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10th International Conference of the TOC Practitioners Alliance - TOCPA

Feb 21-22, 2014 Noida, India

10th International Conference of the

TOC Practitioners Alliance - TOCPAwww.tocpractice.com

Life After Inventory Turns – What

Next?

Case of Godrej Locking Solutions and Systems

Prasun Chowdhury, Avenir, India

21 February 2014


Agenda

• Background of GLSS

• What needed to be changed?

• What were they changed to?

• What was the process of change?


A young company with a 117

years history….


First Business of Godrej group

Oldest lock manufacturer in India...

...117 years of experience

Market Leader...

...biggest lock player with unmatched

brand recognition

Industry Pioneer...

...several firsts with customized

solutions in all technologies

Wide product portfolio...

...to serve diverse customer needs

Godrej Locking Solutions and Systems

Nobody Knows Locks better than us


An enduring journey of

TOC implementation

• Started implementing TOC in April 2008

– Market leader but competition catching up in

terms of market share

• Avenir was their consulting partner for 5 years

• Continues to sustain and progress on their

TOC journey

• Since 2008, Throughput has grown by more

than 450% in very challenging macro

economic environment


Agenda





10th International Conference of the TOC Practitioners Alliance - TOCPA7 I Godrej LOCKSS I Theory of Constraint Across Value Chain to IIIE – Vizag Chapter | 28.01.14

Dealing with immense complexity!


Godrej 5 Security Strengths

Godrej Security level – 5Advanced Electronic Security

Godrej Security level – 4Elite Security

Godrej Security level – 1Basic Security

Godrej Security level – 2Ultra Security

Godrej Security level – 3eXs Security

The only company in the world to have all the 5 levels of Technology


Nature of LOCKSS Business

• Mass Distribution• MRP Based Pricing• Packaged Commodities Act• Small Value Items• Large number of SKUs• Battle for Shelf Space

FMCG OPERATIONS

CONSUMER DURABLES ’’’’ SELLING

• Installation • Service & Spares• Institutional Sales• Customized Solutions

Products and Solutions are for Consumer and Business Markets


A very complex operating

environment

1300+ Domestic Direct Institutional Customers 65+ International Customers 900+ Domestic Distributors/Direct Dealers28,000+ RetailersDistribution in 550+ cities3 major captive OEM customers 600+ Service Dealers

500+ Manufactured SKUs

300+ Traded SKUs

Customized Solutions

4 Manufacturing Locations1200+ Components42 Domestic Suppliers12 Job Work Suppliers13 International Suppliers across 5 countries3 Tool Repair Suppliers

5 Mother warehouses

21 Distribution hub warehouses

1 Bonded warehouse

Customers

Products Warehouses

Suppliers & Locations


Manage well

Organizational environment is very challenging

Protect the

future

Preserve the

present

Market

ChallengesOperational

Challenges

Top Management Objective…


Possible risks associated with focusing on growth

1. Large investment outlays are required for increasing

capacities

2. Risky product launches and acquisitions

3. Operations capacity mismatches resulting in operational

failures

Protect the future Protect the

present

Manage Well

Focus on growth Focus on stability

Where should the balance point be?


Possible risks associated with focusing on stabilit y:

1. Lots and lots, almost unending stream of problems that need

to be tackled on urgent basis

2. Lost opportunities in launching new products, acquiring new

customers, reaching out to new geographies

3. Competition steals march over us while our attention in on

keeping our house in order


present


Manage Well


The end result of this dilemma

1. Growth and consolidation are focused upon alternatively.

2. We have periods of sharp growth and then the focus moves on consolidating,

shedding flab, returning to the core.

3. We have periods of stagnation and then sudden spree of product launches

and acquisitions.

4. This cycle continues without the top management getting a sense that it is on

top of the issues.14


present


Manage Well


INCREASE

STOCK LEVELSLIMIT

STOCK LEVELS


INCREASE KAMAYEE REDUCE INVESTMENT

Increase Distributor Turns

INCREASE

STOCK LEVELS

THERE IS A CONSTANT STRUGGLE TO KEEP THE BALANCE:

•You may have high stocks of one SKU and low stocks of another SKU at a point of time.

•You may have high stocks at the month beginning and low stocks in between.


THERE IS A CONSTANT STRUGGLE TO KEEP THE BALANCE:

• Order early will assure timely execution of project, but there is high risk of

money blockage and product tarnishing

• Order late will assure no risk of cash flow and product at good condition, but it

has a high risk of on time delivery of project


On Time Delivery –Real Estate Industry

ORDER EARLY ORDER LATE


Focus on Technical aspects

Increase Service Levels –Telecom Tower Industry


Focus on Admin aspects

Maintain Technical Superiority Zero Thefts

• Is it possible to have “Zero Thefts” which makes you the most reputed tower company?

• Can focus completely on operational excellence & network expansion?

• Is it possible to stop worrying about theft issues & focus continuously on improvement of

operating efficiency?


People are bad!

18

Give me More Margin then I will

buy…

You are not helping me in collecting my

outstanding…..

Buy More Volumes…

You are not doing enough retailing…

Your are not helping in meeting

my Targets…Distrib

utorSales

You will never Accept! You will Never Change!


People are bad!

19

You Never Supply on Time…..

Your Forecast is Always Wrong….

Sales Mfg



People are bad!

20

Your First Pass Yield is Low…..

You do not manufacture as per drawing…

You Keep on Changing the

specifications…

Your Design is not Manufacture friendly….

Design

& EnggMfg



Forecast based misalignment

Procurement

RM / Compo

nent Vendor

s

Production

Shop floor

TransferFactory Wareho

use

Primary SaleBranch

Secondary Sale

Distributor


Agenda






Pull based alignment

Procurement

RM / Compone

nt Vendors

Produ--ction

Component Shop

Production

Assembly Shop

TransferFactory Warehouse

Primary SaleBranch

Secondary Sale

Distributor

Pull

Shop floor


Broad elements to Build Decisive Competitive

Leverage - Higher Distributor Inventory Turns

• Creating a supply chain that responds to actual signals from the market

instead of responding to a monthly forecast

• Restricting the flow of material into the plant thereby reducing WIP and

improving the capability to respond to consumption changes in the market

• Pulling inventory upstream in the supply chain where the forecast error is

minimal

• Training sales people to sell solutions that deliver value to distributors

• Dynamically aligning the inventories to changes in consumption


The overall design across the supply chain

Plant & Plant warehouse

Central warehouse

Branch warehouse

Distributor Retail


Agenda






Distribution

• Inventory Turn offer• Replenishment based on actual sales

and only up to the buffer stock level• Minimum lead time for bulk or

institution order

• WoW – Week on Week Sale• WW2W - Weekly War to Win• Capturing sku wise distributor wise

daily sales• Product segment focus - ‘Lifestyle’

products in the same system

• From Primary sales to Secondary sales for Distributors and Sales Personnel

• From Month, Quarter and Annual toWeek, 4 Weeks, 13 Weeks and Annual

• Training• Reinforcement – Weekly and 4

Weekly Communication Report• Local Area Marketing Activities


Retailer Salesmen & Carpenters

• Daily Sales Information to IDEA retail outlets

• Working with IDEA outlets• Choking the release of enquiries

• Specialized Training Program - Skilling• Carpenter Club• Short Interval Control – Weekly,

Fortnightly review

• Measurement changed from Purchase from Distributors to tertiary sales from retail outlet

• From Month, Quarter and Annual toWeek, 4 Weeks, 13 Weeks and Annual (13 4-weekly cycle)

• Training• Weekly Communication reports• Local Area Marketing Activities


New Thinking (Game of 1%) –

WoW and WW2W

Required Hit Rate (40% Growth)

Avg Score ( Last 13 Weeks Sale)

Overs 1 - 52

Wee

kly

Sco

re

Incremental & consistent growth planned from wk 1 rather than growth in spurts


Broad elements to Build Decisive Competitive

Leverage – Higher Reliability of Supplies from a

Single Source –

• Creating a system that captures actual signals from the customer early at

every point of time instead of responding in the end

• Restricting the flow of orders into the plant thereby ability to complete the

few orders quickly and ultimately complete more orders in a given period

• Reserve 30% capacity as Protective capacity for execution of large bulk

orders

• Training people to understand and capture the real needs, develop

solutions to satisfy and then sell the as value to the institution customers

• Dynamically remain alert to the changing environment


Marketing & Sales

• DCE offers to B2B2C and B2B• Supply Chain – ‘PULL’• NPD & NPI using CCPM• Less is More – Focus on few

customers and few enquiries at a time• Influencer Management

• WoW – Week on Week Sale• Short Interval Control - WW2W and

ISR• Generic PERT for NPD / NPI• ‘LIFESTYLE’ Products in the same

system

• From Primary to Secondary sales• From Sales to Throughput• Product rationalization• Time to Profit, TRD Loss

• SBP/ABP Sharing• Field Contact Program• Structured Reviews• Local Area Marketing Activities


Changing Mindset : Breaking Myths

Old thinking New thinking

Pushing stocks to a distributor / retailer will make him run

With optimum stocks & increased inv turns, distributor / retailer will be motivated to increase sales

Only products with high margin sell Investment in inventory and margin are two sides of same coin

All efforts to be in the direction of maximizing sales value

All efforts to be in the direction of maximizing Contribution value

Sale can be increased by adding more and more SKUs

Sale can be increased by focusing on few SKUs which give maximum Contribution

Job of a sales person is to sell, sell and SELL

Job of a sales person is Business

Development and to generate demand


Operations

• MTA – Stock Buffer• MTO – Time Buffer• Reduce Lead Time by 50%• Minimum Batch Size• ‘NO’ Consumption ‘NO’ Production• 30% Protective Capacity • Load Control

• Split of Plant – Assembly & Component

• Common Priority for MTA & MTO• Yo-Yo Reduction

• Single Priority System based on Colour Status

• Global Measurements – TRD Loss, % Black/Red

• Process Planning Cell• Dynamic Buffer Management

• Shop Floor visits for Colour Status• Training• Visual Control• Daily / Weekly Reviews


Changing Mindset : Breaking Myths


Achieve monthly production value Produce to availability as per penetration of Buffer in the warehouses

Batches based on EOQ calculations Batch size is as low as possible

Multiple Priorities based on urgencies communicated by different stakeholders

Single priority system based on buffer penetration in the warehouses

Delivery commitment is given w/o checking resource availability

Delivery commitment is given based on available protective capacity

Suppliers supply material based on monthly schedule

Daily / weekly supply based on penetration of buffer in the warehouses

To keep the resources occupied all the time for production

Employ resources for improvement programs & training during lean demand periods


Sourcing

• Replenishment based on Consumption for FG, RM & components

• 30% Capacity reserved for MTO/ETO/CTO

• Milk Van System• Load Control • Virtual Buffer Logic for Imported

Traded SKUS

• Global measurement of % Reds and Blacks

• Single and Common Priority based on colour status for all types of suppliers

• Virtual Buffer concept

• Training• Supplier Meets - Contact Program• Satisfaction Survey - ATR


Design & Engineering

• Using Time Buffer concept for all enquiries and monitoring

• Critical Chain Project Management for New Product Development and Introduction

• Choking the Release of enquiries based on workload on Designers

• Partnership with Industrial Design Firm for aesthetics / form / finish

• Make To Order for initial batches of New Products

• Global measurement of TRD Loss and % Reds and Blacks

• Single and Common Priority based on colour status

• Training on TOC and CCPM• Daily, Weekly Review


Manufacturing, Purchase, Logistics, Design & QA, Suppliers

Distributors, Frontline sales team

Divisional Management Committee, Middle management at Sales & Marketing

Alignment in Measurement


Finance and Measurement

• Throughput is the prime Measure• Profit = T-OE• ROI = (T-OE)/I• Business Productivity = T/OE

• TVC Calculation & Throughput OLAP• Robust Decision Support System –

Template for deciding Schemes, Throughput value template for New products

• Weekly and Monthly DMC Scorecard

• Senior Management Measured on T, PBT and Cash Flow

• Measures for other people are derived from above measures

• Common measure in production

• Measurement workshop• 4 Weekly and Quarterly reviews• Quarterly TVC Review



10-15% growth in profits is okay for a business like Locks

The sky is the limit

We can do many projects simultaneously

We take one project at a time, complete it and then go to the next

Goal is to maximize sales value Maximizing Throughput is the goal

Sales can be increased by adding more and more SKUs

Sales can be increased by focusing on a few SKUs which give the highest T

Sales can be increased by incentives only

Sales can be increased by Local Area Marketing Initiatives

A year has 12 months A year has 52 weeks (i.e. 13 months ☺)


Stakeholder Measures Benefits Capabilities

Customer• Inventory Turns• Availability• Reliable Supply

• Higher ROI• Project Completion on Time• Increased Throughput

• Understand market and competition trend

• Increased focus on Projects

People• Throughput, TRD

Loss• Secondary Sales• No. of Blacks &

reds in w/h

• Higher variable pay• Team working with Common

Priority

• Ability to respond quickly• Analytical ability and Problem

Solving• Improved Team work

Suppliers• No. of Blacks &

reds in w/h• Lead time

• Higher ROI• Common Priority System• Steady Growth in business

• Quick Response to daily requirement

• Ability to manage frequent changeovers and small batches

Business Enterprise

• Throughput• PBT• Cash Flow

• Exponential Growth• Improving Capability• Sustained Competitive edge

• Truly Locking Solutions and Systems Provider

Retailer Salesmen / Carpenters

• Tertiary Sale• Higher Earnings• Recognition

• Product Knowledge• Improved retailing and carpentry

skilling

Building and Sustaining

Capabilities


Success story continues…

* Industry growing at 12.5% CAGR for last 4 years – Nielsen Study

** Study done by IMRB


No of Real Estate Developers

No of Real Estate Developers

Sales From Key AccountsSales From Key Accounts

Wallet ShareWallet Share

Carpenters & Retailer Salesmen

Carpenters & Retailer Salesmen

Inventory ManagementInventory Management

Lead Time ReductionLead Time Reduction

• From 439 in 2009 to 1236 in 2013

• Grown by 46% in 2012-13

• 17% in 2012 to 21% in 2013

• No of GLCC carpenters -2693 in 36 clubs in 16 cities

• Retailer Salesmen 1351 trained

• FG: from 39 Days in 2009 to 26 Days in 2013

• RM: from 74 days in 2009 to 50 days in 2013

• WIP: from 34 days in 2009 to 20 days in 2013

• 16 weeks in 2010 to 5 weeks in 2013



CAGR in SalesCAGR in Sales

New Product Vitality (Rolling 156 Weeks)New Product Vitality (Rolling 156 Weeks)

Supplier Satisfaction Score

Supplier Satisfaction Score

Employee Satisfaction Score

Employee Satisfaction Score

• 140% Better than Industry over 2009-13

• 12% in 2010 to 21% 2013

• Increased from 87 in 2009 to 93 in 2013

• Increased from 83 in 2010 to 87 in 2013



Prasun Chowdhury

Contact info: [email protected]+91 98111 10800

Prasun’s greatest high is when a client tells another “TOC

Rocks”.

Prasun has been a consultant and coach for over 19 years

for Fortune 500 as well as medium sized organisations

across the world. He works for Avenir, a leading TOC focused

consulting firm with presence in India and Mexico.

As a TOC student, Prasun believes that the key obstacles to

be overcome in implementation is the paradigm shift of the

top leadership of organizations.

Prasun is an alumnus of B.I.T.S, Pilani and a management

graduate with Distinction from Asian Institute of

Management, Manila.

Prasun was the Engagement Director for Avenir during its 5

year partnership with Godrej Locking Solutions and Systems.


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