Somany on reengineering drive to hone up operations

Mukta Magazine in New Delhi

Abhishek Somany, ED, SPL Ltd

The Rs 172-crore SPL Ltd, makers of Somany wall and floor tiles, is in the midst of a complete business process re-engineering (BPR) initiative in association with Accenture. Christened Project Nishtha, the initiative aims at streamlining the entire business of the company to make it more cost- efficient and competitive. The company has already invested Rs 1 crore in the project.

Stiff competition for SPL comes from the unorganised sector in the traditional tiles segment, and now Chinese products in the porcelain glazed and unglazed tiles segment, which are available at much lower prices.

‘‘Since the unorganised sector enjoys a clear 30 per cent advantage due to lower duties, the branded players cannot hope to compete on the price platform. This has made it imperative for players in the organised sector to be more competitive through better management of processes, value-added product offerings and cost efficiencies, says Mr Abhishek Somany, executive director, SPL Ltd.

Mr Somany adds,‘‘In terms of savings, SPL expects the BPR process, once it is implemented, to help it achieve a saving of between Rs 1.5 and 2 crore on the bottomline in the first year itself.’’ However, the actual saving would depend on the pace of implementation.

The brief to Accenture was to do a complete restructuring exercise by looking at all the processes involving both inbound and outgoing freight, and the entire supply chain, to help reduce costs, enhance revenues and thereby impart profitability. Says Mr Ajit Kumar, partner, Accenture, ‘‘The weak areas where tighter processes would lead to quick results include power and fuel conservation, procurement and manufacturing. Other areas that will take a longer time frame to set right and display benefits include distribution & marketing network and supply chain management. While we forecast a benefit of at least Rs 6-8 crore once the entire implementation is done, by FY 02-03, in the first year itself savings of Rs 2 crore will accrue.’’

The major focus area, according to the initial report submitted by Accenture would be to tighten the supply chain, besides efficient loss sale management. A tighter control on demand and supply and rationalisation of the number of SKUs from their portfolio, on the basis of the marketing potential of the items, would ensure that key items in the product portfolio would never be out of stock. To achieve this, Accenture will device a programme to forecast demand on a more scientific basis, instead of the current system that depended solely on sales force feedback. At present, of the 1,500 designs in their portfolio, there is often a mismatch between the demand and supply of key items that leads to crucial loss of time in production. There is also a need to track the lifecycle of a design so that there is no dead stock in inventory. ‘‘Many times a design that has been historically doing well, may have died without our realising it, leading to stock pile-up. Accurate and ongoing tracking would help avoid this,’’says Mr Somany.

The items also would be divided into two categories: items produced to stock (fast moving items) and those made to order (slower moving items). Other areas touched on include sales force productivity issues, distribution network, including the strategic placement of depots and their impact on supplies. Backward integration of fuel or waste heat into other areas will also yield good savings.

In the second round of restructuring, Accenture will put in place an ERP package, integrating the entire supply chain process. Once the ERP system is put in place, there will be tighter control on inventory with tracking of supplies becoming online. At least 50 per cent of SPL sales come through depots and C&F agents.

Finances are seen as another area with huge scope for change. This would include all internal finances, liaison and working capital optimisation. According to Accenture, this is one area where mid-sized companies like SPL have traditionally not been focussing, but the benefits can be tremendous.

The company is already in the process of implementing cost management initiatives: Over the last one year, it reduced staff strength by 50 and labour by 100. It has also reaudited and renegotiated rates with suppliers to achieve cost efficiencies. On the sales front it has tightened credit policies and launched a number of cash discount schemes to attract dealers and bring liquidity into the company. On the product front it is launching more value-added products, new designs and finishes to increase profitability. For instance, as a key differentiator from the unorganised players’ offerings, it has introduced larger sizes that demand advanced
technology and where the small-scale units are not present.

The tile industry has seen a downtrend in growth from the average 15 per cent, to 10 per cent last year. The overall slowdown has depressed buying sentiment and reduced the replacement market from the earlier seven per cent to almost zero. A large chunk (almost 60 per cent) of the tile industry has come to be dominated by the small-scale sector in volume terms, though in value terms it accounts for 40 per cent of the Rs 1,600 crore industry.

SPL, which enjoys the number two slot in the domestic tile industry, with a marketshare of 21 per cent, after H & R Johnson, recorded a turnover of Rs 172 crore last year and is targeting Rs 220 crore this year.