TOC at JSPL
Business Transformation at Jindal Steel & Power Limited (JSPL)
Our case study on TOC implementation at JSPL was presented at TOCICO International conference, Las Vegas, USA.
-JSPL has been able to shrink its working capital by about 56% i.e. about Rs. 3600 crores or a little over half a billion dollars within two years of TOC implementation.
-JSPL’s rating has been upgraded from default grade (D) to investment and stable grade (BBB-).
– The market capitalization of JSPL increased from $ 0.9 billion to close to $ 3.5 billion in two years.
Transcript of the video:
RG: Good afternoon Naveen Ji. How are you?
NJ: Good afternoon Mr. Gilani. I am well, thank you! How are you?
RG: I believe the last quarter has been good for you?
NJ: Yes, the last quarter has been the best quarter that we have had in the last three years. Thanks to you and thanks to your team. Thanks to all of them who have taught us the basic principles of TOC. We have been following them religiously over the last 2 years and TOC has really helped us to get these amazing results.
RG: Naveen Ji, I would like to understand what was the reason when you started TOC. What were the conditions that prompted you to look at TOC?
NJ: JSPL used to be the most profitable steel company in the world for its scale of operations. From period of 2005 to 2009, a 5 year long period, Boston Consulting Group (BCG) rated JSPL as the greatest wealth creator in the world across Metals and Minerals sector, and second greatest across all the sectors. So being a very profitable company, we had huge expansion plans. We were expanding; we were investing billions of dollars every year. Suddenly in 2014, we got a big shock when the Supreme Court of India cancelled all the captive coal mines. All the coal blocks that we had based our projects on. Not only for us, but for the entire country and that was a big blow. Not only that, we had to pay almost half a billion dollars in additional levy. And that was the period 2014-15 and 2016 that were really challenging for the steel industry. So, all our coal blocks got cancelled, so our fuel source. Because we had based our steel making technology based on indigenous coal. So that got cancelled and then we had to pay half a billion dollars in additional levy to the government. On top of that, the steel markets went down. So it was like a perfect storm and from the most profitable company, we started to make huge losses. Almost half a billion dollar losses every year.
It was just a matter of chance that I was sitting with a lady on the way to Mumbai, and she started talking to me. I asked her what her husband does. And she spoke to me about TOC. What she explained to me about TOC made a lot of sense to me. So as we got down, I requested her for her husband’s number and then I contacted him, Mr. Sudhanshu Saraf, and he spoke to me about you, that if you want to implement TOC in the company then Mr. Gilani is the best person in India to contact and to work with. That’s when we invited you to our office and discussed. Since then we have never looked back. It’s been extremely interesting to interact with you and get all the training that you did, where we involved each and everyone, from starting with watching the video, THE GOAL and reading all those books on TOC. It has been hugely motivational; it has been inspiring and the results that we got.
I am very proud to say that JSPL now is the only turnaround story amongst all the major steel companies in India. Unfortunately in India, only 3 large steel companies remain solvent. Rest all the large steel companies have become insolvent. So the ones JSW steel and TATA Steel they were already doing very well but JSPL was really in doldrums, I would say. It was a touch and go case and only by implementing TOC with all yours weekly reviews, focus you know because in a steel company we are always too focused on tonnes, tonnes per day, tonnes per month, the hockey stick effect. You know basically concentrating on the price NSR (Net Sales Realization) Not really cash velocity. So what you taught us to focus on (1) cash velocity (2) cash score (3) weekly reviews. You know B2B, Better Than Before. So every week we must do better than the last weeks. These principles and I know there used to be lots of people pretty upset also because when constantly every week there were sometimes pulled up for these things but it did bring in a lot of discipline. Earlier we did not use to sometimes care about the inventory. We had too much of raw material, or sometimes had too much of finished goods. But now following the TOC norms, everywhere we learned how to balance the raw materials, how to have minimum inventory of raw materials, how to have, how to reduce finished goods inventory to bare minimum. So all these things together you know has really helped JSPL to become a very efficient company because when I said we used to be the most profitable steel company in the world. We had also become quiet inefficient but now with all these challenges that have been a silver lining in the dark cloud. Thanks to you, your commitment to TOC and with the passion that you along with your team implemented TOC in our company. Our colleagues, thousands of them at JSPL, were all hugely inspired by you and they worked with you to make it happen at JSPL. Today we can proudly say that TOC is the single biggest reason for the turnaround of JSPL.
RG: So what are the 2 or 3 major tangible results you would say we could achieve at JSPL?
NJ: I think the biggest tangible results that we achieved at JSPL after implementing TOC is basically the working capital requirements got much less. We were able to reduce the raw materials and the finished goods inventory, so that really eased our working capital requirements. Then we also started to focus more on cash score, cash velocity rather than just the price or the profits or tonnes per day or tonnes per month because these are more meaningful. It is smart to implement TOC and smart to be doing cash velocity and cash score. Rather than just selling, and if you are really not getting paid for your stuff in time, you know all your things can go haywire. So I think these are the things that we achieved.
RG: Would you like to talk about any cultural changes in the organization?
NJ: I think there has been a huge cultural change in the organization. Earlier we used to just sometimes keep on making, because we can produce something, you know without caring that whether we are able to sell that much or not. Production staff they just like to produce and like working on long campaigns, suppose we are making a particular size of Rebar, say we are making 15 mm or 16mm they would want to just keep on making 16mm, because it is easiest. But then, if we have to have all the sizes from 8mm, 10mm, 12-16-18-20-25 so then we implemented the DBR, the drum, buffer, rope. We implemented all those techniques, then we have to have all the sizes. So the On-Time & In-Full improved (OTIF). All these things we have really focused on which has really helped us to be very efficient and profitable now.
RG: Did it have any impact among the team working of the various units?
NJ: Team working I would say has definitely improved because everyone realizes that nobody is working independently. We are all working in a relationship to each other. So what one unit does impacts the other units. So we always have to see the basic principles of TOC that where ever is the bottleneck, you know either remove the bottleneck or everything else should be subordinate to that bottleneck. So that we do not have the problems with inventory management and stuff.
RG: So what are your plans in the near future?
NJ: Well in the future also, we plan to keep on working because these are very basic and sound principles that TOC is based on. We want to follow them in every sphere of the company, in every sphere of the operations. It has really become a culture in the organization. To work efficiently, we just want to continue to follow it and learn from it, and prosper from it.
RG: On a very strong, let me say, financial note, I believe three years back the company’s market cap was about somewhere around 0.9 billion dollars, and today it has become I think, yesterday, I saw, it was about three billion?
NJ: Yeah, so if we talk about 7-8 years back the market cap of JSPL used to be over 12 billion dollars. From 12 billion dollars it came to, you are right, it came to less than a billion dollars about 2 year ago. Now we are around 3.5 billion dollars. So I am sure now in the next few years we will be able to surpass what the market cap used to be 7-8 years ago. And TOC would have a important role in that.
RG: All the very best to you Mr. Jindal. Thank you very much!
NJ: Thank you Mr. Gilani, I would have loved to come to Las Vegas, for this conference myself and I would have loved to hear all the speakers there and would have loved to learn a lot from their experiences. We are deputing our very senior management, from our CEO, Mr. Ansari to our head of S&OP, Mr. Pankaj Gautam, Mr Sarogi. They will be with you Mr. Gilani, so I think that will be a great learning experience for all of us. Thank you very much and thank you to the TOC fraternity which has been implementing TOC worldwide and bringing in efficiencies, so that the world can be a better place and we can all be more efficient, produce more, produce more efficiently, and together make this world a happy place to be.
RG: Thank you!