Productivity Leader - May 2011 by Rui Chirindja

MAY 2011

Official publication of Productivity SA

Implementing continuous improvement programmes Barriers to a productive environment Knowledge exchange yields results er 40 years ov

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contents

16 18

02 03

CEO’s desk

Letters to the editor

The Kaisen Project Method

Winds of change blowing in Africa

Barriers to creating a productive and efficient environment

Productivity is a collective

News

Ed’s note

• Strengthening productivity partnerships globally

When you are not walking the talk

Case studies

• PG Shoes turnaround by Business Success Centre • Global Bag Manufacturers • Knowledge exchange yields results Improve performance with effective performance management

Productivity SA Acting CEO: Bongani Coka

Project coordination and advertising: Rui Victor Chirindja

Productivity SA Executive Manager: Iggy Sathekge

Tel: 011 883 4627 • Email: communications@isikhova.co.za

Editor: Maupi Monyemangene Email: maupim@productivitysa.co.za

Printing and reproduction: Colors

Sub-editor: Chris Whales

All correspondence should be addressed to the Editor,

Contributing writers: Chris Gilmour, Frances Wright,

Productivity SA, Reg no 1975/00044/08

Mokgadi Mahlakgane, Peet Dorfling Photography: Productivity SA and Photos.com, a division of Getty Images Productivity SA Physical address: International Business Gateway, Midrand, cnr New Road and Sixth Road Tel: 011 848 5300 • Fax: 011 848 5555 Email: info@productivitysa.co.za Website: www.productivitysa.co.za

Publishers: Isikhova Publishing & Communications (Pty) Ltd

All rights reserved. No part of this publication may be produced, adapted, stored in a retreival system or transmitted in any form or by any means electronic, mechanical, photocopying, recording or otherwise without the prior written permission of Productivity SA. The views expressed in this newsletter are not necessarily those of the Publishers or its agents. While every effort has been made to ensure the accuracy of its contents, neither the owners nor the publishers can be held responsible for any omissions, errors, or for any misfortune, injury or damages which may arise therefrom. The same conditions apply to any advertising in the publication.

Postal address: PO Box 651793, Benmore 2010 Tel: 011 883 4627 • Website: www.isikhova.co.za Design and layout: Joanne Brook, Isikhova Publishing

ISDN 1018-7227

CEO’s DESK

CEO’s desk According to the Adcorp Employment Index, employment remained generally weak in February 2011 with only temporary employment showing a more substantial increase of 6.1%. The index also showed that work in the formal sector rose at an annual rate of just 1.4%, while permanent employment declined by 1.3% in the same period. The release of Statistics SA’s Quarterly Labour Force Survey stands to shed more light on how we are faring but based on the latest index we seem to be on the back foot. Productivity SA’s mandate is to improve productivity in all spheres of the nation’s economic and community life and when the tide is turning against us in terms of jobs sustainability, our task becomes even more pertinent. An increase in productivity stands to address the issue of unemployment. For instance, in our ‘Concise Handbook on Productivity’ compiled by Mr Sello Mosai and Dr JLW de Jager, we put together a booklet intended to widen productivity knowledge. We look at productivity as a measure used to produce outputs. Any nation‘s competitiveness is ingrained in its ability or its enterprises’ ability to gain global market

share for inputs, products and services. Productivity SA’s ‘Concise Handbook on Productivity’, indicates various productivity principles such as: a. Increase output by using fewer inputs. This method usually produces the largest productivity gains but may not be the ideal way to realise productivity growth in countries with unemployment problems as job losses could follow. b. Increase output by using the same quantity of input. This method could imply no change in employment, and it may not be suitable for enterprises with a bloated labour force, or it could impede the introduction of new technology. c. Maintain the same output with fewer inputs. This is possible without reducing employment, by reducing other inputs such as raw materials or capital services. This method excludes an increase in output and most likely also employment and growth and, therefore, does not address unemployment. d. Produce a smaller output with even fewer inputs. From a macro point of view, this option is the least desirable in developing countries, which need labour absorption capacity. The reduction of products and services, as well as resources needed to produce these, could aggravate unemployment. In mature, overheated economies with labour shortages, this could alleviate both problems simultaneously and maintain or enhance competitiveness. e. Produce a larger output with more input. In this scenario the marginal increase in output is greater than the marginal increase in input resulting in a larger number, which is, therefore, an increase in productivity. This is the ideal way to improve productivity in developing transitional economies because it integrates economic growth, employment creation and higher productivity, on condition that the growth output can be maintained at a faster rate than the growth in inputs. Productivity SA would like to encourage enterprises to contact the organisation for assistance in diagnosing issues affecting productivity in their establishments.

Bongani Coka Acting CEO: Productivity SA

MAY 2011 productivity leader

Ed’s note

Ed’s note Welcome to our second issue of Productivity SA Leader for 2011 and as per previous issues we aim to ensure that the publication continues to generate debate, but even more crucially informs you the reader on the various trends, methods and tools that can be used to promote productivity. Whether it is personal productivity whereby an individual is grappling with issues of time management or complex matters that involve enterprises that require an industrial analysis to diagnose potential pitfalls, this publication aims to inform and educate on productivity-related issues. On page 5 we resume our line-up of articles with a look at the Kaizen Project Method and our productivity consultant, Peet Dorfling, takes us through the paces of this productivity method that aims to ensure continuous improvement in the workplace. On page 9, our guest writer, an investment analyst with ABSA Bank, Chris Gilmour, gives an overview of the potential that Africa holds. Gilmour cites Africa‘s real GDP growth in the past decade as a cause for optimism and delves further into the fact that of the 10 fastest-growing economies in the world in 2008, five were in Africa. On page 10 we feature an article that looks into the barriers to creating a productive and efficient environment. The article, drafted by Trinitas Consulting – a supplier specialising in creating profitability through the integration of communications, marketing and operations, looks at the pros and cons of employment equity. While this is not an easy subject to address, the article gives a balanced opinion on the issues at hand. On page 13 we discuss productivity and what it means for business, labour and government, which have both similar and different interests in relation to the concept of productivity. The common interest is to increase productivity in order to promote and generate economic growth and we discuss productivity at length in this article. We round off our pot-pourri of articles with a look at case studies from the actual work performed within industry by our colleagues from the Turnaround Solutions and Workplace Challenge programmes (WPC). In their line of duty, our colleagues from these programmes consult with industry to implement productivityimprovement techniques. Turnaround Solutions is a Department of Labour programme, designed to put in early warning systems to prevent job losses and return failing businesses to health and profitability. This programme has been managed and implemented by Productivity SA with some excellent results for the past eight years, as indicated by the case studies.

With the help of a diagnostic tool, Turnaround Solutions is able to perform quick diagnoses to identify crisis areas within the company. Management and employees are then encouraged to work in collaboration with Productivity SA to develop and implement a turnaround strategy. On the other hand, the WPC is changing the way enterprises are managed by promoting participation of all employees within the company. Through this programme, management is encouraged to introduce progressive management techniques and work systems, including positive work attitudes and teamwork. Through the WPC, Productivity SA outlines how companies should find the right responses to various competitive imperatives at all steps of the value chain that include: originality, speed, customer focus, quality and productivity. We hope you find this issue as enterprising as the previous issues and for any comments or enquiries please contact me on maupim@productivitysa.co.za.

Maupi Monyemangene Editor maupim@productivitysa.co.za

MAY 2011 productivity leader

LETTERS

Letters to the editor Dear Editor

Dear Editor

I note that in your October 2010 editorial, you discuss the issue of Productivity Month at length. In your editorial you mention that ‘October has been declared Productivity Month by Productivity SA and is a yearly campaign that focuses primarily on the promotion of the importance of productivity to every South African. The purpose of the month is to highlight the importance of productivity in the country and treating productivity as an enabling tool for transforming our economic growth and the creation of jobs’.

The article ‘Zoning in on productivity’ by Professor Raymond Parsons in your February 2011 issue was very interesting. It was a very informative article even though it shows that in the fight to create more jobs, the country is faced with a serious challenge.

For a second, reading about October Productivity Month reminded me about a programme by government and if I recall it is called ‘16 Days of Activism against the abuse of women and children’. When I read about that campaign, I thought it should be something that is carried throughout the year. I tend to think the same of Productivity Month. In a country that used to export wheat but is now dependent on wheat imports, one would assume the promotion of productivity should be an all-year-round issue. However, I find your publication very interesting and do keep the debate on productivity ongoing.

I am not much into statistics nor do I generally find it easy to understand their meaning in real terms, but I must say it is quite a huge task when one is made to realise that we might need a 6% annual growth rate to create an extra 400 000 to 500 000 jobs per annum. My input would be that we need to support the growth of Small, Medium and Micro Enterprises (SMMEs) to see better prospects in job creation. It is a tall task for government and big business to produce the number of jobs required and the growth of the SMME sector can help alleviate the problem of unemployment. Regards, Name withheld Dear Sir The article indeed dealt with a critical issue and painted a scenario where the country needs to up its game in terms of economic growth; however, we must take into consideration that various factors influence growth.

Regards, Ms Puleng Maseko Dear Ms Maseko I thank you for a rather forthright letter and it definitely puts important questions on the table. While Productivity Month has been chosen to take place in October, productivity is actually promoted throughout the year. Without a doubt it is important for the nation to be aware of productivity and understand the need for productivity as a method of enhancing the standard of living in the country. While we intensify our drive to promote productivity during October, we are involved in the promotion of productivity throughout the year and to give one example, the organisation is involved in workshops throughout the year. We also engage media stakeholders consistently. We acknowledge your concern and we aim to intensify productivity awareness and thank you for your letter.

Productivity SA agrees that SMMEs is a sector that needs adequate support and as an organisation we support this sector through action learning solutions to assist SMMEs, including co-operatives, aimed at equipping SMMEs with the right skills, knowledge and attitudes to implement systems and procedures to improve productivity, profitability, growth and employment creation. We run Business Performance Improvement Workshops (BPIW) and the Productive Capacity Building Programme (PCBP) which provide SMMEs with productivity competencies that can be applied immediately to improve productivity within their businesses. These partnerships initiate a journey for SMMEs towards improved performance, service delivery, profitability, growth, employment creation and organisational competitiveness.

Regards, Editor

MAY 2011 productivity leader

FEATURES

The Kaizen Project Method By Peet Dorfling Goal of Kaizen

During the past four years, the collaboration between the Pan African Productivity Association (PAPA) and the Asian Productivity Organisation (APO) has seen Africa’s Asian counterparts contribute to the productivity movement in Africa. Since the collaboration, the APO has offered over 164 training places to productivity practitioners in Africa. In the ensuing exchange of knowledge, one of the techniques adopted from the APO, the Kaizen Project Method, was put through its paces in a South African company by the Workplace Challenge Programme (WPC). The purpose of Productivity SA’s WPC is to help South African enterprises to implement lean / world-class / best operating practices / continuous improvement programmes in a networking context. The Kaizen Project Method was presented to Productivity SA by the Japan Productivity Center (JPC) around two years ago. Kaizen is the Japanese word for continuous improvement.

60 50 40 30

Present

20 10

Goal

Following the KP Sheet Method, a Kaizen Project involves 10 steps: 1. Identify Kaizen Projects* for quality improvement (*Short-term projects and medium-term projects) 2. Set Kaizen Goal based on the prioritisation of problems 3. Focus on specific defects to be addressed by looking at the current situation (Genjitsu) 4. Uncovering the causes of defects 5. Formulate ‘hypotheses about the real causes of defects’ based on actions 3 and 4 6. Gather facts and data, and conduct experiments to ‘confirm hypotheses right or wrong’ 7. Take counter action to improve the situation 8. Measure the direct result of Kaizen Actions 9. Measure other effects of Kaizen Actions 10. Take action to prevent a return to the previous state

The Kaizen Project (KP) Method At the heart of the Kaizen Project Method is the ‘KP Sheet’ which is a short and powerful problem-solving framework developed by the JPC. It is similar to the A3 process of the lean manufacturing discipline. It is a simple means of summarising and communicating about a Kaizen Project. The KP Sheet’s purpose is to guide a problem-solving team (Kaizen Team), and to help display (to management and other stakeholders) simply and with impact: • The various problems experienced by the team • The root causes of problems as determined by the team • The actions planned and taken by the team to solve the root causes of problems • The direct results of the actions • The impact of the actions on people, costs, etc • Future continuous improvement actions

Let’s look at these steps one by one: Step 1: Identify Kaizen Projects* for quality improvement To be able to deal effectively with company problems (especially quality problems), the JPC suggests a small Kaizen Team be appointed. We will look at each of these steps in some more detail.

(Example) Problem evaluation table (10: maximum score) Importance

Urgency

Company policy

Possibility of achievement

Effect on investment

Total score *

Problem A

Problem B

Problem C

MAY 2011 productivity leader

FEATURES

The JPC advises that it is necessary to evaluate the company’s current situation to prioritise problems to target through Kaizen Projects. *Continuous Improvement Projects – key questions to ask are: • Which quality defects are troubling the company? • Are there any products produced by the enterprise where quality is unstable? Step 2: Set Kaizen Goal based on prioritisation of problems • Usually we select the problems with the highest scores out of 10 to deal with through the Kaizen Project Method. • Agree on the goals of ‘Kaizen for quality improvement’. • At this point, any goal may be seen as too steep because people may have grown used to the specific problem, but it is important to set a goal to motivate the team members involved. Start filling in the different pieces of information on the KP Sheet (see below). This sheet is a valuable communication instrument, because it will show the whole Kaizen Project at a glance. • The wording of each step (especially 4, 5 and 6) may have to be rewritten from time to time during the project as a result of new insights or investigations, but this is normal in Kaizen Projects.

• • •

Classify the defect products by type and count the number of each type. Calculate the defect rate (defect per product) for each type and produce statistics. Analyse defects statistics and draw a Pareto diagram. This helps to identify the 20% of the products that make up 80% of the defects. If you can solve the real cause of this defect, you would solve 80% of the problem. Upon interpreting the blue line on the Pareto diagram below, it becomes clear that Defect 1 represents about 60% of the problem, and Defects 1, 2 and 3 together make up 90% of the problem.

Number of defects

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

60 50 40 30 20 10 0

Step 4: Uncovering the causes of defects The JPC suggests four useful techniques to help the Kaizen Team get to the root cause of the problem: • Look at samples of normal and defect products (Genbutsu) • Observe the manufacturing space (5M&E, or Men, Machine, Materials, Method, Measurement and Environment) (Genba) • Analyse the distribution of product quality data, or • Analyse simultaneous data of production factors (5M&E) vs quality Step 4.1: Looking at samples of normal and defect products will help the Kaizen Team to understand the real nature of defects, and as such will help to determine the causes of defects. Consider the following example: * Compare and determine the difference between samples of normal and defect products Normal products

Defect sample Defect (1)

Step 3: Focus on specific defects to be investigated To be able to understand everything around the defects troubling the organisation, it is important for the Kaizen Team to make observations of the current situation (the JPC calls the current situation ‘Genjitsu’). To make sense of the observations, these actions might be helpful: • Collect samples of normal and defect products (Genbutsu): make sure you can distinguish between normal products and all types of defects. You can collect samples for a period of one month, one day or one hour, etc. Keep samples of defect products for future reference.

Defect (2)

Defect (3)

Step 4.2: Observing Genba (manufacturing space), focusing on 5M&E, can be done by means of a tour of the production facility, by taking photos or videos, and by talking to operators or team leaders.

MAY 2011 productivity leader

FEATURES

Step 4.3: Checking the distribution of product quality data may help to determine why the defect products are below or above the standard specifications: Standard

Lower limit

Upper limit

250 200 150 100 50 0

Number of products

Step 5: Formulate hypotheses about causes of defects based on actions of steps 3, 4.1, 4.2, 4.3 and 4.4 The JPC relies on the tried and tested fishbone diagram to guide the Kaizen Team’s brainstorming, but you can also use other hypothesis techniques such as the ‘5 Why’ technique to identify why different defects can happen, and think through what the root causes of defects are. The fishbone chart (see bottom left) helps the team to focus again on 5M&E. The 5 Why technique used by the Workplace Challenge Programme also helps the Kaizen Team to focus on 5M&E:

1 2 3 4 5 6 7 8 9 10 11

350 300 250 200 150 100 50 0

1 2 3 4 5 6 7 8 9 10 11 Quality (size etc.)

Step 4.4: By checking simultaneous data of product quality, 5M and environment factors, one can often see patterns which may indicate the reason for certain defects. See the diagram below: This means the company must start to record real-time data of output as well as inputs

Spec out data

Factor and Product Quality INPUT

4M: Man, Machine,

output

Material, Method

Lower limit

Step 6: Gather facts and data, and conduct experiments to ‘confirm hypotheses right or wrong’ The JPC experts stressed the importance of gathering facts and data, and conducting experiments to prove hypotheses right or wrong, in other words making sure of the root cause before embarking on an expensive solution that might prove ineffective! The key is to conduct an experiment and to gather data with the purpose of making sure one has found the real cause(s). This should be done for each type of defect, again focusing on 5M&E. Consider the diagram below:

Product Lot

Man (Operator)

1 2 3 4 5 6 A B B C B A

Quality data Method data

Machine data

Material data

Method = Cause of defect

Defect rate

By gathering data or doing experiment

Environmental data

Fishbone Chart

Man

Cause = Man (Operator)?

Mr A Measurement

Ms B

Mr C

Ms D

Machine

Defect rate

Cause = Machine?

Defect

By gathering data or doing experiment Environment

Material

Method

Machine condition

MAY 2011 productivity leader

FEATURES

Cause = Method? Compare procedures between Mr A and Ms D By video camera observation or experiment, etc

Defect rate

Cause = Material? By gathering data or doing experiment

Material character

Step 7: Take counter action to improve the situation Once the Kaizen Team is sure of the root causes of defects/ the problem, they can have a brainstorming session to come up with ideas of counter actions to eliminate the root cause(s) and so improve the situation. Then, of course, they must agree on actions to be taken (Kaizen Contents) to address the real cause(s), and then the last step is to carry out the actions as planned. Step 8: Measure the direct result of Kaizen Actions The direct quality result the Kaizen Team wants from Kaizen Actions is a reduction in the number of defects produced. Less defects means less customer complaints.

• • •

production and specifically the cost of defects, and even increases in profit. D = Delivery, meaning improvements in lead times as a result of a reduction in rework. S = Safety. Perhaps the defects were caused by an unsafe procedure, in which case a reduction in injuries may be regarded as a result of the Kaizen Project. M= Morale or People. This can be measured in aspects such as absenteeism, number of grievances or improvements in skills levels.

Step 10: Take action to prevent a return to previous state and to ensure continuous improvement When the Kaizen Team has dealt with the 20% of the problems causing 80% of the defects (refer back to step 3), they can turn their attention to the remaining problems to attempt to reduce defects to zero. They can do a Kaizen Project focusing on those other causes. They should also remember that once they turn their attention away from the problem they have recently solved, it may resurface if they do not take action to sustain the solution, especially if the problem was rooted in human nature. Therefore, to prevent a relapse, the JPC consultants advise the Kaizen Team to: • Formulate a Point Card (this simply means revising the work standard or standard operating procedure). • Educate the workers on the Point Card (revised work standard). Consider the diagram below:

Step 9: Measure other effects of Kaizen Actions The JPC distinguishes a number of areas of ‘other effects’ where the Kaizen Project may have had an effect. While monitoring the impact of the Kaizen Project, one should look for effects in the areas of economic impact (profit and loss), improvement in human relations, improvement in people’s ability/skill or improvement in teamwork. The WPC measures impact in five easily definable areas following the acronym QCDSM: • Q = Quality. This can be done by measuring the number of defects as in step 8, or by counting a reduction in the number of customer complaints. • C = Cost. This can be done by monitoring the cost of

Presentation In presenting the results and actions followed during the Kaizen Project to management or other stakeholders, the KP Sheet (see diagram between steps 2 and 3) and every step mentioned above can be captured in a PowerPoint presentation. By simply creating internal links between the slides, the Kaizen Team can present the whole project with impact by using the KP Sheet as the central slide and jumping to the different slides displaying each of the 10 steps of the Kaizen Project.

MAY 2011 productivity leader

opinion

Winds of change blowing in Africa By Chris Gilmour Change is the only constant and, true to form, new winds of change have been blowing throughout Africa in recent years. Although not all the change has been for the better, the winds of a new order have generally been whistling in the right direction. Political and economic developments reached a somewhat unexpected peak this year with the uprisings in Tunisia, Egypt and Libya. The eagle eye of the media has brought to our homes images of how those who once wielded unquestioned political might have succumbed to the will of the people. However, beyond the change in political power, there has been less visible change which is equally if not more significant than the current political musical chairs taking place. The change stands to be more significant in the long run and the change is predominantly economic. On the face of it, Africa is on the brink of waking up and demonstrating to the rest of the world that it is a nascent economic superpower. It may well be that because Africa’s rise seems to have occurred so suddenly and coupled with a heavy dose of scepticism regarding Africa’s ability to break free of the shackles of poverty and disease, the scale of the ‘African renaissance’ has largely gone unnoticed. However, the change has been telling and to pick one of the many examples, as recently as the decade between 1990 and 2000, Sub-Saharan Africa’s real GDP growth in total was around 25%. In other words, between the beginning and end of that decade, Africa only grew by 25% in total. By comparison, the Asian newly industrialised countries (NICs) grew by 75% and the world grew by almost 35%. By the following decade, however, that had all changed. Between 2000 and 2010, Africa had grown by 85%, the Asian NICs and Latin America by 45%, the USA by just over 20% and the Euro area a dismal 14%. Africa was the star performer and this view was endorsed in the Economist magazine’s supplement ‘The World in 2009’ which highlighted the fact that of the 10 fastest-growing economies on earth in 2008, five were in Africa. But this is no flash in the pan. Africa’s strong GDP growth is underpinned by improving macroeconomic fundamentals. Collectively, Africa’s trade balance went from

being reasonably negative during the 1990s to being hugely positive last decade. African debt climbed sharply during the 1990s but has fallen equally sharply since then. Last year, Africa caught the eye of international consulting firm McKinsey, which published an insightful survey on the continent entitled ‘Lions on the Move’. This report put numbers to the African renaissance. For example, at around $1.6-trillion, Africa’s collective GDP is approximately the same size as that of Russia or India and not that far away from Brazil’s. And economic growth, at around 6% to 7% per annum, is very much on a par with those countries. Africa’s population, too, is growing rapidly; at around one billion at present, it seems likely that Africa’s population will surpass that of China’s by 2030. While most people intuitively associate resources with Africa, McKinsey’s report points out that only about 24% of Africa’s GDP emanates directly from resources. The largest component of GDP comes from consumer-facing industries, such as retail, ICT and banking. McKinsey believes that African GDP will balloon to $2.6-trillion by 2020, with consumer-facing industries leading the charge and heavily aided by infrastructure, agriculture and, of course, resources. A key area where Africa’s potential lies is in agriculture – the continent’s highly fertile land forms 60% of the world’s arable and uncultivated land. But there are formidable obstacles to surmount before Africa’s undoubted potential can be realised. For example, Africa comprises 53 separate countries, each with its own political and economic agendas and many of them with highly different languages and cultures. Compare this with South America, for example, where there are only 12 countries and two main languages (Portuguese in Brazil and Spanish everywhere else). In infrastructure there are key developments taking place. The North-South corridor, which links the copper belt of the DRC and Zambia with ports in Tanzania and South Africa, is currently being upgraded and this should facilitate significantly faster transport times and reduce delays. If Africa can maintain an economic growth rate of 6% to 7% compounded for the next couple of decades, then the winds of change would have yielded positive avenues with social issues such as poverty.

The writer Chris Gilmour is an analyst with ABSA investment.

MAY 2011 productivity leader

FEATURES

Barriers to creating a productive and efficient environment A: Productivity and the management of employment equity and diversity Employment equity in South Africa is, for obvious reasons, a political necessity in that the inequalities of the past must be addressed so that people have the opportunity to participate equally in both society and in the workplace. There are those that argue that legislation regulating employment equity in the workplace is an unjustifiable restraint on the freedom to contract and will be both costly and burdensome. This will therefore have an impact on productivity and will restrain economic growth. At the same time it has been argued that discrimination is both unproductive and costly. Discrimination results in a loss of productivity rather than its increase. Globally, employment equity is in fact now widely recognised as a fundamental human right; employees have the right to achieve their maximum potential at work. But it is also recognised that equity in the workplace is more than just an issue for the proponents of human rights and freedoms. It is no longer an issue for the social activists. In fact the achievement of employment equity and diversity in the workplace is more than just the achievement of human rights in the workplace; it is now widely recognised as being a competitive necessity and a strategic business response to the multiculturalism of the global economic environment and marketplaces. Diversity in the future will be driven by the imperatives of competitiveness, demography, immigration and globalisation. Discrimination is both costly and economically inefficient. It costs employers to discriminate in a number of areas, including: • In the language of economists, in order to sustain a workforce that is not diverse, or where there is persistent discrimination against a particular category of employees, for instance women and black people, an employer must be prepared to pay for his or her ‘taste in discrimination’. In other words an employer must pay, either indirectly or directly, to continue to be associated with some persons rather than others. • In a discriminatory environment where there is less possibility of promotion, partial and unequal wage levels for different groups of people and a failure to accommodate the needs of diverse groups, there is generally a higher turnover of employees, greater absenteeism, low motivation among employees to be productive and a difficulty in recruiting the best employees.

In relation to the productivity and effectiveness of the enterprise or sector more generally, a diverse workforce is necessary for the following reasons. A business must anticipate the needs and aspirations of a diverse customer or client base, whether this is in relation to services or goods produced. The nature of the workforce, whether this is in relation to management or any other employee, must reflect the market which that particular business caters to. This is essential if the needs of the customer are to be translated into either products or services, which in turn is essential to make the business more profitable. In relation to services, employees must understand the needs of the customer in order to serve them better. An organisation with a diverse workforce is therefore better able, at a strategic level, to make fundamental decisions based upon its in-depth understanding of how different people perceive the world and what their particular needs are. In an organisation it is also imperative for business efficiency to maintain effective linkages with all in the value chain, including suppliers. In a global economy where suppliers of raw materials come from different communities and in some instances different parts of the world, it is necessary to anticipate the way in which the suppliers interact with the world and how they do business. In South Africa, where the development of small business is emphasised, a relationship with a diverse set of suppliers is essential; an understanding of this is therefore essential. In order to assess whether to invest in a country, foreign investors often look at the reputation of particular businesses. The achievement of a better reputation for diversity and tolerance may attract investors in the particular enterprise or sector in both the local and the global context. In South Africa this is of particular importance given its history of intolerance and discrimination.

MAY 2011 productivity leader

FEATURES

The ability of both management and employees more generally to comprehend and respond to an increasingly multicultural world is essential to increase productivity. It has been argued that a global company, which is essential for economic growth, cannot be run solely in terms of the values of a particular community. This is of particular importance in South Africa where managers and strategic decision-makers are often drawn from a particular race and gender. It has been argued that it is impossible for this particular group of people to understand and be sensitive to other global and cultural values. B: Productivity and social equity In order to achieve a higher rate of productivity, a more efficient use of resources is required. These resources include capital, land, raw materials, information, energy and, most importantly, labour. It is easy to identify the cost of ‘hard’ factors in relation to productivity, for instance technology, equipment and raw materials. It is not as easy to identify the cost of the ‘soft’ factors, for instance work organisation, work methods, environment and management style. Productivity is not, as it is sometimes thought, the intensity of the labour or the speeding up of work for less. Productivity is about working more intelligently, or creating an environment conducive to more intelligent work, rather than simply making employees work harder. Employees, who are the principal resource in relation to productivity, have a key role to play in increasing the productivity of the particular business or enterprise. This role may be analysed in terms of both application, and the degree to which people apply themselves to their work, and effectiveness, this being the degree to which people are applying themselves in relation to the quality and output of their work. Motivation plays a key role in creating a productive environment. Employees who are dissatisfied and unhappy at work are less likely to be productive employees. It is obvious that in order to achieve a productive workforce, the quality and environment in which people work must be conducive to a higher level of motivation and a concern for the output of the particular enterprise. Attempts to decrease inputs in the form of social benefits, lower wages and the provision of a safe working environment must necessarily decrease the motivation of employees. Employees who are poorly paid or not remunerated appropriately are generally less productive

than those employees who are relatively satisfied with their remuneration. In order to increase productivity it is necessary to introduce creative pay systems through which employees feel that they have a stake in the business or enterprise. The payment of ordinary wages cannot in itself be sufficient to motivate employees. Having no stake in the productivity of the enterprise ensures that employees are not motivated to work better or more efficiently. In an environment that is hostile, or an environment where it is unpleasant to work, employees are more likely to be persistently absent from work, thereby costing the enterprise. For instance, where there are no welfare provisions, childcare facilities, water or canteen facilities, employees will constantly take time off work to attend to legitimate needs. Unsafe machinery not only leads to accidents that may cost the enterprise in terms of sick leave and compensation payments, it also demotivates employees. If they are constantly aware that they are unsafe, they are reluctant to work with the identified machinery. In addition to this, unsafe machinery and the lack of maintenance of machinery leads to breakdowns and therefore loss of the productive time of employees. The monotony of unskilled work leads to poor organisational design and development which is less productive than an efficient organisation in which there are more trained and skilled employees who are able to undertake a diverse nature of work. In addition to this, organisations need to be dynamically operated and reorganised to meet new market needs. This includes introducing more flexibility in relation to the actual work people are engaged in and therefore the creation of a workforce that has diverse skills. The legacy of apartheid in South Africa has left us with a skills backlog. In order to create a more productive environment, one of the key challenges is to ensure that employees are skilled. Productive employees work with management to innovate and develop productivity. International evidence suggests that productivity must not only be the responsibility of the individual employee; the key to improved productivity lies in the innovative management of employees. In order to improve productivity, improved management is required to lead, innovate and respond appropriately to changes in the market for goods and services, as well as the labour market. Articles used courtesy of Trinitas Consulting

Impact figures Target

Sep

Oct

Nov

Quality

Collection of impact statements

100%

70%

85%

80%

Cost

Variable expenses (office costs)

R2 000 pp

R1 477 

R1 688 

R1 931 

Delivery

No of companies nurtured

4 companies per CF per month

1

5

0

Morale

Innovations

1 per person per month

6

4

0

1 implemented

4 implemented

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MAY 2011 productivity leader

OPINION

MAY 2011 productivity leader

OPINION

Productivity is a collective Government, business and labour have both similar and different interests in relation to the concept of productivity. The common interest is to increase productivity in order to promote and generate economic growth, but following this, their interests begin to diverge. For government, the debate on productivity must include a debate on unemployment and employment creation. The most unproductive person is an unemployed person. In a developing country with high unemployment figures, this obviously resonates with the public. Consequently, any accord or agreement on productivity must include mechanisms for job creation. For business, the debate on productivity is focused on the increase in profitability in order to interact visibly and meaningfully in the global economy. Any accord must therefore include mechanisms to measure productivity against global benchmarks. These benchmarks must then be linked to the overall economic growth of the country. Any accord must also seek to accommodate both large and small businesses, and allow for the introduction of sector-specific productivity agreements. For labour, the word productivity evokes an almost unanimous response, this being, yes productivity must increase in order to grow the overall economy, but at whose expense must productivity grow? In this regard, labour will cite the statistics on dismissals for operational requirements, which in South Africa are extremely high, and the constant battle with employers to develop a better working environment. A better working environment will include higher wages, shorter working hours and more social benefits. This article aims to generate a range of ideas relating to productivity that may be used by all parties.

Africa appears to be the one that sees productivity as â&#x20AC;&#x2DC;the ability to combine and convert inputs of labour, materials and capital into outputs of goods and servicesâ&#x20AC;&#x2122;. Productivity improvement would imply an increase in such ability and the same would apply to a decrease. The above definition is an economic definition, which essentially characterises productivity as something that can be accurately measured statistically by calculating the output and input costs in a particular enterprise or sector. Economically, a higher productivity rate will be achieved by doing more with less, or at least accomplishing more at a constant or improved quality, with the same amount of resources. As a result of the inadequacy of the purely economic definition, a multifaceted definition of productivity has been determined. This definition states that productivity is creating wealth through the generation and application of knowledge to make available products and services that meet the needs of the user and are consistent with social, environmental and economic goals of the society. Recognising that the human mind is the source of productivity, endeavours to create a mindset that continuously seeks improvements and reacts effectively to change are fundamental. To achieve this, management dynamism is required to inspire people to accelerate economic and social development to provide material wealth. However, despite differences in defining productivity, there is general consensus among different productivity commentators about the measurement of productivity as a ratio of output over input: Productivity = Output / Input (In this definition, output refers to the goods or services produced by an enterprise and input refers to the resources used to produce the outputs, including capital expenditure, raw materials, energy, information and labour costs.) In a given context, for one to fully appreciate productivity, one needs to look at three essential elements: â&#x20AC;˘ Firstly, the nature of the production system that

Government, business and labour have the common interest to increase productivity in order to promote and generate economic growth.

Productivity: grappling with the concept There is no single definition of the concept of productivity. The most well-researched definition of productivity to have emanated from South

MAY 2011 productivity leader

OPINION

is dealt with must be characterised appropriately, be it international, national, regional, an enterprise or individual. At the enterprise level, the system may be a goods or services production facility for profit, a government department, an NGO, a school or any other unit at which some resources are mobilised and organised to generate certain output. â&#x20AC;˘ Secondly, the fact that productivity needs to be measured as a ratio of output over input strongly suggests that it is equally important to understand the desired outcome of the process in order to measure the right outputs. â&#x20AC;˘ On the input side, an important consideration is what criteria one uses to decide which resources to account for when measuring productivity. To the extent that productivity is the ability to mobilise and use resources well in order to achieve specific outcomes, any resource that has the potential of being used towards the desired outcome (available and relevant to the production process) should be considered. This is notwithstanding the possibility that at the time of measurement, the resource may be 100% under utilised; if itâ&#x20AC;&#x2122;s potentially usable, then it is important. In fact, the exclusion of a resource that is completely under utilised but relevant and available for use towards specific outputs will inflate the productivity measurement, thus distorting the picture. Government, business and labour have the common interest to increase productivity in order to promote and generate economic growth. To ensure the active participation of all contributors and beneficiaries in productivity growth, the following guidelines can facilitate the process: Accepting that productivity is measured as the quotient of output divided by input, it follows that productivity may be improved in five different ways:

The first three options imply reduced inputs. This is associated with cost-cutting exercises, and the most vulnerable resource in this regard is labour. Option 4 implies an increase in output while inputs remain stable, and option 5 implies an increase in both output and input. However, the increase in output should exceed the increase in input. Option 4 and especially option 5 represent the most effective ways of sustainable productivity improvement and it is suggested that these approaches to increased productivity should be followed. As high output growth will need accelerated input growth, it is necessary to select output generation methods that would not involve job losses because productivity has improved. The third prerequisite for sustainable productivity growth is that customers, providers of capital and employees should benefit from the additional wealth that is created. Understanding how to measure productivity is not a substitute for the theoretical grasp of the concept. Ideally, such understanding should precede and predetermine the measurement issues. Conceptually, there are certain salient features of productivity that have become apparent over the years: Productivity has a holistic nature characterised by the fact that the different production factors that impact on the total productivity of a system are also interdependent on each other. Such factors include behaviour, methods of production, technology, values, management systems, products and training/skill, etc.

MAY 2011 productivity leader

the dti’s B-BBEE Website & IT Portal Revolutionising the National Transformation Agenda The Department of Trade and Industry (the dti), as the custodian of the economic empowerment policy, has revolutionised the manner in which it communicates its B-BBEE mandate to the economic citizens of the country, via the recently launched national Broad-Based Black Economic Empowerment (B-BBEE) Website and IT Portal. the dti B-BBEE Website and IT Portal offers you: • Centralised, government and standardised B-BBEE information resource; • Publicly accessible B-BBEE information and educational scorecard simulators; • Free registration of your company’s BEE Scorecard and Certificate on the IT Portal; • Facilitation of an Exempt Micro Enterprise (EME) BEE Certificate, by providing you with a standard template as proof of your BEE status; • Secure access to a free, customised B-BBEE Toolkit, with an online self-assessment calculator, and submission of verified credentials, • Answers to ‘frequently asked questions’ on B-BBEE and the opportunity to pose your own questions; • Easy-to-use functionality for increased B-BBEE compliance (including EMEs with a turnover under R5m per annum); • Marketing of your company on the B-BBEE Opportunities Network, which can be freely searched by your procurement/ transformation managers to source procurement/trading partners; • Ratings of entities and access to Verification Agencies; • Optimised flow of B-BBEE information from the public and private sectors to the dti; • Optimised flow of information between entities and their current or potential suppliers, clients or trading partners; • Sharing and networking of B-BBEE opportunities; • Reporting of B-BBEE fronting practices (window-dressing), and much, much more. • OPTIONAL: Listing of your company’s profile (at a marginal fee to cover third-party costs) on the dti National Registry – for business opportunities and marketing purposes

Join the transformation revolution, by visiting the only official government B-BBEE Website and IT Portal at: http://bee.thedti.gov.za

NEWS

Strengthening productivity part By Mokgadi Mahlakgane When the Pan African Productivity Association (PAPA) was formed in 1992, its driving agenda was the need for productivity improvement on the continent to create more jobs and to sustain those jobs in the face of increased competition. Nineteen years later and the organisation is relentlessly pursuing its objective to promote productivity on the continent, and this was fortified in 2010 during the 16th Ordinary Session of the Executive Council, Heads of States and Governments when the African Union (AU) requested member states to accelerate the implementation of the Productivity Agenda for Africa. In the latest move to ensure that the Productivity Agenda is pursued, PAPA signed a Memorandum of Understanding with the Korea Productivity Centre (KPC) in December 2010. The Areas of Collaboration are: • To promote the exchange of information, best practices, benchmarking information, knowledge, tools and expertise in relation to productivity improvement for enterprises and industries. • To identify and develop common projects of interests in productivity research, development and promotion. • To facilitate the exchange of information and contact

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points in the government and private sector in the areas of mutual interest. To explore joint programmes of training or human resource development when appropriate. The KPC was established in August 1957 as a non-profit, non-governmental organisation. Subsequently, in June 1961, the KPC was designated as the implementation agency representing the Korean government, when the Republic of Korea joined the Asian Productivity Organisation (APO) as one of the first signatories to the Convention. South Korea, often referred to as Korea, is located in East Asia on the southern half of the Korean Peninsula. The country is neighboured by China to the west, Japan to the east and North Korea to the north. The population of Korea is estimated at 50-million, which is 0.7% of the world’s population. Korea boasts some of the world’s best-known brands including Samsung Electronics and Hyundai Motor Company, which were the only two Korean companies to make it into the world top 100 brands listed by global branding consultancy Interbrand. The KPC became a special corporation under the Ministry of Commerce, Industry and Energy in 1986 in line with the government initiatives, and has since been designated by the Korean government to support productivity improvements across the country’s economy.

Nineteen years later and the organisation is relentlessly pursuing its objective to promote productivity on the continent...

MAY 2011 productivity leader

NEWS

tnerships globally The KPC trains more than 130 000 people each year, disseminating world-class innovation methods into Korean industry, in part by conducting international comparisons of the labour productivity index, and announcing the National Customer Satisfaction Index (NCIS) and National Brand Competitiveness Index (NBCI). Over the last five decades, the KPC has played a pivotal role in increasing productivity in Korea, thus growing the national economy. Under the leadership of Dr Choi Dong-Kyu, the organisation’s services comprise consulting, education and training, as well as support for the implementation of quality and environmental management systems. Since its foundation, the KPC has played a vital role in increasing productivity of industries to promote the rapid growth of the national economy. The KPC is currently undertaking the following various services to support globalisation efforts and new management innovation movements of business enterprises to meet the challenges of the 21st century: • Nationwide public services to increase the productivity of industries. • Consulting services aimed at rationalising corporate management. • Education and training of specialised personnel in all fields of business management. • Guidance and education on factory automation and information systems. • Accreditation for quality and environment management systems such as ISO 9000 and ISO 14000.

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Research and surveys to increase productivity for improving the efficiency of the industrial policies of the government and corporate management, and the development and dissemination of productivityimprovement methods. Overseas training and international exchanges to secure manpower to effectively meet the needs of the globalised age. The business of the KPC is outlined below. For more information on the KPC, visit www.kpc.or.kr. One of the projects approved by the African Union Labour and Social Affairs Commission in its 2011 Annual Work-plan is providing training on productivity to informal economy units, SMEs and the public sector in AU member countries. The KPC is one of the international partners that indicated willingness to share its expertise with a view to mobilising the resources required for the implementation of the Productivity Agenda for Africa. The next step of the PAPA/KPC partnership will be to cascade the collaboration bilaterally with individual PAPA member countries, who will define in detail the areas of interest for their respective countries.

MAY 2011 productivity leader

opinion

When you are not walking the talk By Frances Wright Every company that embarks on a marketing campaign is doing so to make more money. There are many clichés about enhancing the brand and market presence, but at the end of the day stakeholders want return on investment in hard cash and on the balance sheet. There are only two ways to affect the bottom line: increasing turnover and decreasing costs. Everybody knows that to increase turnover you sell more and to sell more you spend more on marketing. It is also common knowledge that to decrease costs you operationally re-engineer the company. For centuries professionals have been debating the concept of return on investment on marketing spend and the increased operational cost due to inflated marketing budgets, but few companies have implemented steps towards a solution. The solution is simple and lies within the integration of marketing and operations. Three out of the four aspects in the marketing mix – product, price and place – are controlled by operations, while marketing only handles promotions. During a recent study it was found that 76.2% of respondents have an awareness of the need for integration between marketing and operations, but only 40.5% of companies have formal touch points in place. Those that do have formal touch points are more profitable, with a .44 positive correlation. Although only one significant

correlation could be found, respondents have listed many problems due to a lack of integration. When a misalignment exists between marketing and operations, marketing will either over- or under-sell or the company will not walk the talk. Delivering the product or service that marketing is selling is the responsibility of production and is achieved through standardisation, sound processes and systems. Production is responsible for ensuring that there is enough capacity. A lack of capacity will affect quality or result in late deliveries and customer complaints. As has been proven by Goldratt, when capacity is trimmed exactly to marketing demands (no more and no less), throughput goes down, while inventory goes through the roof. Mobley, Wang and Fang researched a company in China in 2005 which realised the importance of integration in achieving business success. Their primary objectives were focused on seeking closer integration of marketing and operations, sourcing strategic alliances, and building a cohesive leadership team with a high-performance organisational culture. They found that marketers need to have a broad view of the product or any strategy is likely to be disjointed, poorly targeted and unsuccessful. When embarking on marketing and production, the marketing manager should determine the company’s overall marketing objectives while operations decide on the resources to be committed. Customer expectations should be managed by marketing, and production should

MAY 2011 productivity leader

opinion

deliver exactly on what was sold. Operations should focus on minimising operating costs and delivering according to customer requirements in order to achieve pricing in line with competitors. Physical distribution management is also a critical part of marketing management. Marketing cannot sell the product if operations cannot deliver at the right place and time. The integration of processes ensures that operations will process the order and deliver the product that marketing sells. The operations department needs to be aware of inventory levels and inform marketing accordingly to avoid back orders and customer dissatisfaction. Marketing and operations have to work together to accurately forecast inventory and capacity needs. Changes in methods of operation can have a considerable bearing on costs and output and therefore affect the forecast. New machine tools or a new material handling system can significantly affect both material requirements and future sales. A disconnect between marketing and operations could lead to marketing being unaware of expansion plans and under-selling. The entire business process by which the company delivers a product or service is a marketing process. It starts with attracting the customer, quoting, selling, delivery, invoicing and receipt of payment. It is the price to payment process and essential key process that runs through every business. The level of integration of that process will determine how successful the business will be. It is important to look at the entire business, incorporating the six areas of operations through the lens of marketing. Marketing provides a distinctive and essential manner of looking at the whole enterprise, enabling the company to build an effective, high-performance marketing organisation. While it is up to operations to give the company a competitive edge, it is up to marketing to communicate the competitive edge to the target market. Operations determine the efficiency and effectiveness and produces what marketing should sell. While there are challenges with regard to the integration of marketing and operations due to different orientations, personality types and cultural differences, the lack of integration will result in waste, misalignment of strategy, and misalignment with customer requirements. To cope with these differences, an equitable set of measurements to evaluate performance in each area should be developed. Strong lines of communication should be in place to ensure that everybody contributes to reaching the firmâ&#x20AC;&#x2122;s goals. Joint decisions should be made on price, capacity, schedules and other sensitive matters. Frances Wright is the MD of Trinitas Consulting, a supplier specialising in creating profitability through the integration of communications, marketing and operations. Wright is currently doing her PhD on the Effect of Processes on Business Success. Visit www.trinitas.co.za for more information.

MAY 2011 productivity leader

CASE STUDIES

PG Shoes turnaround by Business Success Centre PG Shoes CC was established in July 2007, in response to an opportunity to open an independent CMT business. PG Shoes is owned by Preven Govender, a young Durban-based entrepreneur. Due to a strategic decision by a leading footwear manufacturer to outsource its production requirements to smaller, owner-managed footwear manufacturers, several CMT operators have been established in the Estcourt and Durban areas. These businesses are dedicated to meeting the production needs of the manufacturer and typically have the following characteristics: • They perform work solely for the manufacturer • All materials and most machinery required are provided by the manufacturer • They employ about 120 people • The margins made on manufacture are very small and many of these business are operating very close to or below the breakeven position Preven approached Productivity SA in 2008 to obtain assistance to improve his company’s profitability, thereby ensuring the long-term viability of the business and preserving approximately 60 jobs. Given that the entity had only been operating for a year at that stage, it was ideal to implement management systems and internal controls so that the growth of the entity occurred in a controlled and coordinated manner. The challenge An assessment of the business operations was conducted to obtain a better understanding of the important aspects of the business cycle. In addition, meetings were convened with management, the Future Forum and other workers. During the assessment phase, a walk through the production process was performed to determine aspects of the business that could be improved.

The major problem areas that were identified were: Strategic The entity did not have a strategic plan that served as a roadmap for the business. Although the opening of a CMT operation may have seemed to be a prosperous opportunity for Preven, evidence from other CMT operators indicates that there is always the danger that the entity will incur significant losses, thereby threatening the long-term viability of the entity. Discussions with Preven indicated that the business appeared to have been established without much consideration of the following strategic issues: • Analysis of market conditions • Impact of relying on a major customer • Management structure • Breakeven analysis • Operational budgets • Infrastructural requirements It was imperative that the owner develop a strategic plan that took into account operational risks and the long-term objectives of the business. Such a plan would provide the necessary framework and guidance in the medium term. Operational Some of the major operational problems that were identified during the assessment phase were: • Lack of internal controls: management had not imple mented a system of internal controls. Such a system is necessary to ensure that the assets of the business are safeguarded and that growth of the business occurs in a controlled manner. The system should provide a frame work for working capital management. • Business acumen: it is important that management view the business as an opportunity to earn profits and that

MAY 2011 productivity leader

CASE STUDIES

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they understand the importance of profitability as a key factor in running the business. Costing: most of the prices paid by the manufacturer are negotiated by manufacturer’s management on a ‘take it or leave it’ basis and often these prices result in a significant loss. Unfortunately, the management does not have the skill and technical knowledge to properly cost the work that will be performed for the manufacturer. Worker training: in order to reduce the gap between management and the workforce, it is necessary to ensure that both management and staff share a common knowledge relating to the objectives of the business. Work shops will therefore be arranged to educate the staff on key aspects of the business. Factory staff need to realise the important contribution that they can make towards the long-term viability of the business. It is also important that management create a culture whereby they are perceived as being fair and equitable to the workforce.

The solution The turnaround strategy focused on the following: A comprehensive business plan was developed for the entity, together with budgets and cash-flow forecasts for the next three years. This provided management with some insight into the potential problems and the areas that had to be improved. A SWOT analysis was also performed for management. • The shareholder, management, supervisors and Future Forum were trained in the basic business fundamentals required to grow the business. • A staffing structure was implemented to support the strategy identified in the business plan. • Several workshops were conducted between manage ment, staff and the Future Forum to introduce a proactive business culture. Issues such as communication, open ness and improved employee relationships were addressed. • A formal disciplinary system was implemented and staff were trained to use the system. • A system of financial controls was developed and imple mented to protect the assets of the company; this in cluded procurement controls. • The manufacturing capacity of the business was en hanced by undertaking an analysis of margins on all work undertaken by the business and eliminating unprofitable work, the identification and removal of manufacturing constraints and the division of the factory into separate manufacturing cells. A team leader was appointed for each cell and a system to monitor the activity of each cell was implemented. • An assessment of other business opportunities was undertaken with the owner.

concerns, the following progress has been made: • The entity is now consistently profitable and has employed about 40 more staff members. • The shoe manufacturer almost doubled the workload of PG Shoes, to about 700 pairs a day. • The company is now producing about 700 pairs a day, which is approximately 200 pairs above its breakeven point. • Due to the training provided to the owner, supervisors and the Future Forum, the workforce have a better idea of the variables affecting profitability. Conclusion Although the entity continues to face business challenges and problems, the turnaround strategy has contributed to developing a sustainable business. The strategy has had a major effect on contributing to sustainable economic development. In addition, the owner enjoys a more transparent relationship with the workforce due to their better understanding of the manufacturing process and its constraints.

Results to date As a result of the development and implementation of a carefully devised work plan that addressed the above

MAY 2011 productivity leader

CASE STUDIES

Global Bag Manufacturers Background Global Bag Manufacturers, a specialist in the manufacture of bags and plastic products, is part of the Global Vision Trading group that was established in 1989. It caters to the needs of a highly specialised niche market, making it more service driven. Its products cover a wide range of bags as well as PVC heat-welded products. The groupâ&#x20AC;&#x2122;s manufacturing capabilities cover a vast range of different applications of PVC which can be welded, stitched or laminated. The company is headed by Karun Moodley and is situated at 54 Melbourne Road, Durban. It started manufacturing in the year 2000. At that time, the market was very big and the company achieved a growth of 50% for the first three years. Challenges The growth could not be sustained for the next two years due to imports from China and India. These imports were flooding the market and were able to compete in terms of better quality, prices and delivery schedules. This was the biggest threat for the company. The company applied to Productivity SA in October 2006 for assistance, when management saw a decline in net profit by more than 50% in 2006, compared to 2005. A high-level review of the business was conducted by Productivity SA service providers, together with a staff satisfaction survey. There was a risk that the company was taking orders that were not profitable, as well as being

MAY 2011 productivity leader

CASE STUDIES

marginal (variable costing basis). A review of the current costing revealed that the company was using an inadequate costing system that did not include its overhead costs, and was thus selling its products at prices far lower than it should have. Key areas of concern were identified during the review, including: • Lack of a formalised Quality Management System • Limited sales origination and the need for new product development • The need for an efficient and user-friendly production monitoring system • Staff training and capacity development Productivity SA approach The following interventions were implemented by the Turnaround Solutions programme: • Development of the Future Forum • Development of an ISO-orientated Quality Management System that would also prepare the company to become export ready • Development and implementation of a marketing strategy for all stakeholders; this detailed plan identified niche target markets • Production monitoring analysis • Training and capacity-building of staff

now operates in a much more structured, streamlined and efficient manner. Furthermore, management have undertaken to conduct more training and up-skilling of staff, in particular taking on learner factory staff and providing onthe-job training. Additional information There has been an improvement in overall production efficiencies and a reduction in production bottlenecks as a result of structured production planning meetings and the implementation of production scheduling. Owing to declining profits as a result of increased overtime, an analysis of overtime was conducted. Management now intends using this business information tool every quarter to review production bottlenecks and to take the necessary corrective action.

Results and impact The staff complement at the start of the review was 44. At the end of the project, the staff complement increased to 56. Future Forum meetings have proven to be highly effective. These meetings occur on an as-and-when-required basis. Members are vocal in terms of operational issues at the company and present these at the meetings so as to come up with solutions in a collective manner. Staff now have a platform to raise important matters. With the development of a Quality Management System for Global Bag Manufacturers, staff training is ongoing with greater emphasis placed on quality (quality checks are implemented at each stage of production). The company intends proceeding to be ISO 9000 certified with this being the first stage. The factory manager is presently using the suggested costing model which takes into consideration all cost variables. Global Bag Manufacturers has started to use the ideas from the marketing strategy which is proving to be of tremendous value. It is now charging a design and development cost that would be closer to the value of the order it is likely to get and samples are now charged out to clients. The company has also diversified its product range with a specific focus on niche, customised products, as well as exports. Further to this, the company is making plans to venture into the retail market. The company, owing to a detailed skills audit conducted,

MAY 2011 productivity leader

CASE STUDIES

Knowledge exchange yields results During August 2010, the Japan Productivity Center (JPC) gathered a Kaizen Team consisting of six people guided by a Productivity SA consultant, to conduct a Kaizen Project at Adcock Ingram Critical Care (Pty) Ltd. (This was step 1 of the Kaizen Project.) In this article, we present an interesting case study of the execution of the Kaizen Project. Company background Adcock Ingram was established in 1948 and is located on a 10-hectare site in Aeroton in the south of Johannesburg. The 25 286m2 factory consists of: • Warehouse: 7 144m2 • Plant: 12 609m2 • Amenities: 1 473m2 • QC Block: 783m2 • Admin: 3 277m2 The company is an integrated facility for manufacturing healthcare products and manufactures various Medical Solutions Bags and Final Finished Products. Its Medical Grade Plastics Operation consists of: • Blending • Extrusion (sheeting and tubing) • Heat sealing (Viaflex® Bag fabrication using Radio Frequency Sealing) Manufacturing requires compounding, fill, sterilise, pack, test and release: • Vacoliter®: 200ml, 500ml and 1 000ml (glass) • Viaflex® (IV/Peritoneal Dialysis Solutions): in 50ml, 100ml, 200ml, 500ml, 1 000ml, 2 000ml, 2 500ml, 3 000ml and 5 000ml containers • Diasol® Solutions (5l) The company’s Vision is: ‘To be recognised as a leading, world-class branded healthcare company.’ Its Mission is: ‘Adding value to life.’

Above: 1 000ml bag

Above: Bag inside pouch

Kaizen Project The Viaflex Main Line was identified as the area where the Kaizen Team would do the Kaizen Project, with the focus on Top Seal defects of the 1 000ml pouches. During extrusion, a pouch is sealed at the bottom. At Viaflex, after the bag has been filled with the right solution and inserted into the pouch, the pouch is sealed at the top. The Team reworked the monthly Viaflex defect statistics for August 2010 into a Pareto diagram and could see clearly that Top Seal Defects and Cuts & Holes accounted for almost 80% of all of the defects on the Viaflex line. They decided to address Top Seal Defects and Cuts & Holes first. The group decided to leave the problem of Skew Seals until later. Bottom Seal Defects would be handed over to the extrusion team The Kaizen Team formulated two Kaizen Objectives: one regarding Top Seal Defects (to reduce the rate of Top Seal Defects on 1 000ml pouches) and another regarding Cuts & Holes (to reduce the rate of Cuts & Holes on 1 000ml pouches). (Step 2 of the Kaizen Project.) The Team started populating the various sections of the two KP Sheets (one for Top Seal Defects and another for

MAY 2011 productivity leader

CASE STUDIES

Cuts & Holes) on PowerPoint slides, and as they picked up momentum the KP Sheets were used to summarise the actions taken during the different phases of the project. Each action was summarised on another PowerPoint slide using graphs, tables, photos or video clips as appropriate. Eventually, the two summarised KP Sheets captured on PowerPoint were used to share the project with other teams within Adcock Ingram, and with other stakeholders outside the organisation. On PowerPoint, each small image next to a step on the completed KP Sheet for Top Seal Defects was used to hyperlink through to show details of the steps:

The Team did not follow the steps exactly as suggested by the JPC. After the factory tour, to get an idea of possible causes of each type of defect (step 4), the Team came together in a brainstorming session to construct fishbone diagrams about the causes of Top Seal Defects and Cuts & Holes. Next, using a digital camera with HD video capabilities, the Team took video snippets of the sealing operation and of the truck loading operation, and interviewed operators, to understand the manufacturing environment.

The Viaflex Kaizen Team then conducted a brief tour of the whole pouch production facility (step 3) and realised that Top Seal Defects were produced during the sealing phase, while Cuts & Holes occurred during truck loading. They also collected samples of good and defect pouches.

MAY 2011 productivity leader

CASE STUDIES

Then (step 5), having grasped the big picture of all the factors influencing Top Seal Defects and Cuts & Holes, the Kaizen Team summarised the situation. They realised that the root causes of Top Seal Defects were the following: • The joint of the Teflon bands (see the two tan-coloured bands rotating around the two ‘wheels’ in the photograph) being too thick was causing one of the types of Top Seal Defects called Pin Holes. They decided to ask the Teflon band supplier to join the Teflon band in a new way.

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Another problem was that in the rush to move trucks (actually just large trollies) from the pouching section to the sterilising section, trucks get damaged by bumping into each other. When one truck’s corner crashes into the side of another, the stainless-steel mesh gets damaged, leaving sharp wires exposed, just waiting to punch a hole into the next pouch being loaded close to the sharp wire!

• The Team also realised that various factors caused undue pressure on the sealing operators, for example a lack of balance between the two filling lines; a lack of balance between the two pouching lines; and pile-ups of defects after truck loading, causing pile-ups before rework of Top Seals, all causing seal operators to seal pouches without first smoothing wrinkles in the Top Seal area, which resulted in wrinkled Top Seals.

The Kaizen Team realised that the root causes of Cuts & Holes were the following: • The Team saw with their own eyes and realised that many of the aluminium trays used to load the pouches into the trucks used for transporting and sterilising the pouches were damaged. When new, a tray has a brace welded into a fold on the front and back edges. After long use, the weld spot may break loose, leaving a sharp edge which may cut a pouch. The same brace area may also sag and even crack open, also causing damage to a pouch.

Step 6: The Kaizen Team formulated two action plans (Kaizen Plans) listing clear and concrete improvement actions. Over the course of four months, the team implemented most of these actions. A few key actions (step 7), including: • Implementing a new design of Teflon sealing bands eliminated Pin Holes. • A change in work procedures in the form of the QA person moving defects more frequently from truck loading point back to the pouching line for re-pouching generally served to prevent pile-ups at the sealing work station. • Truck loaders picking up defect trends agreed to give feedback to the sealers which also served to reduce Top Seal Defects. • Replacing more than 2 500 damaged trays. • Repairing 12 badly damaged trucks and introducing 25 new trucks delivered good results (step 8), in the form of dramatically reducing the number of Top Seal Defects and Cuts & Holes: The Team also wanted to highlight certain other effects (step 9). The graphs below show a spectacular decline in the cost of Top Seal Defects as well as Cuts & Holes: Further effects included the team leader being able to improve line balancing. This, together with ‘Return to

MAY 2011 productivity leader

CASE STUDIES

Work Interviews’ and ‘Teamwork Meetings’, got the fillers, pouchers, sealers and truck loaders to work together as one big team and seemed to relieve the pressure on the sealers.

Step 10: The Adcock Ingram Kaizen Team realise they have not yet reached ‘Zero Defects’ on Top Seal Defects and Cuts & Holes, and therefore they continue to monitor the situation. They are also working to implement a few additional actions, which they believe will make a significant contribution to actually reducing defects to zero. To make sure the Viaflex team eradicates Top Seal Defects, they want to implement a few further solutions: • Because Top Seal Defects and Cuts & Holes do not consist of just two categories, the Team wants to adjust the format of defect statistics to reflect all types of defects. Then every type can be monitored and causes addressed easily. • To make it easier to balance all of the teams involved in Viaflex, the Kaizen Team wants to implement ‘Multi skilling’, whereby every member’s aptitude at various skills applied in the team’s environment will be assessed. Every member can then be developed gradually until all members can perform all functions required in the team’s environment. • Although Skew Seals are actually also a type of Top Seal Defect, but were omitted from the Kaizen Project, the Team wants to address that problem next.

• Regarding Cuts & Holes, the Team has redesigned the trucks with a ‘bull bar’ for better protection, like those on South African 4x4 bakkies. • They will create a schedule for regular inspection and repair of trucks. • In future, when trucks have to go in for repairs, they will be fitted with the bull bars. (Then maybe they will start to call the Viaflex trucks ‘Bakkies’!) • The Team will also standardise the sequence of loading and unloading of pouches to prevent cuts and holes during loading and unloading.

Defects Statistics: Expanding Statistics Categories

MAY 2011 productivity leader

OPINION

Improve performance with effective performance management One of the fundamental truths of total quality management is this: what cannot be measured cannot be improved. The same is true for performance management. All companies measure the performance of their employees in some fashion, mostly by a best guess on the part of managers at specific points in the business year. These efforts at performance management are subjective, and usually not conducive to improved productivity. An interesting study would be to measure the percentage of employees in the market with a comprehensive job description, as well as the number of companies that make use of balanced scorecards to measure and manage their performance. The reality is, without these two measures, the performance of neither company nor employee can be accurately measured. The ideal performance management system is not one where the line manager quickly scores an employee once a year when it is time for bonuses or increases. Such performance measurement is often based on perception or personal compatibility and does not accurately reflect the real situation within the business. A full performance management system must consist of various components: a company balanced scorecard, job descriptions, biannual self-appraisals and, most important of all, a measurement matrix. The measurement matrix measures two different components of performance. Firstly, the employee’s contribution towards the achievement of the company’s balanced scorecard requirements and secondly, the performance according to key performance indicators in each individual’s job description. The matrix should be updated on an ongoing basis. The measurements on the matrix should be numerical, in other words, it should be scored out of a maximum of five or seven. The current trend is to score out of seven

to avoid the typical scorer’s error, such as staying in the middle to be safe. Each score on the measurement matrix under four out of seven should be discussed with the employee. These areas indicate a need for further training and development. In this way, the measurement matrix also becomes a training needs analysis tool. It is only once each employee is measured in such an unbiased and scientific manner that standardisation of service can be achieved. Other issues which should be brought into the measurement matrix are whether the employee has had any disciplinary issues, as well as complaints or compliments. In this manner, the line manager and directors will have a bird’s eye view of the performance, training needs and standing of each employee in the organisation. Once a full performance management system is in place, it will also be a useful tool in the avoidance or quick resolution of any LRA disputes. With ongoing measurement, a paper trail is automatically generated showing areas of concern regarding each employee. A performance management system will provide a numerical score for each employee, which will be converted to a percentage. An increase in percentage can be used as a target for performance improvement in individuals or teams. Together, the entire team can work towards the achievement of the key indicators on the company’s balanced scorecard. When taken seriously and applied effectively, the performance measurement system will be the corporation’s biggest asset in its drive towards continuous improvement, fair increases and bonuses, and employee satisfaction. It will take subjective emotion out of appraisals as well the opportunity to conduct witch-hunts and build personal empires. Articles used courtesy of Trinitas Consulting

MAY 2011 productivity leader