CASE FILES: IT EXCELLENCE AWARDS 2011 | CHANGE MANAGEMENT Put together a detailed plan that covers all the bases, keeps all the people informed and involved all the time, and keeps operations and business always prepared to tackle information overload-then act on it. That's what the senior management at one of Asia's top manufacturers of slab stock polyurethane, Sheela Foam Pvt. Ltd, did. And within 10 months, they were reaping in the benefits, operational and strategic, of having all the right people, technology and processes in place.
In an organisationwide initiative that ran from March 2009 through April 2010, the Managing Director of parent company Sheela Group, Rahul Gautam, alongside Sheela Foam's Head of IT, Pertisth Mankotia, and his team and partners on the business side set in place the key performance parameters for Sheela Foam and the monitoring, management and reporting systems to support and enforce them.
As a result, it "has enabled us to increase our profits and market share [and] helped us to identify the weak areas which are now the main focus areas for our improvement," Mankotia says.
Their secret? An "optimised production technique" called the Theory of Constraints put together by Israeli physicist turned business management guru Dr Eliyahu Goldratt.
Sheela Foam employs about 2,000 people in its offices and facilities across India. And before this MIS Asia IT Excellence-award winning change management project, plainly named Align Business Systems with TOC (Theory of Constraints), was done, it had a basic issue peculiar to most organisations of its size operating in a global market-that of having too many disparate systems, which typically brings with it a host of different sets of operational or business measures that often don't match and can offer up conflicting views on major performance indicators.
"There were many parameters that were used to measure business outcomes and performance, which also conflicted between departments and functions," says Mahkotia. "As such, there was a need to align all performance parameters to achieve an overall business objective, and to bring all departmental and zonal heads and their staff on one page."
And that, Mahkotia tells us, is why they adopted the concept of TOC. "One of the strengths of the TOC approach is that it provides focus in the world of information overload," he says. "It guides the organisations to improve by focusing on very few issues-the constraints to ongoing profitability. Just as the strength of a chain is governed by its single weakest link, the TOC focuses on the ability of any organisation to achieve its goal by improving its single but most important constraint."
Mahkotia and his colleagues and bosses reviewed all the moving parts of their business, applying TOC in their examination of Sheela Foam's myriad operations, functions and processes and identified four performance indicators: Throughput (TP), Operating Expenses (OE), Investments, and On Time in Full (OTIF).
"TP is the absolute difference between Unit Sale Price and Unit Variable Cost. Thus, TP is the single parameter which takes care of both "The Top Line" and "The Bottom Line", the parameters around which each and every business revolves," said Mahkotia. "OE and Investments, especially the dead investments-such as, Slow Moving and Non Moving Inventories-are to be constantly monitored so that they do not go up drastically. OTIF in general means delivery efficiency-it measures how well we respond when some product is being ordered; the order should be supplied in full quantity on time."
"These four key indicators or parameters broadly covered all our functions," said Mahkotia, adding that all four "were to be measured week by week for achieving the overall business objective."
IT and business leaders at Sheela Foam, naturally, gave prime importance to TP. "TP is the main performance indicator and all other existing performance parameters were required to be aligned with it," said Mahkotia, who went on to explain their choice to run with weekly reports on the indicators. "From a monthly review mechanism we shifted to a weekly monitoring system. This was done with the objective of bringing focus on a shorter period, so that necessary corrections can be done."
A pre-existing system did prove to make TOC adoption substantially easier for Sheela Foam's managers. "Implementation of this concept was possible for us due to the tight integration between each function through our inhouse ERP [enterprise resource planning] system known as 'greatplus', which stands for a growth-oriented, reliable, economical, anchored and trustworthy business tool," says Mahkotia, before elaborating on the metrics for their four key performance indicators.
"TP for each transaction is calculated at the order level. The order is not released for further processing if the TP is below the defined percentage. A special approval is taken if the order with lower TP percentage is to be processed. Management reports have been developed that highlights cases generating lower TP than the set parameters. In accordance with this, we have also developed business intelligence (BI) for the same," Mahkotia says. "The OTIF for each transaction is calculated right up to the dealer level, so that the product is made available in the market without any delay."
The new setup leveraged 'greatplus' to ensure that the entire Sheela Foam organisation was kept apprised of how well the company was doing, even down to performance of the individual employee. "TP and other supporting parameters have been brought on the homepage 'greatplus'. Whenever, any employee of the organisation logs-on to 'greatplus', TP, OTIF and his performance is available to him on his homepage. Each employee's performance has been aligned with TOC parameters which are linked automatically with the appraisal system in 'greatplus'," says Mahkotia, who then highlights what is arguably an even more effective method of keeping people informed. "We update the entire management team and other associated employees about TP and other supporting performance parameters through an auto generated 'Morning SMS'. The SMS is auto generated through 'greatplus', which updates each individual about 'Throughput generated during the week, Growth achieved over last year, Material Despatched on the previous day, outstanding orders (pendency), OTIF, OE and Investments'."
"This message brings everyone on one page, provides a clear picture of what all has happened up to yesterday and where we are today," Mahkotia adds. "It also helps everyone to plan better for the day as this message is sent early morning. SMS for monitoring performance has now become a habit for the management team and they eagerly wait for it."
Motivation to Alignment
As with most enterprisewide initiatives, Sheela Foam's Align Business Systems with TOC effort encountered resistance from the various functional heads and their teams. So a great deal of communication was needed to drive home the message that what was to come out of the systems modification, and the process changes that came with it, would be good for them.
"Over a period of time as per the need, various performance parameters got developed within each department. We needed a system which could help us to align all performance parameters and to achieve our overall business objective. Moreover, our reporting and reviewing mechanism used to work on a monthly frequency, thus any correction was only possible at a month's interval. It was also difficult in such conditions to change things within a month itself, as all activities for the month were planned in advance," says Mahkotia, explaining the drawbacks of Sheela Foam's old way of doing things. "With the rapid changing environment, we felt the need of such systems through which our performance can be reviewed at a shorter frequency and all departmental, zonal objectives, plans and targets get aligned with overall business objectives."
"Everyone was in a comfort zone, practising their own measures for measuring performance. Thus, there was resistance," Mahkotia says. "The concept required us to build in transparency down the levels, which was also felt as a threat-confidential information was to be shared. We were trying to shift the focus onto a single concept, TOC, which was not easily acceptable to all top functional heads, as their performance was not being directly measured. Service departments were required to align their working with TOC, which was a very difficult job. Old performance indicators were no longer required to be modified, which was not liked by various top and middle management teams."
"The major challenge was to make everyone understand the concept and then motivate them to align their working measurements with it," Mahkotia says.
So the project management team worked on the message for all stakeholders and senior executives at Sheela Foam. They came up with "only correct measurements can derive correct results" and they drove it home at the senior levels of the organisation with training sessions and workshops on the concept that ran over the course of three months.
Extending the Lines
After conception, the project was executed in three phases. Phase 1 was all about training the middle managers-particularly on the key concepts behind TOC and its use in the context of Sheela Foam's business-and working with them to identify the key performance indicators of the business, and was completed by October 2009.
By phase 2, which they entered in January 2010, the company had already started measuring TP, OTIF, OE and investments based on a standardised set of performance parameters and benchmarks.
Phase 3 ended in April 2010-marking the completion of the project-with the full implementation of the system through 'greatplus', which enabled the broadcast of performance parameters through the 'greatplus' homepage and via SMS to executives, as well as the placement of controls for continual enhancements at any time in future.
Mahkotia tells us that by then, they had already begun to see some returns. "In spite of [the global economic] recession, our Weekly TP increased and our OE was reduced," he says. "Individual departmental or functional performance parameters got aligned
with overall business objectives. All departmental or zonal heads and their staff were brought on one page through the 'greatplus' homepage and via SMS."
The fuller picture is more impressive, of course. "When we adopted the concept of TOC, our average weekly TP went up by about 52 percent and our turnover since then has gone up by 45 percent," Mahkotia says. "We were able to increase the OTIF from 76 percent to 89 percent. These improvements have come [in spite of the global economic] recession and slow down in the market."
"This was possible only due to us having, one-focused weekly monitoring, two-a strong update mechanism, that is, our daily morning SMSes which update all key executives about our business performance, three-the alignment of all our business processes in one direction, and four-bringing the key performance indicators on the home page as a frequent reminder to all personnel at the organisation concerned," Mahkotia says.
"Our OE also dropped by about 5 percent within a year of the project's completion. This was made possible by our business and functional heads ability to monitor OE at weekly intervals," says Mahkotia. "We did not go out there to actively and aggressively try to reduce our operating expenses, which is usually all about cost cutting. Instead, we just monitored them, identified the weakest links that disturbed the TP and fixed them. In some places it was about the market and in some places it was about the product. Our team worked on these weak links and strengthened them."