Crisis-Management Activity of KAMAZ-Diesel Inc. and Maintenance of Jobs

The report made by Yury I. Gerasimov, Director General of KAMAZ-Diesel Inc., on September 6, 2010

For certain reasons, the economic crisis of the end of 2008 mostly affected companies manufacturing investment products, especially truck industry. Our enterprise – KAMAZ-Diesel Inc. – also suffered from the consequences of the recession.

KAMAZ-Diesel (its previous name is the engine plant) is a subsidiary of OJSC KAMAZ producing power units, engines for trucks and spare parts for them.

During the first period of the crisis – the 4th quarter of 2008, production volumes almost halved. The further effects of a slumping market demand were even more critical: (even taking into account that the 4th quarter was crisis, 62573 power units and engines were produced in 2008, whereas in 2009 only 28395 units were produced (45.5%). Gains fell from 27.1 billion to 12.7 billion roubles (46.8%). And besides, the “collapse” of the market itself was even stronger, and we managed to avoid disastrous effects (especially in the 1st quarter which is usually difficult for us) due to successful negotiations held by the management of OJSC KAMAZ and the Ministry of Defense devoted to placement of additional orders for trucks: almost a quarter of the total production volume in 2009 was an order for the Ministry of Defense (in comparison, the share of products made for the military was less than 10% in 2008).

Following the slump in production volumes, losses of the enterprise reached 643.8 million roubles in 2009, and its burning issue was to survive and maintain jobs.

This decline in financial and economic indexes affected the employees of the plant: both their earnings and employment. Their wages fell considerably, from 14.5 thousand roubles to 9.2 thousand roubles. However, despite huge losses, labor costs dropped slower. Moreover, the wage ratio in the production price increased, though it bore an extra cost loading.

Also, we couldn’t do without staff reduction. It was a part of the bailout program. But we did it not to cut costs, but to maintain the core of our personnel. Otherwise, the company would lose its labor potential and would be among outsiders after the crisis, which we can’t venture because our enterprise is forming a company town. The redundancy was not wide-scale, though. During a period from September 2008 to July 2010, the number of employees at the plant decreased by 1483 people (18.3%). Only 731 people of them (9% of the number of employees before the recession) were dismissed on grounds of redundancy.

In order to come out of a difficult situation and maintain its jobs, the plant developed a bailout program which included 3 main directions:

• measures to cut costs;
• measures to increase production and sales volumes;
• measures for anti-crisis HR-management.

Here is a detailed account of each direction.

In order to improve the enterprise’s financial state, a number of measures were developed to reduce costs, which enabled to save 344 million roubles in 2009. On the whole, we managed to save having reduced material costs owing to design improvements, a cut in prices for purchased commodities and materials, energy resources (heating and electricity, compressed air).

We worked hard to improve labor productivity. In particular, we greatly revised the enterprise’s organizational structure, excluded intermediate and duplicate structural units of management.

Notwithstanding enormous losses, all these steps helped the plant and KAMAZ survive. Measures were prepared to save costs to the tune of 634 million roubles in order to breakeven this year, and according to the results of the first half-year everything is executed according to planned values. In order to reduce overhead expenses, we continue to re-engineer production areas, move equipment from the shop of gearbox production to the main building of the plant. According to our plan, Kamsky Industrial Park Master will rent our available areas (9,720 sq. m.) where new jobs will be created for our citizens.

Also, I would like to tell how the plant develops the KAMAZ Production System based on the principles of lean production and aimed at the search and elimination of all wastes. To date, over 4 thousand workers are trained how to use the main tools of lean production, and we plan to train all our employees. Thanks to the main lean production instruments implemented in 2009, 52.5 million roubles were saved, and over 30 million roubles were saved for the first half-year of 2010. An engine assembly cycle was reduced more than one-half, which was a great achievement.

One of the main tasks here was to get the workers of the plant interested in a new philosophy, get them involved in the continuous process of improvement and perfection. As, besides an economic effect, the conception of lean production has got a social effect – it helps the workers not to fall into a rut, but to achieve the main goals of the plant. An incentive scheme was developed to solve this task; it motivates the employees to introduce improvements (the so-called kaizen activities). That is, bringing an economic effect for the plant, a worker has got a chance to earn and improve his or her well-being. As a result, only for the first half-year of 2010, 13,626 kaizen activities were suggested, and almost 10.5 thousand of them were implemented. In general, these suggested kaizen activities applied to modernization of equipment, tools, improvement of labor conditions, quality of production, reduction of costs and loss of time. In many aspects, it was exactly due to the crisis that the personnel actively worked in this direction and continues working even harder month after month: while before the recession – the third quarter of 2008 – the total sum of rewards for suggested kaizen activities was only 86 thousand roubles, for the second quarter of 2010 this sum went up to 1.8 million roubles.

Another line of the anti-crisis strategy was measures aimed at maintenance of production and sales volumes.

The following is being done to master a new range of products:

• Production of Euro-4 engines with a Common Rail injection system is being prepared.
• A modern transfer case 6522 is being mastered. Already in 2010 it enabled to create almost 100 new jobs.
• Development of new constructions of details of a front axle 6522 is planned.
• (Production of localized details for ZF gearboxes and Cummins engines (crankshafts, cylinder heads, flywheels) has been mastered and will continue developing. Localization of details for ZF Kama and Cummins Kama Joint Ventures will make it possible to create at the minimum 165 jobs already during this year.

We pin our hopes on development of diversification products in order to increase production volumes. Despite a curtailment of truck sales in this area, we even intensified our business activity. In 2009 a commercial department was established at the plant and immediately received serious tasks. And results did not take long to appear. With the halved overall market demand for production of OJSC KAMAZ, in 2009 the volumes of diversification products dropped by 10% against 2008. The planned volumes for 2010 are half as much again as the volumes before the crisis, and, according to the results of the first half-year, they are executed. Particularly, we pin our hopes on production of generating sets.

Finally, great work was done in the sphere of HR-management during the crisis.

In order to avoid a smash of our business which would have entailed a social catastrophe in the city, we had to cut costs, including labor costs. So, instead of mass-scale redundancy, KAMAZ and our plant introduced a short working week. Of course, it didn’t take long to affect the employees’ earnings. Though the personnel’s wages almost halved, it’s better than to let a worker know that he is not wanted anymore. In that difficult situation in the labor-market, the situation of large-scale unemployment, it was important for us to keep the employees’ sense that they are “wanted” and involved in our common cause.

In order to somehow increase the workers’ earnings, on the days of idle time temporary jobs financed from the federal budget were created. Below I will dwell on this issue.

Also, at the expense of the federal budget, the workers of the plant were trained to receive the second profession (277 people were trained in all). It enabled to guarantee employment due to the workers’ subspecialties. The retraining was beneficial for the workers as they were secured of employment (if one can say so, they were immune from reduction).

The next direction of anti-crisis HR-management was creation of the “gold” personnel reserve – the list of professions and specialties which determine both the current work of the plant and its labor potential in the future. A discharge review board was established to maintain such jobs; it considered each case of a possible dismissal separately, analyzed a worker’s problems, causes of his discharge and offered solutions.

During the crisis changes were made in the scheme of payment, too. If a worker’s suggestion yielded a real economic effect, its part was used as his material remuneration.

Not long ago, a statue of staff incentive for development and promotion of new products was introduced. This statue provides for payment of remuneration to the tune of 10% of the marginal revenue for workers who participate in development and realization of new production.

In August 2010 all workers of KAMAZ went on regular leave. It not only effected savings of energy resources, but also had a social effect. Workers always try to go on leave in summer, and already from the Soviet times workers who violated rules were placed on leave in a cold period as a punishment. To date, the problem of equal distribution of vacations within a year is solved. Besides, this measure secures a full staffing level.

I would like to make a special emphasis on regular meetings of the administration with the employees held at the plant. Every month the trade union committee of the plant names shops the workers of which need to hold meetings, have a lot of questions to ask; it makes a schedule of meetings (5-6 meetings a month) with the participation of the managers who can answer the employees’ questions. In general, these are questions which concern wages, employment, prospects, etc. We teach the basics of economics at these meetings: explain the causes of the economic crisis, how it affected the work of KAMAZ Corporation and our plant, in particular, how it entailed the decrease of the employees’ wages, which measures are taken by the management of the plant, KAMAZ, the city, the republic in order to go out of the recession, etc. Yes, our workers’ economic condition won’t improve after such meetings, but an informed person won’t feel that he or she is left to the mercy of fate.

As is stated above, temporary jobs helped our personnel very much.

Our workers were employed on temporary jobs on the days of idle time, and, in addition to payments of two thirds of a wage rate, the workers could earn the sum at a rate of 4331 roubles for half of a monthly working time fund, that is workers’ total income made about 600 roubles a shift, which was a rather substantial addition to their wages.

It should be noted that we had started using this practice at KAMAZ’s plants before temporary jobs were organized. In the most difficult period of the crisis – January-February 2009 – the workers of the plant signed civil law contracts to fulfill functions other than their main duties: for example, tidying up and construction activities which had before been executed by outsourcers. Then it was decided that a part of such jobs can be done by the employees of the plant for guaranteed employment. As a result, up to 1.5 thousand people were involved in such activities, and more than 5 million roubles of wages were paid for 2 months due to savings on costs of services of outsourcers.

As regards temporary jobs, thanks to successful cooperation of the management of OJSC KAMAZ with the Ministry of Labor, Employment and Social Protection of the Republic of Tatarstan, we managed to provide the workers of the plant with additional jobs and earnings almost for a year (from June 2009 to April 2010 inclusive). The number of new jobs always grew: whereas there were 1,052 additional jobs at the initial stage when temporary jobs were organized (June-July 2009), the number of additional jobs grew to almost 7,000.

For this period, 69 million roubles of wages without allocations for social needs were additionally attracted.

Besides a social effect, there was another, not less important result – the plant changed. And, to add to this, within the limits of the organization of temporary jobs, patronage assistance was given to schools and preschool institutions of the city. So, we can say about a synergetic effect which includes achievement of social goals, development of the infrastructure both of the plant and the city.

Summing up, I would like to say that the continuing crisis has greatly affected the plant’s activity, and we will reap its fruits in the future, but I believe that we will get of the crisis with credit: we learned to more efficiently manage our costs, became more efficient, learned adaptiveness to continuously changing environmental and internal conditions. Under conditions requiring a survival strategy, we increased a share in the truck market and entered new markets. Finally, we kept our main human resources. It gives hope that we have stored potential in order to become even stronger in a competitive struggle in the future.

Yury I. Gerasimov, Director General of OAO KAMAZ-Diesel