Ptc Tqm Case Piqc

ICQI-Lahore, 2-3 May 2011ICQI-Lahore, 2-3 May 2011

Quest for Excellence: The Case of PTC over a decade

Author: Turab Ali Khan, BE (Mech.), MEMProduct ManagerPakistan Tobacco CompanPlot. No. 15, Silver Square PlazaF-11 Markaz, Islamabad (Pakistan)Email: [email protected]: 0300-8520271

Abstract:This paper is a case study of TQM initiatives and practices in PTC in the last one decade.

It provides the history of how PTC started its TQM program and how the organization

overcome the different challenges. The long journey started with a program named

BEST 2000 (Building Excellence and Success Together) in mid of the last decades of the

20th century with a slogan of “we will be the best in everything we do by the year 2000”.

This was a change management program, followed by complementary programs like

WOW (Winning in Our World) and WOW-plus programs. The change management

programs were also supported through improvement and reorganization programs like the

MRPII class. A certification and reconfiguring the supply chain on the basis of the five

basic processes of Plan, Source, Make, Deliver and Return in line with the SCOR

(Supply Chain Operating Reference) model recommended by the Supply Chain Counsel-

USA. The efforts were augmented by an extensive training program of a corpse of lead

auditors resulting, ultimately, in ISO 9000 QMS and ISO 14001 certification without any

major nonconformity and both its factories being the first and second factories in

Pakistan to 5S certified factories by National Productivity Organization

The paper is also a critical study of the Implementation of TQM in a Pakistani set up and

provides lessons to all those companies who are struggling to raise the performance of

their organizations through various TQM tools and framework. It discusses key issues

which are commonly faced by companies and the appropriate TQM initiatives which can

overcome them. The PTC strategy and Quest for Excellence is elaborated in detail in this

paper.

mailto:[email protected]


Introduction:

The “quest for excellence” is a saga covering almost all the steps taken by Pakistan

Tobacco Company to achieve excellence in all aspects of its business from operational to

the business as a whole. The journey which started in 1997 is still on and the company is

keen to find out ways and means to further improve its processes and products. The

program was a series of complementing projects covering all the business areas from

provision of tobacco seeds to the farmers and helping them in acquiring access to the

international best practices in the field of tobacco growing to helping the distributors and

retailers in achieving higher targets in the market along with proper focus on the social

responsibility aspects of the manufacturing and marketing of tobacco products. While

PTC’s supply chain spans from first step of tobacco growing to the last step of the

consumer contact at the retailer, its social activities include activities for the welfare of

the farmers, free dispensaries in the rural areas of KPK (Khyber Pukhtunkhwa) and

northern Punjab, a huge afforestation programme and other community services like

rehabilitation activities in the areas affected by the flood in 2010. These activities are

wide ranging and the numerous processes are in place to carry out the same in accordance

with internationally acceptable standards. The job to improve these processes was huge

and to undertake the improvement program was becoming mandatory as the conditions

for tobacco business in the country were becoming more and more challenging. Pakistan

is a low price market for tobacco products where as the inputs cost was climbing a steep

ladder with an alarming pace. The company started its journey of continuous

improvement with a TQM program with the name BEST 2000, followed by

complementary programs like Winning in Our World (WOW) and WOW plus

programmes. These were focused on developing the most important asset of the company,

“its people”. Side by side induction of new generation machines and Enterprise Resource

Planning Soft ware (ERPS) backed by a comprehensive ERP programme (With the name

MRPII) was launched to improve and automate the planning processes and business

transactions. The ERP program focussed on strategic planning, business process, people

(culture and reward/recognition), New Product introduction and “Total Quality and

Continuous Improvement. The ERP program was complemented by re-organising the

supply chain in accordance with Supply Chain Council’s model SCOR (Supply Chain


Operating Model). This was a comprehensive program of education and mapping the “As

is” and “To Be” business processing with complete geographic mapping. Although

phenomenal results were achieved including a turn around to a profitable business from a

loss situation, achieving the MRPII class “A status” in all five chapters of Oliver Wight’s

version four checklist, SA 8000 certification, Winning first prize in Supply chain

configuration followed by DOD (Department of Defence) USA, ISO 9001 and ISO14001

certification, manifold productivity enhancement and 5S certification of both the factories

by NPO (National Productivity Organization) with collaboration of APO (Asian

Productivity Organisation Japan), the company is still not satisfied with the progress and

is continuously challenging it to explore more areas for improvement. The current launch

of “Lean Manufacturing Programme” provides evidence of the same.

Pakistan Tobacco Company:Pakistan Tobacco Company (PTC) started its operations, in Pakistan,in 1947 after

partition of the subcontinent. Before partition the business was handled by Imperial

Tobacco Company (ITC) of India. ITC has been operating in the subcontinent since

1905. British American Tobacco Group (BAT) is the parent company. With its head

office in London, BAT employs some 85,000 people worldwide and its operations are

spread over the globe in 180 countries. BAT is market leader in more than 50 countries

selling over 300 brands. In 2010, the Group sold and produced a nearly 17% share of the

global market of cigarettes.

Pakistan Tobacco Company is the largest excise tax generator in the private sector in the

country. In 2009 alone, Pakistan Tobacco Company paid the government close to Rs.36

Billion in excise and sales taxes. This means that PTC paid over Rs.100 million per

working day. Over one million people are economically dependent on the industry in

Pakistan.

The Need for Change:

PTC is operating in Pakistan since 1947 and over this long history, it has experienced

very many peaks and troughs as for as financial results are concerned. Figure 1, shows

the performance of the company over the last few years. Although the PAT (Profit after

Tax) exhibits a consistent growth for quite a long period, in actual the situation was not

that glorious. Due to increases in the cost of tobacco, wrapping materials (both local and


imported) and cost of labour,

the cost of goods sold went

considerably high and the

market situation was not

allowing the company to

increase prices of its brands.

This resulted in profits which

were negligible taking the size

of investment into

consideration. Figure. 1.

Besides above, there were many other factors which made the feeling and need for

change pertinent. Some of these are:

2000 proved to be the seventh year of loss for PTC. ( negative PAT seven

consecutive years)

The sale volume declining trends made closure of one of its two manufacturing

facilities inevitable.

Process quality improvements were necessary enhancement of customer

satisfaction. Because product quality and availability in a cost effective manner is

the only way to achieve it.

Labour as well as total factor productivity was at its lowest and drastic measures

were required to enhance productivity.

PTC started its operations in 1948. with the expansion of business, over time,

machines were inducted. The time to introduce new and faster machines to take

advantage of the new technology.

PTC’s guiding principles are Open minded, Enterprising spirit, strength from

diversity and freedom through responsibility and it wanted to restructure in a way

that supported empowerment, teamwork and ownership in line with its guiding

principles An internal studies suggested a 50% reduction as a realistic target.

Objectives and Goals:

The change needed was huge involving induction of technology (machines and

Information technology), major restructuring involving the separation of more than 50%


of it employees, process re-engineering and changes of layouts in line with the global

best practices and a huge leap in process and product quality. The objectives of the

change were clearly defined and milestones identified. Following are the main targets:

a. Productivity improvement: From 3000 CPMH (Cigarette per man-hour) to above

20000 CPMH.

b. Product Quality: Retail Quality Index (RQI) for all brands to be above 70% for all

brands which was around 20% in 1997.

c. Waste targets: Tobacco below 4% and Wrapping Materials (WM) below 1.5%.

d. Sales volume: To regain market leadership both in volume and value.

e. People: To enhance the average education level of the employees.

f. To be among the top 15% of the companies, in Pakistan, as for as rewards (total

package) are concerned.

Results:

Over the last 14 years the high achievements were materialized. Following are some

results taken from the company’s annual report 2009.

S. No. Area Results

1 Gross Turnover PKR 57544 million

2 Government levies 37,863 million

3 Sales Volume 41 billion cigarettes

4 Operating profit PKR 8,224 million

5 Productivity 25,936 CPMH

6 RQI (Product quality) 73.45 %

7 Tobacco waste 3.9 %

8 Wrapping Material waste 1.08%

Table: 1.

Process Improvements results:

In the journey of continuous improvement, the company worked on all its business

processes and achieved the following remarkable achievements:


S.No Achievement

1 MRPII Class A, in all five chapters of Oliver Wight’s Checklist

version 5.

2 ISO 9001 and ISO 14001 certification without any major non-

conformity

3 Supply Chain Excellence Award by Supply Chain Council USA.

4 SA 8000 certification

5 5S certification of Jhelum Factory by NPO

6 5S certification of Akora Factory by NPO

Table: 2.

How Was this Achieved?

No doubt the above achievements were marvellous, however the journey to achieve

excellence was not a short one and it involved real involvements and efforts from

everyone in all the ranks of the company. Quite a few improvement programmes were

launched one after the other and the results were monitored in the form of achievement of

clearly defined and measurable goals. One consideration was given to ensure that all

these programs must be complementing each other. The pioneer program was a bsic

TQM (total quality management) programme with the name BEST2000 followed by

others mentioned above.

BEST2000:

BEST2000 (Building excellence and Success Together) was launched in 1997. This was

a total quality management program and was focussed on attitude change as well process

improvement. The main activity was training the whole company. Each an every

employee was given training on vision, mission, concept of quality along with internal

and external customers. This programme covered the concepts of team work, process

mapping, continuous improvement, customer suppler agreements and preparation of

action plans. All the employees were trained in-house the company’s own trainers. The

slogan adopted was “we will the best in everything we do by the year 2000”. After the

training phase was over, many improvement initiatives were taken. Most of the business

and manufacturing processes were mapped and the “To Be” processes were designed.


Every process owner signed a CSA (Customer Supplier Agreement) with his customer

defining the required quality parameters and the tolerances agreed. Tolerances were

agreed upon taking into account the customer requirements and the supplier’s process

capabilities.

Winning in Our World (WOW and WOW plus)

These were training programmes meant to complement the earlier TQM programme

BEST2000. These programmes were more focussed on the softer aspects rather than the

harder ones. The main theme of these programmes was to bring a positive attitudinal

change through introduction of the power of vision. The main things discussed were

vision and its power and its impact on both individual and team performance. The main

massage was create a visionary power which will connect you the “big Picture”. 20

percent of the training was in class where as the remaining 80 percent comprised of

outdoor games designed to inculcate teamwork and individual behaviours which can help

in developing a culture based on team achievements rather than individual star

performance. At the end of these workshops (which were called “play-shops”), each

participant was challenged to find his connection with the big picture by asking what

difference my performance can make to the overall team’s achievements.

MRP II:

MRP II stands for “Manufacturing Resource Planning” for everyone in the world

associated with the induction of ERP software like SAP R/3 etc. for enhancing the

planning and transactional capabilities but for PTC team-members it was a symbol of a

change agent which transformed the company into a flexible and innovative consumer

focussed company. Under this program five teams were formed with a team leader and

champion to formulate the guidelines and related actions plan to materialise tangible

improvements in the following areas of the company’s business:

a. Strategic Planning: This is to provide the strategic planning process with

leadership and processes that will take the company towards the goals of its vision

and mission statements. The main outcomes of the activities of this team were the

development of vision and mission statements, strategy and introduction of the

Sales and Operations Planning process (S&OP).


b. People and Teams: This team was given the task of development of a culture

which encouraged teamwork, continuous improvement, transparent career

development and a merit based rewards and recognition system which considers

team achievements and individual performance in balance manner.

c. Process and Control: This team was supposed to work for developing a corporate

as well as function’s dashboards comprising of measurements which were simple

but covered all the aspects which are supposed to be covered in a balance

scorecard. i.e. Costumer perspective, Financial perspective, internal perspective

and learning and growth perspective.

d. NPI (New Product Introduction): This team was entrusted with the task of

revamping the new product introduction process right from inception to maturity

and even delisting plans.

e. TQ&CI (Total Quality and Continuous Improvement) this team was supposed to

work with the above teams to make total quality and continuous improvement as

an integral part of the new company culture and extend these concepts to the

valued business partners like suppliers and disctributors.

The SCOR-Model: (Supply Chain Operation Reference-Model).

Supply Chain Council is a non-for-profit organization in the United States and it has

developed its operating reference model (SCOR) which can provide the basis of proper

design guidelines for organizations to develop their supply chains. The main theme is that

organizations can develop their supply chain by streamlining five processes namely plan,

source, make, deliver and return. PTC launched the programme in 2004 and was able to

reconfigure its supply chain in alignment with the SCOR-model. A huge process

mapping exercise was carried out which included geographic mapping too. The program

was so successful that PTC one the supply chain excellence award in a competition

arranged by the Supply Chain Council. The organization at the second position was none

other than the DOD (Department of Defence USA)

Lean Manufacturing:

True its reputation of “never satisfied with the status quo” PTC has recently launched a

programme under umbrella of lean manufacturing. After providing the necessary training


on “Lean Tools” it has initiated many improvement projects mainly focussed on

reduction of all seven types of waste (inventory, excess movements of material, over-

production, over-processing, excess motion, waiting and defects). Some of the projects

have already yielded good results e.g. the 5S project has resulted in certification of both

the factories on 5S by NOP with collaboration of APO Japan. PTC’s Jhelum factory was

the first and Akora factory was the second factory in Pakistan to achieve this recognition.

Conclusions:

TQM programmes can prove to extremely beneficial for organizations and Pakistan’s

culture does not provide any hindrance in implementing these programs rather prove to

be conducive to reap the benefits of these programmes. Fully recognising that the

outcome of one case-study can not be generalised it can be said with confidence that if

taken care of the following points, good results can be achieved through TQM programs

in Pakistan.

a. TQM is not a project it’s a programme comprising of many complementary

programs.

b. Top management commitment is essential for success.

c. Everyone, in the company, needs to be fully involved.

d. Both short term and long term achievements are important to build confidence of

all in the programme.

e. Focus on both softer and harder aspects is needed.

f. Those who matter need to be patient with results.

References:

1. PTC annual reports from 1995 to 2009.

2. PTC internal project’s documents.

About The Author:Turab Ali Khan is a graduate mechanical engineer with masters in EngineeringManagement. He has over 28 years of industrial experience in the fields of powergeneration, petrochemical and manufacturing industries. Has worked for bothnational and multinational organization and his main areas of interest remainedproduction planning, product and process quality improvement, environmenthealth and safety and people development. He has attended international


courses and seminars in these fields both as participant and speaker. Hepresented papers on QFD and OEE. He is also a visiting member of the faculty inCASE (Centre of Advanced Studies in Engineering) Islamabad and teachesEnterprise Resource Planning (ERO), Supply Chain Planning and ProductivityImprovement and Engineering Management.

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