Performance Management

System at Usha Martin Ltd

Project Report

2/29/2012

Submitted by-

Group 10
Anumeha Gupta(h11067)
Dwaipayan Gupta(h11075)
Submitted to- Madhumita Bhattacharya(h11085)
Shesadri Biswas(h11110)
Prof SN Bagchi
Acknowledgement
We would like to acknowledge and extend our heartfelt gratitude to the following persons who
have made the completion of this project possible:
Mr. R R Mishra, Asst Vice President, HRD, Usha Martin Ltd, for helping us understand the
detailed operations of the Production Department,
Mr. T P Bose, Procurement Department, Usha Martin Ltd
Mrs, Meenu Singh,
Employees, Production Department, Usha Martin Ltd, for their assistance in explaining us the
entire manufacturing process,
Prof. Soumendra N Bagchi, Assistant Professor, XLRI, for his invaluable inputs during the
course sessions and for providing us the opportunity to work on this project.

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Executive Summary

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Table of Contents
Acknowledgement ........................................................................................................................................ 2
Executive Summary....................................................................................................................................... 3
About the company ................................................................................................................................... 5
Inception ............................................................................................................................................... 5
Products................................................................................................................................................. 5
UML, Jamshedpur................................................................................................................................. 5
Going Global......................................................................................................................................... 6
Looking Forward .................................................................................................................................. 6
Industry Analysis ...................................................................................................................................... 6
Steel Wire Industry in India .................................................................................................................. 6
UML’s position in the Industry................................................................................................................. 7
Manufacturing process .............................................................................................................................. 7
Strategy ......................................................................................................................................................... 8
Critical Success Factors ............................................................................................................................. 8
Structure ....................................................................................................................................................... 8
Performance Appraisal System Followed ..................................................................................................... 9
Organizational Performance ..................................................................................................................... 9
Workers..................................................................................................................................................... 9
Supervisors .............................................................................................................................................. 10
Officers and Managers ............................................................................................................................ 10
Pay Mix ........................................................................................................................................................ 10
Basic ........................................................................................................................................................ 10
Incentives ................................................................................................................................................ 10
Other Benefits ......................................................................................................................................... 11
Contract Workers ........................................................................................................................................ 11
Appendix ..................................................................................................................................................... 14

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About the company

Inception
Usha Martin Ltd (UML) started its operation in 1961 in Ranchi, Jharkhand & is India's largest &
world's second largest integrated specialty steel (long) & wire rope manufacturer. The Company
enjoys a 70% market share in the global wire ropes industry segment catering to the high-end oil
offshore services. It has a wide product portfolio & operates across the entire value chain, from
iron ore & coal mines to captive power, to iron and steel manufacturing & value added products
like wires, wire ropes & other allied products. UML has a very strong worldwide distribution,
service & marketing network. The company is its way of infusing INR 21 bn CAPEX, as around
INR 17 bn has been infused for expansion of its production capacities.

Products
It is a vertically integrated company where a large chunk of produced goods are consumed
internally to produce end products.

Steel: The Company’s steel products include steel wire rods, rolled products, billets, pig iron,
and allied products.

Wire and Wire Ropes: The Company manufactures steel wires, strands, wire ropes, cord, bright
bar, and related accessories.

Others: The Company also offers jelly filled telecommunication cables.

Steel
Global Business profile
Wire and Wire rope
Wire rope distribution 7% Telecommuniation guide

8% 39%
9%
37%

UML, Jamshedpur
In 1979, the company set up a steel plant with wire rod rolling mill at Jamshedpur, to benefit
from business integration. This ensured a steady supply of steel for the manufacture of value
added products. Today, the Jamshedpur unit has a truly integrated specialty steel manufacturing
facility of 700,000 MT per annum. Out of which, about 35% is consumed internally by its plant
in Ranchi, Hoshiarpur & Bangkok, producing steel wire, steel strand, steel cords, bright bar and
steel wire ropes. All its manufacturing facilities are ISO 9000 certified and the steel plant was
India’s first to receive the TPM Excellence Award from JIPM, Japan.

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Going Global
With local success come global aspirations. Currently, the company has overseas manufacturing
operations in Thailand, UK and Dubai. Besides a vast network of distribution centres and
marketing offices spread across the globe to support an ever growing worldwide customer base.
The company exports over 60% of the wire rope output and about 20% of the total wire rods
produced.

Looking Forward
Usha Martin’s future plans are focused on its operation in Jharkhand – a state rich in mineral
resources. Future priorities include product mix enrichment, cost reduction and infrastructural
improvements. Already flourishing in its recent foray into mining operations, the company is
planning to invest in its iron ore and coal mines, sinter plant, pellet plant, power plants, while
also enhancing its steel making and value added products capacity with an investment of Rs
2,100 crore.

Industry Analysis
The company is engaged in mining, manufacture, distribution and service centres related to the
steel industry. The Jamshedpur plant specializes in manufacturing steel wire. As we know steel
industry is a cyclical industry.

Steel Wire Industry in India

The Steel Wire Industry in India is quite competitive in its production costs compared to other
developed and developing countries. This cost competitiveness needs to be maintained by
adoption of new and clean technologies, which lower specific energy consumption and which
generate much lesser pollutants. We need to automate processes and focus on product quality
and packaging to produce wires internationally acceptable.

In today’s environmentally conscious world adoption of such technologies would make the
products much more acceptable and also lower costs by reducing wastages. This will throw open
many new markets accelerating the pace of growth of the industry.

Raw materials mainly wire rods account for a major part of the cost of wires. In the past there
were very few suppliers but with the growth in the steel industry a number of mid-sized
companies have started producing Mild Steel Wire Rods. This has increased the availability and
resulted in better commercial terms for the wire industry. Most value added wires use high
carbon wire rods as an input. These are now available in the country from Five Major Suppliers
(JSPL, JSW, RINL, TISCO, USHA MARTIN) with imports as an alternative whenever they are
commercially viable. A number of new wire rod mills (VISA STEEL, ELECTROSTEEL
CASTING) are at an advanced stage of commissioning. This will make all grades of wire rods
abundantly available. The steel wire industry in India is at a juncture where very soon raw
materials will be available at internationally competitive rates, consumption is poised to jump,

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new export markets are waiting to be tapped, and skilled manpower is readily available.
Therefore, there will be a bright future ahead for the Steel Wire Industry.

UML’s position in the Industry

UML ranked No2 in the world and No. l in India in manufacturing of the wire rope.

 Market share is strong

 Large distribution network
 Dealers, Branch offices, Ware house is connected with internet in all over the India.
 UML has become brand equity in this field, customer first choice by UML.
 Its product is world class in quality; it is tested by several authorities.
 The company acquired BRUNT SHAW LTD.A leading U.K wire rope manufactures, to
source logically advanced rope and access the European market.
 UMI has very good infrastructure and work force.
 Healthy financial position

UML has implemented TPM (Total productive management) and ERP (Enterprise recourse
planning) in 2000 - 01 with the objective, raising quality and reducing cost.

Manufacturing process
We will limit our study within the production of steel wire ropes, largely the Jamshedpur plant.
So here we provide the diagram depicting the manufacturing process of steel wire at Jamshedpur
plant. “BAAN” is used for ERP.

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Strategy
The main strategy is primarily retaining its market leadership through cost leadership. However,
quality is also considered very important. Backward integration helps to control the availability
as well as the price fluctuation of the inputs. The increased competition, better quality products
offered by the larger competitors and the uncertainty of the demand remains the challenges for
the company. Also, vertical integration often increases the production cost. Hence cost
effectiveness is of paramount importance. This disadvantage is probably partially covered by the
high economies of scale and related differentiation (wide range of steel/alloy products).

Lower cost
of Inputs
Margin
Lower cost of
Operation
Profitability
Productivity
Competitive
Volume
pricing
Customer
Satisfaction
Quality

Critical Success Factors

The firm is in a manufacturing industry and the nature of the process is mass production
(although some little customizations are made as per the requirements, but variations are very
small and doesn’t involve much setup time or cost). Quality and productivity are obvious CSFs
along with cost effectiveness.

 Quality
 Productivity
 Cost Effectiveness

Structure

The organization is consisted of several divisions which are highly inter-related. The
organization has a functional structure in which it has been divided according to different
functions (as shown in Exhibit 1). The major advantage of this structure is that it allows
specialization and higher efficiency. The functional structure is probably the most sought out
structure for a cost leader. The decision making is centralized and most of the decisions are taken

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by managers. The hierarchy is medium in size. The tasks for the workers are routine in nature
and adhering to the procedures is of prime importance to ensure quality. Supervisors observe
workers perform a specialized set of tasks leading to operational efficiencies within that group.
Not much supervision by managers in there (probably because of the unpleasant temperature of
the shop floor). In fact, some managers from HR don’t even seem to know about the
manufacturing processes at all. As per our personal discussion, working in the office (much more
comfortable environment) is itself considered to be a great inducement by the plant level
managers and staff. So, good performances shown can help them in a different way along with
the monetary gains. The functional structure within a division suits the organization because it is
majorly a producer of standardized goods at large volume and low cost. Coordination and
specialization of tasks are centralized in a functional structure, which makes producing a large
amount of products efficient and predictable. However as can be seen from the partial
organizational chart, span of control is very high for the CEO. So, the monitoring of critical
success factors might be difficult for the CEO as because in a centralized structure, the CEO
must be involved in most of the decision makings. So, the structure at the top might be
inappropriate.

Performance Appraisal System Followed

Organizational Performance

Balanced scorecard is used as the performance management framework. Within the first two
months of a new financial year, all the functional departments get the scorecard along with the
designated targets and weightages. Before the year-end, the scores are calculated for every
department by measuring the percentages of the targets achieved. According to the score
obtained the bonus pool is allocated. The reason for using this framework, as per the HR head, is
that 1) it gives a complete picture of what is expected from each department, 2) it specifies
priority, 3) it is easy to review the target completion several times within a year, 4) every
department heads assemble and decide on the targets included in the balanced scorecard and
hence no conflict/complain arises and 5) it also says who is accountable for what (process
owners).

Employees

There is no link between appraisal and incentives. Bonus pool, fixed for a department, is divided
across the hierarchy with several levels fetching the same bonus. The appraisal is mostly for the
internal growth within the organization. It is used to identify better employees who can be given
priority while being promoted.

Workers

The workers are assessed by the supervisors. Assessment is mostly by counting the exceptions
like bad behavior, free riding etc. The yearly productivity data is used to calculate the yearly
bonus. An egalitarian structure is followed while allotting bonuses i.e. same bonus for all
workers at the same level.

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Supervisors

They are assessed by their respective superiors. Rest is same as above.

Officers and Managers

180 degree appraisal is followed. Self-appraisal form includes two parts (please refer Exhibit 2).
In the first part, officers are asked to appraise themselves in terms of the achievements of major
tasks (as assigned by the higher authority) as well as other non-routine achievements. The part-B
is filled up by the immediate superior and “behavioral competencies” in terms of Adaptability,
Communication Skill, Result Orientation through Leadership and Team Building, Analytical
Ability and Problem solving Approach, Creativity and Initiative, Customer orientation, Customer
orientation are included. The rater has to rate as well as provide some remarks in the end. Only
dimensions are mentioned and no benchmarks are provided. So lot of subjectivity is involved.
After the forms are filled up by the employee and rated by the supervisors, the ratings are
reviewed and approved by a senior level person (generally the employee immediately higher to
the supervisor). The appraisal form is given in hard copy as well as by mail.

To add to the above facts, as per as our interactions with some top level executives are
concerned; the appraisal process more often than not tends to be a mere formality. Incentives
depend on yearly production and promotions on the goodwill before the superiors. Even some
senior people perceive the appraisal process an HR activity. The ratings are hugely influenced by
some traits like relationship with seniors, meeting the deadlines and punctuality. For higher level
managers planning well and meeting the targets is most important. The amount of responsibility
taken up is also considered very critical. For example there was an incident where a Sr. Manager
was looking after the job of a GM (whose post was vacant). Now considering the fact that the Sr.
Manager was going beyond his own formal duties, he was awarded with the highest rating.

Pay Mix
Basic
Workers’ wages are based on negotiation with union. Salary for others is based on the salaries
offered by the competitors. It also partly depends on the qualifications and colleges from which
the employee graduated (higher pay for IIT, NIT etc.).

Incentives
For confirmed employees, every department is allocated Bonus according to the scores obtained
from the achievement of the targets as per the balanced scorecard. Based on total productivity,
bonus is distributed as per the levels of employees in the department. It might be possible that 2
or 3 consecutive levels get the same bonus. (GM gets same bonus as Sr. Manager). Bonus Act is
complied with while allocating bonus for the workers.

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Other Benefits
Medial insurance pool has been created for the treatment of the workers. 100% medical fees are
provided in case of accidents occurred inside the plant. ESI cards are also issued to the workers.

Contract Workers
To become a cost leader in the market, the company deploys huge number of contract workers.
As per the HR head the ratio between permanent and contractual workers is 50:50. However, as
per some different sources the number of contractual workers might be more.

Problems/ Challenges faced by the company

HR Issues

Attrition Rate

For supervisory positions, company recruits engineering diploma holders from various colleges/
ITI. The problem arises when they work in the company for a year or two gain experiences and
then switch job to bigger companies. While HR department recruits a new supervisor, another
supervisor from other shifts has to extend his working hours or a supervisor from different
department is made responsible for that shift. This causes delay in the deliveries and thus loss for
the company. Moreover, this extra burden results in lapses in supervision leading to quality
issues. The attrition of graduate engineer is not huge in number but involves higher cost.
Particularly when some new joinee leaves the company, the cost involved with training him/her
is wasted and more cost to be borne to train the replacement.
As per the Asst. HR manager, the attrition rate is near 4-6 percent per year.
Recommendations:
 Loyalty bonus after every three years of continual service which will be paid along every
month’s salary
 A service agreement for at least two years of continuous service
 Recruiting from the local or adjacent states (for engineers) may prove to be beneficial as
those employees would tend to settle in this company due to locational advantage. For
supervisors, the company already has the policy to recruit from local colleges.

Absenteeism

Company faces high absenteeism in worker levels. The problem gets aggravated during festival
seasons. As the majority of workforce comprises of workers from inner parts of Jharkhand,
whenever there is any festival, they go back to their villages and doesn’t report for work for days
together. This causes delay in production schedules and cost implications for the company. Also
workers remain absent without prior information.

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This hampers the performance of production supervisors who have to take care of the tight
delivery schedules. The company is mostly unable to take stern actions as the availability of
experienced workers is an issue here. Contract labours create the problem of absenteeism much
more as they don’t have to think long-term to secure his place in the plant.

Recommendations:
 Bonus to be awarded as per the individual attendance, for example if a worker works for
more than 350 days in a year, he will be eligible for full bonus. In case he works for more
than 335 but less than 350, he will be eligible for 80% bonus and so on.
 Unauthorized absence to be calculated as the non-paid leave i.e. no pay for that day
 Unauthorized absence for more than three days at a stretch would attract a penalty of freezing
the wages for one year (no wage hike for that worker)

Other Issues

Economic Uncertainty: The rising global uncertainty due to Eurozone crisis as well as the low
growth potential in the developed United States market is having its toll on the market pricing of
the company. Coming to India, a slowdown can have its impact especially in the automobile
sector where most of the steel is utilized. At the moment there is not major optimism on the
prices also. So according to the company, they need to wait for a month or so to understand
which direction the economy is going, how the steel prices behaving and hence cost
control becomes a major point of concern but the company predicts that once the volume goes
up, better performance is expected.
Raw-material price fluctuation: Coke price, which is ruled by certain leading companies, that
has went up sharply in the recent past, it was widely expected that there would be a correction in
the sale price of steel, which did not happen to the expected level. Once the raw material goes
up, coke and steel price do not correct, you have a margin pressure. So that resulted in 2% drop
in the EBITDA.
Inability to predict Market demand: The market is quite volatile in the present juncture so as
per the HR Head of the company there is a limitation from the company’s side to predict the
market demand and hence there is a rising risk of inventory pile-up adding to the holding costs
for the company.
Unforeseen Circumstances: During Q1 FY12, UML’s performance was affected due to fire at
Steel Melting Shop (SMS-III) in Jamshedpur Steel Plant. This affected billet production by
approximately 26,000 tons. The operations have now been restored. Hence they have reduced
their estimates for FY12 and FY13 as per UML has been affected by onetime events UML has
been impacted by onetime events including power plant break down, shut down of DRI plant and
transportation related issues of key raw materials including coal and also weak global demand.

Recommendation
(Madhumita, kindly elaborate on the following points)

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  Performance appraisal system is subjective
 Behavioral parameters instead of the CSFs
 Top performers are not explicitly rewarded, so attrition would be there
 Being a cost leader, attracting and retaining top performers might be difficult
 However, without increasing the cost, more internal equity can be established
 Recommendation – link individual rating to divide the bonus pool equitably
 Workers/Supervisors – Production and the parameters like material wastage and idle time
 Quality inspectors – As in case of Masood Textiles
 Managers – different KRAs for diff. dept.
 Examples – (change the wordings and add a few things if required), these following parameters
will be cascaded down to the other employees in respective dept. as per the responsibilities and
authority

GM, (of  Setting production targets  Number of on time

different  Deciding upon monthly production targets deliveries
plants like  Cost Saving  Yearly Production targets
Steel, Alloy,  Quality ratings (process + output) met
UMTI)  Profitability of plant
 Customer lead time
 Capacity utilization
 Wastage of materials

AVP (HR)  Productivity (w.r.t unit labour cost)  No. of vacant posts due
 Attrition to non-availability
 Manpower Planning  Losses in production due
to shortage in manpower
 Losses in production due
to absenteeism
Supervisor  Timely production  Manufacturing cycle
 Managing production costs time
 Managing workforce  Average production costs
 Quality compliance of items
 Planning maintenance  Absenteeism rate
 Rate of damaged material
by error of workers
 No. of machine
breakdown
Workers  Meeting daily production targets  Cycle time
 Timely production  No. Of parts rejected
 Rework time

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Appendix

Exhibit 1: Partial Organization Chart:

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 AVP-HR

AVP STEEL

Sr. VP - IRON-
DIVISION

Sr. VP -
Commercial
Store Purchase

VP - Engg. &
Projects/Safety

AVP STEEL

Sr. VP -
Metullargical
Services - QA

Dr. V. Sharma GM (Aloy)

(Director &
CEO)
AVP - SMS - 1&2

AVP-SMS 3

AVP-PPC

VP-Bloom Mill

AVP-WRM

GM-UMTI

Mgr-IED/ISO/TS

Mgr-PR/Comm

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