Vardhman Auto Components: Choosing What Not to Investigate
Vardhman Auto Components presses brackets for two-wheeler makers. Each month the costing cell compares actuals with standards, and the November report shows four items. (i) Raw-material wastage is 2.1 per cent of input against a standard of 2.0 per cent; raw material is 62 per cent of product cost, so the excess works out to Rs 4.8 lakh. (ii) Press-shop labour is 46 hours per 1,000 pieces against a standard of 40; nine hours of the gap came from unplanned machine breakdown. (iii) Power cost is Rs 3.28 per piece against Rs 3.20, an excess of Rs 0.9 lakh. (iv) Customer returns are 0.48 per cent against a standard of 0.5 per cent. The plant head has time to investigate two items properly this week. He also learns that the press-shop labour standard was set three years ago on a machine since replaced, and that the breakdown followed a skipped quarterly maintenance schedule after the maintenance budget was cut in September.
1. Which two deviations should the plant head investigate, and which should he leave alone? Apply critical point control and management by exception, using the numbers.
Read the worked answer
Two filters: critical point control - is this a point where a small deviation does disproportionate damage? - and management by exception - act only where the deviation is significant, and leave the routine to run.
- (i) Raw material, 2.1 vs 2.0 per cent. In percentage terms this is 0.1 of a point and looks trivial; in rupees it is Rs 4.8 lakh a month, because raw material is 62 per cent of cost. Wastage of the dominant input is a classic critical point. Investigate.
- (ii) Press shop, 46 vs 40 hours. A 15 per cent adverse gap, the largest controllable gap, and partly explained already. Investigate - but the investigation must start at the standard and at maintenance, not at the operator.
- (iii) Power, Rs 3.28 vs Rs 3.20. A 2.5 per cent adverse deviation worth Rs 0.9 lakh - real, but below any sensible threshold when the plant head has two slots. Watch, do not investigate this week; set a trigger for next month.
- (iv) Returns, 0.48 vs 0.5 per cent. Favourable, so no corrective action. One caveat: a favourable deviation can mean the standard itself is slack, so verify it next cycle rather than celebrate it.
Order of priority: (i) then (ii). The trap is to rank by percentage, which would send the plant head to power or labour and leave Rs 4.8 lakh of material walking out of the gate every month. Exception must be judged by amount and by criticality, not by percentage alone.
2. The labour standard is outdated and the breakdown followed a budget cut taken above the plant head. What does this reveal about the control process and about responsibility?
Read the worked answer
Control runs through five steps: setting standards, measuring performance, comparing actual with standard, analysing deviations, and taking corrective action. Here the comparison at step three is meaningless because step one is faulty - the standard was set on a machine that no longer exists. The apparent 15 per cent labour gap is partly a measurement artefact, and the first corrective action is to revise the standard after a time study on the new machine.
That revision is a planning decision, which is the point: control is not the last step of management. Control feeds back into planning, and planning without control produces standards nobody checks. The two are inseparable - planning supplies the standards, control supplies the evidence that the standards are right.
Responsibility: the nine hours of breakdown followed a skipped maintenance schedule caused by a budget cut taken in September by someone above the plant head. Holding the press-shop supervisor accountable for a decision he did not make destroys the credibility of the control system; people then manipulate the numbers instead of fixing the problem. Corrective action here lies with senior management - restore the maintenance schedule - and maintenance should be treated as a critical point in its own right, even though it does not appear as a line in the cost report.
The lesson: before asking 'who is responsible?', ask 'is the standard right, and was the cause inside this person's control?'
3. The plant head wants a real-time production dashboard. Evaluate whether that is the right use of the money.
Read the worked answer
A dashboard compresses the measurement and comparison steps - data arrives hourly instead of on the twelfth of the following month. That matters when delay itself costs money: a wastage problem caught on day two costs less than one caught at month end.
But judge the tool against where the money actually leaks in this case:
- The biggest gap is material yield, Rs 4.8 lakh. A dashboard shows the loss sooner; it does not explain it. Yield needs a process study - die condition, nesting, trim scrap.
- The press-shop problem was a skipped maintenance schedule. No production dashboard reveals that unless maintenance compliance is itself a tracked metric. So the specification must include maintenance adherence, not just output and hours.
- Human resistance is the neglected cost. Control is often resisted because it is seen as a restriction on freedom, and if operators read the dashboard as surveillance, near-miss reporting - the cheapest source of quality data the plant has - will dry up.
Recommendation: buy it only with three changes - put material yield and maintenance adherence on the front screen, run a short briefing so the purpose is understood as correction rather than punishment, and tie each metric to the person who actually controls it. Otherwise it is expensive speed applied to the wrong two points, and the Rs 4.8 lakh will keep going out at the same rate, only faster.