Continuing aggressively on. Even in the recession year (Validating Eli s views)

Transcription

1 TOCICO 2009 Conference Continuing aggressively on Viable Vision Even in the recession year (Validating Eli s views) Presented By: Niranjan Kirloskar, Fleetguard Filters Pvt Ltd, India Date: Nov 2009, Tokyo Kiran Kothekar, Vector Consulting Group India 1

2 Presentation by Niranjan Kirloskar Managing Director, Fleetguard Filters Pvt Ltd, India Kiran Kothekar, Director, Vector Consulting Group, India 2

3 FG s Business Fleetguard Filters Pvt Ltd A leader in filtration solutions for air, fuel and lube systems for automotive and industrial markets. Part of the Cummins Group, Preferred OEM supplier to HCV makers and leader in aftermarket. 5 plants, 14 regional distribution centers, 80 distributors,. 3

4 In TOCICO 2008, Las Vegas I presented how we decided to take up Viable Vision despite facts indicating that Viable Vision is very difficult and we were on path till the conference(month). This is a presentation of our continuation on that path, And inspite of the recession in , when auto industry was the worst hit 4

5 Validating the power of the SnT and the DCE This is also a validation of Eli s views that implementing SnT Creates a Decisive Competitive Edge that enables a company to overcome market fluctuations Creates harmony in the society HARMONY with all the Stakeholders. 5

6 Our Viable Vision as seen in 2005 A recap of our VV In 5 years Increase profit from 3 million to 22 million in five years (7 fold increase) With profitability of 17% one of the best for any components company 6

7 The Viable Vision So we had to address four segments with different DCEs i.e. different SnTs OEM Retail Institutional Exports CCPM Consu GFA Reliabil mer ity Goods SNT SNT SNT SNT 7

8 The progress on VV No de growth And made 10% PBT Auto industry went to 50% of their production levels, yet we made a 10% Profit Recession continuous and we recover to increasing profits by 50% and sales by 18%!! T Started VV in 2006 Sales OE Exploitation of capacity to release about 50% additional capacity

9 The progress on VV Profits Auto industry went to 80% of their production levels, yet we made a 10% Profit without sales degrowth Recession continuous and we recover to increasing profits by 50% and sales by 18%!! Sales Profit

10 What is so great about this performance in 2009? Why is this accomplishment in 2009 of 18% increase in sales and increase in profit increase of over 50% over last year so superlative? 10

11 Understanding the auto recession for auto components companies It affected auto components cos, it suppliers and distributors ib t very bdl badly. Business Daily from THE HINDU group of publications Tuesday, Jan 27, 2009 Dec quarter performance: Auto component cos skidding Mumbai, Jan. 26 One look at the third quarter results of key auto component manufacturers and it is clear that bad times are ahead. That is an understatement, I would think it is going to be frightening and, in some cases, catastrophic, said a chief executive officer of a castings company. Automobile component industry in low gear S Kalyana Ramanathan / Chennai November 11, 2008, 0:31 IST Sanjay Labroo, managing director and CEO of automotive glass maker AIS, believes the mass layoffs in the auto component sector are inevitable if the current slowdown continues. The credit squeeze in the market has affected the commercial vehicle makers most, he said adding there were reports of about per cent contraction in production of commercial vehicles. In a note to the media last week, ACMA president J S Chopra summarised the industry woes succinctly: In the domestic market, the crippling liquidity crunch has slowed down commercial vehicle demand. Payments from OEMs (vehicle manufacturers) to vendors are getting delayed, even disbursement of loans already approved by the banks is being deferred. Rediff.com, News Auto parts: 200,000 may lose job; 4,000 units face closure December 17, :20 IST Auto component companies employ about 400,000 people. A good majority of them have already lost their jobs and the sector is likely to see more job cuts. "Though the jobs cuts are not apparent, a large number of people have already been asked to leave. "Many ancillary units which supply to these companies are also likely to be wiped out if the crisis continues," Davar says. 11

12 What is so great about this performance in 2009? Why is this accomplishment in 2009 of 18% increase in sales and increase in profit increase of over 50% over last year so superlative? This is a year of negative growth in auto industry in India None of the auto parts company are showing positive growth Mostare not showing any profit growth This is result of being on the VV through the SnT 12

13 Where did this growth come from? Implementing the SNT as a RELIGION Build, Capitalise and SUSTAIN Exploit current NPD After market Reliability capacity to OEMS Continue the Delivering new Providing and Export 100% products reliably significant availability. in 1/3 rd the inventory urns/ industry std lead ROI to Extracting time distributors and nearly 100% retailers at 100% more from the availability capacity available in

14 1 Building the operational capability 99% availability in plant warehouse at 6 8 days of inventory 99% availabilityin in regional warehouse at 12days of inventory Near 100% availability at distributors WIP 2 3 days Raw material availability at over 98% 14

15 New Paradigms in operations Build and Sustain What we measure is Monitor Protective Capacity required to sustain the DCE Speed of implementation in Sales Speed of Capitalization POOGIprojects to reduce lead times POOGI projects to release capacity We measure the speed of implementation of the SnT 15

16 1 OE control Not by sacking people! But by Exploiting capacity to release additional 50%. Thus eliminating overtime 15 inventory turns releases working capital reduced loans by about half Providing replenishment (only what is sold) at days inventory results in near zero receivables from distributors (we take advance) OE Growth controlled 16

17 2 New Product Development 1/3rd the lead time and Reliably The result OEMs prefer Fleetguard whenever they want the product in a short time The product managers are relieved of following up atleast for one item More products coming to Fleetguard, thus increasing OEM sales and also the after market sales Though OEM s are at 80% qty level of last year, FG s OEM sales has increased by 10% over last year. 17

18 3 After Market sales growth Implemented replenishment from plant warehouse to regional warehouses (14) to distributors (80) to retailers (more than 10000) Distributors enjoy a ROI of over 150%. Inventory Turns of about 24. FG after market business operates at about 15 Inventory Turns. (h (The other key Auto Parts companies operate at 3 4 Inventory Turns) The result 30% increase in 2009 (recession year) even after we had nearly tripled our sales in the last 3 years. No significant competitor, we understand, is showing any growth in after market this year. 18

19 Harmony in the market But the most important development is. In late 2008 and 2009, the cash flow to small players dried up. Cos started collecting receivables with force. Earlier there was some relaxation. The distributors did not have money to buy stocked out items, and were stuck with non movers. A vicious cycle that led to many distributors making losses This did not happen with Distributors of FG, even though the payment terms of FG are payment on delivery no credit. The replenishment at low inventory days ensured no cash crunch and availability of 100%. Sales increased as the other players had unavailability 19

20 A Distributor speaks Video 20

21 After Market against the industry practices The effect This is where the recession started Sales in After Market jan feb mar apr may jun jul aug sep oct nov dec jan feb mar apr may jun jul aug sep

22 Harmony with suppliers VMI with Suppliers (Replenishment program Unnati) They supply only according to consumption of FG (based daily trigger) They produce to fill the buffer Thus they can manage raw material without locking cash Also as FG s cash also is not locked, we pay in time. So even in the recession, none of our Suppliers perished or had working capital problems 22

23 A Supplier speaks Video 23

24 The Build extended to the whole supply chain FLOW Supplier RM Store Plant Plant warehouse Regional warehouse Distributor Replenishment Retailer Replenish every day Daily consumption The whole supply chain works onorder order daily replenish frequently mode and Buffer Management. There is no locking of capital in the whole chain. hi No cash flow constraint, hence all the entities in the chain not only survived but flourished in the recession as Fleetguard increased sales 24

25 Finally We are on the path to VV financials But more importantly tl we are satisfied that t we could prevent the anxiety in the society to some extent A supplier or a distributor failing to make profits affects many families Sacking an employee can shatter dreams of two generations 25

26 Thank you Eli and Vector Consulting Group, India 26

27 Presenters Niranjan Kirloskar is the Managing Director of Fleetguard India. He isactivelyleadingthe leading the ViableVisionproject Vision for the company. Kiran Kothekar is Director of Vector Consulting Group, India He has been consulting in TOC for the past 7 years. He is also with the Goldratt Group kiran@vectorconsulting.in 27