During our infinite meetings with people regarding Business Consultancy, solutions to their problems could range from simple straight solutions to complex solutions. Similarly, some solutions are very clearly observable but, in some cases, it takes a long time and some bit of conversation for the puzzle to be solved.
The Customer
This particular issue involved a small-scale unit involved in the manufacture of innerwear. The client was an employee in another unit years ago and then out of his immense hands-on experience he decided to go forth on his own and the unit had been operational for more than ten years. Although the brand was not a national brand, it had a reasonable fan following in its home state. In fact, during festival seasons, the unit used to find it difficult to keep its customers stocked!
The Issue
The owner, as already said, was more of a professional rather than a businessman or a finance specialist and his auditors found out that despite a very reasonable turnover, the unit was continuously running at a loss. Since this was a proprietary concern, the owner was funding the unit continuously to maintain his pet project! In truth, it was the Auditor who put me in touch with this client and instructed me to find out what was wrong with the system.
The Process
As always, a challenge being immensely interesting, we took up the project and we started by studying the entire process in detail. This involved learning and making notes of every daily activity and process involved in manufacturing, packing, and despatch. Orders were more or less placed over the telephone so there was very little to be done in that direction. We also took up a detailed study of the Profit and Loss Account of the unit for the past three years.
We found a lot of grey areas in the process but then this was an “all women employee” project so there were limitations. Then again, the owner was adamant that there was nothing to be changed in the process because he has been in the industry for thirty-plus years. When we analysed the Profit and Loss Accounts, what we could observe was that their raw material costs were extremely high.
The Analysis
Since we had to accept the client’s stance that the process was extremely efficient and with the raw material costs being very high, we tried to work out whether this was something to do with procurement but there too we drew a blank. We seemed to be running around in circles but then as always, one of our members gave us a break! She raised a query as to why many of the employees were leaving with loaded shopping bags every evening! This was raised during one of our brainstorming sessions but this one really hit on the head.
To explain the thought process without going into too much detail, every morning the cutter would arrive early morning, cut up the material, and prepare on an average 225 to 250 sets of components for stitching. These would be spread out on two long cutting tables in the stitching hall.
The tailors would come and pick up a few pieces each, stitch them up and then come back for more when they finish the sets. This would go on and on and in the evening, the ladies would submit their finished products to the supervisor 30 minutes before closing time. The supervisor and two of her assistants would verify the quality of the product and if accepted, mark the number of units in the log book against the person’s name. Some would need correction, which would be done in the next 30 minutes and submitted, and then added to the employee’s daily tally. There were a lot of grey areas in this process. At the same time, we also understood that the owner was adamant that changing the process was out of the question.
The Sting Operation
We explained the situation to the auditor as well as a projected plan of action. We then called a three-way meeting between us, the owner, and the auditor. We explained the entire plan of action and convinced the owner that this was only a trial and that if there was no positive result in three days’ time, we would simply revert back to the initial system. We also insisted that this trial would be kept secret and that we would only take the floor supervisor into confidence.
The scheme was put into place, and from day one of the pilot project, the floor supervisor would surreptitiously watch the cutting tables and make a note of the number of sets that each employee picks from the table and then tally this with the number of completed units delivered in the evening.
To make a long story short, there was a shocking revelation that eight employees were submitting only fifty percent of the material they were picking up! It also needs to be mentioned that they also were working at such a feverish pace that they were able to submit almost eighty percent of the quantity that the genuine employees were submitting – just to ensure that no attention would be diverted to them!
We had agreed with the owner that we would be in total control of the operation and that we would once again have a three-way meeting on the third day evening, with the auditor. When we disclosed the findings the owner was simply wild but we told him to hold his horses and we planned a proper exposure for the next day evening.
On that evening, as the employees were leaving, when everyone was at the gates to exit, the security guard requested them to wait and the owner, accompanied by us went to the employees and told them that we needed to inspect their shopping bags on random and we purposely chose one of the implicated employees. Naturally, we obtained a number of completed inner wear stuffed into the shopping bag, and then there was pandemonium. All the clandestine employees were caught red-handed and the stolen products confiscated, all recorded by the security cameras.
The Closing Statement
With the owner now aware that his process was not fool-proof we implemented a system of records to ensure that pilferages would not be possible and the results were visible immediately. We are happy to inform our readers that this customer moved up from red in the succeeding fiscal and still keeps in touch and invites us for all his business and family functions! All’s well that ends well!
Another satisfying project was completed successfully!
