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

Storyline 

• Who is Nat Steel 

− History 

− Products & Customers 

• Nat Steel an average company in the beginning of 2002 

• Enter TOC 

− How TOC was brought in the company 

− IImplementation l t ti of f first fi t principles i i l 

− Extra-ordinary results 

• Stagnating at a higher level 


• Re-igniting TOC philosophy and Breaking all the conventional rules 

• Achieving Viable Vision within a year 

• What made the Difference – A TOC Practitioners Perspective 

2 

© 2008 TOCICO. All rights reserved.

A Modest Start 


• Nat a SSteel ee was as sstarted a ed in 1947 9 by Mr. Ardeshir des Bhathena a e a 

(my Grandfather) as manufacturer of cupboards and 

hospital furniture 

• In the 1950 ours was the 1 st company to manufacture 

Sterilizers in India 

• In the 1970’s 1970 s we started manufacture of Laundry 

Equipment for hospital use & Industrial Kitchen 

Equipment for hospitals & factory canteens 

• All three products lines were manufactured in three 

separate factories situated in Bombay city 

3 


A Sellers Market 

• The eMain a cuso customers eswere eeHospitals, ospas, Pharma a a 

companies 

− Word of Mouth 

− Repeat Purchase 

− Personnel moving to other Hospitals 

• We were well known for quality equipments 

• We were was also well known for high prices 

• However, primarily we were known for our “late 

deliveries” 

4 

© 2008 TOCICO. All rights reserved. 


• Now looking back, we often wonder why the customers 

were buying equipments from us

With time there comes competition 

• By y 1990, 990, competition co pe o was as aall oover e us 

• We became a classical Unico. and me Alex Rogo 


− Promised lead time of 3 months (Actual lead time was as 

much as 9 months!) 

− Dissatisfied customers threatening to move to competition 

− We used to dread customer calls 

− High inventory etc. 

• WWe brought b ht the th three th ffactories t i under d one roof, f but b t 

could not integrate. They were known as India, 

Pakistan and Bangladesh. 

5 


Enter Ravi Gilani – Start of a change 

• In 2002, 00 , aafter e aalmost os two o 

years of discussion, we 

finally roped in Ravi 

Gilani for a one year 

engagement 

• We agreed g on two ggoals: 

− To Deliver on Time 

− To Generate Positive 

CCash h Fl Flow 

6 


TOCICO 2008 Conference

We had no idea about what is going on… 

• No o pproper ope list s oof receivables ece ab es 

• No proper record of inventory 

• No proper records of orders 

• No proper understanding of DDP 

− Nine months delay in production, production but no priority list 

Simple Rules of Survival: 

• Respond to the customer who shouts the loudest 

• If customer has paid advance, advance ignore him the most 

7 



Success lies in simple solutions 

• Ravi’s a s Rule u e 1: List st aall tthe e pe pending d g oorders de s aand d 

prioritize 


− How is it possible to prioritize when everything is urgent 

• We attempted anyway! 

• I am very proud to say that this Excel Sheet termed 

by us as “Order Priority” has stood the test of time time. 

• If somebody wanted his machine moved up or 

down the priority list list- he had to interact with only 1 

person - me! 

8 


We started measuring our performance simply by 

measuring “Cash in Bank” 


• When we started, we had very heavy borrowings…when we 

finished we had a tidy deposit! Our bankers could not understand 

how we had converted ourselves from a borrower to a depositor & 

refused to close our borrowing limits, “Just incase you need it”, 

they said! 

• More difficult was trying to convince my MBA friends, who were 

consultants with Accenture, KPMG, etc. 

They could not believe that there was a ‘consultant’ who measured 

the companies performance with ‘Cash in Bank’! They insisted that 

I should measure efficiency, productivity….. and other such 

important sounding words. But for me ‘Cash in Bank’ sounded the 

most logical measurement 

measurement. 

• At the end of the day, we managed to pay back all our bank 

borrowings & started depositing money. What better proof that the 

‘ ‘consultant’s lt t’ metric t i was accurate! 

t ! 

9 


Insight: No No-body body (including customer) has any clue 

when the machines are really required 

Sales Executive: 

Yesterday When do 

want the 

machine 

Customer: 

@$%& 

What do you mean when? 

I wanted it yesterday 


desptached? 

Now try and build the machine on urgent basis and you find out 

that the machine is not required at-least for next six months 

SSo there th goes your Reliability R li bilit and d Rapid R id Response R offer…out ff t of f the th 

window 

10 


Choke the release! 

• Ravi’s Rule 2: No more than 3 machines on 

the shop floor 

− How is it possible, there are so many pending 

machines! 

• In 2001 we took more than 3 months to 

manufacture one machine 

• We tried to manufacture 20 machines 

sim simultaneously ltaneo sl and failed miserably miserabl 

• We brought down the lead time dramatically 

11 



Full Kit Corollary 

• Corollary y to the Rule 2: No machine to be 

manufactured unless 100% raw material 

was available 

− 100% raw material…you t i l must t bbe 

crazy 

• Result – We crashed the lead time to 7 

days! Today we manufacture the machines 

in 3 to 5 days 

• Now that we need only 3 days, start 

manufacturing only when the customer 

shouts. 

• Ti Time to t time ti the th customer t still till delayed d l d 

accepting the machines 

12 



Never believe the customer 


• We then devised a rule- “Never Believe the Customer” 

• Once an order is received- it is OUR responsibility to 

inspect the customer site at the time of receiving the 

order and it is the sales person’s responsibility to give 

his estimate about the expected date of delivery 

• A week before this date date- OUR service engineer visit 

the site, inspect and take the customers signature that 

the site is ready for delivery 

• It is a different matter that NO customer ever signed! 

They insisted- deliver the machine- we will get the site 

ready 

13 


You need to push the customer! 


• 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 

certificate’ we started pushing them to get it ready 

• We sent our service technician again and again to visit 

the site 

• We started asking “shall we do it for you”? 

• This had the immediate required reaction, sites started 

getting ready and we were able to start planning our 

manufacturing more meaningfully! 

14 


The power of Daily Meetings 


• We started a daily factory meeting. Whenever I was free, I would 

go g to the shop p floor, , the watchman would sounds the lunch siren. 

ALL the staff and workers would assemble at one point 

• We would run through the order priority list. The idea is to have a 

common understanding about which machine has priority over the 

other 

• For the workers who work on a ‘physical/ visible’ machine this was 

never a problem problem. However However, the man in the machine shop did not 

have a clue where his machined parts went. 

• Initially we had problems with every worker. Not enough machines 

to work on on, not enough helpers helpers, not enough help from the previous 

department etc. 

• Soon people started speaking the same language and started 

hhelping l i each h other. th They Th sorted t d out t th their i problems bl amongst t 

themselves and stopped mentioning it at the meetings 

15 


The power of Visibility 


• We affixed a white board inside the entrance of our factory with the 

priority p y list 

• All persons entering whether customers, staff, workers and most 

importantly suppliers could see the list for themselves and decide 

on their course of action 

• We gave operations only 1 week notice before giving OK to start 

manufacture of a machine 

− In 1 week time they were expected to procure 100% of the RM 

required and manufacture the machine. N 

− No RM stock was permitted to be stored in the factory, the stores 

were not to be used for storing any longer longer. So we moved the stores 

from a 5000 sq feet room to a 100 sq feet room 

− The idea being if they did not have enough place to sit, they would 

stop buying & storing RM 

16 


The power of Supply Chain 


• Do you feel it is possible to procure 100% RM in 1 week, when you 

have over 300 totally y different components p on each machine ! 

• Sounds difficult? 

• This was the easiest policy to implement, in-fact our suppliers 

lloved d us with ith thi this changed h d working ki environment. i t 

• They were amazed at our changed agility and quickly adapted to 

our requirement. Today if we need ANY part, I can guarantee that 

it will be delivered within 24 hours! 

• Obstacles: Some large suppliers have ERP (SAP) systems in 

place! p 

− How wonderful! These suppliers need just 5 working days to input 

our order into their system!!! 

− We learned, learned very soon soon, how to manipulate their ERP system & also 

who was the correct person to telephone, who was able to bypass 

the ERP system and deliver the RM 

17 


The power of Self Regulated System (or in other 

words Excel Worksheets) 


• Who the hell wants to wait a week for the ERP system to input 

data! 

• My advice to all using ERP…throw it away …shift to Excell! 

• Th The more rules l & regulations l ti you put t iinto t place, l th the more ttrouble bl 

your company is going to be in. 

• Anyone who’s been to India would know how the traffic is like! 

• The only reason everyone survives is because there is no control. 

No cops, No Signal…just a simple rule… might is right 

18 


SG2

Slide 18 

SG2 Add Video 

Sanjay Ghoshal, 8/4/2008

Celebrations! 

25% Growth 

RReduced d dL Lead dTi Time 

Excellent DDP 

Happy Customers 

CCash h in i Bank B k 

19 



Curse of TOC – Stagnation at a higher level 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

Almost no 

growth! th! 

We became 

complacent, 

not hungry 

enough 

4% 

Revenue Growth 

3% 

Good but not 

enough g 

20 



Good growth, growth 

but production 

on the brink of 

breakdown 

27% 

Up from the Slumber 

19% 

FY 2004 FY 2005 FY 2006 FY 2007

Re Re-enter enter Ravi! 

• I am unimpressed 

unimpressed… 

• Are you hungry enough to look 

at some “Real” growth? 

• Do you want to double your 

“T”? 

Ravi Zoru 

21 



What? 

Doubling T in a year? 

I do not believe it! 

But you have done 

magic before. Let’s 

start again

Price Paradigm 

• Ravi a sugges suggested ed we e increase c ease the e pprice! ce 


− Are you crazy! We are any way expensive! we will not sell 

anything! 

• However, We increased our prices by 30%, 3 months 

later we increased a further 30% and 3 months later 

another 30% 3 % 

• Contrary to popular belief! we got flooded with orders 

− Our factory was working on the edge! 

− We again started facing delayed deliveries!!! 

• And we thought g the sales will drop!!! p 

22 


Product Mix Rationalization 

• We e thought oug that a ou our capac capacity y is s the e bo bottleneck e ec 

• Laundry was taking double the time of Sterilizer 

− T/day for Sterilizers was double that of Laundry 


• We decided to drop the laundry equipment, but how? 

• We doubled our prices prices… 

• Guess what, our sales also doubled!!! 

• What a product mix rationalization!!! 

Hope my customers are not listening 

23 


Ravi introduced Sanjay, who came equipped with 

latest thoughts from Eli’s Viable Vision initiative 

• He e cchanged a ged ou our viewpoint e po from o 

“bottleneck should always be in production” 

to 

“bottleneck should always be in the orders” 

• Initiall Initially it so sounded nded horrible to us s 


“what if we don’t have enough orders? Then what will 

we do?” do? 

• But that’s what happened…we doubled our “T” 

The production increased by 72% 72%, and we still had 

some capacity left 

24 


“Man “Man cannot cannot discover discover new new oceans oceans until until he he has has 

the the courage courage to to lose lose sight sight of of the the shore” shore” 

• When e we e left e ou our fears ea s be behind d 


− We realized that our factory production was hugely elastic 

− We had huge hidden and undiscovered capacity 

• It was our wrong belief that production is fixed! 

• It’s amazing g that anything y g the mind believes can be 

truly achieved! 

25 


Viable Vision in One Year! 

In 2007-2008 00 008 we e were e e ab able e to o ac achieve: e e 


a) Our Manufacturing Despatches increased by 72%! 

(The Government was the happiest- as it earned record 

revenue from our company!) 

b) Our despatches were always on time! 

c) ) Our profits p increased by y 400% over our last year’s y pprofits! 

d) We achieved a 96% increase in Throughput, 

All this was achieved without increasing a single resourceno 

o add additional o a manpower a po e nor o add additional o a investment es e in pplant a & 

machinery! 

26 


So what happened! 

“Measurements easu e e s ddrive e be behaviour” a ou 

“The power of simplicity” 


“when when you change the way you look at things things, the things 

you look at change” 

“ it is not because things g are difficult that we do not dare. 

It is because we do not dare that they seem difficult” 

“ A dream is not what we see in our sleep; A dream in 

what does not let us sleep” 

27 


Theory of Liberating Mind 

• In 2007-2008 00 008 we e ddid d not o increase c ease pprices ces further u e 

• We did not increase staff/employees 

• We did not increase machinery 

• Yet Yet- we e increased T bby 100%!!! 


• This is the power of TOC, it all about changing our 

mindset! 

28 


What made the Difference – A TOC 

Practitioners Perspective 

• Owners win-win attitude 


• Encourage people to aim high, but provide safety net…do not 

punish for failure!!! 

• AAvoid id analysis-paralysis…only l i l i l corrective ti action ti 

• Focus on company performance…rather than individual, regional 

or any other such measures 

• What is a month? An year consist of 52 weeks 

• No negative talks please!!! 

• Talk about empowerment…people can take the pricing decision on 

their own..from zero to 1000% of the list price 

29 


So what next? 


• This company p y is already y the market leader in the hospital p 

sector with significant share of the market 

• Time has come to elevate the market now 

• Ph Pharma sector t is i a growing i segment t in i India I di with ith large l 

potential 

• The price and thruput is much more in this sector as 

compared to the hospital segment 

• The direction of Nat Steel is to enter this segment 

• However However, a successful entry would require dramatic changes 

in the quality. Nat Steel commits to improve its quality 

parameters suitable to Pharma sector and attain market 

leadership p in an years y 

time 

30 


About Zoru Bhathena 

• 3rd generation entrepreneur from 

Bombay Bombay, India India, studied his 

Bachelors of Commerce from 

Bombay and thankfully never got 

down to doing his MBA! 

• CComes ffrom a ffamily il of f Car C Racers; R 

won the Indian Rally Championship 

in the un-modified group 

championship and is probably the 

youngest Rally Champion, 

Champion 

worldwide, to achieve this feat! 

• A broken wrist put him ‘out of 

action’ from motorsports for a few 

months…. th having h i nothing thi better b tt to t 

do, he started attending his fathers 

business. 

• Started working g at Nat Steel, , since 

1995, Zoru loves to solve problems! 

31 



About Ravi Gilani 

• Ravi Gilani, is the founder and 

managing g g consultant of 

Goldratt India 

• Ravi introduced TOC in India in 

1998. 

• Ravi helps organizations 

increase their profits by 

simplifying their 

measurements. He enjoys 

striving g for the impossible by y 

challenging h ll i sacred d 

assumptions and simplifying 

complexity. 

• Ravi has been on the board of 

TOCICO since i November N b 2005. 2005 

• Ravi can be contacted at 

ravigilani@goldrattindia.com 

32 



About Sanjay Ghoshal 

• Sanjay is one of the founding 

Director of Avenir Avenir, a 

management consulting firm 

focused on TOC 

• Sanjay was the Regional 

Director of Goldratt Consulting 

till 2007 

• Sanjay j y was involved in many y 

Viable Vision projects in India 

• Sanjay has worked in SFSCo. 

To develop the marketing and 

sales solution for Viable Vision 

33 



[Color Photo of Presenter]

Zoru Bhathena

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