Improving Profitability in SME through

Lean Manufacturing
Business Today
In todays business environment, being efficient is not a choice; it is the only way out
to remain in business. Achieving highest level of customer satisfaction, with higher
productivity at a shortest possible time has become a key to survival.
As business grows, inefficiencies tend to rise, like we put up excess weight as we
grow. Eliminating waste or inefficiencies is like burning out excess fat - an exercise
to strengthen the business and make it flexible - in other terms called becoming Lean
Organisation.
What is Lean Manufacturing?
Philosophies, Principles and Practices of Toyota Production
System are collectively called as Lean. Most of companies in
the modern world manufacturing or service, are adapting
Lean as their Management System.
Lean manufacturing is a management philosophy to increase
value to customer by eliminating wastes in manufacturing
processes. Lean has already proven to be the most effective
methodology worldwide by releasing significant working
capital from the systems and by reducing time and cost of
manufacturing without capex investment.
How does Lean Deliver Phenomenal Results?
Lean focuses on Value addition throughout business chain from the time of order
receipt to the time of receipt of payment from customer and challenges everyone in
organisation to identify and eliminate Time-Wasting activities, typically called Muda
(meaning waste) in Japanese.
It also drives people at every level to take
ownership for their job and thus increases quality
level, towards zero defects. Building intelligence to
processes and machines leading to continuous
learning organisation.
Unlike most of other Continuous Improvement Initiatives, which focus on within
process, Lean focuses on things happening between processes. Lean thinkers claim
that more than two third of time / resources across a (any) business chain is spent
on Muda.

Implementing Lean in manufacturing has shown outstanding business results with

10-60% of working capital release from system, improving profitability by 10-20%
achieved through improvement in below Process Indicators:
S. No.

Process Indicator

Benefit

Order Lead Time

Reduction by 60%

Productivity

Increase by 50%

WIP Inventory

Reduction by 80%

Defects

Reduction by 80%

Space utilisation

Reduction by 40%

How to Identify Waste inside business?

Seemingly simple notion, how many wasteful activities can we identify in our daily
routines? To illustrate the state of Lean thinking Shigeo Shingo observed that only
the last turn of a bolt tightens itthe rest is just movement.
Value

Waste

To simply carry this to the root level people, Lean

defines three broad types of waste: muda, muri
and mura.
Muda directly meaning waste of resources
further classified into 7 groups, viz.,

Transport (of material which are

not required in process of
conversion of Raw material to
finished products)
Inventory (all components, work
in process, and finished product
not being processed)
Motion (people or equipment
moving or walking more than is
required
to
perform
the
processing)
Waiting (waiting for the next
production step, interruptions of production during shift change)
Overproduction (production ahead of demand)
Over Processing (resulting from poor tool or product design creating activity)
and
Defects

Muri is all the unreasonable work that management imposes on workers, causing
pain to workers and strain to machines. Mura is variation in a process resulting in
over processing or defects.
Is Lean Applicable to SMEs?
SMEs remain a major engine of Growth in India. With nearly 48 million registered
SMEs, India is only second to China (50 million). SMEs create 1.3 million jobs every
year in India at presently contributing to 15% of GDP.
From 1996, when global companies turned to Lean to survive from economical
turbulences, Indian companies remained away from it. Especially in SMEs, people
are not aware or sometimes reluctant in adapting Lean.

Lean in Govt of Indias 5 Year Plan?

Wanting to increase the share of GDP from 15% to 25% by 2022, Ministry of MSME,
has planned series of schemes to enhance the competitiveness of MSMEs under
National Manufacturing Competitiveness Program. Ministry also identified that lack of
awareness, availability of consultants for implementing and handholding, lack of fund
with SMEs to hire consultants as bottlenecks in SMEs journey towards Lean.
2009, Ministry has launched the Lean Manufacturing
Competitiveness Scheme and allotted a fund of Rs. 100 Crores
in 11th Five Year Plan (2007-12). The scheme is also called Lean
Cluster scheme, where 10 to 12 Manufacturing Units in same
or similar trade - to come together forming a legal entity (an
association or a society or a private limited company). With the
support of National Bodies on productivity, they can commonly
hire a Lean consultant for implementing Lean with pre-agreed
milestones. The Economy of volume (no. Of units) and common
platform for training etc, were envisaged to the benefits of affordability. Govt of India
sponsored upto 80% of consultancy charges for those Lean implementations.
89 Lean clusters were formed across India and around 900 SMEs participated in the
scheme. With a whopping acceptance and success of the scheme, with phenomenal
results, (Table 1 shows a cumulative performance of Pilot Wave of Lean Cluster), the
LMC scheme has been upscaled in Nov 2013, for 500 Lean clusters with a fund of
Rs. 300 Crores.
No. Of Clusters Started Implementing Lean

89

No. Of Clusters successfully completed

55

No. Of SMEs participating in LMCS

900

Annual Savings from LM

Rs. 60 Cr

Salvage Value of Scrap from LM Implementation

Rs. 03 Cr

Increase Production Capacity (without capex)

10%

Place reclaimed for productive use

10%

Increase inventory turn over

25%

Reduction in Manufacturing Lead Time

5 - 30%

Improvement in OEE (Model Machines)

15%

No. Of Kaizens generated

>7,500

Table 1 : A summary of results obtained in pilot phase of Lean Manufacturing Competitiveness

Scheme. Source : NPC India / Lean Manufacturing.

How can an SME avail this benefit?

Ministry of MSME encourages all MSMEs to avail the scheme. As per revised
guidelines of the scheme, 6 to 10 companies of same or similar trade and present in
same geographical location to come together, (easiest way is through an existing
association) to form a cluster and avail the benefits with minimal formalities.
The program may be spread over 15 to 18 months. Selected consultant will support
the units to achieve pre-agreed milestones of improvement targets. Each stage (or
milestone) will be audited by National Monitoring and Implementing Unit (NMIU)
appointed by Ministry of MSME (at present NPC and QCI) along with Ministry of
MSME.
The Maximum contribution from a unit could be Rs. 72,000/- for the entire span of 15
to 18 months.
Prerequisites
MSME Guidelines for the scheme draws following conditions to form cluster and
avail the scheme.
1. Ceiling on Investment in Plant and Machinery
Units that are classified as Micro, Small or Medium Enterprises can participate
in the scheme.
The limit for investment in plant and machinery / equipment for manufacturing
/ service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as
under:
Enterprises

Investment in plant & machinery

Micro Enterprises

<25 Lacs

Small Enterprises

>25 Lacs and <5 Cr

Medium Enterprises

>5 Cr and < 10 Cr

2. Geographic Proximity
All units within a cluster to be situated within a close proximity. This is to
ensure ease of implementation and review. For example, a single cluster
could not have plants situated in Mumbai and plants in Daman. Those
plants need to form 2 different clusters.
Plants situated in Vapi could not be included with Daman. Because, Vapi
comes under Ahmadabad NPC, where as Daman comes under the
purview of Mumbai NPC.
3. EM-II Registration
The units should be registered with DIC (EM-II). All contracts and Lean
Implementation will consider plant address as per EM-II. NPC Mumbai has
will support for units willing to register for EM-II with DIC.
4. Units from Same or Similar Product Manufacturing
Units in a cluster shall be in manufacturing of same or similar products (like
auto plastic component manufacturers, house ware plastic manufacturer, etc).

For More info contact

LS Kannan,
SSA Business Solutions,
9029091072
LSKannan@ssa-solutions.com