CASE STUDY ON LUCAS-TVS

A Journey towards Manufacturing Excellence

Presented By:Jude Abreo (81)Ketan Mokal (82)Mridu Sharma (83)Namish Sharma (84)Namrata Kumar (85)Nikhil Nagdeote (86)

Background:

Lucas-TVS was set up in 1961 as a joint venture of Lucas Industries UK (now Lucas Varity) and

T V Sundaram lyengar & Sons (TVS), India, to manufacture Automotive Electrical Systems.

Lucas Varity:

1998 revenue: $7.5 billion.

Products:• Braking Systems• Diesel Fuel Injection Systems• Electronic and Electrical Systems

After-market product sales and service.

OEM Vendor to: • Volvo• Mercedes-Benz• Volkswagen• Audi• Ford• Fiat• Peugeot• Alfa Romeo

TVS is India’s fourth largest automotive component manufacturer

• Turnover in excess of Rs. 8600 Cr.

• Products:• Auto Electricals• Braking Systems• Automotive Wheels• Axle Fasteners• Diesel Fuel Injection Equipment• Two Wheelers

• India’s largest automotive marketing group, with the largest sales and distribution network

Current Customers of Lucas-TVS:

Auto Electrical

• Products:• Headlamps• Alternators• Wipers• Distributors• Dynamos• Starters

• Plant Locations:• Padi (Chennai)

ISO 9001 and QS 9000 (in 1997)

• Eripakkam (Pondicherry) QS 9000 (in 1999)

• Rewari (Haryana)

Fuel Injection Equipment

• Products:• Diesel Fuel

Injection Equipment

• Plant Locations:• Mannur

(Chennai) ISO 9001 and QS 9000 (in 1999)

Lucas Indian Services

• Products:• Sales and

service of auto electricals and fuel injection systems manufactured by Lucas-TVS

• Locations:• 4 Regional

branches in the 4 metros

• 22 Branch offices covering every major state

India Nippon Electricals Ltd.

(INEL)

• JV between Lucas Indian Services and Kokusan Denki Co. Ltd., Japan est. in 1985

• Products:• Ignition

systems for two wheelers and portable gensets

• Plant Locations:• Hosur

(Bangalore) ISO 9001

India Japan Lighting Ltd. (IJL)

• 50/50 JV between Lucas-TVS and Koito Manufacturing Company Ltd., Japan Inc. in Dec. 1996

• Products:• Headlamps• Rear

Combination Lamps

• Plant Locations:• Thiruvallur (25

km from Padi)

Divisions and Joint Ventures:

Before 1983

• Market dominated by Hindustan Motors and Premier Automobiles Ltd.

1983 to 1993

• Maruti Udyog Limited (MUL) captures 83% market share.

1993 onwards

• Market is liberalized and international giants like GM, Ford, Honda, Mitsubishi, Mercedes-Benz, Hyundai, Daewoo and Fiat launch passenger car models in India.

1993 to 1997

• 19.5% growth rate of the Indian auto industry

1998-1999

• Decline in auto sales due to economic slowdown

• Tata Motors launches the Indica in 1998 spurring intense competition in the small car industry.

Challenges in the Indian Auto-component Industry:

Two of the major charges levelled against the domestic component manufacturers are that they lack quality consistency and delivery reliability.

Rejection rate for Indian auto components is 2,900 parts per million (PPM), which is

more than ten times the world level of 240 PPM.

Estimated sub-suppliers' rejection rate is 31,500 PPM.

Entry of global component manufacturers.

Increasing shift towards reduction in vendors.

LUCAS TVS BEFORE 1985

Challenges:

• Crisscross material movement.

• Lots of Work in Process(WIP) on shop floor.

• Roughly 30% of the processes were not capable of meeting product specifications.

• Frequent breakdowns of machinery.

• Less focus of timely delivery(delivery reliabilities) ,product quality(delivery consistency).

• High scrap levels (3%)

Drilling

D D

D D

Grinding

G G

G G

G G

Milling

M M

M M

M M

Assembly

A A

A A

Lathing

Receiving and shipping

L

L L

L L

L L

L

NEED FOR CHANGE

• Entry of Maruti Udyog Ltd. (MUL) in 1983 increased market competition.

• Entry of world class component manufacturers like Bosch & Nippodenso triggered a change.

• Some OEM’s were also setting up subsidiaries to supply auto components.

• To remain competitive, cost , quality and response time needed to be improved.

• It became a business requirement to look beyond India and compete globally.

• New product variants and technology demanded.

• Completely dependent on foreign partner for designs, no in-house capability leading to long development cycles.

CHANGE MANAGEMENT STRATEGY

A three member task force is setup to recommend and direct the changes within Lucas-TVS.

Recommendations of the three member task force were:

• Systems approach to manufacturing.

• Focus on maximizing current resources - Lower priority to investments in new technologies.

• Effective training to workforce.

• Encourage employee engagement through formation of small groups (Continuous Improvement)

"This Padi facility at that time looked nothing like it looks today. We had a plant that was built in the early 60s. We knew that it had to be considerably modified to transform it into a world-class facility. However, in 1985, there were not many firms in India that had gone through this kind of massive transformation. This posed considerable challenges to us." - Mr T K Balaji, CEO and MD, Lucas-TVS

LAYOUT CHANGE AND EMPLOYEE EMPOWERMENT1986-1991

Measures Taken:

Employee Engagement was encouraged with the following measures

• Employee training in batches of 30 at Taramani Training Centre on SPC,QFD,FMEA

• Kaizen suggestion scheme started

• News letter in Tamil “Siru Kuzhu Cheythi Malar”(Small group newsletter).

Schedule to change plant layout from process to product based layout was designed so as not to affect regular production.

Results:

• Net worth and sales per employee doubled with negligible change in workforce size.

• Process layout changed to product layout

• Reduction in floor space occupied.

• Increased no. of Inventory turns/year.

"This change that we need to undertake is not an option. This is something that is becoming inevitable.“ - Mr T K Balaji, CEO and MD, Lucas-TVS

PLANT LAYOUT AT PADI IN 1985(PROCESS LAYOUT)

PLANT LAYOUT AT PADI IN 1999 (PRODUCT LAYOUT)

DORMANT PERIOD & IMPENDING CHALLENGES1991-1992

Challenges:

• Drop in suggestion scheme from 4534 in 1990-91 to 2830 in 1991-92.

• Deregulation of market.

• Increase in market size.

• Increase in no. of competitor(s).

• Recession Period.

Measures taken:

• Low cost automation.

• Nagare cell formation.

Result:

• Fatigue reduction.

• Cycle time reduction.

• Quality & productivity improvement.

"In 1991, after finishing the layout changes, we felt as if we had achieved nirvana. Since we were one of the first few companies to have gone through this change process, there was a state of complacency within the organization about the improvements achieved in our performance," -

Mr Balaji, CEO and MD, Lucas-TVS

NAGARE CELL IMPLEMENTATION

Status after CellStatus before Cell

1 MKL Lathe2 Gimping Press3 4 Way Drill4 S4 Drill5 Bench

Benefits From To

Manufacturing Lead Time

300min 2min

Manpower 5 2

Transfer Batch Size 150 1

Space in Sq. ft. 150 120

QUALITY INITIATIVES1992-1995

Challenges:

• Absence of ISO 9000 certification limited market penetration.

• Mindset that quality is the responsibility of only Quality Assurance department was inefficient.

Measures taken:

• Stress on importance of quality systems

• Maintaining Quality control charts & visual displays.

• Following Work Instructions and Standard Operating Procedure (SOP).

• Defect prevention systems(Poka-Yoke)

• Continuous improvement philosophy.

Results:

• Award of ISO 9001 in 1993.

• Allowed TVS-LUCAS to participate in global tenders.

• QS 9000 in October 1997.

1995 ONWARDS

Challenges:

• Heavy competition among the OEM’s leads to pressure on Tier-1 Suppliers.

• OEM’s started demanding quick response in delivery.

Measures taken:

• JIT implementation.

• Single piece flow(164 cells)

• Quick change tooling(SMED).

• Operation according to ‘takt’ time (workstation staffing).

Results:

• Bi-weekly shipments to Faridabad.

• Significant gains in productivity

• Ability to change worker assignment according to demands.

• Greater sense of worker ownership.

• Quick problem identification.

• Workers motivated to be designated as Cell workers.

"All these improvements in performance have been achieved only through the dedicated and tireless efforts of our managers from top to bottom. The contribution by engineers in developing new products and processes has been phenomenal. Without the whole-hearted commitment from every single employee at Lucas-TVS, none of these changes would have been possible. Excellence is a moving target and we can't afford to remain satisfied with our current achievements. We need to continuously seek higher levels of excellence. For the challenges that we face ahead, we once again require unequivocal support from all our constituencies," — Mr Balaji, CEO and MD, Lucas-TVS

1985 1991 1996 1997 19980.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

1557.9

4582.8

5202.9

4577.3

658.9

2111.3

2677.92958.3

593.1

1957.92439.0 2633.2

Financial Statistics

Sales (Net of Excise Duty) Capital Employed Gross Fixed Assets

Year 1985 1991 1996 1997 1998

Sales (Net of Excise Duty) 609.8 1557.9 4582.8 5202.9 4577.3

Capital Employed 284.4 658.9 2111.3 2677.9 2958.3

Net Worth 227.5 410.8 1842.7 2368.4 2799.3

Gross Fixed Assets 285.9 593.1 1957.9 2439.0 2633.2

1985 1991 19980.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

609.8

1466.9

3178.2

430

770

1400

3105 3056

2871

200500

1100

Production and Revenue vs. Employee Strength

Sales Value Annual Production Employee Strength Sales per Employee

  Unit 1985 1991 1998

Sales Value Rs. In Million 609.8 1466.9 3178.2

Annual Production Thousands of units 430 770 1400

Employee Strength Nos. 3105 3056 2871

Sales per Employee Rs. in Thousand 200 500 1100

1985 1991 19981

10

100

1000

100004000

40

1

540.0

120.0

10.0

4.27.2

14.0

factory performance measures

Lot Sizes Typical Setup Time Inventory Turns

  Unit 1985 1991 1998

Lot Sizes Nos. 4000 40 1

Typical Setup Time Minute 540.0 120.0 10.0

Inventory Turns   4.2 7.2 14.0

1985 1991 19980.0

2.0

4.0

6.0

8.0

10.0

12.0

10.0

3.3

2.53.0

1.51.52.0

0.50.2

Process performance measures

Rejections Scrap Downtime

  Unit 1985 1991 1998

Rejections % 10.0 3.3 2.5

Scrap % 3.0 1.5 1.5

Downtime % 2.0 0.5 0.2

1985 1991 19980.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

227.5

442.6

1144.4

515

254119201.0

1072.3

181.6

Savings measured

Capital Employed Floor Space Utilization Annual Savings f rom Suggestions

Unit 1985 1991 1998

Capital Employed Rs. In Million 227.5 442.6 1144.4Floor Space Utilization Sq.ft./Rs. 515 254 119

Annual Savings from Suggestions Rs. In Thousand 201.0 1072.3 181.6

• Part traceability to be implemented• Investment in new technology & machineryQuality

• New product development & innovation• Modular product designCost

• Vendor training & development.• Treating vendors as partners.• Developing a network of suppliers.

Supplier Alignment

• Developing a Management Information System (MIS)• Implementing ERP for better control over operations• Use of IT to keep track of suppliers and customers

(SRM and CRM portals)

Information Technology

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