PRODUCTION OPERATIONS MANAGEMENT

&
SEC A

TERM REPORT
ON

“HINOPAK”

5th JAN ‘09

Submitted to:

INSTITUTE OF BUSINESS MANAGEMENT 1

INSTITUTE OF BUSINESS MANAGEMENT 2
 TABLE OF CONTENTS

OGSM:.......................................................................................................................................................12
How Hinopak Develops Its OGSM:..........................................................................................................13
Benefits Being Reaped By Hinopak..........................................................................................................14
OGSM Next Steps......................................................................................................................................14
A Live Document:......................................................................................................................................15
Some Changes to Focus On.......................................................................................................................37
Reasons to Test Changes...........................................................................................................................38

STEP 1: PLAN......................................................................................................39

STEP 2: DO..........................................................................................................39
Try out the test on a small scale..................................................................................................................39

STEP 3: STUDY...................................................................................................39
Set aside time to analyse the data and study the results...........................................................................39

STEP 4: ACT........................................................................................................40
Refine the change, based on what was learnt from the test......................................................................40

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 LETTER OF ACKNOWLEDGEMENT

We are truly indebted to Dr.

MUFADDAL MIRZA for giving
us this incredible opportunity
to gain exemplary experience
of preparing a Total Quality
Plan for a real world
company. He showed
commendable gesture of
believing in our potentials
and guided us throughout the
completion of this project. He
had faith in us which helped
us overcome all the obstacles
and developed passion with
regard to the project.

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 EXECUTIVE SUMMARY

Hinopak is one of the

matchless manufacturer of
trucks, buses and spare
parts headquartered in
Karachi which launched
itself in a maturing market.
Hinopak’s offering combines
exclusive products and
services at value-added
price.

They have targeted specific

segments in the consumer
and business market, taking
advantages of opportunities
indicated by higher demand
for transportation facilities
and commercial vehicles.

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 INTRODUCTION

• Hino Motors Japan and Toyota Tsusho

Corporation in collaboration with Al-Futtaim
Group of UAE and PACO Pakistan formed
Hinopak Motors Limited in 1986.

• In 1998, Hino Motors Ltd., and Toyota

Tsusho Corporation obtained majority
shareholding in the company after
disinvestments by the other two founding
sponsors. This decision to invest in Hinopak at
a time when the country's
economy was passing through a depression and the sale of commercial
vehicles was at an all time low reflects the confidence their Principals have
in the company and their commitment to the Pakistani market. Hinopak is
the trusted market leader with over 65% share in the Pakistani Truck and
Bus industry. Hinopak is a vital contributor in saving of foreign exchange.
The company was founded in 1985 and is headquartered in Karachi,
Pakistan.

• Hinopak Motors Limited assembles, manufactures and markets world

renowned Hino diesel trucks and buses, and spare parts primarily in
Pakistan. The Company has held the top position in the domestic market
for medium and heavy-duty vehicles for 17 consecutive years and is
highly acclaimed for quality and technological excellence.

• Hinopak is first in commercial vehicles sector to start the

establishment of 3S Dealership network, which offers Sales, Service and
Spare parts facilities all under one roof. This comprehensive network of
offices, 3S Service Dealers and Spare parts Dealers are strategically
located throughout the country. The company primarily operates in
Pakistan, Japan, Australia, New Zealand, Thailand, Canada, and the US. It
is headquartered in Karachi, Pakistan and employs 313 people.

• The company recorded revenues of PKR7, 826.8 million

(approximately $129.3 million) during the fiscal year ended December
2007. The net profit was PKR590 million (approximately $9.7 million) in
fiscal year 2007.

• Hinopak Motors Limited engages in the assembly, manufacture, and

marketing of Hino diesel trucks and buses, and spare parts. It
manufactures bus chassis and various types of bus bodies. The company’s
bus product line includes Roadliner Shangrila luxury bus for long journeys,
Citiliner Intercity buses, Citiliner urban buses, and luxury Senator coach

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 and Rapidliner Deluxe coaches. It also manufactures and sells specialized
vehicles that are used for hauling of various supplies, such as food,
equipment, and machinery. These products include prime movers, high
wall dumpers, cargo carriers, garbage collectors, school buses, mobile
kitchens, beverage carriers, water/fuel browsers, mobile eye clinics, NLC
trucks, and mobile registration vans.

• Hinopak firmly believes:

o In Total Quality Management; a process for managing quality; it

must be a continuous way of life; a philosophy of perpetual
improvement in everything they do

o Everyone can improve. A problem occurs when someone

believes that everyone else, excluding them needs to change.

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 SITUATIONAL ANALYSIS

Backed by Hino's expertise Hinopak has achieved standard of quality and

excellence that rival the best in the region. With over 39,000 vehicles on
road, Hinopak has gained over 65% market share making it the largest
manufacturer in medium and heavy-duty truck and bus industry in Pakistan.

HinoPak's product range has been designed and built in Hino's traditions of
automotive excellence to be the leader in its category and the main emphasis
has been given to passengers' safety & comfort.

Hinopak also offers a complete in-house facility for designing and building
buses, ambulances, cargo trucks, dumpers, water boozers and a wide range
of specialized superstructures. Unlike small body makers who spray paint the
vehicles, Hinopak actually uses baked paint to give a longer life and better
finish to the vehicles. Even the 36-foot long Rampliners and Roadliner buses
are baked in the gigantic ovens at the Body operations plant.

In the face of growing competition, Hinopak is resolved to achieving total

customer satisfaction by providing quality products at competitive prices and
supported by the best after-sales service in the commercial vehicle market.
This quest for excellence is evidenced by the fact that Hinopak is the only
manufacturer to succeed in exporting complete built-up buses to the Middle
East and African countries.

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Hinopak delivers only the safest most reliable products and remains the
Pioneer in supplying the largest number of Urban Buses those are
successfully facilitating the commuters of Punjab and Sindh. Hinopak is fully-
equipped to design and manufacture a wide range of Bus Chassis and all
types of Bus Bodies.

Hinopak is the first Pakistani commercial vehicle manufacturer to introduce a

complete range of environment friendly vehicles. It has been especially
developed and designed keeping in mind the rugged terrain in order to meet
the requirements of the diverse Pakistani automobile market.

Hinopak is Pakistan’s first automobile company to

export its buses to Middleast and African countries.
After successfully establishing itself as
the market leader at home, Hinopak
proceeded to explore its product
potential for the export market. This
entry into the export market was an
important milestone for Hinopak and
lead Pakistan into an exciting new era
for the automotive industry, fulfilling
Hinopak’s commitment towards the
economic growth of Pakistan.
The year 2007 marked the year of great success, as Hinopak Motors broke
record in three fields: volume of sales, chassis assembly, and body
fabrication.

Following are the highlights of Hinopak's ongoing achievements,

which make Hinopak Motors Limited the leading manufacturer of
trucks and buses in Pakistan.
• 'Market Leader' in Pakistan/ holding over 65% of the Truck & Bus market
share.
• First Pakistani automobile company & Hino affiliate to receive ISO-9001
certificate in 1997. First automobile company in Pakistan to obtain ISO-
14001 Certification on its Environmental Management system.
• Listed among the "Top 25 Companies" at Karachi Stock Exchange.
• First company to export buses from Pakistan.
• First automotive company to introduce "3S" concept in heavy-duty
commercial vehicles market in Pakistan.
• First company to supply buses under "Urban Transport Scheme" in
Pakistan.

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• Recipient of Employers Federation of Pakistan's Golden Jubilee Award for
best HR/IR practices.
• Recipient of Corporate Excellence Award from Management Association of
Pakistan.
• Recipient of Employer's Federation of Pakistan's Golden Jubilee Award for
"Excellence in Productivity".
Hinopak has modern plants equipped with advance facilities for vehicle
assembly and fabrication of buses and superstructures. These comprise of
modern paint booths and baking ovens, axle assembly shops, chassis
assembly line, trim line, and engine assembly shop, which strictly adheres to
high Japanese standards. Hinopak also houses a comprehensive engineering
and design section with highly qualified professionals, promising the best
solutions to their wide range of customers' requirements.

Hinopak's product line has three distinct segments i.e.

Trucks/ Buses and Specialized vehicles.

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APPLICATION OF ‘OGSM’ PHILOSOPHY AT HINOPAK

Hinopak uses the OGSM methodology to help build a strategic plan for its
automobile business.

OGSM:
A strategic planning framework that uses a top-down approach to define the
Objective, Goals, Strategies & Measures (OGSM) of their business. The
output is a clear, simple and concise (ONE page) strategic plan:

• Objective: The objective / vision for their business

“Total Customer Satisfaction” a set vision for the company.

The mission of Hinopak Motors Limited is: “To provide the society with safe,
economical, comfortable and environment friendly means of transportation by
manufacturing and supplying commercial vehicles and services.”

• Goals: Translation of their vision into specific goals e.g. turnover,

profit, market share, professional organisation etc.

Hinopak’s goals for year 2009:

• Decrease turn over by 6%

• Increase production by 8%
• Increase sales by 11%

• Strategies & Measures: What strategies (i.e. ‘choices’) will be

necessary in order for you to achieve the goals (& ultimately the vision)
and the specific measures (milestones) used to track progress.

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To achieve the mission they commit themselves:

To their individual, institutional and international customers: to deliver high

quality, safe, durable, reliable, comfortable, environment–friendly and
economical products and services to their total satisfaction.
To their employees: to foster corporate culture of mutual trust; respect for
fundamental human rights at work; opportunities for professional growth and
personal welfare so that they are proud of being a member of the “Hinopak
Family”.
To the community and the nation: to contribute in economic and social
development by providing means of transportation and by progressive
localization of the vehicles.
To the shareholders: to act in compliance with the norms expected of a
subsidiary of the Toyota Group of companies and make a meaningful
financial return to the shareholders.
The OGSM methodology makes a clear distinction between the ‘business’ and
the ‘organisation’ i.e. people. In this respect, goals, strategies & measures
are developed for both the business and organisation (but united under a
single overall objective).

How Hinopak Develops Its OGSM:

Following the philosophy – helping businesses build themselves – Hinopak’s
OGSM is developed in full partnership with themselves:

• 2 day off site ‘event’ (location & logistics to be decided by client)

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 • On your side: representation from every function of your business
(ideally 10-20 people)
• Full OGSM training provided by The Hinopak Group
• Professional facilitator / moderator from Hinopak
• Post event: full write-up by Hinopak – a ONE page OSGM and
recommended ‘next steps’

Benefits Being Reaped By Hinopak

The primary purpose of an OGSM is to guide their business to long-term
success. An OGSM ensures that they have a medium- to long-term strategic
plan that can guide their short-term choices & targets across their total
business e.g. annual sales targets, brand acquisition strategy / portfolio
rationalisation, investments in the organisation etc.

Hinopak also develops multiple OGSMs that all link to one another. This
ensures their different businesses / divisions (3S Dealership) are united
under a single objective and that cohesive strategies exist between them.

OGSM Next Steps

Many actions emerge following an OGSM, such as:

• Deployment to wider organisation: if deployed efficiently, an

OGSM can unite their whole organisation behind a common business
objective. This helps ensure their people are focused on achieving the
big picture and NOT wasting time on non-value-adding work.
Deployment to their wider organisation could take the form of a
deployment ‘event’, or a series of training workshops.
• Deployment to stakeholders: by sharing their OGSM with key
stakeholders e.g. distribution companies, this allows key influences of
their business to be aware of and be aligned to their objectives and
strategies.

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 • Translation in balanced scorecards: using Kaplan / Norton
methods.
• Development & implementation of measuring tools: some goals
are easy to measure e.g. turnover. For other goals e.g. having a
professional organisation, Hinpak designs and implements effective
measuring tools to track progress. For example, cost-effectiveness of
their methods.
• Re-alignment of organisation: once Hinopak is clear on its
objective, goals and strategies, they review their organisation to align
it fully to the developed OGSM.

A Live Document:
Hinopak believes that an OGSM is a live document and should be reviewed
regularly, i.e. annually. The objective of each review is to take into account
progress and any changes in the macro-environment / consumer trends,
then update the goals, strategies and measures accordingly.

HINOPAK MOTORS LTD. - OGSM: Highly Confidential

OBJECTIVE
Be the leading facilitator of commercial vehicles and services
MEASURES (by 2012
GOALS (by 2012) STRATEGIES
latest)
Markets, Channels,
• 8% profitability Categories - ≥60% revenue from
($11M) Canada and USA
Focus on (key priorities): - Focus on Distribution
• $140m sales Pakistan, USA, and Australia operations

• Serve 250M Focus on distribution - 5 year transition plan in

consumers in Pakistan, Grow retail operations place
Japan, Australia, New Exit non-profitable - 15%-20% CAG
Zealand, Thailand, Communications operations (support focus
Canada, and the US (outsource) specialized vehicles
expansion)
• Be facilitator for Focus on luxury (vs prestige
specialized commercial / mastige) - All catogories ≥ 8%
profitability

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 vehicles Actions to Take
-Forge strategic partnership
to outsource logistics
-Invest in BIC I.T.
operations
-Improve efficiency by
leveraging technology
-Understand the consumer
-Invest in market data
-Maintain positive cash flow
-Keep inventory at
manageable levels
-Drive customer and
consumer satisfaction
culture
-Build, document,
implement and review BIC
systems & processes
-Drive Hinopak brand
amongst key stakeholders
(NOT consumers)
Building the Organization
• Efficient, well trained Invest in training
and motivated
organisation
-Comprehensive overview of
evaluation & compensation
system
-Leverage diversity as key
competitive advantage
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- Identify strategic
partner
- All logistics &
warehousing outsourced
by end 2009 (except US)
- Automated payment for
collectables / receivables
≥90% cash flow
(reduction in cash
handling)
- 0.5% sales revenue
invested in consumer
research
- Build telemarketing unit
(200 operators) by Q3
2009
- For key markets
(Japan, Canada, USA)
buy data for all
categories worth $30M+
(on-going)
- +ve cash flow with no
external finance (across
group) (on-going)
- Max. 45 stock days
(group average)
- All business units to
have customer
satisfaction measurement
tools in place by End
2009
- Satisfaction (surveys):
90% “satisfied” or “very
satisfied”
- Key systems &
processes reviewed,
documented &
implemented (trained) by
End 2009
- Corporate Training
Department in place by
end 2009 (with clear
deliverables)
- Minimum 5 working
days per year per
employee invested in
training
- Training plan in place &
tracked for 100%
16

-Create healthy work / life
balance
-Review and live “Hinopak
Culture”
-Invest time in creating
well-motivated organization
-Leverage Intranet as a key
organizational tool
-Activity build / support the
communities in which we
serve
BIC = Best In Class
Hinopak is the leading manufacturer of automobiles
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employees
- By mid 2009; clear job
descriptions / work plans
and reporting lines for
100% employees
- New system in place by
End 2009
- Compensation directly
linked to performance
that build the business
AND organization
- 50% local talent / 50%
expatriate
- 30% women. At band 5
and above (inc. Board
level) 2/10 positions
filled by women
- Maximum 50 hours
working week
- Culture of “take 100%
holiday entitlement –
undisturbed”
- Hinopak culture –
mission, values,
principles etc. reviewed
and approved by board
(mid 2009)
- All senior management
trained to promote
culture across whole
organisation (Q3 2009)
- Employee survey: key
measures (e.g.
perfection, integrity) top
scores (on-going)
- Job satisfaction
(survey): 90% “satisfied”
or “very satisfied”
- Formalise / standardise
informal rewards &
recognition programme
(end 2009) across group
- BIC Intranet tool that
promotes networking and
learning culture in a
transparent environment
- 2% profits donated to
“charitable causes” /
each legal entity to
support charitable cause
17
 MARKET SUMMARY

TARGET MARKET:

1. Institutions:
These are the main customers including:

• Educational centers (universities, • MNCs (Shell, Caltex, Coca Cola).

schools and colleges). • Transport Companies.
• Pakistan Army. • Pakistan Cricket board.
• Pakistan Navy. • Town Municipal Administration.
• Pakistan Air Force. • Police.
• Government. • Water supplying corporations.
• Oil Companies.

Order from Coca Cola Beverages

The quality of the vehicle speaks for itself, &
this is the reason why it has been receiving
repeat bulk orders from various institutions
on regular basis. The Company has received
repeat orders from leading Beverage
manufacturer “Coca Cola Beverages Pakistan
Ltd.”, which placed an order of 57 units of
Beverage carriers on Hino Dutro, Hino
FG1JKPB &Hino SG1JDP, truck models.
These repeat orders demonstrate that
existing customers are benefiting from their
adoption of the Hino technology.

Hinopak Delivers Citiliner buses to Institute of

Management Science
Hinopak recently delivered 02 units of Hino
Citiliner buses to Institute of Management
Sciences, Peshawar. Mr. Faridullah Khan
Manager Sales & Product Support handed
over the buses to Mr. Naseer Ali Khan,

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Director Institute of Management Sciences, comfortable and durable
Peshawar. vehicles like Hino buses.
Dr. Naseer Ali Khan on the occasion said,
their steady growth now calls for expansion
of their transport fleet, where they will
include high performance, high quality,
Hinopak Delivers Hino Senator Coach to
Pakistan Cricket Board

Recently Hinopak delivered Hino

Senator Coach to Pakistan Cricket
Board. The handing over ceremony
of one of these Coaches was held
at National Cricket Stadium,
Karachi. Mr. Mohsin Khan, regional
GM Sindh, PCBreceived the
symbolic key of the vehicle from
Mr.M. Irfan Shaikh, Director Sales
& Marketing.

Order of 10 units of Hino Dutro from TMA, Bin

Qasim
In order to tackle the problem of lasting vehicles will fulfill the
solid waste management demanding task of solid waste
TMA(Town Municipal management in an economical and
Administration) Bin Qasim has efficient manner.
recently placed the order of 10
units of Dumpers on Hino Dutro
Truck Chassis. The Hino Dumper
trucks have been supplied in a very
short time to meet the customer’s
urgent requirement. These
dumpers are specially designed to
carry maximum load and are able
to maneuver in congested and
narrow roads. The robust and long

Repeat Order from Punjab Police

Recently Punjab Police placed an
order of 10 units of Troop Carrier
on Hino DUTRO chassis. The above
order was awarded to Hinopak
because of the performance and
optimum price in previous order,
high quality units delivered well in
time and the best product service.

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 2. Individuals:
The individual customers buy the product to earn money directly by
operating their product. It is their main business.

MARKET NEEDS:

Pakistan is a nation with a diverse economy that includes textiles, chemicals,

food processing, agriculture and other industries. It is the 25th largest
economy in the world.

Approximately 49% of adults are literate, and life expectancy is about 64

years. The population, about 168 million in 2007, is growing at about 1.80%.
Bus is a relatively cheap and easy method of transport, with services run by
both public and private companies.

With the rebuilt of national highways, construction of Makran Coastal

Highway, the construction of Motorways such as M1, M2, M3 etc, grew the
demand of buses and trucks for transportation and commercial purposes.

MARKET TRENDS:

Mobility has been an important objective for mankind since the beginning of
time. The invention of the wheel about the year 3000 B.C. was the first great
achievement. Then in the 18th century the steam engine, one of the greatest
gifts of the Industrial Revolution made a major impact on the life-style of the
human race. The mating of the 'wheel' with the 'engine' made it possible to
transform animal driven carriages into automobile.

From the 18th century to the 20th century the history of the automobile is a
tale of human ingenuity and passion for comfort, fastness, safety and a
better quality of life.

Heavy truck demand is driven by growth in the agriculture,

manufacturing, construction, and retail sectors. Bus demand is driven by
growth in the number of school-aged children and investment in public
transportation systems. The industry is capital-intensive.

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MARKET GROWTH:

In the year ended December 31, 2007 Hinopak made the highest ever profit
in its history. The production and sales revenue have also been the highest.
While the sale of locally manufactured trucks declined nationally, Hinopak
was able to claim a larger share in the reduced numbers.

National Sales:
The national growth in Large Scale Manufacturing in 2007 fell to 8% from 9%
in 2006 and an average of 11.6% over the last five years. In the automotive
sector it fell more steeply. In 2007, it grew only by 3.8% against the five-
year average of 25.8%.

The increased freight movement because of growth in industrial production

and exports had substantially increased the demand for trucks in recent
years. The benefit of this increase however all went to the second-hand or
illegally imported (later regularized) heavy and medium duty trucks. The sale
of locally produced trucks of this category in 2007, ironically, fell to
2544units from 3154 in2006. The sale of light duty trucks however increased
from 1404 to 1554.

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The sales of buses increased by 16% from 928 in 2006 to 1078 in 2007 as
the sales tax was reduced to zero towards the end of 2006. However, it still
fell considerably short of the level of 2004 when1411 buses were sold. The
bus sales, it seems, will remain depressed till the time the second-hand
imports are altogether stopped and the policy incentives for urban transport,
under consideration since long, are announced by the federal and provincial
governments.

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 OUR RECOMMENDATION TO HINOPAK TO USE “JIT
MANUFACTURING”

Just-in-time (JIT) manufacturing is a way of managing manufacturing

systems that could reduce waste, and lower cost, thus increasing profit. In
its most basic explanation and principle JIT is every component in the
manufacturing system arriving just in time for it to be used. Since the
products arrive just in time there is no need for stock holding facilities of any
kind. The most common industry using JIT manufacturing is the automobile
industries. Therefore, it’s advisable for Hinopak as well to apply JIT principle
in its production system.

The following are more specific areas that could be corrected to improve
efficiency:

• overproduction - waste from producing more than is needed

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 • time spent waiting - waste such as that associated with a worker being
idle whilst waiting for another worker to pass him an item he needs
(e.g. such as may occur in a sequential line production process)
• transportation/movement - waste such as that associated with
transporting/moving items around a factory
• processing time - waste such as that associated with spending more
time than is necessary processing an item on a machine
• inventory - waste associated with keeping stocks
• defects - waste associated with defective items"

Objectives

An overall objective is to limit resources used in the manufacturing system

to only those needed. There are six other objectives that are a key part to
obtain the overall objective.

• The first is to optimize each individual step of the manufacturing

system. In other words make part as efficient as possible to get the
most from the least.
• Second is to make a product with no flaws or defects. This ensures
that each part of the production line will go as planned.
• Third is to reduce the manufacturing cost, the cheaper it is to make
the product the larger the profit for the company.
• Fourth is to make a product that is demanded by consumers. If there
is no demand then there is only money lost.
• Fifth there needs to be flexibility in the system. Things will not always
go as planned and there needs to be a flexible enough system so that
it can be modified easily.
• Sixth, there needs to be a strong and reliable relationship between
customers and suppliers. Since JIT technique has virtually no extra
stock or materials the companies need to rely on each other to be
reliable and on time.

These objectives need to be taken into consideration by Hinopak to

integrate JIT, and are crucial to being successful in the integration.

Keys to Implementation and Integration

Just-in Time manufacturing is difficult to setup because each company

needs to personalize for their type of company to fit their specific needs.
Although many companies seek help from consultant firms for the difficult
task ahead, there are many key points that they can address themselves.
Changing over the current output production in the company’s factories to
limited or constant quantity is a good start in the process to determine
exactly how many resources are going into making a certain amount of
products. Setup time is an issue that each company can look to improve its

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efficiency. A good rule is to be able to change the setup in a single digit time
frame. Schedule meetings on a regular basis with the workers to gather
information on problems as well as possible solutions, and other suggestions.
This will make the workers feel involved in the implementation, and may
result in a positive attitude about the change over. This could mean
redesigning several areas such as the product or the process itself. Once a
reduced setup time is achieved the system now has the ability to more
efficiently produce smaller batches of products. However, this will require
deliveries of materials to be more often. Reducing time in between the
transportation of the individual parts can also improve the efficiency. To
accomplish this, work stations can be moved closer together. As well as the
amount of time a part is waiting to be processed at an individual station can
be lowered. Finding a supplier closer to the factory or convincing one to
relocate closer will also reduce lead time. Using down time is also another
way to help with productivity and efficiency. While a worker or machine is
waiting for other parts of the system to be used maintenance can be
performed on the machinery. This makes the most of the workers time and
can help to prevent future breakdowns do to lack of maintenance. Provide
the workers with more responsibilities and training. This can include training
on several machines, ability to maintain the machines, and perform correct
inspection. This will make the companies work force more versatile and can
help with issues of absences. Although the kanban system is not required in
a JIT system it is a good organizational tool to help eliminate
misunderstandings and increase communication. These points are things the
company can control and improve to help the successful integration of the
JIT system.

Suppliers

Since JIT is a stockless production and does not allow room for defects or
error having trustworthy reliable suppliers is an important factor. When
choosing a reliable supplier, consider their location and prior occurrences
with labor issues such as strikes. Once a reliable supplier is found, creating a
good relationship is the next step. This is a two way relationship in that both
the company and supplier get some positive out of it. The company gets
products or material with no errors or defects, a quality partnership, and gets
everything on time according to delivery schedules. Also the supplier must
have a back-up plan incase for emergencies such as strike, weather
conditions, and any other problem that many arise. The supplier gets a long
term contract, constant demand for their product, and a good constant
price.

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Advantages

There are many advantages of that Hinopak can receive from JIT. Listed
below are some of the advantages:

• Possible increase in profits

• Quality products
• Quicker setup
• Eliminates costs of storage facilities
• More flexible employees
• Quality relationships with suppliers
• Elimination of waste
• No down time

Disadvantages

Although the advantages outweigh the disadvantages, the disadvantages

can have a negative effect on the company. Listed below are some of the
disadvantages:

• Long term commitment

• Possible large initial cost with no short term returns
• Problems with supplier can cost company large amounts of money
• Risk of never successfully implementing JIT

Conclusion

Just-in-time manufacturing can be a positive influence on Hinopak.

However there are many risks associated with attempting to implement JIT
manufacturing techniques. When looked at it appears to be a very simple,
quick, and easy thing to do. In reality it is a very complicated technique that
takes long term commitment and a initial cost with no guarantee of success.
If implemented successfully it would eliminate waste, make the company
more productive and more efficient. It does this through shorter
transportation and increased communication. Although there are many
companies that are successful, many companies are not. Even though there
are enormous risks many still consider implementing JIT for it many
advantages.

INSTITUTE OF BUSINESS MANAGEMENT 27

 MARKET SEGMENTATION

Hinopak’s customers:

Those people who are looking to make money by operating their product.
Like CNG bus owner will buy CNG bus from them because this bus will carry

INSTITUTE OF BUSINESS MANAGEMENT 28

 passengers from one point to another and thus earn money through fares
charged to the passengers.

They have done Behavioral Segmentation. Unlike cars these Buses and
trucks are very expensive. They are bought when there is a special need on
special requirement. It is basically a Procedural segmentation. When there is
a need, customers come to them with different requirements. The Sales force
attracts them and then the customers usually give their specifications and
the structure they want on the chassis. For e.g. a customer might want a
High wall trailer built on FM2PKPA 6X4 Prime mover but with changes in
standard specification.

TWO TYPES OF CUSTOMERS

1. Institutional Customers:

 Description:

These are the main customers. They include Pakistan Army, Pakistan Air
Force, Pakistan Navy, Shell, Total, Caltex, City District Government
Karachi, NED, KU, CNG Bus owners and others.

 Behavior: These are the customers who buy in Bulk.

 They want to add buses to their fleet. For e.g. CNG bus owner
would like to add new CNG buses to his existing fleet.

 These customers have different specifications, deals, and different sort

of requirements which is required by their business.

 They buy products with customized body. For e.g. some client might
need bowzer with high density.

 Special attention is paid to these customers as they buy in bulk

and buying effects their business.

 Deliveries are made over a period of time as it requires time to

complete the paperwork, and then assemble the product according to the
demand of the customers. Delivery depends upon who came first and the
number of trucks or buses already in the queue for the production.

 What they want and the use of product:

INSTITUTE OF BUSINESS MANAGEMENT 29

 The institutional customers buy the product to earn money indirectly by
operating their product. In other words it helps them in their main line of
business.
 Reliability & Availability
Customers look for reliability and availability of parts.
 The auto parts should be easily available in the market and they
should be able to get service in remote areas.
 Objective:

The objective of customers while buying the product is that the cost
should be minimal, the product should be helpful in overall business and
the most important factor is that the operating cost should be low. Also
the initial cost should be low.

 Price sensitivity:

Institutional clients are more price sensitive then the individual clients.
You cannot dictate them. The product has to be very good. 80% of the
times customers demand low price and they are looking for lowest tender.

Percentage (%) of sales:

The sales of Hinopak overall increased in the past. The ratio of Institutional
to Individual customers is 80-20 %. As in past the purchases of Institutional
customers increased with the increase in purchases of the government and
the armed forces.

But in the past few months the ratio has changed to 60-40%. This is because
of the increase in the purchase of individual customers and the decline in
government purchases due to political instability. The government is not
building infrastructure as it was in the past. Therefore, they are buying less.

So the sale to this segment, i.e. Institutional customers, is 60-65% of the

total sales.
As in September 2008 Hinopak sold 149 trucks, 89.4 trucks (estimated as
60% of 149) were sold to institutional customers.

Also because of the high inflation all the customers are holding money and
thus the sales of the industry has declined as buying of such vehicles is not
everyday task and involves high investment.

2. Individual Customers:

 Description:

INSTITUTE OF BUSINESS MANAGEMENT 30

 Dealers, people who want to make money while using the product.

 What they want:

The customers in this segment want a product which is profitable. They

look for profitability of the product.
 Operating cost should be less.
 The auto parts should be easily available in the market and they
should be able to get service in remote areas.
 Service:
Hino has specialized mechanics and they are given free training as well
paid training. These mechanics come for training to Hinopak from all
over Pakistan. Since the service is available to customers everywhere in
Pakistan, so customers are happy.
 Loading capacity:
The capacity a truck/ bus can carry is also an important factor which is
influencing the customers. As we know that the public Buses
everywhere in city are overloaded and this also happens in the case of
trucks that they are over loaded. So the customers do look for trucks
which have high loading capacity as well as it can take overload.
 A product which has a high resale value and can be easily sold.

 Use of product:

The individual customers buy the product to earn money directly by

operating their product. It is their main business. They buy these products
for commercial use.

 Objective:

The objective of customers while buying the product is that it is profitable

as the use of the product is to make profit out of it by running it,
customers look for profitability. They look for Operating cost. It should be
less.

 Percentage (%) of Sales:

The ratio of Institutional to Individual customers is 80-20 %. But due to

decrease in buying of institutional customers as well as the increase in
purchasing of individual customers, who buy from authorized dealers, the
sales ratio has changed to 60-40% recently. This was the ratio some
years back. For example, the sales of trucks in September ’08 were 149
so approximately 60 trucks were sold to individual customers.
Selling Strategy:

INSTITUTE OF BUSINESS MANAGEMENT 31

The selling is done by using the advantage Hino has in the market of being
the market leader and the favorable opinion market has about the products
of Hino.

As the brand image is big, the company uses it in selling the product. Hino is
known for its reliability and availability. They use this image in selling their
product.

Also, the goodwill is high. They have free service camps in which they give
service free of cost to the customers; they are given free oil change and a
new filter. A new filter usually cots around Rs.7000. so it’s a big thing for the
customers.

The price of Hino’s products are relatively higher than their competitors, this
is because their product is of good quality. They easily use this image. The
quality of the competitor’s products is lower mainly because they sell low
quality products

COMPETITIVE ANALYSIS
July'08 Aug'08 Sep'08 Cumulative
Prod. 209 133 155 497
Hino
Sale 180 176 149 505

TRUCKS
July'08 Aug'08 Sep'08 Cumulative

Prod. 209 133 155 497

Hino
Sale 180 176 149 505

Prod. 116 48 54 218

Nissan
Sale 79 34 11 124

Prod. - - - -
Dong Feng
Sale - - - -

Prod. 99 27 26 152
Master
Sale 48 41 24 113

Prod. 68 35 23 126
Isuzu
Sale 40 36 15 91

BUSES
July'08 Aug'08 Sep'08 Cumulative
Hino 84 54 12 150

INSTITUTE OF BUSINESS MANAGEMENT 32

 41 64 43 148

- - - -
Nissan
- - - -

- - - -
Dong Feng
- - - -

- - - -
Master
- - - -

24 6 18 48
Isuzu
11 2 1 14

Prod. 108 60 30 198

TOTAL BUSES
Sale 52 66 44 162

ANNUAL PLANT CAPACITY

TRUCK

Hinopak Motors Ltd. 10,000

Ghandhara Industries Ltd. 3,000

Sind Engineering Ltd. 3,000

VPL Limited 500 ****

Master Motor Corporation Ltd. 8,050

BUS

Hinopak Motors Ltd. 2,000

Sind Engineering Ltd. 1,000

Ghandhara Industries Ltd. 1,800 ***

Ghandhara Nissan Ltd. -

Capacity Planning at Hinopak

INSTITUTE OF BUSINESS MANAGEMENT 33

Process Flowchart
APPLICATION OF TOTAL QUALITY MANAGEMENT AT
HINOPAK
1. Pursuing New Strategic Thinking

INSTITUTE OF BUSINESS MANAGEMENT 34

First in commercial vehicles sector to start the establishment of 3S
Dealership network, which offers Sales, Service and Spare parts facilities all
under one roof. This comprehensive network of offices, 3S Service Dealers
and Spare parts Dealers are strategically located throughout the country.
Hinopak's product line has three distinct segments i.e. Trucks/ Buses and
Specialized vehicles.

2. Knowing their Customers

Big vehicles, like trucks and buses, are bought when there is a special need
on special requirement. Hinopak basically has Procedural segmentation.
When there is a need, customers come to them with different requirements.

3. Setting True Customer Requirements

Customers have different specifications, deals, and different sort of

requirements which is required by their business.
Sales force attracts customers and then the customers usually give their
specifications and the structure they want on the chassis. For e.g. a customer
might want a High wall trailer built on FM2PKPA 6X4 Prime mover but with
changes in standard specification.

4. Concentrating on Prevention, Not Correction

Unlike small body makers who spray paint the vehicles and then later receive
numerous customer complaints, Hinopak actually uses baked paint to give a
longer life and better finish to the vehicles.

5. Reducing Chronic Waste

Hinopak Motors Ltd. has reduced its chronic waste by 18% and as a result its
annual plant capacity has increased to 10,000

6. Pursuing a Continuous Improvement Strategy

Hinopak’s approach to continuous improvement:

“The best approach is to dig out and eliminate problems where they are
assumed not to exist.”

7. Using Structured Methodology for Process Improvement

Hinopak believes in using structured methodology for process improvement.

Improvement efforts in Hinopak generally focus on improving process

INSTITUTE OF BUSINESS MANAGEMENT 35

productivity, quality, and cycle time. Intangible customer needs (ease of use,
trust, etc.) are quantified, Critical Success Factors (CSFs) are determined,
and performance is evaluated. The process is mapped and quality issues are
examined. Brainstorming is used to resolve issues, eliminate non-value
added activities, and reduce cycle times. Action plans are developed for high
priority recommendations..

Hinopak applies After-Action Review (ARR) process for continuous

improvement, which is actually Lean Six Sigma (LSS) in disguise.

INSTITUTE OF BUSINESS MANAGEMENT 36

 8. Reducing Variation

Hinopak follows the following steps in reducing its undesirable variations

Some Changes to Focus On

• Eliminate Waste
o Remove any activity or resource in the organisation that does not add
value to an external customer/patient
• Improve Work Flow
o This is an important way to improve the quality of service provided by
any process

INSTITUTE OF BUSINESS MANAGEMENT 37

 • Stock Control
o Stock of all types is a possible source of waste; understanding where
stock is stored is the first step in finding opportunities for improvement
• Focus on Variation
o Reducing variation improves the predictability of outcomes and
reduces the frequency of poor results

We suggested Hinopak to use PDSA cycle for testing a change.

Once a team has set an aim, established its membership, and developed
measures to determine whether a change leads to an improvement, the next
step is to test a change in the work setting

• The Plan-Do-Study-Act (PDSA) cycle is shorthand for testing a change

• This is a scientific method for action-oriented learning

Reasons to Test Changes

• Increase your belief that the change will result in improvement

• Decide which of several proposed changes will lead to the desired
improvement
• Evaluate how much improvement can be expected
• Decide whether the proposed change will work in the real world
• Decide which combinations of changes will have the desired effects on
the important measures of quality
• Evaluate costs, social impact, and side effects
• Minimise resistance upon implementation

PDSA CYCLE

The "Plan-Do-Study-Act" (PDSA) cycle is shorthand for testing a change — by

planning it, trying it, observing the results, and acting on what is learned.
This is the scientific method, used for action-oriented learning.

Use of PDSA cycles is a way of testing an idea by putting a change into effect
on a temporary basis and learning from its potential impact. This approach is
quite different from the approach traditionally used in healthcare settings,
where new ideas are often introduced without sufficient testing.

A PDSA cycle involves testing change ideas on a small scale. By building on

the learning from these test cycles in a structured and incremental way, a
new idea can be implemented with a greater chance of success.

INSTITUTE OF BUSINESS MANAGEMENT 38

There are four stages to a PDSA cycle:

Step 1: Plan

Plan the test or observation

• State the objective

• Make predictions about what will
happen and why
• Develop a plan to test the change.
(Who? What? When? Where?)

Step 2: Do

Try out the test on a small scale

• Carry out the test

• Document problems and
unexpected observations
• Begin analysis of the data

Step 3: Study

Set aside time to analyse the data and study the results

• Complete the analysis of the data

• Compare the data to your predictions
• Summarize and reflect on what was learned

INSTITUTE OF BUSINESS MANAGEMENT 39

Step 4: Act

Refine the change, based on what was learnt

from the test

• Determine what modifications should be made

• Prepare a plan for the next test

9. Using a Balanced Approach

We also suggested Hinopak to use a balanced

approach by using two systems for improvement.

Two Systems for Improvement

Both the Lean and the Six Sigma methodologies have proven that it is
possible to achieve dramatic improvements in cost, quality and time by
focusing on process performance. Whereas Six Sigma focuses on reducing
variation and improving process yield by following a problem-solving
approach using statistical tools, Lean is primarily concerned with eliminating
waste and improving flow by following the Lean principles and a defined
approach to implement each of these principles. However, using either one of
them alone has limitations: Six Sigma will eliminate defects but it will not
address the question of how to optimize process flow; and the Lean principles
exclude the advanced statistical tools often required to achieve the process
capabilities needed to be truly 'lean'. Most companies embarking on Lean and
Six Sigma create their own combination - picking and choosing which
elements to emphasize. However, we suggest Hinopak to embrace the basic
methodology of each system.

Six Sigma (6σ)

"This big myth is that Six Sigma is about quality control and statistics. It is
that - but it's much more. Ultimately, it drives leadership to be better by
providing tools to think through tough issues. At Six Sigma's core is an idea
that can turn a company inside out, focusing the organization outward on the
customer."

A process that is in Six Sigma control will produce no more than two defects
out of every billion units. Six Sigma uses many statistical tools but applies
them in a clear 5 stage project oriented cycle: Define, Measure, Analyze,
Improve, Control (DMAIC). Tools used in the Six Sigma approach include
Flow charts, Run charts, Pareto charts, Check sheets, Cause and effect
diagrams, Opportunity flow diagrams, Control charts, Failure mode and effect
analysis, Design of experiments

INSTITUTE OF BUSINESS MANAGEMENT 40

Lean
Lean is aimed at the elimination of waste in every area of production
including customer relations, product design, supplier networks and factory
management. Its goal is to incorporate less human effort, less inventory, less
time to develop products, and less space to become highly responsive to
customer demand while producing top quality products in the most efficient
and economical manner possible. The keys to Lean are understanding where
the value in your process lies, identifying all non value adding activities as
waste and devising plans to remove the waste from the process.
Flowcharting is a core tool of Lean - as flowcharting provides a visual image
of a process enabling waste identification to take place. This flowcharting is
known as value stream mapping. Lean considers that there are 7 wastes -
Defects, Overproduction, Transportation, Waiting, Inventory, Motion, and
Processing (DOTWIMP). The worst of all the 7 wastes is overproduction
because it includes in essence all others and was the main driving force for
the Toyota JIT system Ohno and Shingo were smart enough to tackle this
one to eliminate the rest.

| Project Management | Play Factory

INSTITUTE OF BUSINESS MANAGEMENT 41

10. Apply to All Functions

We then recommended Hinopak to apply Continuous improvement strategy,

PDSA cycle, Six sigma and Lean to all functions in order to maintain lifetime
competitive edge in the market place.

SWOT ANALYSIS

HELPFUL HARMFUL
(to achieving objectives) (to achieving objectives)

I STRENGTHS WEAKNESSES

N • Hinopak has 65% market share.

It is already at the pinnacle.
• Has from beginning been
expanding company. In current
an

T •Listed among the "Top 25

Companies" at Karachi Stock
environment it must adapt to
consolidating.
E Exchange.
• Small variations in certain vehicle
• The only Pakistani manufacturer
R to succeed in exporting
models make them redundant and
unnecessary.
completely built-up buses to
N Middle East and Africa.
• Not enough focus for specialized
A • Highly acclaimed for quality and
technological excellence.
vehicle department.

L • Environment friendly low emission

standard engines EURO engines
produced.
• Highly developed state of the art
Technical training centre ranging
O from mechanics to managers.
• 3S Dealership network, which
R offers Sales, Service and Spare
parts facilities all under one roof.
I • First Pakistani automobile

G company & Hino affiliate to

receive ISO-9001 certificate in
1997.
I • Hinopak has modern plants
N equipped with advance facilities
for vehicle assembly and
fabrication of buses and
superstructures.
INSTITUTE OF BUSINESS MANAGEMENT 42
E OPPORTUNITIES THREATS
X
• With infrastructure already in • Oil price fluctuation makes
T place, branching out into other production forecast risky.
E products might be advisable to
R offset low vehicle consumption. • World Economy recession makes
N business tighter than usual.
• Buy other manufactures at low
A cost while economic situation is • Multinationals leaving Pakistan
L gloomy to increase market share. decreasing potential business.

• Construction of China Corridor

O karakoram highway. Highway
R which links China to middle east
I through GWADAR port.
G
I
N

Customer Relationship Management

Organize and make accessible a database of information on individual

customer needs, preferences, contacts, purchase frequency, and satisfaction.
Example: Contact customers every time a new product launch, feature
enhancement, or upgrade is undertaken in a vehicle
Make it easy for customers to reach appropriate company personnel and
express their needs, perceptions and complaints

Customer Relationship Management enables real-time availability checks,

contract management, billing management, fulfillment visibility, and order
tracking, giving the company the features and functions necessary for
marketing planning, campaign management, telemarketing, lead generation,
and customer segmentation. In addition, CRM allows Hinopak to offer
ongoing customer care across all channels – with a customer-interaction
center, Web-based customer self-service capabilities, service and claims
management, field service and dispatch, and installed-base management.

INSTITUTE OF BUSINESS MANAGEMENT 43

CRM helps the business:

• Provide better customer service

• Make call centers more efficient
• Cross-sell products more effectively
• Have sales staff close deals faster
• Simplify marketing and sales
processes
• Discover new customers
• Increase customer revenues

Customer Relationship Management goes

beyond sales, marketing and customer-service applications into business
intelligence, analytics, hosted applications, mobile capabilities and much
more! By thinking more insightfully about what the customers are worth, the
company can focus its resources on attracting and keeping the right type of
customers. This focus, in turn, will make the CRM efforts more productive
and position the company better for innovation and growth.

INSTITUTE OF BUSINESS MANAGEMENT 44

 RECOMMENDATION TO APPLY GEMBA AT HINOPAK

Five Golden Rules of Gemba:

Golden Rule One: When a problem (abnormality) arises, go to gemba first'.

So what's gemba? It's the shop floor, or equivalent. Once there, you apply
Rule Two.

Golden Rule Two: check with gembutsu (relevant objects).

Golden Rule Three: take temporary counter-measures on the spot.

Golden Rule Four: find the root cause.

Golden Rule Five: standardise to prevent recurrence.

Standardisation is the managing part of getting good gemba. Hinopak also

needs good housekeeping (that includes cleaning machines) and muda, the
elimination of waste.

To be truly efficient in operations, Hinopak must GO TO GEMBA!

The aim of TPS is to eliminate all muri, mura, muda (overburden,

unevenness, waste) from the operations. It is a system that uses the PDCA
approach to involve everyone in solving problems and improving quality,
cost, delivery, safety, and morale.

INSTITUTE OF BUSINESS MANAGEMENT 45

TPS continues to evolve today. Toyota people are beginning to call TPS the
"Thinking People System" instead of the Toyota Production System. TPS is
always improving.

TPS is the Operational Blueprint for a Lean Enterprise

The organizations that have implemented Lean most successfully have
adopted TPS as their operational blueprint. They have studied
and understood the system, renamed it to take ownership of it as their own
system, and adopted as pure a form of TPS as possible

• Make what the customer needs, when it is needed, and in the right
amount
• Minimize inventories
• Separate machine work from human work and fully utilize both
• Build quality into the process and prevent errors from happening
• Reduce lead-times to allow for rapid, flexible scheduling
• Produce a high mix of low volume products efficiently

The GRPS house shows how to build a world class production system that
continuously improves by eliminating waste.

Just-in-Time (Takt-Flow-Pull)
Left Pillar Eliminate the 7 Wastes of Production
Create a smooth flow of product and information,
minimize inventory and space.
Jidoka (Autonomation)
Build quality into the process, separate man &
Right Pillar machine using intelligent automation.
Implement low-cost automation, error-proofing,
equipment upgrades and reliability improvement.
Heijunka (Leveling)
Foundation Stabilize production schedule variability
Reduce total Lead-time, coordinate sales,
scheduling, and customer needs

INSTITUTE OF BUSINESS MANAGEMENT 46

 OUR RECOMMENDATION TO HINOPAK TO APPLY Malcolm
Baldrige Criteria for Performance
The Baldrige Criteria for Performance Excellence provide a systems
perspective for understanding performance management. They reflect
validated, leading-edge management practices against which Hinopak will be
able to measure itself. With their acceptance nationally and internationally as
the model for performance excellence, the Criteria represent a common
language for communication among organizations for sharing best practices.
The Criteria are also the basis for the Malcolm Baldrige National Quality
Award process.

If Hinopak applies for the Baldrige Award, it will be judged by an independent

board of examiners. Recipients will be selected based on achievement and
improvement in seven areas, known as the Baldrige Criteria for
Performance Excellence:

1. Leadership: How upper management leads the organization, and how

the organization leads within the community.
2. Strategic planning: How the organization establishes and plans to
implement strategic directions.
3. Customer and market focus: How the organization builds and
maintains strong, lasting relationships with customers.
4. Measurement, analysis, and knowledge management: How the
organization uses data to support key processes and manage
performance.
5. Human resource focus: How the organization empowers and
involves its workforce.
6. Process management: How the organization designs, manages and
improves key processes.
7. Business/organizational performance results: How the
organization performs in terms of customer satisfaction, finances,
human resources, supplier and partner performance, operations,
governance and social responsibility, and how the organization
compares to its competitors.

We designed a Self-Analysis worksheet for Hinopak, which it can use to

assess itself after adopting Baldrige Criteria for Performance

INSTITUTE OF BUSINESS MANAGEMENT 47

SELF-ANALYSIS WORKSHEET FOR HINOPAK

While insights gained from external Examiners or reviewers are always

helpful, you know your organization better than they will. You are currently
in an excellent position to identify your organization’s key strengths and key
opportunities for improvement (OFIs). Having just completed your responses
to the Baldrige Criteria questions, you can accelerate your improvement
journey by doing a self-analysis of your responses to all seven Criteria
Categories using this worksheet.

Start by identifying one or two strengths and one or two OFIs for each
Criteria category. For those of high importance, establish a goal and a plan of
action.

For High-Importance Areas

Importance
Criteria (High, Stretch
Category Medium, (Strength) or What Action Who Is
Low) By When?
Improvement Is Planned? Responsible?
(OFI) Goal

Category 1—Leadership

Strength

1.

2.

OFI

1.

2.

Category 2—Strategic Planning

Strength

1.

2.

OFI

1.

2.

Category 3—Customer Focus

Strength

1.

2.

INSTITUTE OF BUSINESS MANAGEMENT 48

 For High-Importance Areas
Importance
Criteria (High, Stretch
Category Medium, (Strength) or What Action Who Is
Low) By When?
Improvement Is Planned? Responsible?
(OFI) Goal

OFI

1.

2.

Category 4—Measurement, Analysis, and Knowledge Management

Strength

1.

2.

OFI

1.

2.

Category 5—Workforce Focus

Strength

1.

2.

OFI

1.

2.

Category 6—Process Management

Strength

1.

2.

OFI

1.

2.

Category 7—Results

Strength

1.

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 GRADING OUR PM INC. SUBSIDIARY BASED ON MBNQA

We, four members, worked as a team and came up with valuable

recommendations for Hinopak what will assist the company have a life time
competitive edge in the marketplace.

This is how we grade our PM Inc. subsidiary based on MBNQA:

Points
S.No Category Description
Out Of Obtained
1. Category 1 Leadership 120 110
2. Category 2 Strategic Planning 85 80
Customer and Market
3. Category 3 85 83
Focus
Measurement,
Analysis, and
4. Category 4 Knowledge 90 85
Management

Human Resource
5. Category 5 85 80
Focus
6. Category 6 Process Management 85 80
7. Category 7 Business Results 400 390

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