Leadership - Key To Successful BPR Implementation
Vetrotex MD, Natarajan: Why don't we shut down the General Store altogether? I can find much better use for the space!
Mr P Natarajan was managing director of Saint Gobain Vetrotex India Ltd. (Vetrotex), part of the French multinational glass manufacturer, Saint Gobain, which was in the business of manufacturing and selling glass fibers for fiberglass products. Vetrotex had bought over this business of Fiberglass Pilkington from the previous Indian owners a couple of years before and completely modernised the plant with the latest computer-controlled glass furnace and increased the capacity for their products. The back-bone of the furnace was the general store which had to always hold stocks of important spares for maintaining the plant and, in the process, over a period of time, they carried an average inventory of nearly Rs 1.2 Crores.
I was introduced to Mr Natarajan by one of my business friends, Mr T Muralidharan, MD of TMI. Murali and Natarajan were classmates at IIT Madras and IIM Ahmedabad and, when I was sharing my experiences with Murali post our engagement with Bakelite Hylam in mid-1999, and mentioned to him that I was looking for a prospective client for the next assignment, he promptly called up Natarajan and arranged for me to meet him. When I spoke to Natarajan, he was keen to meet me but he felt that meeting at their plant, which was outside the city, would not give him quality time with me and invited me to his home for dinner for our first meeting. I was used to meetings over business lunches or dinners with CEOs, but it was always in a classy restaurant; this was the first time someone invited me home for a business meeting with dinner included!! I felt immediately that I was dealing with an interesting person.
And that is exactly what Natarajan turned out to be over the next five years of association with Vetrotex over many assignments and innovative outcomes! He was an amazing leader and I quickly noticed that he alone, with his courage of conviction and clarity of goals, carried his team along and made a big difference to the successful implementation of new and radical changes at Vetrotex.
During my first meeting with Natarajan at his home, I narrated our experiences with various clients till then, and the published case studies which had talked about areas of successful BPR implementation. The procurement process was a major area coming up in many cases and our experience with Glaxo, Nagarjuna Steel and a few others had highlighted this. Natarajan shared his own experience of needing to approve a medical bill of ₹25 just because it was a cash purchase made to treat an employee in an emergency at the factory. He said there were many such dysfunctional activities performed by many senior managers in the procurement area, and he had read many case studies of BPR on this subject. He also had an exposure to BPR after attending a few seminars and was looking at ways to adopt those ideas.
I promptly told him that the process we followed, based on Hammer and Champy’s guidelines in their book, could help him. I also handed over a copy of the book, which I always carried with me to give to prospective clients. He suggested that Raghav, my associate, and I meet him at his factory the following week so that we could interact with other senior managers who would have to come on board before he could engage us.
We met up at the factory as scheduled and, after a series of discussions, everyone agreed that procurement was a major area which needed immediate attention and we were hired to guide them in this project. As per our usual practice, we got together a CFT from among their executives, and did some educational workshops on the concepts of BPR. During one of our meetings, when we accompanied the members to their canteen for lunch, one of the executives rushed back to his desk to pick up his canteen coupons which had to be handed over for his lunch; soon we ended up discussing the cumbersome procedure by which the canteen was managed, where the canteen contractor had to collect all the coupons for breakfast, lunch and dinner (the plant worked 24/7 because the glass furnace could never be turned off) and claim payment from the accounts department after the HR department counted all the coupons and passed his bill.
We immediately saw an opportunity here of demonstrating the power of BPR to the CFT as well as to the whole company and challenged the team to reengineer the entire canteen process as part of their learning. Working with excitement and diligence, the team mapped the entire process from the printing of different types of coupons to their distribution to all employees (during working hours!), and finally the monthly payment to the contractor based on the coupons submitted by him. The team also physically watched the process, including the submission of large bundles of coupons by the contractor.
Intuitively, one executive quietly asked the HR executive whether they really counted all the little coloured scraps of coupons. The sheepish answer was: “No. We just work out the approximate amount to be paid based on the number of working days and vary it by a bit from month to month so the figures look credible.” When we checked with the contractor he also said the same.
That was an “Aha!” moment for the team. They quickly put together a presentation to the MD and senior managers that completely did away with the entire rigmarole of coupons, and suggested that the contractor be paid based on the number of days of the month with allowance for any major absenteeism or the influx of a large group of visitors on a given day. Employees would have a fixed deduction from their salaries for the cost of meals. The HR executive who had let the cat out of the bag was, of course, apprehensive of being pulled up for not counting the coupons as he was supposed to do. But Natarajan was not bothered about that! Instead, he immediately saw the huge amount of time of purchase, HR and accounts executives the new system would save and gave the order to implement the new process forthwith. An offshoot of this change was the enormous amount of shelf-space that was freed up, which had stored thousands upon thousands of little coupons for any possible audit or re-checking!
The BPR team was thrilled that they had learnt and demonstrated the power of BPR through this impromptu exercise, and jumped into the larger project of reengineering the procurement process with conviction and excitement. And many of their colleagues dropped in at the meeting room of the CFT to thank them for a wonderful idea, and to enquire when the recommendations for the rest of the procurement process would be completed!!
The reengineering of the procurement process at Vetrotex was no different from many of the case studies published about similar exercises, but adopting those ideas involved major challenges since, by and large, the relationship between vendors and their clients was adversarial and traditionally each tried to exploit the other. Hence, everyone was apprehensive about how it could be done so that the organisation did not lose out in the process. And how to make sure the vendors would play ball. This is where the importance of leadership came into play and Natarajan was very clearly committed and serious about implementing change by coming up-front to address the issues.
His first reaction as mentioned before was dramatic and gave clarity to the rest of the organisation that he meant business. He also showed that, unless we demonstrated our full commitment to the ideas, how could we get vendors to realise their importance in our scheme of things? We had to show them that they had more to lose unless they came on board to play the game the way we wanted. In fact, we called a meeting of all the vendors involved in store supply and he addressed them personally, sharing our new approach and how we wanted the vendors to be our partners in our procurement process.
Earlier, Vetrotex had hundreds of vendors for more than 500 categories of items bought annually, with values varying from as low as a few hundreds Rupees to several lakhs of Rupees. Since it was the policy to have multiple vendors for most items, to ensure no supply failures, the total business each vendor got in a year was not very significant in relation to the total procurement by Vetrotex in the year. For example, in the category of electrical items, the annual procurement was as much as Rs. 60 lakhs. Almost all the items were of standard design and sometimes even of a specific brand, and stocked by dozens of traders. But there were nearly 25 vendors for this category alone and so none of them got more than Rs 5 lakhs worth of business annually. Keeping in mind also the distance that vendors had to travel from the market to the factory, it was no surprise that there were frequent supply defaults.
Now the reengineered process recommended by the team involved zeroing in on just one vendor in this category; the very fact that the vendor got all of the Rs 60 lakhs worth of business made it easy for the purchase executives to negotiate the best prices, and the vendor could easily afford an exclusive run to Vetrotex every single day, if required, to deliver the ordered supplies right on time.
Over the next six months, each category was finalised so that the number of vendors was drastically curtailed. The primary job of the purchase executive changed to identifying these good vendors and working out annual contracts with them, with firm prices for agreed quantities. With development of a suitable computerised system which linked the vendors with the factory, users such as the maintenance executives could directly place indents on the vendor to receive their required supplies. The software also ensured a seamless process for receipt and acceptance, and subsequent payment as per the contract terms. The additional task of the purchase department was then to monitor the performance of the vendors in terms of timely delivery and quality.
Once the maintenance department, for example, gained confidence that vendors would supply their requirements on time, they started indenting for just their immediate quantities of each item, and the vendor delivered them directly to the department. Suddenly, the role of the general stores to receive and store large quantities of various items, and the task of the maintenance executive to indent from the stores with a paper requisition and send someone over to collect the items disappeared. As the general store started looking more and more empty through this process, the CFT recommended completely doing away with the general store.
This was as radical and dramatic a process change as the best of BPR legends. Apart from sparing store-keepers to take on other tasks, thousands of square feet of space was freed for future expansion at no cost!! And soon the vendors started talking about this system to their other customers and the latter started visiting Vetrotex to study and adopt the same in their own businesses!!!
Came the time when the company’s annual report and financials were sent to the global headquarters. The global audit team could not understand how the value of spares and other consumables was reported to be zero, and wondered if something fishy was going on. The audit team landed up without notice to investigate this quirky fact. Once Natarajan explained the functioning of the new procurement process, and the resultant massive saving of personnel, money and space, the visitors had to admit that the new system followed at Vetrotex was far superior to what the rest of the organisation was using across the globe. They not only gave a positive report about their visit but also suggested this system be followed in 77 plants across the world run by Saint Gobain Vetrotex!!!!
Following the success of this assignment, Natarajan asked us to help redesign their sales process, along with supply chain management from factory to their customers. They had two types of customers: OEMs and Dealers. Since the glass furnace could never be shut down - the molten glass would solidify and the entire furnace would be scrap - they had to keep producing even when there were no, or few, orders, and then the sales department was mandated to create special promotions to offload the produced material, and to settle accounts with the customers as per the schemes. It used to take a lot of time and, on many occasions, the effectiveness and profitability of the schemes could never be measured.
At this stage, I was introduced to a startup incubated at IIT Bombay called Herald Logic (HL). One of the early stage co-founders and investors in Herald Logic was Dr. Ramdas Ramakrishnan, whom I had known when he was working for TCS and Baan in Hyderabad. In fact, he had invited me to address the TCS consultants, sharing my experiences as an independent consultant where I was talking about my holistic approach to business consulting as against the traditional functional approach followed by large consulting organizations like TCS. Later, at BAAN, his boss heard Raghav and me make a presentation on BPR vs. ERP in a seminar organised by a reputed management education institution and invited us to address their IT technical trainees on business process management. Ramdas had good appreciation for our work in the area of BPR.
In early 2002, he visited my place in Hyderabad and talked to me about his association with Herald Logic and how the technology developed by this startup would help in process management and could be an important tool in BPR implementation. He invited me to visit IIT Bombay where this startup was located, and get a demo of this technology. So, the following week, I visited IIT Bombay and spent the next two days interacting with young techies and the youngster behind the technology, Mr Vishal Gupta. He explained that, originally, this technology was developed to simplify fingerprint analysis for forensic applications as part of his B. Tech. final year project. Later, he and his guide realised that the same technology could be used in dealing with large corporate applications where there was a need to crunch large amounts of data and make sense out of it in real time. When this technology was demonstrated in 2002 at Singapore, during the Stanford University annual competition for disruptive technology, it got the first prize of US $50,000 for the best disruptive technology. But, when the young entrepreneurs went around trying to get corporates to buy their technology, there were no customers willing to put their money up front, since it wasn't commercially used and proved anywhere yet.
When I went through their presentation, I immediately realised that, in many of our BPR implementations, the IT part of it was a big time-consumer and the IT solutions often did not match up exactly to our BPR redesign. This technology clearly fitted like a glove to be used in the IT part of the implementation. In a traditional IT system, it used to take anywhere between 6 to 9 months to make the necessary IT changes.This technology of HL could do it in a couple of weeks since it was designed to sit on top of the existing data and system and capture the necessary data to process in real time as per the process design. It also provided for decision rules and decision support systems to be established by the user, without the need to call the IT department. I was truly excited to help this startup to get real customers and told them that I would talk to my existing customers and see how they could be persuaded to adopt this product. The only condition I put to them was that they should agree to my value pricing model which required that they don't discuss any commercial terms till the clients had experienced the product; I convinced them that, since this was a great product, the customers would then get back with a good price after their actual experience of its benefits. They quickly agreed.
When I returned to Hyderabad, I met Natarajan and apprised him about this visit and shared with him the possibility of using this new technology in our BPR projects in his organisation. His first reaction was: Why should he invest in one more technology, not knowing how it would work? Moreover, globally the group had taken a decision to implement SAP as a standard ERP tool to be used in all locations and he was not sure he would get support for this technology. Then I told him to take a trial use of this technology for 3 to 6 months without any commitment and, if they found it useful, then he could decide on the commercial terms. He agreed and I advised him only to reimburse the cost of travel and stay of the 2 young techies for 2 to 3 weeks in Hyderabad for installing the software, which they could then use as per their requirements. HL would provide online support from their office in Bombay. By this time, internet and online systems were emerging as powerful game-changers in the IT world.
Vetrotex decided initially to use the HL technology in their sales process to monitor the sales promotion schemes for their dealers to push sales, which usually ran for 2 to 3 months at a time. After 3 months, they requested HL to extend the use for another 3 months for another new scheme, while also asking that the same technology be used in their procurement process, which involved setting up the technology in the procurement IT system.
After 6 months, all the users told Natarajan that this technology was amazing and, in future, they could not manage without it. They urged the management to finalise the commercial terms so that they could continue using it. Natarajan told me that, for finalising the commercial terms, the global IT chief had to come to Hyderabad to see for himself how this new technology was used.
Soon after, the HL team was called to discuss and finalise the commercial terms. I had told them very clearly not to raise any commercial terms but to leave it to the client to make their offer. During the discussion, the Saint Gobain IT chief admitted that, even if they had SAP, it would take a year or longer to incorporate the features this technology offered, and would cost them coupleof crores of rupees. And, in the end, there was no certainty that the system would work in exactly the same way.
He then offered to pay user license fees as they would have paid for SAP, based on 500 total users of Saint Gobain group, with an initial commitment to pay for 25 plus users at Vetrotex Hyderabad. Along with that, they would pay 18% for the annual maintenance contract. All this without HL making any price proposal!
The HL team was totally bowled over. They had hoped to get a princely sum of Rs 5 lakhs and here the first client was offering them Rs 50 lakhs upfront. I told them this was the power of value pricing. For the next 3 to 4 clients too, I advised them not to talk of commercial terms; just ask them to use the technology and get back after 3 to 6 months. Once they had a reference point from these initial engagements, they would in future have a basis for commercial terms to be quoted in the early stages of discussion.
The final assignment we were asked to take up in Vetrotex was to redesign their manufacturing process where, after the glass furnace, the final products were made for supply to their customers. The focus of this assignment was to establish a supply chain where only customer orders would be produced and supplied, so that no finished goods stock was maintained at the factory. This was finalised by the team with our guidance in the next 2 months and implemented at the factory. Suddenly they found, at the end of our association, a lot of factory space had been released since both the General Stores and Finished Goods Stores became empty and they decided to convert these spaces to add more manufacturing capacities.
We regularly visited Vetrotex for the next 5 years and later also used them for referral to our prospective clients. Natarajan personally wrote to and introduced us to many other prospects, some of whom became our clients later on. I will discuss these in my future posts. During this period, we were also issued a permanent visitor pass so that we didn’t have to waste time at the security gate whenever we entered the factory!! And, every year, when the company issued a special diary to all its important clients and vendors with their names embossed on it, we too were given one of these. This was one of the most honourable and rewarding associations in my consulting experience. Later, when Natarajan moved to another job in Sanmar engineering group in Chennai, he called me up to work with one of its group companies, which I will discuss later.
