Wednesday Nov 13, 2024
Wednesday Nov 13, 2024
Friday, 2 August 2013 00:00 - - {{hitsCtrl.values.hits}}
The support units are shaded. ‘Operations Centre’ is the head office located in Colombo. The value addition unit provides printing and embroidery services. ‘Nirmaana’ is the product design and development centre capable of providing world class facilities for designers to bring their concepts to life. All other facilities are production plants engaged in manufacture of garments.
These facilities are spread throughout Sri Lanka. This has a significant impact on the operations of the finance function, as documents need to be sent to and from all locations, coordination and communication has to take place, team members need to visit and conduct reviews on location etc.
True to its entrepreneurial spirit, MAS ventured into unknown territory with the Active division and its sportswear line of products, having established itself as a predominantly lingerie manufacturing company nearly two decades earlier.
It soon became apparent that manufacturing sportswear products required significantly different skills and processes to making lingerie. This created organisational challenges which pushed the company to dire straits, as we would see later. The role of finance in managing the novelty and complexities became ever more pronounced as the areas where finance could add value expanded.
The finance function
With the formation of the MAS Active Division in 2005, the finance function was designed to be operated as a shared service centre. Accordingly, as and when new facilities were integrated into the company, finance personnel coming from varied backgrounds and cultures were absorbed into the finance cadre. As at now, the finance function serves all the 13 operating locations of MAS Active, operating from a central location in Colombo. The structure of the finance function and the roles of each section are given in Figure 2.
MAS operating system
The MAS Operating System (MOS) is defined as ‘a standard operating system created to integrate the concepts of lean manufacturing into the process of manufacturing apparel’. (Source: Primary).
Based on the Toyota Production System (TPS), MOS was introduced to MAS in 2006 as a defensive tool for survival. However, MOS was to see MAS through growth as an offensive weapon and further strengthen the company’s position with agility in the years to come.
MOS sees lean as ‘a systematic approach in identifying and eliminating waste or non-value added activities through continuous improvement by making products/providing services on time with best quality and lowest cost’. (Source: Primary).
Many frameworks and deployment strategies have been developed by MAS in order to proliferate the lean philosophy through MOS, which could be seen in the chapters to come.
MOS journey at MAS Active
MAS Active is a pioneer within MAS to embrace and implement lean concepts. Three phases could be observed in the MAS Active lean journey:
1) Lean manufacturing (2006-2008) – focused on manufacturing.
2) Lean enterprise (2008-2010) – proliferation of the lean philosophy throughout the organisation.
3) Extended lean leadership (2010-2012) – focused on policy deployment and strengthening the senior leadership for coaching roles.
The journey towards excellence in finance gathers momentum with the lean enterprise phase. Has this actually resulted in a marked improvement in the finance offering? You are about to find out.
The need for transformation
The period from 2006 to 2008 was indeed a challenging period for MAS Active Finance due to the structural and cultural changes which arose from the centralisation process as well as other factors as described below.
Challenges for the finance function, post centralisation
Systems and controls
The existing system did not support the centralised structure. Different systems and controls were used which were not compatible with each other. The four legal entities used three different systems. This increased the amount of manual work, resulting in an increase in lead time (reporting, payments), errors, rework and lack of scalability.
Cultural change
As different team members with different thinking patterns, expectations and practices were put together, aligning to a common culture was difficult, leading to conflicts within the team. A considerable amount of time was spent reconciling such differences.
Lack of standardization
The processes and procedures to be followed were not standardised. Proper Standard Operating Procedures (SOPs) and process manuals were not available. This created confusion amongst the suppliers/customers and the finance team, resulting in frequent errors, rework and delays in the service offering. The stewardship and operator roles of finance were threatened.
Lack of business partnering attributes
The newly-formed company needed actionable information, fast. However, the capacity of finance to act as a catalyst or strategist was low due to the finance structure and personnel not being attuned to cater to these needs.
All of the above caused the absence of a solid foundation for the finance department’s performance. This took its toll on the team. The manual work, multiple rework and repetition pushed the team to work long hours. This increased the cost to the business in terms of high overtime and other related costs. Team morale was low and the frustrations materialised in the form of the highest labour turnover figures for finance to date.
Catalysts of change
Life at finance couldn’t continue the same way due to different internal and external factors which forced the team to rethink the way things were done. The main reasons for Finance to change the status quo in 2008/09 were:
1) The need to meet stak
holder expectations
The evolving business required actionable information provided in a timely manner. Finance had to meet stakeholder expectations. Risk management had to be improved through good governance. Shareholders needed forward looking information. Team morale had to be improved.
2) US recession during
2008 2009
As MAS Active was heavily exposed to the US market, the period 2007-2009 when the US economy went into recession was a tough time where very stringent cost controls were brought in to ensure the minimum margins were maintained to break even. Hence, the need for faster, accurate information, rigorous controls to manage the working capital increased with restrictions on recruitment. The team had to find a way to perform better with the existing set of resources while improving productivity.
3) Long range plan – aggr-essive business growth projected for MAS Active
By end-2009, MAS Active had plans for aggressive year-on-year double-digit business growth for the next five years. More production facilities, different customer models, new customers/suppliers were to become mainstream. The need for finance to work smarter and better became more important. Hence, a true transformation through process excellence was augmented to cater the business needs with a more futuristic view.
Journey towards excellence
Lego effect: Building blocks of success
A steering committee for MOS was formed. A road map was developed and leaders were appointed for the six pillars: Strategy/policy deployment, culture of empowerment, operational stability, just-in-time, built-in quality, and continuous improvement mindset. Everyone in finance was allocated to a pillar.
As per the lean sensei, the lack of benchmarks, previous failures in lean implementation at non-manufacturing settings, dealing with professionals and intellects in a department like finance posed major challenges. The key to success was everyone’s buy-in for achieving something sensational.
1. Policy deployment
The policy deployment (Hoshin Kanri) process ensures that goals/objectives and key performance indicators are devised at the highest level of the organisation and cascaded down through the companies and departments to the individual. The goals need to be aligned to the long and short-term plans of the respective entities.
Actions taken by finance include:
1. Developing an MOS roadmap to charter the journey towards excellence.
2. Carrying out a SWOT analysis on finance.
3. Devising a long term plan for finance in line with the business plan.
4. Developing a mission for finance, aligned to corporate vision/mission.
5. Defining the Policy and Objectives matrix for the year, for finance.
6. Devising individual KPIs with reference to the PI matrix.
7. Monthly monitoring of KPIs and taking corrective action through PDCA.
8. Formation of A3 project charters for identified key strategies.
It was also the responsibility of the finance team to monitor the KPIs of the organisation, thereby ensuring that the organisation achieved its goals and objectives set by the MAS group. The team developed many new reports to ensure that the organisation was going in the right direction. These reports helped in the business partnering aspect and being an effective catalyst.
2. Operational Stability
There was a time when documents were misplaced and housekeeping was primitive in finance. The operations had to be stabilised before improvements were made. Some of the action taken included:
Introduction of 5S – sort, set in order, shine, standardise and sustain are used for effective housekeeping. Education was necessary, a seiri day was held to organize everyone’s documents and workstations, file labelling and organisation of physical and computer files was done, weekly audits carried out and improvements were acted on. These efforts helped to improve productivity, increase turnaround times and service standard and made the department a pleasant place to work. Despite initial resistance, the benefits experienced made 5S a part of everyone’s life and helped the buy-in of MOS, emphasising the need to have small wins within a large project.
Waste elimination – the seven wastes were attacked at every activity. Process mapping (described under ‘Just in Time’ later) was used here.
Visual management – KPI boards were displayed in the SQDCM (safety, quality, delivery, cost, morale) methodology. Many other processes, tasks and Standard Work Sheets were displayed in order to bring problems to the surface (and solve them), clearly see progress and to ensure adherence to processes. Error proofing in the system and processes was carried out whenever possible
Total system adherence (equivalent to total productive maintenance in a production environment) – process manuals for each function, SOPs for key processes developed and communicated. Audits were performed and the manuals were constantly updated
Level workflow – the ‘takt time’ to process payments was calculated and payment workload was balanced using ‘heijunka’ techniques. Reporting timelines were crashed by balancing the workload at all processes.
3. Culture of Empowerment
‘None of us are better than all of us’ was a tagline used to enhance the spirit of teamwork. The crucial areas focused on were:
n Health and safety – training was conducted to include ergonomics, a safer environment was created enhancing the workplace attractiveness.
n Mutual trust and respect – performance evaluation was based purely on measurement of KPIs set making the process objective. The MOS steering committee worked in teams under each pillar encouraging ideas and involvement. Management had an ‘open door’ policy lead from the front, regularly disseminated information and conducted team meetings.
n Training needs were identified of each individual through the competency evaluation and skills assessment and acted on.
n Job rotation, exposure to other functions and training was carried out in order to multi skill team members, creating a motivated and flexible workforce.
n Teamwork and work teams – teams were developed to be autonomous and aligned to value streams. This improved focus and business partnering.
4. Continuous improvement (Kaizen) mindset
Mutual trust and respect, the buy in for the four finance roles and the need to add value through business partnering helped create the Kaizen mindset
1. Performance metrics – the policy/objectives matrix, individual KPIs, SQDCM charts, monthly monitoring mechanism, PDCA culture were effectively used, true to one of the great management principles ‘you get what you measure’.
2. Standardisation –
n The Enterprise Resource Planning (ERP) software SAP was implemented throughout the organisation as the backbone IT system.
n SOPs, process manuals, Standard Work Sheets (STWs) were developed for each function and reviewed annually.
n The legal structure was rationalised. Five legal entities were consolidated into two. This simplified countless processes
3. Kaizen activity became a way of life in finance after an initial period of skepticism. A fraction of such Kaizens is given in Annexure 13.
5. Just in Time
1. Lean layout – seating arrangements were changed to support continuous flow, alignment to value streams and work balancing. Flexible workforce added value to this. (Annexure 14).
2. Quick changeover – the monthly reporting timeline was reduced from eight days to five and maintained the achievement throughout, to be the best in the group. This was one of the main projects. Value stream mapping, process mapping, waste/activity elimination was carried out (Annexure 15).
3. Pull system – operator and stewardship roles of finance were defined in terms of customer expectations. All activities were aligned towards this. Clear guidelines to plants on information/invoice submission, standardized templates, training, deployment of a colour coded plant rating system were some of the tools used (Annexure 16).
4. Continuous flow – Takt time was calculated for critical processes and workload balancing, smooth flow of transactions were enabled through process mapping, waste identification and elimination.
Built in quality
1. STWs, process manuals, SOPs were developed and reviewed annually.
2. Plan-Do-Check-Act (PDCA) culture was instilled for problem solving using root cause analysis, fish bone diagrams, asking ‘why’ five times etc. A PDCA manual was developed and the guidelines used accordingly.
3. Quality management system – self ownership was supported by training, mentoring, multi skilling, use of STWs and check lists, and an onus on First Time Through (FTT) with data collected for management decision making.
4. Andon – system controls developed to error proof as much as possible.
No finish line
The activities described here required a committed effort. Team working culture, managerial support, belief in a higher purpose made this a success. It still remains a journey in the spirit of continuous improvement.
Excellence
This section presents the results of the activities mentioned hitherto, which validates the success of the transformation process.
Productivity improvements in the midst of increased complexity
The above shows the results of a plethora of MOS and lean tools used to improve the lead time of providing information, reduce cost, improve the stewardship and operator functions, and provide actionable information both on the past and future. It also portrays the flexibility and adaptability and mutual trust and respect of team members.
Forward looking information with increased accuracy
This indicates high quality information enhancing the stewardship and strategist functions. Contribution to business partnering comes via adjusting future plans based on the futuristic information given.
Team spirit
One of the most important benefits was the gelling of ‘Team Finance’ with one vision fully aligned to corporate objectives. Mutual trust and respect, competencies, flexibility, morale and the need to be a high quality service provider were significantly improved. Figure 8 gives the number of kaizens implemented and Figure 9 shows the reducing employee turnover in finance. These affirm the continuous improvement mindset helping the organisation better the status quo each day.
Strategist, catalyst and value addition through business partnering
1. Researching, advising and implementing the First Sale For Export (FSFE) structure enabling value addition to customers through import duty saving. This has become a crucial differentiator for customers in making sourcing decisions.
2. Implementing Activity Based Costing (ABC) to analyze customer profitability accurately. This helped rationalise the customer portfolio and provided crucial information on the customer strategy. Unprofitable customers were either terminated or activity analysis carried out to make them profitable. Significant value was added by finance on this sphere.
3. Rationalising the legal structure by consolidating all the manufacturing entities into one. An A3 project charter under the Hoshin Kanri framework was used.
4. Tax holiday extension through strategic investments was pursued resulting in significant value addition.
5. Establishment of earnings (sales less raw material cost) margins in Product Lifecycle Management (PLM) system automated the order acceptance decisions and ensured profitability levels.
6. Cost reduction initiatives were carried out for specific expense categories encouraging plant level focus on same.
7. Costs of failure such as air freights and write offs were monitored and communicated, enabling the control of same.
8. Working capital levels were reduced through D2D and D2C management. This in turn reduced bank borrowings and enabled the division to withstand the global credit crunch.
9. Being part of the long term planning project of the division.
10. Evaluating new business opportunities such as speed to market models of customers, acquisitions and expansions.
11. Initiating supplier integration projects through TradeCard/SAP Portal.
These were achieved through the use of many MOS/lean tools. The flexible, capable and highly motivated workforce, now having time to devote to innovation and improvements due to the elimination of many wastes, contributed heavily. The table below summarises the tools used and the impact on the deliverables identified.
INSERT TABLE 1
Learning
1. A finance function could use lean thinking effectively for a transformation, just as in a production setting.
2. A structured approach is essential.
3. A higher purpose of being a business partner and achieving objectives could augment the need for change for a finance department. Such objectives need to be clearly defined, stemming from corporate strategy. Individuals should be able to identify ‘what’s in it for me?’
4. Management support and engagement of all improves the effectiveness of a lean implementation. Human resources are a crucial success factor.
5. Seeking feedback from customers and suppliers and acting them will help maintain mutually beneficial relationships.
6. Measurement systems are important.
7. Creating and celebrating small wins in a large project is helpful.
8. Lean is a journey. Continuous improvement is never ending.
Limitations of the case study
1. Availability of information – information of sensitive nature could not be published as MAS Active is a private company.
2. Success of some initiatives may depend on the culture, people, processes unique to MAS Active and may not be replicable elsewhere.
3. The impact of organisation specific culture, characteristics of personnel in the finance department are not researched, related to the outcomes.
