Meagal Stelplast - Steering A New Path - Case Study 1

Case Analysis Meagal Stelplast: Steering a New Path

Company Overview • Founded in 1995 by Anil Kishore • Manufactures automobile horns for the replacement market only • Total of 12 workers after the staff were doubled in 2011 • Sold horns through wholesale dealers and workshops • 80% of sale accounted by two models- Classic Hero Honda 90 dia and Mithu AC 72 Dia • Typical selling price: INR 150, as opposed to ~INR 200 for branded ones • Products offered a three year warranty backing • Expected growth rate: 14%.

Industry Overview • Ten major competitors • All competitors were SMEs • Two markets to cater: replacement market and OEM supply • Unorganized sector, with a good number of them being unregistered, and without any necessary certification • The largest competitor sold up to 28,000 horns a month • Projected growth rate of 16-18% percentage • Projected growth rate expected to slow down due to cheaper Chinese imports • Future considerations involve supply to OEM networks, since there will be a steady requirement for products.

Industry Level Challenges • Vastly unorganized sector • Most of them offered relatively inferior quality horns- either due to difficulties in sourcing quality materials, or deliberately to cut operational costs • Labour unrest and management- labour union strains affected production • Difficulties in sourcing and retaining skilled workers, especially testers • Threats and growth slowdown faced due to cheaper Chinese imports

Operation Specifics • 15,000 horns sold a month- 20% of which was MSL Branded • 80% of sale accounted by two models- Classic Hero Honda 90 dia and Mithu AC 72 Dia • There was no inventory maintenance- products were made on order only • The demand was erratic- higher during monsoons • No shortage of order except for a brief spell in 2008 • Inventory of 3000 horns in different stages of production • Production regained when the stock dwindled to 500 horns • Typical turnaround time on order- 1500 horns in five days • Production time- 26 days a month, 9 hours a day.

Operational Challenges • Erratic demand pattern due to which supply cannot be forecasted • Demand on a particular model was hard to find due to tenfold choices • Quality issues faced of late- higher warranty claims • Inability to determine cause of horn failure • Much time was taken to source materials • Workers on a monthly fixed payroll exhibited less productivity as compared to the

newer hires, who worked on a

piece-rate basis and displayed 8% higher productivity. • Aversion to automation- workers were reluctant to adopt process improvisation with mechanization. • No in-process inspection • No formal performance evaluation and no formal work measurement • Lack of task specialization- anyone could don any production task, up to testing.

Recommendation and Solution • Use historical data to establish a pattern (possibly) to do a demand forecasting as

close as possible

• Identify the cause of product failure by detailed analysis and mitigate warranty claims • Develop a core competency / product specialization so that a higher market gain can be obtained, and possibly win an OEM supply • Adopt inventory management procedures such that the down-time/ effort for sourcing raw materials for manufacture can be curbed as much as possible • Specialized resource allocation such that each task in the production is entrusted to a resource which specializes exclusively in that task, thereby reducing production time • Implement a phase-by-phase quality assurance process which covers any necessary in-process inspection, and a final QC with the help of specialist resources (testers)- this would increase product competency as well, and make it eligible for OEM supply.

Recommendation and Solution (Contd…) • The per-piece rate offers more incentive to produce more, so it must be implemented uniformly for all workers • Resource planning such that an optimal amount of resources only needs to be used in producing each unit- R & D improvisations to reduce the quantity of copper length, but at the same time retain same product quality, and such • Devise a formal performance evaluation system on a company as well as employee basis, with periodic review • Implement mechanization and automation by any necessary measures to improve productivity, starting with the ones already in place at the factory premises.

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