Godrej Security Solutions Viable Vision Journey Continues Even in Slowdown

TOCICO 2014 Conference

Godrej Security Solutions Viable Vision Journey Continues even in Slowdown

Presenters: Mr. Rahul Naik Mr. Ramnish Gaikwad June 11, 2014 Godrej Security Solutions Vector Consulting Group

TOCICO 2014 Conference

Company Background

TOC execution in Institutional Business

TOC execution in New Product Development

Overall Experience

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• Godrej Group Company • Godrej & Boyce Background • Godrej Security Solutions

TOC execution in Institutional Business

TOC execution in New Product Development

Overall Experience

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was born in 1897

• Ardeshir Godrej, our founder, was a lawyer who turned into an entrepreneur and started his business with locks

• He was an inventor and a visionary • His inventions, manufactured by his brother Pirojsha Godrej, were the foundation of today’s Godrej, a household name in India

• One of India’s most trusted brand, Godrej enjoys the patronage and trust of millions of consumers worldwide

Ardeshir Burjorji Sorabji Godrej (1868-1936)

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• Is today a 117 year old and the largest privately held company in India • Spread over 3000 acres of land in Vikhroli, Mumbai alone • Global operations in 16 countries & presence in over 60 countries •Over 100 manufacturing locations in India and overseas • Dedicated Godrej Parivar of over 23000 employees

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VISION MISSION VALUES

Integrity

Environ Trust ment

Godrej in every Enriching

Quality of Life To Home & Workplace Respect Serve Everyday Everywhere

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Godrej Group

Godrej & Boyce Mfg. Co. Ltd. Godrej Industries & Associate Cos.

Office & Consumer Products Group Godrej Consumer Products Ltd.

Appliances Godrej Industries Ltd.

Industrial Products Group Godrej Agrovet Ltd.

Corporate Services Godrej Sara Lee Ltd.

Godrej Infotech Ltd. Godrej Properties & Investments Ltd.

Lawkim Ltd.

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Office and Consumer Products Group

Industrial Other Products Businesses Group

Godrej & Boyce

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Office and Consumer Products Group

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Godrej Security Solutions is the pioneer & leader in this field in India

GSS operates in 2 distinct markets

Domestic Institutional Business International Business

With an annual turnover of Rs. 850 Cr. (approx $150mn)

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• Supplying Physical Security products to Financial and Non-Financial Institutions, Jewelers, Diamond Merchants, Post Offices, etc.

• Operating from one Plant and extended contract manufacturing facilities.

• Close to 700 dealers handling the front end. Dominant Market Share

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• Supplying physical security across various geographies • Presence in 50+ Countries • Products with Global Certifications

Trusted across the globe

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PHYSICAL SECURITY PRODUCTS

A Class Apart

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Company Background

• Key challenges faced TOC execution in prior to TOC execution Institutional Business • TOC solution deployed • Results TOC execution in New Product Development

Overall Experience

• Market demand was growing at 20% YOY Physical Security Domestic Market (Rs. Cr)

• GSS was unable to supply as per ~350 3500

demand leading to emergence 3000 20% CAGR of other competitors 2500

2000 • Market share had decreased from 1500

62% to 58% before TOC 1000 225

500 • GSS was evaluating adding 0 another plant to overcome supply 20081 situation before TOC 20102

Demand > Supply

• Expansion driven primarily by the Financial Inclusion programme of the Government of India • Customers’ Tolerance Time to open a Branch was crashing from earlier 2-3 months to 1 month (including Public Sector Banks) • Significant damage due to delay in opening a new Bank Branch • Loss of revenue to the Bank and Market Share - unable to get first mover advantage • Escalation in cost - incurring rentals without any revenue • Risk of license lapsing

• Major skew in demand – around 70% of the demand comes

in 2nd half of the financial year

• Discounting was encouraged (to meet top-line) even when Plant

was loaded in H2, increasing pressure on margins

Loss of market share and stagnant profitability even in a growing market

• Business in Export Markets done primarily through Dealers Export Billed Sales (Rs. Cr.)

• Lead time expectation was of 8 weeks as 60 against actual lead times of 12 weeks • Business from Dealers was stagnant for the 40 32 34 38 last 3 years

20 • Supply unreliability caused heavy

damage to Dealers 0 • Dealers were carrying 4-5 months of stocks 2010-11 2011-12 • Dealers not confident of increasing business 2012-13 with GSS

Losing Dealers’ Trust

Primarily A-Type Plant (assembly of around 50 components; 100+ Supply Partners)

• Major de-synchronisation issues

• Uneven load and loss of capacity during the month – production low at start and high at end of the month

• Preference to produce standard products (to show better productivity)

Leading to… • Unreliability and highly varying lead time (ranging from 4 weeks to 12 weeks)

• Frequent expediting due to emergencies from customers

• Relying on forecast to meet demand (inspite of good order book position)

•Pushtobranchesbasedonforecastresultinginmismatchof stocks

Skew in Demand in second half of financial year causing… • Under-utilization during lean season

• Difficulty of Ramp-up in short time during peak season

• Disharmony with suppliers (hiring/firing during overload/under load respectively)

Inherent Systemic Conflicts Leading to Loss of Capacity

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1 PROJECT LEAP AHEAD

BASE GROWTH

2:1 RELIABILITY COMP. EDGE

BUILD CAPITALIZE SUSTAIN

3:1 3:2 3:3 3:5 3:6 3:7 3:4 NON BANKING ACHIEVE 99% SELLING EXPANDING HAPPY HOURS LOAD CAPACITY SEGMENT OFFER DDP RELIABILITY CLIENT BASE ROLL-OUT CONTROL MGMT.

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Decisive Competitive Edge that was built to provide High Reliability with Lower Lead Times

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MTA MTA (Standard) (Standard)

Mother Press Drill Paint FF Insp In Branch CTLL Warehouse Pickling Assembly Coil Shop Shop Shop & Desp transit Billing

Vendors Vendors

Buffer Buffer Dispatch Time 6 Days 12 to 18 Days 4 to 5 Days

MTO MTO MTA & MTO (Customized) (Customized)

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Build Stage

• S-DBR implemented at manufacturing plant and suppliers

• POOGI projects for capacity release and lead time reduction

• Buffer Management for Sales to ensure last mile reliability as well

• Dynamic Choking on a daily level to limit WIP

• Managing Demand Skew during second half of financial year

Customer Confidence Restored

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Problem • Due Dates are fixed and hence the Release Dates too • Orders are released to shop floor based on fixed Release Dates • Actual Capacity (due to product mix change, rework, design issues, etc.) is much different than Assumed Capacity Flawed Assumption • Possibility of Interactive Constraints • Capacity can be precisely defined in • Leading to cycles of Planning • Underload – Loss of precious CCR Capacity • Capacity of resources other than CCR is higher than the CCR irrespective of • Overload – Increase in Black Orders (OTIF Drops) Product Mix

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Solution • WIP Control rather than precise definition of Capacity • Due Dates are constant, however Release Dates are adjusted based on WIP Status • To deal with Interactive Constraints • Rope is tied from end of plant rather than CCR Safe • Capacity is dedicated in both Planning & Execution Zone

Constant WIP (Applicable to Broad Range of MTO/MTA & Mix Environments)

Supply Chain Injection • Determine key SKUs for stocking (only fast runners to reduce stock risk) Average Demand increased in Peak Season • Planning stock levels based on gap between demand and capacity during Q3 & Q4 • Manufacturing the same during lean season of Q2 Capacity < Average Demand Capacity Line • Building up key components also during the lean season Capacity > Average Demand Benefits • Smooth and consistent manufacturing Average Demand • No major variation of demand for component supply in Lean Season • Reduced risk of hiring/firing • No loss of sale during peak season

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Capitalise Stage

• Reliability with lower lead time offer to select customers to increase share of wallet

• T/Cu and FOL based decisions for discount control and Project Pricing

• Happy Hours offer in the lean season to pull ahead demand

• New Segment (Non-Banking) Roll-out to increase sales during lean period

Gaining Ground

TOCICO 2014 Conference Why Non-Banking Segment? • Heavy dependence (92% of business) on Banking and Financial Services Institutions (BFSI)

• Intense competition (margin pressures) in the BFSI segment

• Business from BFSI primarily (70%) during latter half of the financial year

• Excess capacity available post TOC Operations Solution

• Due to demand skew the dealer earnings are restricted to few months whereas the costs are incurred throughout the year

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Injection – Increase sales from Non-Banking Segment • Guarantee for Availability (GFA) offer to existing dealers • No inventory to be carried by Dealer and delivery within 10 days • Hold stocks of key SKUs at a central location • Daily tracking and POOGI to improve Sales Call to Order Conversion rate • Approach 1 segment at a time (too many segments like petrol pumps, places of worship, hospitals, traders, etc. available)

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FOCUS PLAY OPPORTUNISTIC PLAY

Jewelers Information Cash in transit Technology companies

Petrol Corporate Hospitals Pumps

Private Religious Government Vaults Places Establishments

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Benefits • High ROI to Dealer as the sales required per month to overcome costs is very low with no additional investment in inventory

• De-risk by reducing dependence on BFSI segment; no skew in demand in these new segments

• Solution applicable to broad range of B2B companies to increase sales in new segments

Fuelling the Growth

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Sustain Stage • Capacity Management Process to have capacities at the right time to handle peak-load

• Leveraging TOC solutions to counter unprecedented slowdown seen in 2013-14

Maintain Growth Trajectory

Segment Growth Period (last 3 years) Slowdown Year (2013-14) Bank Branch Openings ~ 7500 ~ 2500 Financial Service Institution Openings ~ 3500 < 500

Solution • Drove Product Upgradation • Incentivised Banks to upgrade by facilitating with Replacement Offer • 15% addition to top-line with a healthy bottom-line impact • Supply Chain POOGI Projects generated ~ 7x capacity increase • Focus on Retail Segment • Faster introduction of new products resulted in 35% boost to sales over last year • Thrust on International Business • Take advantage of depreciating rupee • Increased Sales by 31% over last year on account of reduced lead times and better reliability

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PRODUCT MIX ENVIRONMENT OF MTA & MTO

400 80% of orders 300 Pre TOC completed in 80 days % of Orders completed in no. of days 200 100 0 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 96% 97% 98% 99% 100%

400 80% of orders completed 300 Post TOC % of Orders completed in no. of days in 40 days 200

100

0 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 96% 97% 98% 99% 100%

Before TOC: High lead times and high variation After TOC: Lead time as well as variations have reduced dramatically

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Released Capacity of 4 Cr. Per Day

Live Since 18th Oct, 2010

Actual Output

Output of the Plant has Tripled with only 15% increase in Manpower (Focused on Bottleneck Stations)

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Post TOC

WIP has reduced by more than 60%

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637 700 Live Since 578 18th Oct, 2010 600 443 500

400 292

300

200

100

0 2010-11 2011-12 2012-13 2013-14

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Post TOC

FG has also reduced by 60%

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Ex‐ Factory Quoted Lead Ex‐ Factory Quoted Lead Line Category Time (Weeks) Time (Weeks) 2010 2014

MTA 4 ‐ 5Exstock DOORS MTO 6 ‐ 83 ‐ 4 MTA 5 ‐ 6Exstock RPE MTO 4 –5 2‐3 MTA 9 ‐ 10 Exstock SDLC MTO 12 ‐ 14 2‐3 MTA 5 ‐ 6Exstock SAFES MTO 6 ‐ 82‐3

Significant Reduction in Internal Lead Times

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Company Background

TOC execution in Institutional Business

• Key challenges faced TOC execution in prior to TOC execution New Product Development • TOC solution deployed • Results Overall Experience

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• Poor Rate of New Product Development

• High Lead Time of New Product Development

• Frequent Priority Changes at Design Department

Limited Growth of New Products

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1 PROJECT LEAP AHEAD

ENHANCED GROWTH

2:3 NPD COMPETITIVE EDGE

BUILD SUSTAIN

3:11 3:12 3:13 EXPLOITING THE LOAD CAPACITY NPD CAPACITY CONTROL ELEVATION

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Decisive Competitive Edge for New Product Development to Churn out more New Products at a Rapid Pace

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Build Stage

• Reduce bad multi-tasking: WIP control at Design and Proto-shop

• Full Kit Rule at Design and Proto-shop

• Daily Task Management to ensure Flow

Rising up to the Challenge

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WIP Prioritization Control

Full Kit Active Task Management

Design Team and Proto-shop is now operating under CCPM

• Deployed only WIP control coupled with Full Kit • No software is being used currently for implementation

Robust Process

TOC Go Live

Fewer Projects in Queue

Output of PSP Institution group has more than tripled

TOC Go Live

Fewer Projects in Queue

Output of Protoshop has also almost tripled

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Company Background

TOC execution in Institutional Business

TOC execution in New Product Development

Overall Experience

TOCICO 2014 Conference

Profitability Post TOC *275

Profitability *128 Profitability *100 CAGR of 55% in Profits Post TOC CAGR of 40% in Profits Stagnant Profits Pre TOC

• During FY04 to FY07, both Profits and Figs. In Rs. Cr. Profitability were stagnant

• During FY07 to FY11, though Profits grew @ 40%, Profitability was still stagnant

During FY11 to FY14, Post TOC not only have Profits quadrupled but Profitability has also more than doubled

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• The entire supply chain i.e. right from Suppliers to Customers is now working on only 1 principle i.e. TOC

• Harmony among various departments such as Manufacturing, Purchase and Sub- Contracting Cell

• No preferential treatment to any particular customer

• Output of various product lines is consistent without intervention of Top Management

• Bandwidth release of Top Management - now able to focus on important initiatives

• Applying TOC principles to limit the number of initiatives/improvement projects at overall company level

Synchronised Management

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• Better overall efficiency at vendors’ plant led to no cost escalations in the last 3 years • Some of the local measurements actually improved:

• Working Capital Turns has improved by 50%

• Bottleneck Machine efficiencies (CCR) in the high 90s

• Value Added has increased by 60%

• Manpower productivity of the plant has also doubled

• ~ Doubled ROI over the past 3 years • Space release on shop floor due to WIP reduction, thereby improving house-keeping and safety of workers • Different Planning Cycles (tools) for material sourcing have been eliminated

Enhanced Overall Efficiency & Effectiveness

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• Shared our experience at TOCICO Conference 2013 in Bad Nauheim, Germany and TOCPA Conference 2013 in Pune, India

• Results of GSS presented to Confederation of Indian Industries & visits organized for other companies (thereby influencing them to opt for TOC solutions)

• Based on the GSS experience, 5 other divisions in G&B have opted for TOC

•Thenew ERP system for G&B shall incorporate TOC principles

• Successful implementations at Vendors have led to them implementing TOC for other customers of theirs

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• GSS & Vector Consulting Group awarded the prestigious AMCF Spotlight Award 2014 for Excellence in Supply Chain Management

• The other shortlisted finalists were EY with Bloomberg and KPMG with Ford Motor Co.

• The award is given to a project that has demonstrated how a consulting firm has added value to their client and society at large

Winning Laurels, but not resting on them…

Thank You