Case Studies

Asphalt produced is heaped in the open space within the factory compound wall. Customers empty Taras Trucks enter the factory gate – weighed at the weighbridge W1, located near the entry gate – move to the Asphalt storage – Truck filled with Asphalt by factory JCB Wheel Loaders – loaded truck move to a weighbridge W2 located at the factory exit gate – Truck weighed – Weighbridge operator print the weight of the asphalt loaded in the truck in the gate pass – Truck moves out to customer place – the weights mentioned in the gate pass copy is invoiced to customers by the Sales Dept.

During Ssrine's investigation, it was found that the weighbridge operator, instead of printing the weight displayed in the weighbridge monitor, was manipulating the actual weight and print a lesser weight. For example, Instead of printing the actual weight of 800 kg, he print 650 kg. The shortfall is pocketed by the weighbridge operator in collaboration with the customers.

This has resulted in less 'sales', accounted, which was reflected in Profit and Loss account as Material cost exceeding the sale value.

This embezzlement was eliminated by,

• Requesting the weighbridge manufacturer, to disable manual entry and automated to print ONLY THE ACTUAL WEIGHT DISPLAYED in the weighbridge monitor.

• By installing a CCTV camera behind the weighbridge operator, camera focusing on the weighbridge monitor screen, recording all the weights of all trucks.

After the above two internal controls, this company earned huge profits .

Due to unforeseen reasons, the period may go beyond the planned days. These extended days are charged at a higher rate called REHIRE charges by the Scaffolding company.

During Business Process analysis, it was found out that, there was no effective system for finding out exactly the REHIRE period for each contract, because  of the complex nature. For example, each construction site may have multiple Levels. And each Level may have many directions like east, west, southeast, etc. for each of these direction, scaffolding erection date and dismantling date may be different from planned dates. So, due to such complexity the REHIRE charges were worked out on mere estimation, by the scaffolding company.

• ‘Ssrine’ developed an EXCEL sheet formulae, which runs to 50 pages with auto calculating formulae. This excel sheet for each and every contract captured the REHIRE charges preciously and generated additional revenue around $60,000 each month.

• Along with the above, another EXCEL sheet formulae was developed by ‘Ssrine’ for capturing and comparing each and every hour of Labour spent against budgeted hours for each and every contract, ON A DAILY BASIS, which saved another $20k-40k every month.

• A costing profit and loss account was designed in EXCEL and was prepared for each monthly invoice of every contract and was continuously monitored, so that, losses were arrested at the early stage, through controls implemented.

• Controls on the materials & transport were also designed and implemented.

All the above controls made this company to earn profits around $30,000 every month, which totals $110,000 PROFITS ($80k loss wiped out + $30k Profit) for each month. All these were completed within 2 months.

C3 was incurring huge loses for several years and the accumulated losses had eaten away, shareholders net worth completely.

The core issue of the problem was Precision tool division and Machine division were incurring huge losses due to,

• Customer give only drawings and specifications which are approximate and not precise. That also undergoes frequent changes by the customer during the production process.

• C3 company design department prepare the design based on the above drawings and specification, which usually doesn’t meet the requirement at the first instance itself, because even a micrometer (1/1000 of mm) variance will make the component manufactured with the mould and dies unfit for the automotive vehicle.

• This resulted in multiple times manufacturing the same tool, die, spm again and again, until it is accepted by the customer, resulting in huge wastage of man hours, material and other production costs, which cannot be recovered from the customer due to market competition and defects in legal contracts.

• Huge inventory, high man power, high fixed expenses all add more fuel to the losses.

Only Die casting department was contributing reasonable profits, which had kept C3 continue its survival.

Ssrine was assigned the job of transforming the company into profits.

Inspite of nearly 1 year of rigorous changes introduced in all systems, latest upgraded design software, new ERP, tight control on inventory, cutting down fixed expenses, nothing helped out to stop the losses.

Then the focus was changed by Ssrine from generating the profits, to retain mere survival of C3 to help the livelihood of the workers.

After detailed financial analysis of various options, Ssrine arrived at a conclusion, that instead of keeping all the 3 divisions in tact which can never become profitable, the de-merger and bifurcation of each division into separate business units and change the business nature could result in reasonable profits for each division.

Accordingly,

1. Precision Tools division stopped accepting all outside orders and was moved to a newly floated technical education college, affiliated with NTTF, India which offered technical training to the students in high precision tools manufacturing, resulting in huge student fees with no material and labour wastage. This division started showing good profits

2. Machine division stopped accepting outside customer orders for SPMs and was made to supply mechanical spare parts, to another group company (X company) at a lesser price, which was buying the same product from an external customer at a higher price. This resulted in WIN-WIN for both C3 and X company. This division also started showing reasonable profits.

3. Aluminium Die Casting division continued its business as usual, which was already making good profits.

All the 3 divisions workers were offered voluntary retirement option with huge payouts. Those opted were allowed to leave with good payouts there by retaining the remaining workforce, which become optimum for the size of each division.

This case study clearly indicates, sometimes it becomes imminent to change the business strategy to achieve profitability instead of following the traditional cost controls methodology.

(Example:- when the raw-material is issued from the inventory dept to the production dept, the inventory dept person will just bring and dump the material at the production dept. There was no documentation done to record, who was the issuer, who was the receiver, how much qty is issued, whether the material issued was the right material requested for, whether the material was in a damaged or good condition,... which lead to a situation - unable to arrive at wastage, lost, theft, pilferage, of the material in the production dept., putting the blame on each other, using the damaged material also into production, repeating the production process again and again, shooting up the production cost, ending up in loss for the company in that customer order)

With these circumstances in hand, ‘Ssrine’ did tremendous ground work by,

1. Formulating the basic activities first, which are,

• Re-Engineering the entire processes of two big companies, and redesigned the entire processes into cost effective and improved processes,

• Fixing up the roles and responsibilities of each person involved in each activity,

• Designing the forms to be documented for each of the processes, specifying the errors and omissions which needs to be  identified, how it should be recorded, planning about the corrective actions to rectify it,

• Measures to be taken to improve the process in future to eliminate the errors and omissions permanently,... resulting in  production of finished goods, meeting out the quality standards fixed by the certifying authority.

• The above objective was achieved by conducting several meetings of the workers, supervisors, managers in three different stages.

2. First stage – conducted seminars to each category of them (workers, supervisors, managers) separately. Enlightening them about the benefits of the system, eliminating their fears, making them understand and bringing in them, 'the spirit'. This was done with great efforts by giving lectures to their capacity, since, if A, B, C, D,..level is talked to Managers, they will get bored & irritated within 5 minutes, whereas, if business intelligence aspects are talked to Workers, they will blink even after 2 hours of speech.

3. Second stage conducted Group Discussions by forming small various mixed groups consisting of workers + Supervisors + Managers  representing various departments., by preparing questionnaire about a particular activity which needs to be redesigned, conducting brain storming sessions, to arrive at unanimously agreed, right decision, resulting in cost effective improved processes, eliminating all the lapses. Care is taken so that the agreed processes meets to requirements of specified ISO Standards.

4. Third stage, making the members of the first group, to conduct meetings for the other groups, so as to achieve the twin objectives of (i) training up the members of the prime group with similar skills and (ii) making the other group members to understand the system, as well. Any feed back received from the other group members in this stage are again reconsidered by the prime group and further improved processes are arrived at.

5. Documenting all the above arrived decisions, the newly created forms, the agreed responsibilities of the persons involved in the processes, the corrective actions, the systems to improve it,... and formulated the ‘Manual of Authorities (MA)’ for the entire company. The documentation was written in a simple language, for every body to easily understand, not running to hundreds of pages, easy for everybody to remember.

6. The ‘MA’ was circulated among the members and obtained their confirmation and forwarded to Board for deliberation and final approval obtained.

7. The system was implemented, conducted several internal audits, reviewed the processes on practical difficulties faced, created newly improved activity, modified the ‘Manual of Authority’ suitably and again retested it. This cycle was carried on again and again, until we arrived at a final full fledged system.

8. Finally as a team, faced the certification audit and obtained the 'ISO 9001 CERTIFICATION' in first attempt itself, within a period of 1 year, which was considered fairly, 'a shortest period', in that country