Production in our second factory has started to become consistent. We can now manufacture about 700 meters/day in 8 hours. A few months ago, we were making about 780 meters in 11.5 hours of work.
In the month of August, we did not need any overtime. So.. while the workers were about 30% more productive, they did not get any benefit infact, they lost all their overtime pay. So.. what should we do as a factory owner? It seems easy to say that we should give them some discretionary pay. Here are the drawbacks of this approach:
- Workers believe that they deserve the money irrespective of the work they do
- Workers believe that overtime pay is their right and they are guaranteed to some of it every month
If we dont award the workers for their work then we are not rewarding good behaviour and this leads to following issues:
- Workers feel that we dont care.
- Workers may go slow
- Workers may decide to leave since they are making less money than before
- Workers may threaten to strike and then we’ll have to pay.. just to keep things going
So I’m not sure.. we are leaning towards paying them 25% of their overtime pay as a reward for consistent performance and hope that it helps them deal with the downturn. And, so that we dont have to deal with stoppages, etc. You could say that we are doing this out of fear. I dont know what to say about that.. some of it is based on fear. Maybe we just dont know what’s the right thing to do in this case.
Just so you know.. this is not the peak season for our business and we are additionally dealing with a sluggish economy.. hopefully things will pick up soon.
Its been a while since I’ve felt this good.
I’m firing on all cylinders and accomplishing a lot both at my job and at my dad’s manufacturing business. New products, that I’ve developed seem to be taking hold and I know enough about them to fix issues that arise during production. Further, I was able to find a good vendor for VKE to help us bring our new analog meters to life. This vendor seems accomplished and should be able to allow us to differentiate significantly from the competition.
So yeah.. I feel good.
Transitioning to business – A whole new set of responsibilities
Dealing with government departments is a big part of managing a manufacturing business in India.
Our manufacturing business is neither big nor small and we get hit from all sides. Customers want reduced prices and these can’t be delivered if we comply with all government departments. Our small time competitors take greater risk, do not pay excise and that alone saves them 12.5% on costs.
Now…. We have to deal with the following departments:
- Income Tax
at both the factories. Both factories need a full time accountant to maintain books and manage compliance issues. This also adds costs as all departments want to be paid off on a monthly basis.
So.. the choice is to invest now in hiring this support staff and setting up controls so that we don’t falter or continue to “wing” it. I prefer the former.
Labour issues are some of the hardest to fix in India due to an antiquated systems of laws written up in the Industrial Disputes Act, 1947. To get an idea of how bad labour issues can get, one only needs to look at:
As a small manufacturing company owner, these issues give me the shivers. My years of education at some of the best schools in the country and in the US does not prepare me at all to deal with the harsh realities of the manufacturing sector in India. The Industrial Disputes Act really forces the hand of the business owner and leads to rampant corruption and under reporting of labour employed all around India. This leads even greater exploitation of labour, which is quite ironic but expected unintended consequence.
It’s one of those public policy issues that will probably never get addressed as its politically sensitive. Can’t say much more.
Product first, relationships second.
This Friday and Saturday, my father and I went on a business trip to Bangalore and Hyderabad. We met with two of our largest customers in Bangalore and had a bit of a sad set back to our plans for Hyderabad.
Our goal was to demonstrate our new analog and digital meters to these customer and solicit orders and feedback. I won’t bore you with the details but broadly these visits were no different than the ones I make for my current employer. The meetings were warm and frank. We spoke to the business owners rather than management representatives and we had a real personal, heart to heart chat because we have known these customers for over 15 years. The conversations included typical Hindi abuses at times, which was very different than meetings for my multinational employer. 🙂
The customers here are interested in getting more than the best product for their money and adamant about what they want and why. They move slower than customers in the US but pace of change seems similar to Japan and the UK. One of the customers was keen to experiment with new tech, the other wasn’t. Even though he is younger and more tech savvy.
We went to Hyderabad to attend the wedding of one of our dealer’s daughter. His extended family includes many of our dealers and we thought it will be good to meet all of them at once. When we got to Hyderabad we found out that our dealer’s uncle had died the night before. This was sad because this uncle had introduced us to this dealer and he was also our dealer in Chennai since 1972. My father actually cried at this news. This was very unlike any visit is ever been to for my current employer. We decided to postpone all business talks with this family until they had a chance to deal with this loss.
We met an enterprising young guy at another dealer’s shop in Hyderabad. He worked for Selec in marketing for 10+ years. He gave us great input on our strategy for digital and analog meters. This was the best conversation of the entire trip.
Like customer visits for my employer around the world, this trip was about relationships and building trust and demonstrating that we are an innovative company to our customers. It did make me question conventional wisdom, which states that relationships are the key to a successful business. You can have the best relationship with our customers but if they think you are not giving them the best price or not delivering on quality – you will be thrown out. One of 15 year customers did this to us 6 months ago. We can still go to his house and spent time with his family but that business is gone. I’m not suggesting that you stop investing in relationships. I’m suggesting that keep the product first and relationships second.