Zoru Bhathena
Zoru Bhathena Zoru Bhathena
TOCICO CONFERENCE 2008 TOCICO 2008 Conference Is this Theory of Constraints or Theory of Liberating Minds Presented By: Zoru Bhathena – Director Director, Nat Steel Equipment Pvt Pvt. Ltd Ltd., Mumbai Ravi Gilani – Managing Consultant, Goldratt India Sanjay Ghoshal – Director, Avenir Date: 3 rd November 2008 1
- Page 2 and 3: Storyline • Who is Nat Steel −
- Page 4 and 5: A Sellers Market • The eMain a cu
- Page 6 and 7: Enter Ravi Gilani - Start of a chan
- Page 8 and 9: Success lies in simple solutions
- Page 10 and 11: Insight: No No-body body (including
- Page 12 and 13: Full Kit Corollary • Corollary y
- Page 14 and 15: You need to push the customer! TOCI
- Page 16 and 17: The power of Visibility TOCICO 2008
- Page 18 and 19: The power of Self Regulated System
- Page 20 and 21: Celebrations! 25% Growth RReduced d
- Page 22 and 23: Re Re-enter enter Ravi! • I am un
- Page 24 and 25: Product Mix Rationalization • We
- Page 26 and 27: “Man “Man cannot cannot discove
- Page 28 and 29: So what happened! “Measurements e
- Page 30 and 31: What made the Difference - A TOC Pr
- Page 32 and 33: About Zoru Bhathena • 3rd generat
- Page 34: About Sanjay Ghoshal • Sanjay is
TOCICO CONFERENCE 2008<br />
TOCICO 2008 Conference<br />
Is this Theory of Constraints or<br />
Theory of Liberating Minds<br />
Presented By: <strong>Zoru</strong> <strong>Bhathena</strong> – Director Director, Nat Steel Equipment Pvt Pvt. Ltd Ltd., Mumbai<br />
Ravi Gilani – Managing Consultant, Goldratt India<br />
Sanjay Ghoshal – Director, Avenir<br />
Date: 3 rd November 2008<br />
1
Storyline<br />
• Who is Nat Steel<br />
− History<br />
− Products & Customers<br />
• Nat Steel an average company in the beginning of 2002<br />
• Enter TOC<br />
− How TOC was brought in the company<br />
− IImplementation l t ti of f first fi t principles i i l<br />
− Extra-ordinary results<br />
• Stagnating at a higher level<br />
TOCICO 2008 Conference<br />
• Re-igniting TOC philosophy and Breaking all the conventional rules<br />
• Achieving Viable Vision within a year<br />
• What made the Difference – A TOC Practitioners Perspective<br />
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A Modest Start<br />
TOCICO 2008 Conference<br />
• Nat a SSteel ee was as sstarted a ed in 1947 9 by Mr. Ardeshir des <strong>Bhathena</strong> a e a<br />
(my Grandfather) as manufacturer of cupboards and<br />
hospital furniture<br />
• In the 1950 ours was the 1 st company to manufacture<br />
Sterilizers in India<br />
• In the 1970’s 1970 s we started manufacture of Laundry<br />
Equipment for hospital use & Industrial Kitchen<br />
Equipment for hospitals & factory canteens<br />
• All three products lines were manufactured in three<br />
separate factories situated in Bombay city<br />
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A Sellers Market<br />
• The eMain a cuso customers eswere eeHospitals, ospas, Pharma a a<br />
companies<br />
− Word of Mouth<br />
− Repeat Purchase<br />
− Personnel moving to other Hospitals<br />
• We were well known for quality equipments<br />
• We were was also well known for high prices<br />
• However, primarily we were known for our “late<br />
deliveries”<br />
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TOCICO 2008 Conference<br />
• Now looking back, we often wonder why the customers<br />
were buying equipments from us
With time there comes competition<br />
• By y 1990, 990, competition co pe o was as aall oover e us<br />
• We became a classical Unico. and me Alex Rogo<br />
TOCICO 2008 Conference<br />
− Promised lead time of 3 months (Actual lead time was as<br />
much as 9 months!)<br />
− Dissatisfied customers threatening to move to competition<br />
− We used to dread customer calls<br />
− High inventory etc.<br />
• WWe brought b ht the th three th ffactories t i under d one roof, f but b t<br />
could not integrate. They were known as India,<br />
Pakistan and Bangladesh.<br />
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Enter Ravi Gilani – Start of a change<br />
• In 2002, 00 , aafter e aalmost os two o<br />
years of discussion, we<br />
finally roped in Ravi<br />
Gilani for a one year<br />
engagement<br />
• We agreed g on two ggoals:<br />
− To Deliver on Time<br />
− To Generate Positive<br />
CCash h Fl Flow<br />
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We had no idea about what is going on…<br />
• No o pproper ope list s oof receivables ece ab es<br />
• No proper record of inventory<br />
• No proper records of orders<br />
• No proper understanding of DDP<br />
− Nine months delay in production, production but no priority list<br />
Simple Rules of Survival:<br />
• Respond to the customer who shouts the loudest<br />
• If customer has paid advance, advance ignore him the most<br />
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TOCICO 2008 Conference
Success lies in simple solutions<br />
• Ravi’s a s Rule u e 1: List st aall tthe e pe pending d g oorders de s aand d<br />
prioritize<br />
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− How is it possible to prioritize when everything is urgent<br />
• We attempted anyway!<br />
• I am very proud to say that this Excel Sheet termed<br />
by us as “Order Priority” has stood the test of time time.<br />
• If somebody wanted his machine moved up or<br />
down the priority list list- he had to interact with only 1<br />
person - me!<br />
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We started measuring our performance simply by<br />
measuring “Cash in Bank”<br />
TOCICO 2008 Conference<br />
• When we started, we had very heavy borrowings…when we<br />
finished we had a tidy deposit! Our bankers could not understand<br />
how we had converted ourselves from a borrower to a depositor &<br />
refused to close our borrowing limits, “Just incase you need it”,<br />
they said!<br />
• More difficult was trying to convince my MBA friends, who were<br />
consultants with Accenture, KPMG, etc.<br />
They could not believe that there was a ‘consultant’ who measured<br />
the companies performance with ‘Cash in Bank’! They insisted that<br />
I should measure efficiency, productivity….. and other such<br />
important sounding words. But for me ‘Cash in Bank’ sounded the<br />
most logical measurement<br />
measurement.<br />
• At the end of the day, we managed to pay back all our bank<br />
borrowings & started depositing money. What better proof that the<br />
‘ ‘consultant’s lt t’ metric t i was accurate!<br />
t !<br />
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Insight: No No-body body (including customer) has any clue<br />
when the machines are really required<br />
Sales Executive:<br />
Yesterday When do<br />
want the<br />
machine<br />
Customer:<br />
@$%&<br />
What do you mean when?<br />
I wanted it yesterday<br />
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desptached?<br />
Now try and build the machine on urgent basis and you find out<br />
that the machine is not required at-least for next six months<br />
SSo there th goes your Reliability R li bilit and d Rapid R id Response R offer…out ff t of f the th<br />
window<br />
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Choke the release!<br />
• Ravi’s Rule 2: No more than 3 machines on<br />
the shop floor<br />
− How is it possible, there are so many pending<br />
machines!<br />
• In 2001 we took more than 3 months to<br />
manufacture one machine<br />
• We tried to manufacture 20 machines<br />
sim simultaneously ltaneo sl and failed miserably miserabl<br />
• We brought down the lead time dramatically<br />
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Full Kit Corollary<br />
• Corollary y to the Rule 2: No machine to be<br />
manufactured unless 100% raw material<br />
was available<br />
− 100% raw material…you t i l must t bbe<br />
crazy<br />
• Result – We crashed the lead time to 7<br />
days! Today we manufacture the machines<br />
in 3 to 5 days<br />
• Now that we need only 3 days, start<br />
manufacturing only when the customer<br />
shouts.<br />
• Ti Time to t time ti the th customer t still till delayed d l d<br />
accepting the machines<br />
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TOCICO 2008 Conference
Never believe the customer<br />
TOCICO 2008 Conference<br />
• We then devised a rule- “Never Believe the Customer”<br />
• Once an order is received- it is OUR responsibility to<br />
inspect the customer site at the time of receiving the<br />
order and it is the sales person’s responsibility to give<br />
his estimate about the expected date of delivery<br />
• A week before this date date- OUR service engineer visit<br />
the site, inspect and take the customers signature that<br />
the site is ready for delivery<br />
• It is a different matter that NO customer ever signed!<br />
They insisted- deliver the machine- we will get the site<br />
ready<br />
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You need to push the customer!<br />
TOCICO 2008 Conference<br />
• Since S ce the e cus customer o e was as not o willing g to o ssign g a ‘site s e ready eady<br />
certificate’ we started pushing them to get it ready<br />
• We sent our service technician again and again to visit<br />
the site<br />
• We started asking “shall we do it for you”?<br />
• This had the immediate required reaction, sites started<br />
getting ready and we were able to start planning our<br />
manufacturing more meaningfully!<br />
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The power of Daily Meetings<br />
TOCICO 2008 Conference<br />
• We started a daily factory meeting. Whenever I was free, I would<br />
go g to the shop p floor, , the watchman would sounds the lunch siren.<br />
ALL the staff and workers would assemble at one point<br />
• We would run through the order priority list. The idea is to have a<br />
common understanding about which machine has priority over the<br />
other<br />
• For the workers who work on a ‘physical/ visible’ machine this was<br />
never a problem problem. However However, the man in the machine shop did not<br />
have a clue where his machined parts went.<br />
• Initially we had problems with every worker. Not enough machines<br />
to work on on, not enough helpers helpers, not enough help from the previous<br />
department etc.<br />
• Soon people started speaking the same language and started<br />
hhelping l i each h other. th They Th sorted t d out t th their i problems bl amongst t<br />
themselves and stopped mentioning it at the meetings<br />
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The power of Visibility<br />
TOCICO 2008 Conference<br />
• We affixed a white board inside the entrance of our factory with the<br />
priority p y list<br />
• All persons entering whether customers, staff, workers and most<br />
importantly suppliers could see the list for themselves and decide<br />
on their course of action<br />
• We gave operations only 1 week notice before giving OK to start<br />
manufacture of a machine<br />
− In 1 week time they were expected to procure 100% of the RM<br />
required and manufacture the machine. N<br />
− No RM stock was permitted to be stored in the factory, the stores<br />
were not to be used for storing any longer longer. So we moved the stores<br />
from a 5000 sq feet room to a 100 sq feet room<br />
− The idea being if they did not have enough place to sit, they would<br />
stop buying & storing RM<br />
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The power of Supply Chain<br />
TOCICO 2008 Conference<br />
• Do you feel it is possible to procure 100% RM in 1 week, when you<br />
have over 300 totally y different components p on each machine !<br />
• Sounds difficult?<br />
• This was the easiest policy to implement, in-fact our suppliers<br />
lloved d us with ith thi this changed h d working ki environment. i t<br />
• They were amazed at our changed agility and quickly adapted to<br />
our requirement. Today if we need ANY part, I can guarantee that<br />
it will be delivered within 24 hours!<br />
• Obstacles: Some large suppliers have ERP (SAP) systems in<br />
place! p<br />
− How wonderful! These suppliers need just 5 working days to input<br />
our order into their system!!!<br />
− We learned, learned very soon soon, how to manipulate their ERP system & also<br />
who was the correct person to telephone, who was able to bypass<br />
the ERP system and deliver the RM<br />
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The power of Self Regulated System (or in other<br />
words Excel Worksheets)<br />
TOCICO 2008 Conference<br />
• Who the hell wants to wait a week for the ERP system to input<br />
data!<br />
• My advice to all using ERP…throw it away …shift to Excell!<br />
• Th The more rules l & regulations l ti you put t iinto t place, l th the more ttrouble bl<br />
your company is going to be in.<br />
• Anyone who’s been to India would know how the traffic is like!<br />
• The only reason everyone survives is because there is no control.<br />
No cops, No Signal…just a simple rule… might is right<br />
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SG2
Slide 18<br />
SG2 Add Video<br />
Sanjay Ghoshal, 8/4/2008
Celebrations!<br />
25% Growth<br />
RReduced d dL Lead dTi Time<br />
Excellent DDP<br />
Happy Customers<br />
CCash h in i Bank B k<br />
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TOCICO 2008 Conference
Curse of TOC – Stagnation at a higher level<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
Almost no<br />
growth! th!<br />
We became<br />
complacent,<br />
not hungry<br />
enough<br />
4%<br />
Revenue Growth<br />
3%<br />
Good but not<br />
enough g<br />
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Good growth, growth<br />
but production<br />
on the brink of<br />
breakdown<br />
27%<br />
Up from the Slumber<br />
19%<br />
FY 2004 FY 2005 FY 2006 FY 2007
Re Re-enter enter Ravi!<br />
• I am unimpressed<br />
unimpressed…<br />
• Are you hungry enough to look<br />
at some “Real” growth?<br />
• Do you want to double your<br />
“T”?<br />
Ravi <strong>Zoru</strong><br />
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What?<br />
Doubling T in a year?<br />
I do not believe it!<br />
But you have done<br />
magic before. Let’s<br />
start again
Price Paradigm<br />
• Ravi a sugges suggested ed we e increase c ease the e pprice! ce<br />
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− Are you crazy! We are any way expensive! we will not sell<br />
anything!<br />
• However, We increased our prices by 30%, 3 months<br />
later we increased a further 30% and 3 months later<br />
another 30% 3 %<br />
• Contrary to popular belief! we got flooded with orders<br />
− Our factory was working on the edge!<br />
− We again started facing delayed deliveries!!!<br />
• And we thought g the sales will drop!!! p<br />
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Product Mix Rationalization<br />
• We e thought oug that a ou our capac capacity y is s the e bo bottleneck e ec<br />
• Laundry was taking double the time of Sterilizer<br />
− T/day for Sterilizers was double that of Laundry<br />
TOCICO 2008 Conference<br />
• We decided to drop the laundry equipment, but how?<br />
• We doubled our prices prices…<br />
• Guess what, our sales also doubled!!!<br />
• What a product mix rationalization!!!<br />
Hope my customers are not listening<br />
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Ravi introduced Sanjay, who came equipped with<br />
latest thoughts from Eli’s Viable Vision initiative<br />
• He e cchanged a ged ou our viewpoint e po from o<br />
“bottleneck should always be in production”<br />
to<br />
“bottleneck should always be in the orders”<br />
• Initiall Initially it so sounded nded horrible to us s<br />
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“what if we don’t have enough orders? Then what will<br />
we do?” do?<br />
• But that’s what happened…we doubled our “T”<br />
The production increased by 72% 72%, and we still had<br />
some capacity left<br />
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“Man “Man cannot cannot discover discover new new oceans oceans until until he he has has<br />
the the courage courage to to lose lose sight sight of of the the shore” shore”<br />
• When e we e left e ou our fears ea s be behind d<br />
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− We realized that our factory production was hugely elastic<br />
− We had huge hidden and undiscovered capacity<br />
• It was our wrong belief that production is fixed!<br />
• It’s amazing g that anything y g the mind believes can be<br />
truly achieved!<br />
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Viable Vision in One Year!<br />
In 2007-2008 00 008 we e were e e ab able e to o ac achieve: e e<br />
TOCICO 2008 Conference<br />
a) Our Manufacturing Despatches increased by 72%!<br />
(The Government was the happiest- as it earned record<br />
revenue from our company!)<br />
b) Our despatches were always on time!<br />
c) ) Our profits p increased by y 400% over our last year’s y pprofits!<br />
d) We achieved a 96% increase in Throughput,<br />
All this was achieved without increasing a single resourceno<br />
o add additional o a manpower a po e nor o add additional o a investment es e in pplant a &<br />
machinery!<br />
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So what happened!<br />
“Measurements easu e e s ddrive e be behaviour” a ou<br />
“The power of simplicity”<br />
TOCICO 2008 Conference<br />
“when when you change the way you look at things things, the things<br />
you look at change”<br />
“ it is not because things g are difficult that we do not dare.<br />
It is because we do not dare that they seem difficult”<br />
“ A dream is not what we see in our sleep; A dream in<br />
what does not let us sleep”<br />
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Theory of Liberating Mind<br />
• In 2007-2008 00 008 we e ddid d not o increase c ease pprices ces further u e<br />
• We did not increase staff/employees<br />
• We did not increase machinery<br />
• Yet Yet- we e increased T bby 100%!!!<br />
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• This is the power of TOC, it all about changing our<br />
mindset!<br />
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What made the Difference – A TOC<br />
Practitioners Perspective<br />
• Owners win-win attitude<br />
TOCICO 2008 Conference<br />
• Encourage people to aim high, but provide safety net…do not<br />
punish for failure!!!<br />
• AAvoid id analysis-paralysis…only l i l i l corrective ti action ti<br />
• Focus on company performance…rather than individual, regional<br />
or any other such measures<br />
• What is a month? An year consist of 52 weeks<br />
• No negative talks please!!!<br />
• Talk about empowerment…people can take the pricing decision on<br />
their own..from zero to 1000% of the list price<br />
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So what next?<br />
TOCICO 2008 Conference<br />
• This company p y is already y the market leader in the hospital p<br />
sector with significant share of the market<br />
• Time has come to elevate the market now<br />
• Ph Pharma sector t is i a growing i segment t in i India I di with ith large l<br />
potential<br />
• The price and thruput is much more in this sector as<br />
compared to the hospital segment<br />
• The direction of Nat Steel is to enter this segment<br />
• However However, a successful entry would require dramatic changes<br />
in the quality. Nat Steel commits to improve its quality<br />
parameters suitable to Pharma sector and attain market<br />
leadership p in an years y<br />
time<br />
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About <strong>Zoru</strong> <strong>Bhathena</strong><br />
• 3rd generation entrepreneur from<br />
Bombay Bombay, India India, studied his<br />
Bachelors of Commerce from<br />
Bombay and thankfully never got<br />
down to doing his MBA!<br />
• CComes ffrom a ffamily il of f Car C Racers; R<br />
won the Indian Rally Championship<br />
in the un-modified group<br />
championship and is probably the<br />
youngest Rally Champion,<br />
Champion<br />
worldwide, to achieve this feat!<br />
• A broken wrist put him ‘out of<br />
action’ from motorsports for a few<br />
months…. th having h i nothing thi better b tt to t<br />
do, he started attending his fathers<br />
business.<br />
• Started working g at Nat Steel, , since<br />
1995, <strong>Zoru</strong> loves to solve problems!<br />
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About Ravi Gilani<br />
• Ravi Gilani, is the founder and<br />
managing g g consultant of<br />
Goldratt India<br />
• Ravi introduced TOC in India in<br />
1998.<br />
• Ravi helps organizations<br />
increase their profits by<br />
simplifying their<br />
measurements. He enjoys<br />
striving g for the impossible by y<br />
challenging h ll i sacred d<br />
assumptions and simplifying<br />
complexity.<br />
• Ravi has been on the board of<br />
TOCICO since i November N b 2005. 2005<br />
• Ravi can be contacted at<br />
ravigilani@goldrattindia.com<br />
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About Sanjay Ghoshal<br />
• Sanjay is one of the founding<br />
Director of Avenir Avenir, a<br />
management consulting firm<br />
focused on TOC<br />
• Sanjay was the Regional<br />
Director of Goldratt Consulting<br />
till 2007<br />
• Sanjay j y was involved in many y<br />
Viable Vision projects in India<br />
• Sanjay has worked in SFSCo.<br />
To develop the marketing and<br />
sales solution for Viable Vision<br />
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[Color Photo of Presenter]