Volvo, Toyota bet big on Total Cost Management strategies

Swedish CV maker Volvo and Japanese carmaker Toyota have been adopting multiple strategies of Total Cost Management (TCM) to achieve cost effective ‘Made-in-India’ products with top-notch quality.

The perspectives of these two auto majors attracted the attention of participants in the 13th edition of ‘International conference on Total Cost Management - New frontiers of Business Excellence through TCM’ organised by the Confederation of Indian Industry in Bangalore from December 16-17.

Participating in the panel discussion titled ‘Make in India - Enhancing Firm’s Cost Competitiveness’, Kamal Bali, managing director of Volvo India, revealed a number of strategies the company has been adopting as part of its TCM policy.

He said any company should consistently move up in the value chain, which can be achieved by adopting several practices including innovating new products. Talent-driven innovation is one key factor required for India to become a destination for global players to step in and participate in the ‘Make-in-India’

programme.

But on the talent-driven innovation scale, he said India’s place is at a lower level of around 5.8 compared to Germany at 9.5, the United States at 9.0, followed by Japan at 8.1. Even in areas like physical infrastructure, India is at the lowest ratio of 1.8 while the country’s competing economy China is at 6.5.

“We are getting into a Catch-22 situation. There are some issues to be addressed in connection with education and skill development,” he added.

Only 41 percent of class V standard students in government schools can read the text books of class II. The status of state-of-the-art higher education system is also not better with gross enrolment ratio is less than 20 percent with the global average of 30 percent. In fact, some developed countries have 50 percent. To reach the global average of 30 percent, India should create at least 1,500 universities. It may be recalled the country took 62 years to create the current 450 universities. “We have absolutely outdated curricula and inadequate vocational educational system. On the other side, by year 2030, half of the country’s population would be below 28 years, making India the youngest country in the world at least for the next 20-25 years. We should chalk a plan on utilizing this opportunity,” he said.

According to Bali, Volvo has already invested Rs 1,000 crore and intends to inject in another Rs 1,000 crore in the next two years. Although Volvo is not a big entity in India, he said the company has taken several steps to improve the human capital. The company has developed a state-of-the-art training and skill development centre, using simulators and has trained 10,000 operators and made them employed.

It has also recently started an Innovation Lab in Bangalore for ideating and incubating new ideas. Right now this is for captive purposes (for Volvo). “Going forward, we can look at how this concept can be shared with the industry,” he added.

On design optimisation, Volvo is following the lean production system that is quite similar to Toyota’s programme. Interestingly, Bali said that Volvo has learned this kind of production system from Toyota. “Volvo production system is not very different from Toyota production system,” he added. 

“We are working on standardisation and we working on production line rationalisation, we are giving up couple of products which are not profitable and not going to be profitable while improving supply chain management in order to achieve manufacturing competitiveness,“ he said.

Importantly on the material front, he said a lot of efforts have been taken for localisation while priority has also been given to import parts from the countries with which India has a Free Trade Agreement (FTA).

Another panelist Shekar Viswanathan, vice-chairman and whole-time director of Toyota Kirloskar Motor (TKM), said he joined the Toyota Group 17 years ago. Even though he is not an engineer and is a chartered accountant, he, along with other dignitaries and consultants, have implemented various cost- effective solutions.

According to Viswanathan, one of the major strategies that any company should look into is that reduction of rejection. He said the health of the factory could be ascertained by inspecting the scrapyard. He recalled the company’s implementation of on-site supplier programmes when it inaugurated its second manufacturing plant at Bidadi industrial estate near Bangalore.

Initially, he said the company wondered whether there would be any issues in terms of reliable work practices because each on-site supplier operation was different. The company had a diversified set up of operations from glass maker, seat maker to window and windshield producers. But it worked out. The whole idea of having on-site suppliers was essentially to cut cost and to cut inventory costs. “With this concept, we were able to bring in the material to shopfloor whenever it is required and avoided unnecessary inventories,” he added.

Earlier addressing the conference, Vikram S Kirloskar, vice-chairman, Toyota Kirloskar Motor, said: “ There was sluggishness in the Indian automobile industry during the past two years and low volumes across companies created new challenges. Minimised cost through flexible line production, simplified processes and re-skilling people are some of the measures that worked to achieve TCM.”

Yet another panelist B Muthuraman, past president of CII and former vice-chairman of Tata Steel, which also caters to the auto industry, said the company faced a tough situation in the 1990s with low production and service qualities. At the time, only SAIL and Tata steel were the two major steel companies in India catering to various sectors.             

In fact, many consultants had said Tata Steel would not stand the test of economic liberalisation and the onslaught of the global economy.  “We gave primacy to cost and quality and the vision has been created for the company that had around 78,000 employees to produce and market 2 million tonnes of steel.

The company has created a single vision that we will become lowest cost steel producer in the world and implemented various improvements on gradual basis. We have started a programme called Total Operating Performance (TOP) along with McKinsey & Company. In 2000, Tata Steel became the lowest cost steel producer in the world within 10 years. Total Cost Management is related to leadership process to create positive energy level, motivation, involve people with positive motivation and organize them in a right way,” B Muthuraman signed off.

Photograph (L-R): Kamal Bali, MD, Volvo India; Shekar Viswanathan, vice-chairman and whole-time director of Toyota Kirloskar Motor and B Muthuraman, past president of CII and former vice-chairman of Tata Steel among other panelists.