Management of operational efficiency

Industrial Engineering Letters www.iiste.org
ISSN 2224-6096 (Paper) ISSN 2225-0581 (online)
Vol.4, No.8, 2014
Management of Operational Efficiency: Can Indian SMEs Afford
Overseeing IT
Dr.Sangeeta Sharma1 Kunal Vashisth2 Tavishi Sharma3
1.Department of Commerce, D.A.V.Centanary College, Faridabad.INDIA
2.4/4 Yr.Computer Science and Engineering, Lingayas University, Faridabad. INDIA
3.Business Intelligence Consultant, Cloudsteer Technologies Pty Ltd, Gurgaon, INDIA
Abstract
In present era of throat-cut competitiveness, the earning and growth of Indian SMEs has been deteriorating
continuously and such companies are bleeding out of financial crunch. This paper examines the influence of
evaluating, implementing, and accounting for the various operational efficiencies in an organization which can
bring turnarounds in improving the firm’s commercial and financial performances. Fifty companies were
scanned for this study using well structured questionnaire as well personal contact program at various levels of
organization. The results show that there is a significant correlation between the roles of various operational
efficiencies within the organization that can prove to be a turnaround in enriching the commerce of the business
entity. Type of corporate culture and organizational commitment do influence on the financial performance of
Indian SMEs especially in densely populated auto component manufacturing companies. The propositions of the
study have also been addressed. Furthermore, an attempt has also been made to improve agility, visibility, and
operational performance across manufacturing. This paper is unique in dealing with the ways and means for
applying six-sigma, lean-manufacturing,QMS, TQM culture for assessing business efficiency especially in
SMEs in Indian Auto Component manufacturing units.
Keywords: SMEs, Operational Efficiency, Financial Performance, Turnaround, Lean-Manufacturing.
I. PREAMABLE
Operational efficiency is a ratio of actual output v/s maximum output and behaves like financial
leverage. It identifies wasteful processes and resources that flush off the organizational profits and can also
suggest remedial design of new work processes that improve quality and productivity. Improving operational
efficiency has a direct impact on a company’s bottomline. Operational efficiency and lean manufacturing both
target waste-elimination related to time, money, people, effort and other un-productive resources. The results are
measurable, immediate and sustainable.Kaizen is a systematic approach of continuous improvement in work
culture, quality, technology, production processes, productivity benchmarks, safety at workplace and leadership.
Today’s customers are asking products on percent value of raw material used. High quality, low prices
and timeless deliveries are best selling product features. Efficiency and Customer Satisfaction Go Hand-in-Hand.
Under such a competitive environment, the profitability of Indian SMEs has eroded exponentially.
Manufacturers in the global landscape are facing rising competition, more product variables, more
regulations, and more cost pressures than ever before in history. For agility, the enterprises have to perk up
flexibility, visibility, and operational performance across their manufacturing operations. Success calls for
enterprises to manage their businesses proactively& efficiently, instead of the business issues managing them.
External competitiveness is bound to increase but internal cost competitiveness is a challenge to be converted
into an opportunity efficiently. Lean manufacturing is an essential component of manufacturing efficiency by
building an efficient value chain, a task not easily achieved using traditional production systems. It makes use of
anything less of everything compared with mass production or mass, half the manufacturing space, half the
investment of equipment, design half hours a new product. DMAIC (Define, Measure, Analyze, Improve, and
Control) is a process which embeds the philosophy of scaled improvement in manufacturing processes
measurable. The optimal Manufacturing Operations Management solution for driving efficiency enables the
integration of quality processes into the full design-manufacture-distribution cycle. Businesses can build
products right the first time, removing variability of processes, while improving: manufacturing cycle time,
manufacturing “touch” time, overall equipment effectiveness defect/scrap rates and first pass yields. Any type of
waste from operations needs to go. Waste elimination processes typically require an organization to foster a
culture where cross functional team of employees are empowered to identify the smallest incremental waste-cost
factor and plug it forever under the reinforcing it through lean manufacturing and kaizen.
In this context, Spector R. (2006) highlighted that the Lean Six Sigma is the most effective in process
improvement, is widely implemented in the top performing organizations. Waste elimination which is a
predominant component of Lean Manufacturing can be treated as business transformation technique for creating
efficiencies in a number of ways: streamlining processes, converting data into knowledge, improving services
and correcting asset management. Controlled Process Metrics (Process Time, Wait Time, and Change over Time,
First Time Quality, and Work-in-Process Inventory) are keys to improve various operational efficiencies.
49

Vol.4, No.8, 2014
Operations and Equipment Efficiency, OEE can be expressed as the product factor (availability*
performance* quality) where Availability stands for operating time, Performance is designed cycle time and
Quality is salable units produced.
Commerce of operational efficiency shows how to achieve enterprise-wide supply chain visibility,
manufacturing synchronization, and control over efficiency through an integrated system that directly addresses
manufacturing competence at a reduced cost of goods. This innovative approach bridges the gap between the
“silos” of information that impede legacy systems and point solutions.
The commerce of business efficiency can be better achieved with cost reduction techniques
50
categorized as under:
Financial Management: Cost estimations, planning, budgeting, cash management, product costing and
business restructuring.
Relationship Management: JV’s, Tie ups, Franchisee, Strategic partnerships, productive employees,
performance rewards.
Marketing Management: Aggressive and guerrilla selling, Floating pricing and RFQ’s for vendor needs,
Customer referral, retention, loyalty and exchange of goods.
As our intention is to demonstrate the benefits of running of business based on commerce of
efficiencies, our attempt is to understand the usage Lean manufacturing/six sigma and other cost reduction
techniques in Indian SMEs, especially in auto OEMs. We then present more detailed overview of improved
business efficiencies based on respondents’ feedback. Finally, we discuss some of lessons learnt during this
entire research followed by implications of this study in enhancement of profitability of SMEs.
II. REVIEW OF RELATED TRANSCRIPTION
Improving operational efficiency through lean manufacturing has been a buzz word since last decade
in Indian Industries yet it is not successfully implemented. McDuffie (1995) analyzed that the operational
changes alone do not yield expected benefits without a “bundle” which includes structural, managerial and
cultural changes. Structural changes have further supported by Hambleton (2008), highlighted the essence of
improved layout of the workplace/shop floor contributes for increasing productivity of the workers, through
more economical use of hand movements by conducting an experiment on hacksaws assembly. It has been
shown to outperform the traditional production model of large batches on several occasions (Boyer et al. 1997;
Nakamura et al. 1998) and just in time (JIT) supply has is being practiced in manufacturing industries. While
being studying various derives at Toyota, Krafcik, (1998) describes the Japanese-style manufacturing process
pioneered by Toyota, which uses a wide range of methodologies including just-in-time inventory systems,
continuous improvement, and quality circles. Czarnecki and Loyd (1998) recognized waste as non value added
activities which can be eliminated through continuous improvement by at the pull making the customer in
pursuit of perfection. Garnett et al. (1998) suggested that lean is not simply a method that can be applied in any
industry and bring the benefits at par with Toyota. The common mistake made by organizations is focusing
wholly on their operations while being unable to have a wider perspective and capability to position them in the
whole value chain (Yamashita, 2004). Furthermore, the study of Russell and Taylor (1999) exhibits that the
major purposes of using lean production is to increase productivity, improve product quality and manufacturing
cycle time, reduce inventory, reduce lead time and eliminate manufacturing waste. A study of employee’s
reaction to change into self-managed work teams showed employees’ expectations were critical for their
satisfaction and commitment, Shapiro Kirkman (1999). Commenting on lean manufacturing, Yeung and Chan
(1999) suggested that the manufacturers are becoming increasingly aware of the importance of modern
management philosophy in providing them with a competitive advantage in a free market system. Niemes (1999)
suggests that companies can apply Six Sigma principles to the reengineering of sales and marketing operations
for improving the bottom-line.
Carlivati (2007), highlighted that design for production goes a major step further and aims to reduce
ship production costs to a minimum, while simultaneously complying with both owner and classification society
rules. The vessel must “fulfill its operational functions with acceptable safety, reliability and efficiency”
Successful applications of DMAIC leads to improved customer relationships, reductions in marketing
costs, and ultimately, increasing profits. In this context Donath (2005) highlighted that Six Sigma can lead to
improved customer relationships by improving the process that delivers the product or service to the customer
thereby enhancing the firm’s commercials.
Thus, lot of literature is available on operational efficiency improvement tools like Lean-manufacturing,
six-sigma, DMAIC, 5-S, Kaizens etc., yet I have not come across any study which can benefit
Indian SMEs in improving the efficiency of various operation for enriching its bottomline.
III. NEED OF THE STUDY
Profitability is a barometer for measuring efficiency and economic prosperity of any business entity. Profit

Vol.4, No.8, 2014
maximization is not clearly understood by Indian companies as the process of identifying the most efficient
manner of obtaining the highest rate of return from its production model. SME’s which are focusing more on
value additive activities compared to non-value addition activities like waste-elimination are failing miserably on
this front. As we have not come across such type of study especially for Indian Auto SMEs, an attempt is being
made to understand, analyze, interpret and conclude the solution to this burning issue of improving overall
business efficiency of Indian SMEs operating in one of the largest manufacturing sector-Indian automobile
industry.
IV. OBJECTIVES
Profits help strengthening and broadening the capital- and-assets base of business and ensure its future growth,
and for enhancing its ability to absorb shocks and set-backs common in business.The purpose of this paper is to
provide new insights to the Indian SME’s (especially for the companies in automobile industry) in the domain of
creation and sustaining profit by redefining operation-technology under the umbrella of lean manufacturing.
Following are the main objectives of the study:
1) To understand that the Indian SMEs are putting their best for implementing various derives like
working in lean manufacturing and kaizen culture, using Information Technology for budgetary control,
MIS and data analysis for faster decision making.
2) To understand and evaluate how large scale OEMs are helping the SMEs suppliers for improving the
51
operational efficiency of SMEs.
V. RESEARCH DESIGN
The study was limited to the companies in geographical domain of NCR-Delhi. These companies
belong to Indian automotive industry and fall under SMEs category, have sample size as per Table-1.
TABLE: 1 SAMPLE SIZE OF COMPANIES UNDER STUDY
S.No. CATAGORY OF MANUFACTURER SIZE PERCENT
1 Forge Auto Component Manufacturer 4 10
2 Casted Auto Component Manufacturer 10 25
3 Sheet Metal Auto Component Manufacturer 10 25
4 Tool and Die makers 6 15
5 Fabricator of Auto Component 4 10
6 General Engineering Auto Component Manufacturer 6 15
TOTAL 50 100
The categories of manufacturers have been selected in a ratio such that the product manufactured are
being used to assemble an automobile are in array of its importance. As castings and sheet metal constitute a
major share in automobile, the consideration of such manufacturers in sample size has been assigned 25 percent.
Based on above sample size, well structured questionnaire was designed to judge the context at various levels of
hierarchy in the organization. This way, certain questions were asked for cross verification of facts stated by
various hierarchies. Based on data, following hypotheses was generated for strengthening the study.
H01: Indian SMEs deploy Lean manufacturing, QMS, Kaizen and IT-Tools for enhancing OEE.
H02: OEMs always initiate drives for improving operational efficiency of Indian SMEs.
Above hypotheses have been tested for drawing conclusive result. The implication and limitation of the
study have been spelled well.
VI. ANALYSIS AND INTREPRETATION
Designed questionnaire was floated to the three hierarchies, that is, Managers, Supervisors and skilled
operators for getting feedback. Personal contact program was more successful in getting responses on lean-concepts.
The responses of various team members have been piled up in Table-1.

Vol.4, No.8, 2014
Table-2: RESPONSE OF HIERARCHIES ON LEAN-CONCEPTS
S.No DESCRIPTION OF PARAMETER MANAGER SUPERVISOR OPERATOR
1 5-S and DMAIC are operational at work 18 12 10
2 Your processes are regularly validated 22 14 10
3 Do you measure process capability(Cpk) 14 8 0
4 Productivity is preferred over Production 22 18 4
5 Company does not have inventory store 10 8 6
6 Your delivery rating exceeds 90% 18 12 8
7 Do you treat rejection/rework/waste 12 13 6
8 Do you target rejection as ppm 22 14 8
10 O.E.E and Yields are regularly monitored 12 8 0
11 Company has nil accidents 28 22 12
TOTAL 178 129 64
OVERALL PERCENT 31 29 15
Table-2 exhibits that managers and supervisors do understand the lean concept and its implementation as low as
thirty percent while operators have responded to fifteen percent only. Despite of this there is a big gap among
various hierarchies in understanding the various aspects of lean manufacturing in Indian SMEs.
Responses of respondents regarding QMS practices have been arranged in Table-3 below.
52
TABLE-3: RESPONSE ON QMS PRACTICES
S.No DESCRIPTION OF PARAMETER
MANAGE
R
SUPERVISO
R
OPERATOR
1 Company is accredited to QMS 38 32 32
2 Rejection increases Production target 22 28 34
3 Company send you for outstation training 16 8 0
4 In plant Training is regularly imparted 22 18 12
5 Company celebrates improvement plans 12 6 2
6 Best worker awards are regularly given 18 16 12
7 Rework is not a regular practice in company 18 9 6
8 Company’s layout is work supportive 22 16 6
9 Customers often witness process audit 24 18 8
10 Do you know and understand TQM 40 32 14
11 Do you follow TQM Practices 9 8 4
12 Do you exercise cost reduction techniques 30 20 14
13 There is an effective suggestion scheme 32 18 12
TOTAL 303
229
156
Table-3 highlights that management of Indian SMEs do take interest in going for some or the other quality
standard which is evident from the enquiry of supervisors (forty four percent favorable responses) and operators
have spelled thirty percent positive on this aspect. Though there is a big gap between all three categories, yet
Indian SMEs prefer going for implementing Quality Management System.
Investigation was made further to understand the understanding and implementation of Kaizen Practices in the
companies. Data recorded has been arranged in Table-4.

Vol.4, No.8, 2014
TABLE-4: IMPLEMENTATION OF KAIZEN
1 Does the company have area-owners for 5-S 22 18 16
2 Company has planned calendar for kaizen 18 12 10
3 Kaizens eliminates wastes 18 12 10
4 Does kaizen decrease manufacturing cost 22 18 12
5 Are cross functional core teams in place 12 11 10
6 Kaizen reduces scrap 36 40 36
7 Kaizens improve operational efficiency. 36 40 36
8 Good environment is bye product of kaizen 18 12 10
9 Kaizen attracts customers confidence 28 32 18
10 Kaizen improves productivity 18 12 10
TOTAL 228 207 168
It can be inferred from table-4 that fifty seven percent managers, fifty two percent supervisors and forty
two percent operators do favor in going for kaizens and overall fifty percent of total team put effort in this
direction.
The research further investigated the usage of Information Technology in controlling the budget of the company.
The responses have been arranged in table-5, below.
TABLE-5: RESPONSE ON USAGE OF INFORMATION TECHNOLOGY TOOLS
1 Company uses some or other ERP 14 14 12
2 IT-Usage ease decision making 36 32 16
3 IT Techniques reduces Report/MIS time 36 32 16
4 Company uses IT in periodic budgeting 18 12 6
5 IT-Usage helps in daily SWOT analysis 26 24 2
6 Information technology reduces cost 32 28 28
7 Bill of material is better improved by IT 28 22 12
8 Usage of IT decreases overall cost 14 12 12
10 Does company uses Cloud computing 2 0 0
11 IT Tools are effective in competitiveness 34 32 18
TOTAL 240 208 122
It can be learnt from table-5 that more than fifty percent of the companies do recognize that usage of
Information Technology like ERP/SAP/Cloud Computing really serve as an aid in budgetary control, preparing
MIS and other reports.
Data in table-6 pertains to the role of OEMs which are customers of SMEs, in improving the overall efficiency
of SMEs operations.
53

Vol.4, No.8, 2014
TABLE-6: RESPONSES ON OEMs IN IMPROVING OPERATIONAL EFFICIENCY
1 OEMs can make you productive 36 32 40
2 OEMs conduct development programs regularly 12 12 2
3 You are audited by OEMs as surprise 8 4 2
4 OEMs do not bother about you 18 22 28
5 You visit OEMs for training programs 10 6 4
6 You are awarded by OEMs at year end 21 18 16
7 Company is on-line with OEMs 10 6 2
8 OEMs press you for technology up gradation 18 22 24
9 OEMs does not bother about you at all 14 10 10
10 OEMs ask you for Quality,cost,delivery 36 32 32
11 OEMs press you for cost reduction 36 32 32
12 OEMs do guide you for enhancing profitability 14 16 10
TOTAL 233 212 202
Table-6 exhibits that OEM customers do put certain efforts in developing the SMEs such that it
becomes operationally efficient. Under this, more or less, all three categories of employees resembles in
accepting the fact that OEMs are coming forward to develop its suppliers on operational front. Still efforts are
less than half way of desired level.
For summarizing the views of all respondents under the various parameters have been piled up in the
54
form of table-7.
TABLE-7: VIEWS ON OVERALL OPERATIONAL EFFICIENCY
S.No OVERALL ASSESSMENT MANAGERS SUPERVISOR OPERATOR RANGE
1 Implementing of lean-Mfg. 31 29 15 16
2 Top managements motivates for QMS 58 44 30 28
3 Usage of IT in budgetary controls 55 47 27 28
4 Kaizen as working practice 57 52 42 15
5 OEMs derives for Operations
Efficiency
48 44 42 6
TOTAL 249 216 157
OVERALL PERCENT 50 43 31 19
OVERALL AVERAGE 42
It can be revealed from table-7 that on an average; fifty percent of managers, forty three percent of
supervisors and thirty one percent of operators really understand and implement the various aspects of enhancing
operational efficiency.
VII. DISCUSSION
Table-7,highlights that there is a significant variation of thought process i.e.by sixteen percent for
implementing lean, twenty-eight percent in going for QMS and IT-Tools and overall, all three categories differ
by twenty-four percent. Thus, it is in contrary with null hypothesis, H01, and alternate hypothesis that is Indian
SMEs don’t deploy Lean manufacturing, QMS and IT-Tools for enhancing operational efficiency is true.
Likewise, SMEs employees at various hierarchies in organization believe that there is a variation of fifteen
percent in case of implementing kaizen and six percent in case of stating that OEMs do put necessarily adequate
efforts in improving the operational efficiencies of its SME suppliers in automobile industry. This is not in line
with hypothesis,H02, and alternate hypothesis i.e.SMEs are not adopting Kaizen practices to a sufficient level
and OEMs derives fall short of length in enhancing the operational efficiency of SMEs is true.
While interpreting overall effect of various parameters, it has been noticed that forty-two percent
employees do understand and implement the drives for enhancing operational efficiency and there is a big gap of
nineteen percent among various employees on this aspect. Thus, studying combined effect of all parameters, the
null hypotheses, H01 and H02 fails to stand straight.
VIII. CONCLUSION
It is a true fact that Indian SMEs need to enhance the operational-efficiency for the survival in a

Vol.4, No.8, 2014
competitive automobile industry. Indian SMEs are miserably failing in implementing minimum necessary
required practices like lean manufacturing, kaizen, IT-Tools, budgetary control in manufacturing, QMS and
TQM culture in their operations. Firstly, SMEs need to implement the above practice as necessity not as luxury.
Secondly, it has been noticed that there exists a big gap in thinking among managers, supervisors which further
widens up in case of operators as far as understanding and implementing efficiency-enhancement programs are
concerned. This lack of team work has been seen as a big challenge in these directions.
Thirdly, OEMs sets so many stringent restrictions regarding manufacturing process control and don’t
impart necessary support and trainings to absorb the drives. There is great expectation from large sector OEMs
towards putting up adequate efforts for making SME supplier technology-reliant and optimally trained for
discharging efficiencies.
Precisely, as cost of inputs and sale being competitive and market driven, enhancing the operational
efficiency is only way where visibility of organizational wealth can be unveiled SMEs for being competitive and
present in global market place.
IX. LIMITATION AND FUTURISTIC SCOPE OF STUDY
As the study was self sponsored and no external aid was taken and keeping financial constraints in mind,
the study was limited to NCR-Delhi region in the domain of automobile industry. This is an opportunity for any
other researcher to take coverage of pan India. As the study is limited to the operational efficiency of SMEs in
automobile industry in India, the topic can be further broadened in other industries also. Furthermore, this
research study concludes the joint effect of managers, supervisors and operator opens up a field for making it on
individual basis.
References
1 Boyer, K. K., G. K. Leong, et al. (1997). Unlocking the potential of advanced manufacturing technologies.
Journal of Operations Management15 (4): 331-347.
2 Carlivati, P. (2007), Six Sigma: a new path to perfection, ABA Bank Marketing, No. April, pp.24-9.
3 Czarnecki, H. and Loyd, N.,( 2004). Simulation of Lean Assembly Line for High Volume Manufacturing,
Research Paper Published by University of Alabama in Huntsville.
4 Donath, B. (2005), Six Sigma's true meaning lies with customer, Marketing News, No. May, pp.9-10.
5 Firka, D. (2010), Six Sigma: an evolutionary analysis through case studies, The TQM Journal, Vol. 22
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No.4, pp.423-34.
6 Hambleton, L. (2008), A Treasure Chest of Six Sigma Growth Methods, Tools, and Best Practices, Prentice-
Hall, Upper Saddle River, NJ .
7 Kazuhiro Yamashita, (2004). Implementation of Lean Manufacturing Process to XYZ Company in
Minneapolis Area, Master Thesis, University of Wisconsin-Stout.
8 Krafcik, J.F. Triumph of the Lean production system. Sloan Management Review 1998; 30 (1); 41–53
9 Lim, J., Hoffmann, E. Appreciation of the zone of convenient reach by naive operators performing an
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10 McDuffie, J. P. (1995). Human Resource Bundles and Manufacturing Performance: Organizational Logic
and Flexible Production Systems in the World Auto Industry. Industrial and Labour Relations Review
48(2): 197-221
11 Niemes, J. (1999), Taking sales success to new heights with Six Sigma, National Productivity Review, No.
Autumn, pp.37-41.
12 Russell, RS. and Taylor, B.W. (1999). Operations Management, 2nd Edn, Uppers Saddle River, NJ:
Prentice Hall.
13 Shapiro, D. L. and B. L. Kirkman (1999). Employees’ reaction to the change to work teams. Journal of
Organizational Change Management12 (1): 51-67.
14 Spector, R. (2006), “How constraints management enhances lean and six sigma”, Supply Chain
Management Review, Vol.10 No.1, pp.42-7.
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China, International Journal of Quality and Reliability Management, 16, (8), 756-771.

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