QMS-CASE Study - Bharath Forge PDF

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Bharat Forge - Reshaping the shopfloor In January 2003, the Pune based engineering major Bharat Forge Limited (BFL) secured its second largest customer in China-Guangxi Yuchai Machinery Co for engine components. This is the equivalent of selling coal to Newcastle; it sent out clear signals that the Chinese were not the only low-cost producers of forgings. Today, it is BFL that can boast of that distinction, enjoying a cost advantage of 20 to 25 percent over its Chinese rivals. The Chinese are not the only ones. Enquiries for BFL forgings-automotive engine and suspension components-are pouring in from across the globe. The growing global demand is evident in the way exports have grown at BFL. A decade ago at Rs 15 crore to Rs 20 crore BFL’s exports accounted for less than 2 percent of turnover and by 1995 exports were around 7 percent. In 2002, exports were 16 percent and in 2003 it was 40 percent. And by 2004-05 exports are expected to account for half of BFL’s revenues. The export focus is a deliberate strategy driven by the exigencies of survival. It grew in earnest after 1995 when economic growth started slowing. By 1997, the production of trucks-which accounts for 75 percent of the company’s businessskidded from 150,000 in the earlier year to less than 80,000. So with waning domestic demand, exports was the only way out. The trouble was BFL was singularly unprepared to service the export market. Its principal problem was that shopfloor operations, which consisted of a hammer shop were outdated and it needed to reorient itself by investing in faster press shops. Like all other forging companies in India, BFL had a conventional forging plant with eight hammers which was enough to meet existing demand of 3,000 tonnes of forgings a month. But as business grew, the company needed to manufacture using presses with their higher production capacity. It the early nineties, BFL began by investing Rs.120 crore in its first two state of the art forging Muller Weingarten Press Lines, with a capacity of 22,000 tonnes. A similar sum was invested in a second press line in 2000, pushing up capacity by another 16,000 tonnes. Overall, the company has invested about Rs 400 crore in the past 14 years or so in upgrading itself to global standards. The first stage of forging in the hammer shop is moulding the raw material that is heated in a furnace. This requires hammering a particular piece at least five or six times before it acquires a shape. This is followed by the second stage, which is forging, and then the final stage of trimming. While it takes anywhere between three and five minutes to make one forging in the hammer shop, the same piece is now ready in only 40 seconds in the press shop.

Moreover, the tedious process in the hammer shop had its repercussions since it was all manually operated. For instance, there was a fair chance that no one finished piece was exactly like the other, even though it was made in the same manner. Compare this to the press shop, where everything is automatically controlled. So by installing press lines, the company has been able to standardize production and eliminate the discrepancies. International customers want precision and speed, which is what they have been able to achieve with new press lines. Thus the quality of the final product made in the press shop is much higher than if it was made in the hammer shop. As a result, BFL’s hammer shop today makes only low volume parts like wheels, axle beams and some crankshafts. Importantly, the shift from hammer to press shop resulted in drastic cost reduction on the shopfloor. It enabled the company to save a variable cost of about Rs. 6,000 per tonne. The next area that the company targeted was sustaining the life of the die, which is an impression of a piece that is used to make a forging. The shift from the hammers to the press helped by increasing the life span by two and a half times. This helped pare cost considerably apart from speeding up of the process of making forgings. Power costs alone dropped 40 percent. With export orders picking up, speed became a crucial factor. So BFL decided to revamp its manual designing process by opting for CAD/CAM processes. The top management at BFL realized that designing is a crucial part of any forging business because it plays a major part in reducing the defects in forging. Thus, BFL now designs the dies and tooling for making forgings with the help of computers replacing the draftsmen who used to work out the design on paper. Today, the design of a particular die is first done on the computer and then directly downloaded to be finally made by the machine. There’s no human intervention. In the past, their manufacturing was based purely on human skill and today they use the human brain. This upgradation again added straight to the bottom line because BFL was able to almost halve the number of people in its design department to 50.

BFL is also working on capacity utilization, which was a low 40 odd per cent before 1997. But now with exports booming, capacity utilization has increased to about 70 percent. In forging business, there is no such thing as 100 percent capacity utilization. It is an ongoing issue. The reason capacity utilization is not a critical issue is that BFL manufactures different types of forgings, each of which has its own process and manpower requirements. The company designs a die for each forging and the machine then takes care of the manufacturing based on the quality specs. Thus, a greater amount of time is involved in product development and designing so capacity is not critical. But the whole transformation process was not just restricted to technology. The biggest challenge that the company has to face was changing the mind set of its people. Since they upgraded to more sophisticated ways of manufacturing, it was imperative that they replaced the older lot of workers with fresh talent. Today, out of the total manpower of 2500, roughly 900 are shopfloor workers. 10 years ago, BFL had almost 2000 people on the shopfloor alone. While a part of the older workforce is still present, it works in the old part of the shopfloor. A voluntary retirement scheme was offered to the older workforce. Now BFL boasts a younger workforce comprising engineers, technical experts and computer literates. This meant that BFL could now empower people to make decisions. They are basically certified to use their natural abilities to improve the way in which the company runs. For instance if earlier a shopfloor problem took 3 or 4 days to be solved, since it needed to go through all the heads and managers at the top, today, it takes half the time to solve the same problem as engineers on the shopfloor use their own discretion, which directly leads to a reduction in the response time. A global organization is not just a buzzword that is used. It basically deals with the way you align your business process with your customer. So this transformation at BFL was imperative. Thus, organizational change played an important role. It meant transforming an organization that was purely hierarchical – from being the task oriented organization to a goal oriented one. A global organization is the one in which you don’t break a problem into tasks. Rather, you take a problem, put cross functional teams in place, put a time frame and business processes and fundamentally bring together people from different fields of expertise like engineering, manufacturing, quality and so on.

To achieve that BFL had to dismantle a lot of middle management and delayer the system to make it lean. As a result, today BFL has replaced its multiple level organization, where shopfloor feedback of manufacturing changes took ages to implement, with a three layered structure. The first one is the operating layer, which consist of people who run BFL’s manufacturing processes. The second layer is the middle management who have been converted from their supervisory or task oriented roles to becoming problem solvers. And the third layer comprises senior management that handles the tasks of providing leadership and strategic direction other than measuring performance and generating rewards. All this has no doubt helped BFL. While 180 tonnes of forging get shipped every day as of today, the company expects to ship about 300 to 320 tonnes a day over the next two years, and it aims at attaining global leadership in two areas of excellence-chassis components for trucks (axles) and engine components. Having turned itself downside up, in just two years, BFL has managed to double its international customer base from 10 companies in March 2001 to 21 in March 2002. Its client roster today has Daimler Chrysler, Caterpillar-Perkins, Renault, Mercedes Benz, Volvo and Lister Petter in Europe, Mitsubishi Motor Corporation, Isuzu Motors in Japan; Ssang Yong Motor Company in South Korea: and Meritor Automotive and Dana Corporation in the US. Despite this, analysts tracking BFL are skeptical about its competitive edge mainly because it has no real competition in the organized sector. They suggest that their competitive edge might be eroded if other small players investing in new capacities and leverage the advantage of cheap labour. Clearly, then, BFL’s challenge lies in establishing shopfloor reform as a permanent culture. Questions 1. What characteristics do global customers look for and how did Bharat Forge go about achieving the same? 2. Where is the reference in the case to empowerment of employees and creation of CFTs? What advantages can an organization achieve from the same? 3. Refer from the case the lean concepts. What advantages it has brought about to BFL? 4. Relate from the case the two concepts we have learnt in TQM. (1) Quality is free (2) Productivity, Quality & Costs go hand in hand.

Scorpio’s low cost drive In the backyard of M&M plant at Kandivili, an obscure workshop called the integrated design and manufacturing (IDAM) center looks almost inconspicuous. But even a couple of years ago, if you wanted to see what was happening out there, you would have been denied entry unless you were among the top bosses or belonged to the 120 member team that developed M& M’s sports utility vehicle (SUV) Scorpio. The out of bounds IDAM center, which brings the various functions of product development - design development, manufacturing, purchase and so on-under one roof, is modeled on the lines of the global auto giants’ best practices. IDAM, the Scorpio’s birthplace, is one of the major reasons M&M maintained a tight grip on investment in the SUV project. When Scorpio hit the roads in mid-2002, the company had spent Rs.550 crore on its development and on upgrading its production facilities. In comparison, global giants spend close to $600 million (upwards of Rs 2,500 crore) for a similar exercise. The trade-off was that the Scorpio arrived on the road after five years in the laboratory - international manufacturers take half that time to develop a product from scratch. M&M executives say the delay that occurred in phases like product validation and vendor approvals would be dealt with in the future. The box-shaped multi utility vehicles (MUVs) that M&M had been selling for decades were losing their charm in the face of newer technology products - newer entrants like the Toyota Qualis had raised customer perceptions of MUVs. Further, the markets for utility vehicles and cars were merging. Before superior technology came in, customers chose UVs for their off-road capabilities and cars for comfort. There were few options among vehicles that would provide both: this was what M&M was hoping to do with the Scorpio. But M&M had to ensure that it did not increase costs, so it chose to go back to customers throughout the process of product development. In the five year period that the Scorpio was under development (1997-2002), the company undertook five customer surveys to understand changing expectations. In

comparison, the Bolero, which was launched by M&M in August 2000, availed of only one customer survey. The first initiative where M&M differed from the way it traditionally looked at product development was in involving the project teams right from defining the project in early 1997. Instead of giving the project team specific requirements in styling, wheelbase, engine transmission and so on, the team was asked to find out what customers wanted: whether it was styling or something as basic as the power train. While at it, the team gathered vital information such as the expected fuel efficiency and price of spare parts. In June 1997, the company started work on developing the Scorpio. It sent a team of 20 people to the UK to work with styling consultants for the first time; the team included not just auto designers, but also manufacturing personnel. This ensured that whatever panels were designed had no manufacturing difficulty. As manufacturability of design was looked at upfront, the payback was that they did not have to do any major rework of the dies. This reduced wastage. For instance, in Bolero’s case the reworking of dies was 25 to 30 percent while it was just 10 percent for the Scorpio. Another advantage was that the entire team -- comprising marketing, manufacturing, purchase, quality, design, testing and service -- was located in the Kandivili boondocks. This helped with coordination. One of the traditional problems in product development has been that people keep their functional blinkers on. M&M split employees involved in the project into 19 cross-functional teams. So the interior trim team that looked at the panels and upholstery inside the vehicle had design, manufacturing and purchase personnel. This team would take responsibility for delivering on all parameters of cost, quality and performance. All 19 teams were given cost targets. These teams broke down the targets to the individual component levels. M&M calls it “designed to cost”. For instance, a team shopping for seat fabrics knew exactly how much it could pay for a metre of fabric. If it decided to purchase a higher quality of fabric that cost more, the purchase would be approved by the senior management only if the team showed other areas where it could make up.

Then, instead of following the normal squeeze-the-supplier route, the company altered the way of working with suppliers. Earlier, if the company required air conditioning for a vehicle, it used to go to suppliers and provide requirements - four vents of 10 sq cm had to deliver a velocity of air, flowing at five metres per second. In Scorpio’s case, it told suppliers that the vehicle had to be cooled from 40 degrees to 27 degrees in 13 minutes. Then suppliers decided how many vents were required or the velocity of air to be delivered. “Even if they pretended to know how to design the A/C system they would not be as efficient in it as somebody who did that for his livelihood. Only suppliers can perfectly match performance with system costs,” realized M&M. Initiatives like these helped M&M reduce the final vehicle cost by 10 percent. In the sourcing of dies, instead of sourcing everything from a single supplier the company went to different sources. Critical dies like those for exterior panels were given to Japanese manufacturers like Fuji and Miyazu. The remaining were given to tier two, tier three and tier four suppliers. The condition was that Fuji would do the total management of dies coming from all the suppliers. So the onus on quality delivered by all the die suppliers would be on Fuji of which it would be paid an additional fee. And in dies the company spent only $25 million (approximately Rs 115 crore). If it had sourced the dies from a single source, the cost could have been an additional Rs.40 crore to Rs.50 crore. M &M adopted a similar method for sourcing its machinery as well. M &M did not take a detour from its original plan even after the product took five yeas to hit the road and even though new launches from competitors were changing customer perceptions. Sure, it made minor lastminute modifications like changing its headlamps and tail-lamps by sourcing it from a Korean manufacturer. But it did not make changes in other areas that would require large-scale modifications like changing the flat window panes of Scorpio to the now preferred curved aerodynamic panes. With a production of 100 vehicles pr day, M &M’s plant in Nasik is running to full capacity on a single shift. The company claims that sales are exceeding 2,500 units per month. Scorpio’s tight-fisted strategy seems to have paid off.

Kirloskar – a new engine of growth On a sunny day in 2000, a group of 24 employees of diesel engine manufacturer Kirloskar Oil Engines Limited (KOEL), left for the Sinhagad fort, Maharashtra. Over the next three days, they were subjected to all manner of physical challenges from long treks to rappelling and even perilous trust exercises. Surprisingly, no one in the group - all shopfloor workers at KOEL - was told the reason for this outward bound trip. “We kept the suspense going, recalls a company executive. Strange, but it worked. Actually, the object of the exercise was to build acceptance to KOEL’s adoption of a world class manufacturing approach modeled on the lines of the Toyota Production System, or TPS. So, when the 24 shopfloor employees returned to Pune, they were asked to work on a model production line named the Millennium Line. In the first seven months of operation, productivity at the Millennium line jumped 30 to 50 percent compared to the other lines. That now holds true for the rest of the organization as well. In specific cases like the small engines manufacturing capacity in KOEL, the increase in productivity has been 57 percent. And the improved productivity has meant lower inventories. The inventory of raw materials and components has dropped from Rs.53.38 crore on March 31, 2000 to Rs.34.74 crore in March 31, 2003 – a decline of 35 percent. Even working capital requirements are down from Rs. 350 crore to a little less than Rs 35 crore. For KOEL, this was critical. In the late-1990s, when almost every Indian manufacturer was hit by the double whammy of globalization and recession, KOEL found itself in a tight spot. Between 1995-96 and 1998-99, even as sales jumped from Rs.613.89 crore to Rs 713.37 crore, profits before tax fell from Rs.21.3 crore to Rs.15.9 crore. The Sinhagad excursion, then, had been put to good use. But it had taken a lot of careful planning. The TPS process got a kick-start at KOEL because of the Kirloskar group’s joint venture to manufacture automobiles with Toyota in India. But when the company decided to adopt TPS, it anticipated resistance to the idea and with good reason. The average KOEL employee was between 48 and 50 years old and of the 1,600 workers, only 200 were below 32. Most of the older workers had been performing the same function in the company for close to 30 years. To persuade these workers to work on

five machines instead of one, to operate as well as maintain their machines and so on would, therefore, take some effort. Hence the Sinhagad trip, for which KOEL deliberately chose employees between 27 and 54 years, to prove that at any age, people could be achievers and change. The top management believed that they had to involve every employee in the specific improvement processes.” Since 2000, nearly 700 workers from KOEL’s medium engines’ shopfloor have been sent on the excursion. But how was the millennium line different? The model line was created near the entrance of KOEL’s medium engines assembly line in Pune, so that no employee walking into the floor missed it. The differences in the model line were noticeable. It had a raised metal platform on which workers could stand and operate all machines from the same level. Instead of arranging machines in a straight line, they were arranged opposite each other so that the same operator could operate two or more machines without having to walk any distance. Understandably, the improvement in productivity was almost instantaneous: up 30 to 50 percent in just seven months. And considering the jam KOEL was in at that time, that was essential. In the late 1990s, tractor sales were declining at about 7 percent a year - and KOEL supplied diesel engines to tractor manufacturers. At the same time,...