THE SMT WAY

Dr. Reddy’s Laboratories Ltd.: Creating a CompetitiveAdvantage through an Empowered Workforce

The right work culture can make all the difference between a good company and a greatcompany. How can a company create a culture where employees work seamlessly, learnextensively and produce results? Is it possible to create an environment where even theyoungest member of a team has the freedom to make choices and convert those choicesinto desired actions? How can a corporate culture establish accountability in such ascenario? Can teams create a shared vision and achieve it? Who will ensure discipline?Which processes will facilitate this way of functioning?

Dr. Reddy’s Laboratories Ltd.1 has searched for answers to the abovequestions and has at times created more questions in its journey,spanning more than a decade, with the Self Managed Team (SMT) Way.The new manufacturing facilities of Dr. Reddy’s follow this approachand have set numerous benchmarks on parameters including: Safety,Quality, Delivery and Productivity. What sets these units apart? Andwhy did Dr. Reddy’s think a new way of working was necessary?

GV Prasad, Chairman and CEO, Dr. Reddy’s, outlines the thought behindthe efforts, “There are very few initiatives in Dr. Reddy's that I am asexcited about as the Self Managed Team (SMT) initiative. The SMT way ofworking is inspired by one of our values- ‘Respect for the Individual’. Thisinitiative allows individuals to grow in their job horizontally and verticallywithin the organisation. It helps them work in a hierarchy-lessorganisation. It helps them to build multiple skills and empowers them tohandle end-to-end jobs. Furthermore, it promotes a work environmentwith minimal levels of hierarchy. Apart from resonating with our values,the SMT way of working also helps us to improve Safety, Quality,Productivity and Availability at the work place. Hence this initiative has afar reaching impact on multiple dimensions at Dr. Reddy's.”

The above quote from the Chairman and CEO of the company summarizessome of the critical aspects of this approach. This case will

1Established in 1984, Dr. Reddy's Laboratories Ltd. (NYSE: RDY) is an integrated global pharmaceutical company, committed to providing affordable and innovative medicines for healthier lives. Through its three businesses - PharmaceuticalServices and Active Ingredients, Global Generics and Proprietary Products – Dr. Reddy’s offers a portfolio of products and services including Active Pharmaceutical Ingredients (APIs), Custom Pharmaceutical Services (CPS), Generics, Biosimilars and Differentiated Formulations. Source: www.drreddys.com. Read more about the company and the industry in Annexure 1.

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document the journey of the SMT Way in Dr. Reddy’s – its genesis,set-up, benefits and challenges.

THE GENESIS

After implementing several successful improvements in existingmanufacturing units, Dr. Reddy’s had something different in mindwhile setting up a new formulation manufacturing unit2 in 2001. Thisline of thinking was a result of the challenges posed by traditionalorganization design and management style and its impact on thecompany’s performance.

One such challenge is that multiple levels of hierarchy create gapsin communication both from top to bottom and vice-versa. Thisinevitably leads to the alienation of employees on the shop-floor asthey are disconnected with the objective and purpose of theorganization.

As this phenomenon continues, it eventually creates a workenvironment where people function in a ‘mechanical’ manner, with lowenergy and minimal passion. Over time, the organization becomesinflexible and less responsive, shop-floor employees lack self-motivation for development and growth, and even the smallestimprovement initiative takes a lot of additional effort. All thesefactors impact performance severely.

Many of the existing units in Dr. Reddy’s were experiencing suchproblems. The most junior employees were engaged in dead-end jobsand had no growth prospects. This workforce was not flexible aboutlearning new skills or transferring to new locations and theirassociation with a union made transitions more difficult.

2Pharmaceutical formulation, in pharmaceutics, is the process in which different chemical substances, including the active drug, are combined to produce a final medicinal product. Source: Wikipedia.

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To overcome these challenges, a few members of the senior managementwere keen on introducing a new way of functioning – a new design and anenvironment where the focus would be on practicing empowerment in its true essence.

Mr. KB Sankara Rao (Head Product Development (retired)), one of thepioneers behind introducing the SMT concept at Dr. Reddy’s explains:“The concept of SMT appealed to me because it empowered our first-level people. Generally, there are five to six layers in an organization,with the result that people often don’t feel the ownership; they feeldisconnected. In this model, people are responsible, accountable andhave a sense of ownership”.

By definition, a Self Managed Team is a group of empowered, self-managed and committed individuals, who plan, organize and manage allthe day-to-day activities in a manufacturing facility. Their areasof operations run the entire gamut: manufacturing, packaging,quality control and assurance, warehouse operations and engineering.The SMT Way is an innovative business model which comes withmultiple advantages. It benefits the company through better businessresults, the individual through education and training and societyby creating better citizens (Figure 1).3

Dr. Reddy’s was the first pharmaceutical company in India toimplement this concept. The initiative since then has stabilized andhas been adopted at other units. It was not an easy transition,though. The management, the planners, the implementers and theemployees in the new unit overcame several challenges to stabilizethe operations to its current level.

3Explained in detail in the sections titled ‘Community Living’ and ‘Conclusion.’

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Figure 1: Alignment at strategic level

Source: Authors

THE BEGINNING OF THE SMT JOURNEY

The SMT journey began in 2001 in the picturesque town of Yanam.4 Theconcept was new, radical and without many precedents. Hence, itrequired tremendous effort to gain the necessary support from allmembers of the senior management team. A cross–functional core teamwas formed to work on the initiative.

Atul Dhavle, Vice President and Head - Operations Excellence andContinuous Improvement (and one of the earliest champions of SMT),says: “The concept of SMT has an inherent belief that ‘people aregood and capable’. Hence, it believes in providing the right training,tools and environment to employees to enable, empower andmotivate them. The concept encourages creation of wholesome-jobas against breaking jobs down into smaller pieces that leads tohigher ownership and increased accountability.”

As the concept was unconventional, the core team conducted severalbrainstorming sessions to evaluate the pros and cons of using the

4Yanam is a town in the Union Territory of Pondicherry, India.

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model in the pharmaceutical industry. Many senior members wereinvolved in defining initial processes so that proper alignment withstrategy remains. The team also debated on several aspects of SMTand finally formulated the conceptual framework for this initiative,which is referred to as ‘The Principles of SMT’ and ‘The Pillars ofSMT’.

The Principles and Pillars of SMT

The conceptual framework wasformulated by the core team (Figure2) within the purview of thecompany’s objectives, culture andvalue system. These concepts wereevolved and improvised over a periodof time, and then reintroduced at anew plant which was set up in Baddi5 in 2005. The core team firstworked on the principles that will lead to a fully-functional SMTway. The principles are:

Shared Vision – In the SMT Way all team members are aligned withcommon goals and purposes. The relevant information related tooperations is shared through various means on an ongoing basis.Management shares information with team members so that they cantake initiative and make decisions to solve problems and improveperformance.

Egalitarian - Egalitarian work environment eliminates status andpower differences and, in the process, increases collaboration andteamwork.

Learning Organization– All employees have the innate desire tolearn, contibute and grow. In order to ensure that everyone is on alearning curve; appropriate processes are designed to continuouslyenhance their knowledge and skills.

5Baddi is a town in the Solan district of Himachal Pradesh, India.

Figure 2: Principles of SMTSource: Dr. Reddy’s

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Empowerement – The SMT Way of working involves providing teammembers with the necessary skills, resources, authority, opportunityand motivation. It also involves holding them responsible andaccountable for the outcome of their actions.

Understanding these principles and putting them to practice requireda fundamental shift in the thinking process of those designing theframework as well as the team responsible for the day-to-dayfunctioning of the plant.

Handling a young team was also a challenge as the policies andprocesses were more in tune with the traditional and older workforceof the company and this was a new experience. As the core teamunderwent this transformation, they decided to build theorganization in a way that the new paradigm gets engrained in thevery DNA of the organization. This led to the creation of ‘ThePillars of SMT’. The evolution of these principles and pillars isexplained in Figure 3.

Figure 3: Principles and Pillars of Self Managed Team

Source: Dr. Reddy’s Newsletter 2011

The Pillars of SMT mutually enforce the need for each other as wellas promote the Principles of SMT.

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CREATING A LEAN AND AGILE ORGANIZATION

Starting from the objective of creating an empowered work place, anew organization structure was first proposed at the Yanam plant. Itinvolved just three layers of hierarchy – The Plant Manager, TheHand Holding Team (HHT) and the SMT. The organization chart isdisplayed in Figure 4.

Figure 4: Flat Organization Structure

Source: Authors

In this structure the SMT members plan, organize and execute allday-to-day activities including material receipt, work-ordercreation, production scheduling, manufacturing and packaging,product analysis, documentation, 5S6, equipment upkeep andmaintenance. Also, the traditional designation of a ‘supervisor’ ora ‘boss’ is done away with.

The structure instead promotes hand-holding and, hence, a HandHolding Team (HHT) was created. The HHT comprises of a small groupof people hand-picked from existing plants, with each member headinga critical functional area, who act as guides rather than typicalbosses. They help the SMTs in commissioning and start-up and alsooffer guidance in matters relating to the day-to-day functioning ofthe plant.

Dinesh Patil, HHT member and Head of Quality Control in one ofthe plants in Baddi says: “Personally I have learned a lot that hashelped me enhance my managerial skills, like handling peoplefrom different age groups. The best thing about the SMT culture is

65S is a structured program to systematically achieve total organization, cleanliness, and standardization in the workplace. 'S' stands for Seiri, Seiton, Seiso, Seiketsu and Shitsuke (Japanese words).

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that managers work as mentors and not as bosses. This makes theSMTs comfortable and promotes a sense of bonding.”

Initially there were several challenges related to formation andworking of HHT and some of them exist even today. While the companywas making utmost efforts to fill Team Leader positions withinSMTs, some HHT members still needed to be hired from the outside ortransferred from other locations. They sometimes found it difficultto work in the SMT Way. In case of change in leadership, the companyneeds to expend a lot of energy bringing new members on board.

Hiring for Aptitude and Training for Skills

Once the organization design was in place, efforts to actualize thedream began. The recruitment process for SMTs started withpublishing advertisements in local newspapers inviting applicationsfrom intermediate-pass science students from local communities.Recruiting these youngsters was part of the well-formed strategy toengage and retain talent.

To assist in this process, a scientific selection process wasdevised consisting of a series of tests – written, psycho-diagnosticand neuro muscular, a group discussion and finally a personalinterview. Various factors including educational performance,family background and overall personality were considered along withthe results of these tests. Figure 5 summarizes the recruitmentprocess (figures are taken from the first batch hired in 2001):

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Figure 5: Selection Process

Source: Authors

With the right set of people on board, the process ofacclimatization started. This happened through carefully designedinduction and training module, that is part of the “ContinuousLearning” Pillar. The training was designed by the HHT and deliveredby an external partner. It covered concepts of pharmaceuticalmanufacturing and also imparted softer skills to the SMTs.

Jayalakshmi, a member of the first SMT team of 40 at Yanam, recallsthe 50-day rigorous training period that followed: “The first 10 dayswere devoted to activities like communication skills, team building,creativity and cultural and group activities. The next 40 days werespent at a Pharmacy College where we gained basic understandingof pharmacy. By the end of it we really felt like a team.”

The focus of the training was to equip SMT members with the rightknowledge and techniques. The core team created a model where thelearning was not limited to this 50-day training only. The focus wason ‘continuous learning’. Regular classroom sessions were conductedon basic areas such as GMP (Good Manufacturing Practices), SOPs(Standard Operating Procedures), Safety and basics ofpharmaceuticals. In addition, on-the-job training was provided in

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the areas of quality, manufacturing, engineering and warehousemanagement.

One of the key elements introduced as a part of continuous learningwas the higher education program designed for the SMT members. Mostof the new recruits were from small towns and villages near theplants, and the opportunity to work as well as complete a companysponsored higher education program proved beneficial for them.

Parminder, a young SMT team member from Baddi, says: “We are reallyproud of the work we are doing. We have been given an opportunity tobecome independent. When we compare our present status with theother options that were available to us, it seems that we have benefitedimmensely.”

This has proved to be a win-win proposition for both the companyand its employees since the higher education course has manyadvantages. It keeps the youngsters meaningfully engaged over theweekends and also connects them to the company for the three yearsthey pursue the course. It also creates a well-defined path for theSMTs. Hence, they ‘earn as they learn’, and graduate with a degreeat the end of three years. However, as the higher education programstarts only after two years of work experience at Dr. Reddy’s,convincing parents to allow their children to stop their educationfor a set amount of time was challenging. The concept, though, waswell accepted by families with financial challenges.

Training was not limited to SMTs; the core team also formulated atraining module for the HHT to help them transition to the new wayof thinking and working. This included ways to promote empowermentby involving people in decision making, sharing information andcreating an open work culture. The HHT members were also trained tobe effective coaches.

While training is the responsibility of the company, the SMT culturealso creates a mechanism by which SMT members share their learningexperiences which each other. A cycle called ‘Learn-Teach-Learn(LTL)’ promotes this activity. LTL is a unique methodology whichenables SMTs to first learn from books (Learn), then share theirknowledge with peers (Teach) and in the process learn through thisentire experience of sharing their learning (Learn). The objective

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of LTL is to encourage SMTs to develop perspectives through readingbooks and group learning.

BUILDING STRONG RELATIONSHIPS THROUGH COMMUNITY LIVING

What encourages the SMTs to work together as a team? Why do theywork better than traditional teams? What helps them set and achievenew standards of excellence? The answer begins with ‘communityliving’.

While the training sessions involve an element of building effectiveteams, the community living concept creates opportunities for theyoung members to develop long and trusting relationships. This isincorporated as ‘mutual accountability’ and teamwork, essential forthe SMT concept to work seamlessly.

In Yanam, a residential bungalow was converted into a hostel withseparate floors for boys and girls, with a common canteen andrecreation area. The SMTs manage the hostel with a well-defineddisciplinary model (explained later). Other than living together,the SMT members also participate in a series of engagementinitiatives designed to enhance ownership and team spirit.

Team spirit is probably the single most important ingredient for thesuccess of this experiment. There is a level of camaraderie andshared purpose that has not faded with time. Six years on from itsinception, Bhaskar, of the Yanam team, can say this with confidence:“There is a lot of understanding between departments and functions.There are no barriers. Each supports the other. The goal is to getthe work done. Everybody is equal.”

Community living is designed in a way that the company participatesonly to the extent of providing a common place to live. The SMTmembers then take the responsibility of running the hostel.Different batches of SMTs have formulated their own ‘do’s anddon’ts’ related to community living and adherence to these rules isa must for all SMT members.

This system gives them a sense of independence with an element ofconscientiousness. The SMT members follow a meticulous lifestyle

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which includes yoga, games and study hours. Some of the principlesof 5s are also imbibed as the members are responsible for keepingtheir living place clean and tidy and the space is audited toensure continuity. Thus the initiative has led to benefits for theorganization, society and employees; a win-win-win propositionindeed.

Vijay Singh, Plant Head at Baddi elaborates: “The organization reapsbenefits when a highly energetic, productive and flexible teamconsistently strives towards achieving the desired business goal. On apersonal level, the SMT members get an opportunity to learn at anaccelerated rate. Finally, society too gets benefited as these peoplebecome the future talent pipeline for the country. This has beensustainable for so many years as it is a win-win-win situation. The winnersare society, the company and employees”

While there are several advantages of this culture, it poses certainchallenges as well. Ripples are created when one of the SMTs ispromoted to next role and others wait for their progression. Obviouscomparisons are made and despite a very open and measurableperformance assessment system, it becomes quite challenging tohandle undue peer pressure.

Also, as most SMTs are hired from local communities they are notwilling to move to other locations within the company to take onhigher responsibilities and this often leads to their moving out ofthe organization. In some cases where the SMTs did move to newlocations, it was difficult for them to adjust to a different way ofworking and continuous counselling and support was required for themas well as their new team managers.

Communication processes for Sharing Information and PromotingEgalitarianism

Creating the right organization processes is as important ascreating the right organization design. The core team designedseveral processes to ensure that their objective of creating anempowered workforce is achieved. Sharing of information is one such

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essential element. It is imperative for building trust, fairness anda shared vision.

While entrusting people with responsibility and holding themaccountable, it is necessary that they are provided with aparticipative work culture where all relevant information is sharedopenly and frequently. Sharing information is one side of the coinand involving people in decision making is the other. How then isparticipative decision making achieved?

This is where empowerment plays a key role and it entails thecreation of forums where employees responsible for the execution ofwork are involved in decision making. In fact, decisions regardingday-to-day functioning of the plant are left to the SMT members. TheHHT members guide them as and when required. The means to promotecommunication are in-built in the system itself.

From communication boards that share information regarding plantoperations to frequent communication meets, all means ofdisseminating information and sharing ideas have been put in place.

Every shift begins with a 10 minute ‘shift assembly meeting’conducted by the shift leader. This is done to share informationregarding the previous shift and draw out a plan for the currentone. The Plant Manager conducts monthly meetings to shareinformation on the overall performance of the company as well astheir own plant. These meetings provide a platform where all issuesand challenges are shared openly. The communication meet ends withan open house where ideas are also debated.

There are obvious business benefits of involving first-levelemployees. Schemes like ‘Saral’ (suggestion scheme on the shopfloor) have brought several improvements to the machine maintenanceand operation fronts thanks to suggestions by SMT members. Thecompany, however, needs to continuously train and guide the HHTs toinvolve the SMTs. The HHTs also spend an enormous amount of energyon managing the suggestions by the SMTs and disappointments thatneed to be handled carefully to avoid dampening the enthusiasticspirit of the young SMTs.

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ENABLING PERFORMANCE CULTURE

With processes in place for sharing information and participativedecision making, it is easy for the teams to discuss and evaluatetheir performance through the SMT scorecard. The scorecard createsan open and transparent system through which members can clearlyunderstand their performance targets and reflect on the results.These are displayed on relevant communication boards so that teamscan assess themselves and improvise continuously.

The daily shift meetings happen in front of the scoreboard as theteam leader discusses the team’s performance, targets and priorityareas. An example of a team scoreboard from Baddi is displayed inFigure 6.

Figure 6: Performance Scorecard

Source: Dr. Reddy’s newsletter 2011

Recognition and Celebration foster team spirit

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The core team involved in designing the SMT way put together aspecial mechanism to recognize and celebrate extraordinary effortsat both individual and team levels. The criteria for these awardsare well-defined and communicated to the teams as well as theadjudicators. The SMT at Baddi, the youngest team at Dr. Reddy’s,was declared the ‘Best Factory’ in May 2012 for the thirdconsecutive year as per pre-established parameters used across allformulation plants.

Enabling Horizontal as well as Vertical Growth

One of the main objectives of adapting the SMT Way into Dr. Reddy’swas to create ‘wholesome jobs’ that are capable of keeping employeesengaged in their work for a long tenure. The Skill Based ProgressionSystem (SBPS) is designed to promote multi-skilling for SMT members,thereby improving their performance and creating flexibility. SBPSrecognizes employees for the depth, breadth and types of skills theyhave acquired and apply in their work and lays strong emphasis onthe career progression of the SMT members.

Samiran Das, Executive Vice President, FTO, says: “Skill BasedProgression system results in a win-win wherein employees takecharge of their own career by learning many skills while, theorganization, on its part provides a clear WIFM (What’s in for me)to fully leverage this flexibility.”

There are many well-defined skill blocks in a plant including:Manufacturing, Packaging, Engineering, Warehouse and Quality asshown in Figure 7. A skill block consists of a number of job skillspertaining to one particular area (e.g. Granulation area isconsidered to be one skill block with a number of skills identifiedunder it. Compression, Coating and Capsulation are other differentskill blocks7).

7Granulation, compression, coating and capsulation are different processes involved in the manufacturing of a medicine.

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Figure 7: Skill Blocks

Source: Dr. Reddy’s newsletter 2011

Each block has a number of skills that need to be acquired alongwith relevant theoretical knowledge. These are well-defined andrelevant training materials and manuals are prepared for the same.The training modules consist of a mix of on-the-job training andclassroom sessions.

In addition, the skill levels of each of these blocks are defined inthe form of Learn, Execute, Excel and Propagate (LEEP). These levelshelp an individual SMT member assess their learning and identifygaps for further development. Also, as a person crosses a certainlevel (Level 2 in most cases), they become eligible for rotation toanother skill block. A certification process consisting oftheoretical knowledge, work ethics and practical experience isconsidered. Line Managers play a crucial role in enabling thisprocess.

A progression process is also devised to enable team members to takehigher responsibilities and positions. It assesses the overalldevelopment of an individual. The performance rating of an employee,peer feedback, performance in the higher education program and

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acquisition of skills are considered. This has led to some SMTmembers taking charge as Team Leaders in just five years.

Ms. Jayalaxmi, one of the members of the SMT batch of Yanamenumerates the benefits of SBPS: “I was initially in manufacturing at theYanam plant for over three years. I then moved to the packagingfunction and worked there for about two years. Then I got married in2008 and moved to a plant in Hyderabad. I am now working as anAssistant Manager in Quality Assurance. With the basic knowledge ofproduction and packaging, I believe I am able to add better value to myjob. I owe it to the multi-skilling opportunity provided to SMTs, due towhich I have a better understanding of processes like primary andsecondary packaging and compression.”

The story of Ms. Jayalaxmi is just one of the many examples ofcareers being made by the SMT work system at Dr. Reddy’s. The plantin Baddi recently witnessed a process in which 25 (out of 85) teammembers were moved to the position of Team Leader through SBPS. Thissystem has also helped in addressing the challenges related toattrition and workforce management since the SMT way keeps resourcesflexible and multi-skilled.

Despite the existence of SBPS, many members from the initial groupsleft their jobs. The reasons for attrition were lack of clarity incareer progression and the absence of an effective monitoringprocess.

CONTINUOUS IMPROVEMENT TO DRIVE EXCELLENCE

All Dr. Reddy’s plants maintain a special focus on ‘ManufacturingExcellence’ and that includes those which function with SMTs. TheSMT members are encouraged to participate in improving their plants’performance. As a part of Continuous Improvement, teams take upvarious improvement projects in their work area to improve Safety,Quality and Productivity. The SMT members are trained to use toolsand techniques, such as the seven QC tools. Teams took more than250 improvement projects in 2012 leading to a saving of severallakhs.

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SELF-GOVERNANCE THROUGH HUMAN VALUE ACTION TEAM (HVAT)

The SMT work environment necessitates a large degree of freedom,openness and self-sufficiency. How do these youngsters monitor theirown conduct and behavior? Can management remain hands off whilemanaging the plant? Some SMTs, especially from initial batches, tookthe time to understand that what they considered innocent fun couldlead to serious disciplinary issues for the company.

While plants operating the conventional way have disciplinarycommittees consisting of members from senior management and HumanResources for handling such deviations, the SMT Way promotes self-governance and self-discipline. Members themselves draw up a list ofdesired and undesired behaviors and acts relating to the overallculture. Special efforts are made to make all rules visible andcomprehendible. The SMT members in Baddi have created a CitizenshipCharter that is mandatory to be read, understood and signed by allnew team members at the time of induction.

With the focus on self-governance, they have also created a HumanValue Action Team (HVAT) to handle deviations. This team enables ahealthy and conducive work environment by encouraging desiredbehavior, discipline and practices at the work place, whilecorrecting undesired ones through a well-defined process. The mostimportant part of the HVAT is its composition. The HVAT involvesmembers from the SMTs and a typical team consists of: three SMTMembers, two Team Leaders, one Resource Leader, a Facilitator (HumanResource) and a Chairman (Plant Manager).

This process also has its own challenges. It is sometimes difficultfor HVAT members to understand the serious implications of theactions of their peers. In some cases they also find it hard to makedifficult decisions against their batch mates and friends. Hence thefacilitators need to carefully anchor and steer these discussionskeeping in mind the sensitivity involved in the process.

CONCLUSION

Turning traditional thinking on its head, the SMT concept has provedmore effective and successful than it was initially thought of. The

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result is that all of the Dr. Reddy’s plants established since 2005are now operating in the SMT Way. Figure 8 correctly captures theessence of the program and summarizes the entire journey.

Self M anaged Team s (SM T)

▪ Teens –10 + 2▪ 17 / 18 yrs old▪ Underprivileged/in need

▪ G ood Citizens▪ Pursue better and higher opportunities

▪ Purpose/pride▪ Sense of responsibility

▪ DRL’s selection

▪ Attitude/values

▪ M alleable

▪ Team bonding▪ Living together▪ Learning together

▪ On the job training▪ Handholding

▪ On job – independent ▪ Skills – technical/soft▪ W eekend college

Take charge of own destiny, facilitated by DRL program▪ Skill progression (TTC)▪ Career laddering (HR Policy)▪ W IFM (Skill based pay /R&Rs)▪ M entorship – coaching KPIs for DRL m anagers

▪ Respect (Self / O thers / W ork)

▪ Diplom a Degree

▪ Belief in self/pride in work▪ Confidence in skills▪ Learn as you earn

▪ Higher responsibility in DRL

▪ Better equipped to face life’s challenges

Figure 8: SMT Journey

Source: Dr. Reddy’s annual report 2011

Dr. Reddy’s has reaped several gains from the SMT model. The SMTculture creates an agile and energetic workforce which helps inimplementing any initiative quickly. In such plants, the overallproductivity is higher than in traditional plants. SaumenChakraborty, President, CFO and Global Head of HR and IT, says, “Theenthusiasm of the SMT members is remarkable, and their pride intheir work is noteworthy.”

As the awareness and understanding of business, plant operations,processes and systems is high, the SMT members’ ability tocontribute and improve is much higher than those working intraditional systems. The curiosity and inquisitiveness of SMTmembers pave the way for a culture of continuous improvement. “Youcan see a lot of energy pulsating throughout the plant,” says AtulDhavle.

The operations in SMT plants are more seamless as resources becomeflexible and can handle multiple tasks. Decision making is speedier,

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hence execution becomes timely. The overall engagement levels of SMTmembers are higher than in traditional plants as the jobs aredesigned to be wholesome and the work culture empowers team members.

Statistics in the recent past have corroborated the success of theSMT model for Dr. Reddy’s. The plants with SMT culture havewitnessed significant improvement on some key statistics. Theproductivity in these plants has been higher with marked reductionin manufacturing lead times and stock-outs8 of key products. InFigure 9 results from different formulations plants are shown.Plants 1 and 2 are fully on SMT way.

Figure 9: Key Performance Indicators Formulations PlantsSource: Dr. Reddy’s annual report 2011

While the company has benefited with this model, the SMT Waybenefits the employees and society as well. The SMTs get anopportunity to learn at an exponential rate while earning at thesame time. Overall more than 880 SMTs have joined in 24 batches sofar under this program.

The society benefits as many of these youngsters come fromfinancially weak families and this addresses their need foreducation as well as income. As on this date9, 40% of the employeesfrom the initial batches have completed their higher education and

8Lead Time refers to the time taken in making a product available in final form. Stock-outs refer to the situation when an order is not fulfilled due to non-availability. Reduction in lead times and stock-outs help in increasing availability of product in the markets. These are critical parameters for a manufacturing unit.9Data as on June 2013.

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270 SMTs are still enrolled on the course. Another advantage forthe society is that this initiative creates a talent pool that isutilized by the industry. The average attrition rate is 6.20% (afterworking for five to six years with the company) and approximately80 employees are now contributing to other companies in leadingpositions.

Thus, this initiative creates a win-win for all the stakeholders.Despite its inherent challenges, the success of this concept hasencouraged the management to expand it to all the new set-ups andexisting plants as well.

Annexure 1

The Industry

The global pharmaceutical industry, which undertakes thedevelopment, production, marketing and supply of medicines, isvalued at US$900 billion 10-plus with a compounded annual growth rateof 3-6%. It is expected to be valued at US$1.1 trillion by 2016.11

North America, Europe and Japan account for over 80% of this sharecurrently. However, the growth in these markets is muted andmoderate. The bulk of the growth is coming from the emergingmarkets, which include countries such as China, India, Brazil andRussia, amongst others. Most of these markets are growing at double-digit rates.

10This estimate includes all retail sales of pharmaceutical products and institutional sales at ex-manufacturer prices (source: IMS World Review and IMS Midas, December 2012).11 Moody’s Global Pharmaceutical Industry: Return To Earnings Growth In 2013 Keeps Outlook Stable, April 2013.

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The Indian pharmaceutical industry stood at US$12 billion in 2012,registering a year-on-year growth of 16%. India is expected to jointhe league of top 10 global pharmaceuticals markets in terms ofsales by 2020 with the total value reaching US$50 billion. Indianpharmaceutical companies are also amongst the largest exporter ofgeneric formulations globally and contribute significantly tobringing down health care costs worldwide.12

Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) is an integrated globalpharmaceutical company, committed to providing affordable andinnovative medicines for healthier lives. Through its threebusinesses - Pharmaceutical Services and Active Ingredients, GlobalGenerics and Proprietary Products - Dr. Reddy’s offers a portfolioof products and services including APIs, custom pharmaceuticalservices, generics, biosimilars and differentiated formulations.Major therapeutic focus is on gastro-intestinal, cardiovascular,diabetology, oncology, pain management and anti-infective. Majormarkets include India, USA, Russia-CIS and Europe apart from otherselect geographies within the emerging markets. Revenues for thefiscal year FY13 were US$2.23 billion.iii

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ii The authors acknowledge the contributions of the following persons fromDr. Reddy’s Lab who, as true professionals, provided all required data,information during research: Atul Dhavle, Garima Yadav, Jagjit Singh,Richa Yadav, Srinivasu Malladi and Vaidehi Hussain.

THE SMT WAY

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