.” Of course they do as is also evident from the VIAYuwa wing which is mentoring the GenNeXt Young Entrepreneur Group.

SME WORLD had the pleasant opportunity to visit Vapi and attend the prestigious InExpo conducted truly on a national scale. 205 stalls adorned the event located inside air-conditioned tents. The event was well organized with ample space for the crowd to move around and check the display. A food court was centrally located for the visitors and a fire brigade as well as ambulance was on standby for any emergency. The preparedness is quite apparent. Such events are common in the metros but observing the same in a city like Vapi tucked inside Southern Gujarat is highly commendable. The entire event was held on the sprawling grounds of VIA. Organizers stated that 200 people were working relentlessly to make the event successful for a period of more than a month.

In the backdrop of this Expo, SMEWORLD had a detailed discussion on wide range of activities of the association with the current office bearers of VIA – President Shri. Sharadbhai Thakar, Vice President Shri. Chaitanbhai Shah and Treasurer Shri. Prakash bhai Bhadra who were extremely courteous and patiently answered the queries while sharing their wisdom and vision.

Shaping of VIA

VIA was setup in 1971 by a small group of people from Mumbai. Affected by Datta Samant’s detrimental union activities, people were slowly shifting their businesses to the city which was not far from Mumbai but geographically detached from the state. Vapi is a chemical zone involved in manufacturing paints, pigments, dyes, pesticides, bulk drugs, textiles, pharma, API, speciality chemicals etc. Today Vapi is at a fully-grown state, growing even during the recession period. They are contributing a lot to exports. Rs. 6 – 8000 crores worth of goods are exported every year. Pharma, pigments and pesticides are exported even to China. VIA presently has 963 members representing 1700 units. Around 60 – 70 large, 100 -130 medium, 1000 odd are small scale and rest micro. The association is totally self-funded. 

Present Labor Union Scenario in Vapi

When you talk of people shifting to Vapi due to union issues, SME WORLD asked if there are labor issues now in Vapi. “Labor issues are negligible. There is no political interference due to the sheer strength of the organization. Wherever there are unions, the existence is highly constructive and not at all detrimental or destructive. If required the association intervenes to ensure that both parties are benefitted”, explained Sharadbhai Thakar.

Changing Focus of the Association

“In the beginning years, the focus was on building infrastructure, relaxation of norms, issues affecting new entrepreneurs, taxation and policies of government. Then in the 90s it was concentrating on globalization and how to succeed in the changing environment either by adaptation or innovation,” said Sharadbhai.

Addressing the Pollution Challenge

We could not resist asking the imperative question of why Vapi’s reputation was shadowed by its pollution concerns for a long time. Sharadbhai explained, “We had lot of pollution issues from 1992 to 1997. In 1986, the comprehensive environment act came into force but people were largely ignorant and lacked adequate knowledge about pollution, factors and technology that can help control effluent or still better – treat them before releasing into the environment. They were unaware on what it would do the environment, water, soil or air and how it can affect our lives. There were misconception and ignorance which had a combined effect on the environment. Here the association worked hand in hand to educate people, explain the issues to officials and started creating a framework to improve the ecology of Vapi.”

From 1999 hazardous waste was collected, treated and disposed on a 28 acre land. Today, Vapi has a common effluent treatment plant (CETP). Underground drainage system helps manage 55 Mn Liters/ Day. The CETP is a company formed under the association to operate it. So how does this CETP sustain financially? Sharadbhai said, “The members paid for the capital costs and now bear the operating expenses too.” What a judicious sense of addressing an issue in an exceptional way.

Leading VIA

We asked Sharadbhai how he manages and the leadership of the association. He humbly responded, “It is the team which is leading not an individual. We work like a government with specific sub-groups entrusted with the role of overseeing difference t areas. How do you think I am able to sit and have such an elaborate discussion with you in the midst of this huge expo?”

VIA’s Focus Areas

What are the activities of this association? “We meet once a month to discuss our activities and circulate regular communication of changes in the business environment to our members. We organize study tours to various countries. In April, we are going to Europe to visit some factories there. VIA has a Center of Excellence which has a library, R&D center, and hold regular skill development seminars, workshops and conferences.” stated Sharadbhai.

VIA is dedicated to Karyakarta Nirman by imparting knowledge through training, explaining step-wise processes. Women are also invited to see what is happening in their husband’s business. Skill development is a prime initiative of the association.

A Rozgar Mela organized every 3 months has yielded good results for creating a bridge between business owners and skilled job seekers. Prakashbhai says, “I have myself hired ITI’s from these mela for my company.”

Broadening Horizon, Evolving Role of VIA in Vapi

A striking feature observed in this association is that they not just concerned about themselves, their business and the city but broadened their horizon. VIA has a Sanjeevani Yojna providing Rs. 30 lakhs worth of support to alleviate the problem of malnutrition in some areas of Valsad. A Hum project is delivering nutrition kits to pregnant mothers and new born children. Blood donation camps are also held regularly. As Sharadbhai says, “Association should work for the society at large. We have to look into education and the environment from where we earn our livelihood and prosper.”

Prakashbhai shares, “From 2003, VIA’s concentration is centered on the need for world-class environment in the overall city. People are shifting to reside in Vapi instead of commuting three days a week from say Mumbai to run their business.”

Vapi is being redesigned by GIZ, German, CEPT, local architects and the industries along-with the government. VIA is working closely with GIDC and other government departments for good roads, storm water drains and increasing the green coverage and use of green technology in the city with Green Global Vapi drive. Parks, gardens and washrooms are being built to decorate the city landscape. The vision today is to reduce, recycle and reuse waste at the source.

A tree plantation initiative is also managed like a business. The association has got 20000 trees planted. Usually such drives end with the planting of trees. Here is where VIA has a different approach. They have enlisted the help of an agency to ensure that the trees survive or plant new ones in place of those which died. Sharadbhai calmly states, “Survival rate is 70% and we have the data to prove our claim. We take up initiatives which we believe in and then put our 100% into it for results and not just gimmick!”

There is a Rs. 22 crore project for disaster management center to tackle accidents and calamity.

Vapi Banse Vrundavan is another stellar initiative in this city. The industrialists believe that they owe their success to the city and it should resemble God’s abode. This shows the level of maturation of the industries from insular matters like profit and return on investment. The association hopes that Vapi will soon be one of the Smart Cities of India with all the amenities and a healthy standard of living.

Going by the adage of healthy body, healthy mind a sports complex for industrialists, employees, workers and their families is being envisioned by VIA. People should not end up in wasteful activities for the want of avenues to be more healthy, fit and constructive. Prakashbhai reiterates, “The complex is again a step towards sustainable growth and environment.”

The continuous evolution of VIA can be attributed to their relentless pursuit in looking for avenues to address and surge ahead. Today VIA is a force to reckon with and the Gujarat government recognizes their contribution to industry and society. As Latesh Shah said in his talk, “problems are in the corners and people tend to settle down allowing their Indriyas to become numb.” After the invigorating discussion with the forbearers of VIA, I am convinced that these are the people who are thriving by remaining unsettled and continuously trying to innovate and improve. And truly celebrating the life of conducting business.

We were shown around the Expo by the Treasurer of VIA Shri. Prakash bhai Bhadra. The scale of the expo is truly vibrant.  Prakash bhai explained, “We wanted a proper theme-based approach and not just another expo. The stalls were also designed to exert the same message“ There were stalls by a wide range of product and service providers. Thermax, Ricoh,  Industrial Safety Products, Pumps and Valves by KSB, Elecon, Filters by Elcom, LED companies like Maxlit from Mumbai, Interior Design firms from Mumbai, Zero-waste generating commercial complexes, Testing Equipments like Fischer Scientific, Technology solutions for Security, Pest Control, Finance etc. Seminars on both technical areas as well as motivational topics were organized during these days. Visitors were given a chance to listen to some of the well – known names like Shiv Khera, Kaajal Oza Vaidya (a prominent woman writer), Gujarati columnist Jauy Vasavada, Radhakrishnan Pillai of the Corporate Chanakya fame and Latesh Shah of the World Human Development Center. Technical seminars on waste and energy management as well as EHS were conducted for the surrounding industries. More than 250 personnel attended these events who are actually managing the activities in their company.