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ICQI-Lahore, 2-3 May 2011

Quest for Excellence: The Case of PTC over a decade

Turab Ali Khan, BE (Mech.), MEM Product Manager Pakistan Tobacco Compan Plot. No. 15, Silver Square Plaza F-11 Markaz, Islamabad (Pakistan) Email: turab_ali_khan@bat.com Ph: 0300-8520271

This paper is a case study of TQM initiatives and practices in PTC in the last one decade. It provides the history of how PTC started its TQM program and how the organization overcome the different challenges. The long journey started with a program named BEST 2000 (Building Excellence and Success Together) in mid of the last decades of the 20th century with a slogan of we will be the best in everything we do by the year 2000. This was a change management program, followed by complementary programs like WOW (Winning in Our World) and WOW-plus programs. The change management programs were also supported through improvement and reorganization programs like the MRPII class. A certification and reconfiguring the supply chain on the basis of the five basic processes of Plan, Source, Make, Deliver and Return in line with the SCOR (Supply Chain Operating Reference) model recommended by the Supply Chain CounselUSA. The efforts were augmented by an extensive training program of a corpse of lead auditors resulting, ultimately, in ISO 9000 QMS and ISO 14001 certification without any major nonconformity and both its factories being the first and second factories in Pakistan to 5S certified factories by National Productivity Organization

The paper is also a critical study of the Implementation of TQM in a Pakistani set up and provides lessons to all those companies who are struggling to raise the performance of their organizations through various TQM tools and framework. It discusses key issues which are commonly faced by companies and the appropriate TQM initiatives which can overcome them. The PTC strategy and Quest for Excellence is elaborated in detail in this paper.

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The quest for excellence is a saga covering almost all the steps taken by Pakistan Tobacco Company to achieve excellence in all aspects of its business from operational to the business as a whole. The journey which started in 1997 is still on and the company is keen to find out ways and means to further improve its processes and products. The program was a series of complementing projects covering all the business areas from provision of tobacco seeds to the farmers and helping them in acquiring access to the international best practices in the field of tobacco growing to helping the distributors and retailers in achieving higher targets in the market along with proper focus on the social responsibility aspects of the manufacturing and marketing of tobacco products. While PTCs supply chain spans from first step of tobacco growing to the last step of the consumer contact at the retailer, its social activities include activities for the welfare of the farmers, free dispensaries in the rural areas of KPK (Khyber Pukhtunkhwa) and northern Punjab, a huge afforestation programme and other community services like rehabilitation activities in the areas affected by the flood in 2010. These activities are wide ranging and the numerous processes are in place to carry out the same in accordance with internationally acceptable standards. The job to improve these processes was huge and to undertake the improvement program was becoming mandatory as the conditions for tobacco business in the country were becoming more and more challenging. Pakistan is a low price market for tobacco products where as the inputs cost was climbing a steep ladder with an alarming pace. The company started its journey of continuous improvement with a TQM program with the name BEST 2000, followed by complementary programs like Winning in Our World (WOW) and WOW plus programmes. These were focused on developing the most important asset of the company, its people. Side by side induction of new generation machines and Enterprise Resource Planning Soft ware (ERPS) backed by a comprehensive ERP programme (With the name MRPII) was launched to improve and automate the planning processes and business transactions. The ERP program focussed on strategic planning, business process, people (culture and reward/recognition), New Product introduction and Total Quality and Continuous Improvement. The ERP program was complemented by re-organising the supply chain in accordance with Supply Chain Councils model SCOR (Supply Chain

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Operating Model). This was a comprehensive program of education and mapping the As is and To Be business processing with complete geographic mapping. Although phenomenal results were achieved including a turn around to a profitable business from a loss situation, achieving the MRPII class A status in all five chapters of Oliver Wights version four checklist, SA 8000 certification, Winning first prize in Supply chain configuration followed by DOD (Department of Defence) USA, ISO 9001 and ISO14001 certification, manifold productivity enhancement and 5S certification of both the factories by NPO (National Productivity Organization) with collaboration of APO (Asian Productivity Organisation Japan), the company is still not satisfied with the progress and is continuously challenging it to explore more areas for improvement. The current launch of Lean Manufacturing Programme provides evidence of the same.

Pakistan Tobacco Company:

Pakistan Tobacco Company (PTC) started its operations, in Pakistan,in 1947 after partition of the subcontinent. Before partition the business was handled by Imperial Tobacco Company (ITC) of India. ITC has been operating in the subcontinent since

1905. British American Tobacco Group (BAT) is the parent company. With its head office in London, BAT employs some 85,000 people worldwide and its operations are spread over the globe in 180 countries. BAT is market leader in more than 50 countries selling over 300 brands. In 2010, the Group sold and produced a nearly 17% share of the global market of cigarettes. Pakistan Tobacco Company is the largest excise tax generator in the private sector in the country. In 2009 alone, Pakistan Tobacco Company paid the government close to Rs.36 Billion in excise and sales taxes. This means that PTC paid over Rs.100 million per working day. Over one million people are economically dependent on the industry in Pakistan.

The Need for Change:

PTC is operating in Pakistan since 1947 and over this long history, it has experienced very many peaks and troughs as for as financial results are concerned. Figure 1, shows the performance of the company over the last few years. Although the PAT (Profit after Tax) exhibits a consistent growth for quite a long period, in actual the situation was not that glorious. Due to increases in the cost of tobacco, wrapping materials (both local and

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imported) and cost of labour, the cost of goods sold went considerably high and the market situation was not allowing the company to increase prices of its brands. This resulted in profits which were negligible taking the size of investment into consideration. Figure. 1.

Besides above, there were many other factors which made the feeling and need for change pertinent. Some of these are: 2000 proved to be the seventh year of loss for PTC. ( negative PAT seven consecutive years) The sale volume declining trends made closure of one of its two manufacturing facilities inevitable. Process quality improvements were necessary enhancement of customer satisfaction. Because product quality and availability in a cost effective manner is the only way to achieve it. Labour as well as total factor productivity was at its lowest and drastic measures were required to enhance productivity. PTC started its operations in 1948. with the expansion of business, over time, machines were inducted. The time to introduce new and faster machines to take advantage of the new technology. PTCs guiding principles are Open minded, Enterprising spirit, strength from diversity and freedom through responsibility and it wanted to restructure in a way that supported empowerment, teamwork and ownership in line with its guiding principles An internal studies suggested a 50% reduction as a realistic target.

Objectives and Goals:

The change needed was huge involving induction of technology (machines and Information technology), major restructuring involving the separation of more than 50%

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of it employees, process re-engineering and changes of layouts in line with the global best practices and a huge leap in process and product quality. The objectives of the change were clearly defined and milestones identified. Following are the main targets: a. Productivity improvement: From 3000 CPMH (Cigarette per man-hour) to above 20000 CPMH. b. Product Quality: Retail Quality Index (RQI) for all brands to be above 70% for all brands which was around 20% in 1997. c. Waste targets: Tobacco below 4% and Wrapping Materials (WM) below 1.5%. d. Sales volume: To regain market leadership both in volume and value. e. People: To enhance the average education level of the employees. f. To be among the top 15% of the companies, in Pakistan, as for as rewards (total package) are concerned.

Over the last 14 years the high achievements were materialized. Following are some results taken from the companys annual report 2009. S. No. 1 2 3 4 5 6 7 8 Area Gross Turnover Government levies Sales Volume Operating profit Productivity RQI (Product quality) Tobacco waste Wrapping Material waste Results PKR 57544 million 37,863 million 41 billion cigarettes PKR 8,224 million 25,936 CPMH 73.45 % 3.9 % 1.08%

Table: 1.

Process Improvements results:

In the journey of continuous improvement, the company worked on all its business processes and achieved the following remarkable achievements:

ICQI-Lahore, 2-3 May 2011

S.No 1

Achievement MRPII Class A, in all five chapters of Oliver Wights Checklist version 5.

ISO 9001 and ISO 14001 certification without any major nonconformity

3 4 5 6

Supply Chain Excellence Award by Supply Chain Council USA. SA 8000 certification 5S certification of Jhelum Factory by NPO 5S certification of Akora Factory by NPO

Table: 2.

How Was this Achieved?

No doubt the above achievements were marvellous, however the journey to achieve excellence was not a short one and it involved real involvements and efforts from everyone in all the ranks of the company. Quite a few improvement programmes were launched one after the other and the results were monitored in the form of achievement of clearly defined and measurable goals. One consideration was given to ensure that all these programs must be complementing each other. The pioneer program was a bsic TQM (total quality management) programme with the name BEST2000 followed by others mentioned above.

BEST2000 (Building excellence and Success Together) was launched in 1997. This was a total quality management program and was focussed on attitude change as well process improvement. The main activity was training the whole company. Each an every employee was given training on vision, mission, concept of quality along with internal and external customers. This programme covered the concepts of team work, process mapping, continuous improvement, customer suppler agreements and preparation of action plans. All the employees were trained in-house the companys own trainers. The slogan adopted was we will the best in everything we do by the year 2000. After the training phase was over, many improvement initiatives were taken. Most of the business and manufacturing processes were mapped and the To Be processes were designed.

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Every process owner signed a CSA (Customer Supplier Agreement) with his customer defining the required quality parameters and the tolerances agreed. Tolerances were agreed upon taking into account the customer requirements and the suppliers process capabilities.

Winning in Our World (WOW and WOW plus)

These were training programmes meant to complement the earlier TQM programme BEST2000. These programmes were more focussed on the softer aspects rather than the harder ones. The main theme of these programmes was to bring a positive attitudinal change through introduction of the power of vision. The main things discussed were vision and its power and its impact on both individual and team performance. The main massage was create a visionary power which will connect you the big Picture. 20 percent of the training was in class where as the remaining 80 percent comprised of outdoor games designed to inculcate teamwork and individual behaviours which can help in developing a culture based on team achievements rather than individual star performance. At the end of these workshops (which were called play-shops), each participant was challenged to find his connection with the big picture by asking what difference my performance can make to the overall teams achievements. MRP II: MRP II stands for Manufacturing Resource Planning for everyone in the world associated with the induction of ERP software like SAP R/3 etc. for enhancing the planning and transactional capabilities but for PTC team-members it was a symbol of a change agent which transformed the company into a flexible and innovative consumer focussed company. Under this program five teams were formed with a team leader and champion to formulate the guidelines and related actions plan to materialise tangible improvements in the following areas of the companys business: a. Strategic Planning: This is to provide the strategic planning process with leadership and processes that will take the company towards the goals of its vision and mission statements. The main outcomes of the activities of this team were the development of vision and mission statements, strategy and introduction of the Sales and Operations Planning process (S&OP).

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b. People and Teams: This team was given the task of development of a culture which encouraged teamwork, continuous improvement, transparent career development and a merit based rewards and recognition system which considers team achievements and individual performance in balance manner. c. Process and Control: This team was supposed to work for developing a corporate as well as functions dashboards comprising of measurements which were simple but covered all the aspects which are supposed to be covered in a balance scorecard. i.e. Costumer perspective, Financial perspective, internal perspective and learning and growth perspective. d. NPI (New Product Introduction): This team was entrusted with the task of revamping the new product introduction process right from inception to maturity and even delisting plans. e. TQ&CI (Total Quality and Continuous Improvement) this team was supposed to work with the above teams to make total quality and continuous improvement as an integral part of the new company culture and extend these concepts to the valued business partners like suppliers and disctributors.

The SCOR-Model: (Supply Chain Operation Reference-Model).

Supply Chain Council is a non-for-profit organization in the United States and it has developed its operating reference model (SCOR) which can provide the basis of proper design guidelines for organizations to develop their supply chains. The main theme is that organizations can develop their supply chain by streamlining five processes namely plan, source, make, deliver and return. PTC launched the programme in 2004 and was able to reconfigure its supply chain in alignment with the SCOR-model. A huge process mapping exercise was carried out which included geographic mapping too. The program was so successful that PTC one the supply chain excellence award in a competition arranged by the Supply Chain Council. The organization at the second position was none other than the DOD (Department of Defence USA) Lean Manufacturing: True its reputation of never satisfied with the status quo PTC has recently launched a programme under umbrella of lean manufacturing. After providing the necessary training

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on Lean Tools it has initiated many improvement projects mainly focussed on reduction of all seven types of waste (inventory, excess movements of material, overproduction, over-processing, excess motion, waiting and defects). Some of the projects have already yielded good results e.g. the 5S project has resulted in certification of both the factories on 5S by NOP with collaboration of APO Japan. PTCs Jhelum factory was the first and Akora factory was the second factory in Pakistan to achieve this recognition.

TQM programmes can prove to extremely beneficial for organizations and Pakistans culture does not provide any hindrance in implementing these programs rather prove to be conducive to reap the benefits of these programmes. Fully recognising that the outcome of one case-study can not be generalised it can be said with confidence that if taken care of the following points, good results can be achieved through TQM programs in Pakistan. a. TQM is not a project its a programme comprising of many complementary programs. b. Top management commitment is essential for success. c. Everyone, in the company, needs to be fully involved. d. Both short term and long term achievements are important to build confidence of all in the programme. e. Focus on both softer and harder aspects is needed. f. Those who matter need to be patient with results.

References: 1. PTC annual reports from 1995 to 2009. 2. PTC internal projects documents.

About The Author: Turab Ali Khan is a graduate mechanical engineer with masters in Engineering Management. He has over 28 years of industrial experience in the fields of power generation, petrochemical and manufacturing industries. Has worked for both national and multinational organization and his main areas of interest remained production planning, product and process quality improvement, environment health and safety and people development. He has attended international

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courses and seminars in these fields both as participant and speaker. He presented papers on QFD and OEE. He is also a visiting member of the faculty in CASE (Centre of Advanced Studies in Engineering) Islamabad and teaches Enterprise Resource Planning (ERO), Supply Chain Planning and Productivity Improvement and Engineering Management.