Weeding out inefficiencies in Processes: A handy guidebook

In my experience, I’ve noticed that when we develop new projects and processes, the primary aim is to get the task completed as opposed to completing it ‘efficiently’. Quite often, efficiency is a secondary aim, to be looked up only once the task is complete.  In a significant number of cases, this secondary aim is never taken seriously as more and more projects come in and employees, as well as managers, find more value in trying to tackling new processes rather than making tweaks to existing ones which are working, albeit not so efficiently.

Over time, these projects build up across the board in a firm and this is where my work in the Process Improvement team (also known as Risk Innovation team) comes in. Our team’s main agenda is to understand these processes, and find solutions, conventional or otherwise, to weed out these inefficiencies from them. On one hand, we need to have significant business insight and on the other hand, we need to be aware of various technologies that can be leveraged to help the business. 

I’ve been working for Morgan Stanley, one of America's largest Investment Banks, for over 2 years now, as an intern for about 15 months in Market Risk and subsequently, as an Analyst in the Risk Innovation team. During this period, I’ve been involved in improving 3 major processes and a few other minor projects, mainly for teams involved in managing Market Risk. Looking back at the projects that I have delivered, I can recall being able to find certain themes or patterns which helped me to weed out efficiencies and make those processes a little more efficient than they were before.

In this post, I’m going to mention a few of those major themes. This will be helpful to anyone who is in charge of running or managing any sort of process or project. Looking at your daily tasks through this lens will help you to identify areas of inefficiency. 

I. “Slowest step is the rate determining step”

This was a famous phrase my high school chemistry teacher used to repeat multiple times as he would teach us how to calculate the rates of chemical reactions. Little did I know that it would be applicable in so many areas of life. Consider a process made up of several sub-processes where one particular component takes up a few hours (could be days too) whereas all other components can be done in relatively smaller time.

Example: Optimize on Sub-process B can add significantly to the overall process

Finding these components of a process is critical to weeding out inefficiencies as these components are the time determining step. Even a small improvement on the smallest step can sometimes make a larger impact on the overall process as compared to a significant improvement on another step that doesn’t take up too much time.

II. Finding loops of repetition

Certain projects involve intermediate components that are repeated in some way or the other before the final results are achieved. Consider a project in which you may have to repeat an earlier step depending on the results that come out at a later stage. It may also be possible that the rules/condition for repetition may not be very concrete or well defined. 

A process involving significant repetition of tasks based on certain rules (that may or may not be well defined)

It is important to look for these parts and figure out ways to improve these steps. Improving loops usually involves choosing between 2 strategies:

1. The elimination strategy - Can we perform the intermediate steps in a way that removes repetition altogether? In other words, is it possible to do the perform the steps in an efficient manner that repetition gets removed altogether?
2. The automation strategy – In case elimination is not possible, can we automate the execution of the steps within a loop? This involved coming up with a set of conditions for repetition that can subsequently be converted into a code form and automated. As a result, the loop can run at the back-end in an automated fashion and the project owner has to only perform the subsequent steps that come after the repetitive process.

Weeding out these loops can save significant time and effort. It also increases the quality of the work of an employee. Rather than indulging in a manual and possibly mind-numbing task, the employee spends more time on tasks that require their financial skills and expertise.

III. Look for the Pareto principle (also known as the 80/20 rule)

There are several processes that are normally too complex to be automated. These are processes where the possible ways or paths of getting to the result are exponentially large and involve significant trial and error based on human expertise and intuition instead of a straightforward approach. These processes are normally very difficult to automate in entirety as there are several intermediate steps where human intervention is needed.

However, even in these processes, significant effects can be achieved based on the Pareto principle:

“For many events, roughly 80% of the effects come from 20% of the causes”

In principle, these means that if a process can be mapped out as a complex tree with multiple branches, there will be only a few branches (20%) that will be explored roughly 80% of the times. If there are 10 possible tasks that a process owner may be required to do based on the results of a previous task, chances are that the process owner will have to execute only 2 of them for roughly 8 times out of the 10 occasions that the process is run.

Whenever we’re presented with more complex projects, finding these areas of Pareto efficiency are critical to improving the project. Targeting these areas and speeding up these parts can have a large impact on the whole process. Using the Pareto principle, reducing the execution time of the commonly executed paths of processes by half can still lead to an overall improvement of nearly 40% over the whole process in the long term.

Textile and Clothing Trade Pattern of South Asian nations

Introduction

Trade in Textile and Clothing is generally considered as the first step towards industrialisation. It is important in creating jobs and also foreign exchange receipts through trade in the short run. In the long run, it provides an opportunity for sustainable economic development if appropriate policies and institutions are in place (Keane and Willem te Welde, 2008).

It was one of the key drivers of industrialisation in Great Britain in the 18th century. Even now, it continues to play a key role in development of countries in early phases of industrialisation. On an average, Textile and Clothing industry contributes to about 7% of GDP in Low Income Countries (Keane and Willem te Welde, 2008).

Even in the last few decades, it proved to be a key component of low income and developing countries. It has played an important role in China’s export led growth in the past few decades. In the 1980’s, Textile exports formed a significant part of China’s exports. This was followed by a transition to manufacture and export of Clothing products which typically use textiles as an input and have higher value addition associated with them. With time, as China’s manufacturing industry diversified and more developed, the contribution of these two to the overall exports dropped (Figure 1). This is in line with the standard theory of industrialisation which begins with low value added manufacturing goods and later transforms into manufacture of high value added goods.

Figure 1: Contribution of Textile and Clothing to Total Exports (China) (Source: WTO)

Intra Industry Trade is another factor that helps determine the level of maturity of an industry. High levels of Intra Industry Trade signify a mature and developed industry. In China, Textile industry reached an Intra Industry Trade level of 75% around the same time that Textile industry’s contribution to trade began declining. (Figure 2) It eventually reached nearly a 100% before falling down again. This may possibly due to decline in domestic textile manufacturing due to rising costs. At the same time, role of textiles in exports kept declining. In clothing, IIT remained low, signifying an export oriented manufacturing industry.

Figure 2: China’s IIT in Textile and Industry

Textile and Clothing manufacturing is now being seen as the starting steps to industrialisation by South Asian nations as well. In this paper, I analyse the role of Textile and Clothing in trade pattern of Bangladesh, India, Pakistan and Sri Lanka. Table 1 shows the average contribution Textile and Clothing as a percentage of GDP for countries in different levels of development (Keane and Willem te Welde, 2008)

Country Group	T&C as a % of GDP	GDP Per Capita (PPP)($)
Least Developed Countries	1.1	2710.6
Low Income Countries	7.0	3822.1
Low Middle income Countries	3.4	6419.1

Table 1: Average value of Textile and Clothing (T&C) as % of GDP, GDP Per Capita (PPP) (Keane and Willem te Welde, 2008)

All 4 countries chosen for this analysis lie around the Low Income and Low middle income category. These nations also have a similar structure in terms of contribution of manufacturing sector to their total GDP (Table 2). Hence, all of these are now competing with each other to be the next destination for manufacture and export of Textile and Clothing products in order to boost their manufacturing sector. I analyse the following variables for each country:

1. Total Export and Import in Textiles (Primary source from WTO)
2. Total Export and Import in Clothing (Primary source from WTO)
3. Total Merchandise Export and Import (Primary source from WTO)
4. Total Intra Industry Trade (IIT) estimated using 1, 2
5. Export and Import as a percentage of total merchandise export or import estimated using items listed as 1, 2 and 3 above

Country	GDP per capita (PPP, $) (2015)	Industry Value Added (% of GDP) (2015)
Bangladesh	3332.8	28.15%
India	6088.65	30% (2014)
Pakistan	5041.72	18.99%
Sri Lanka	11738.88	30.71%

Table 2: GDP per capita (PPP) and Industry VA (%) by country (2015)

However, the approach for the same has been entirely different and the process of development of these industries has been entirely different in each country.

Bangladesh

In terms of percentage of Clothing and Textile in total merchandise exports of Bangladesh shows a story similar to that of China - a major role played by textiles followed by clothing (Figure 3). The IIT trend lines (Figure 4) in clothing and textiles also show saturation in textiles around the same time as decline in textile exports (as % of total exports) and eventual decline in IIT. However, it still has not dropped to the level seen in case of China. This possibly signifies continued presence of low cost manufacturers within Bangladesh. In addition, owing to its small size and lack of alternative industries coming up, Bangladesh now has a high dependency on clothing exports. As of 2015, 82.16% of its total merchandise exports were made of clothing.

Figure 3: Textile and Clothing Export as a fraction of Total Merchandise Export

Figure 4: Textile and Clothing IIT in Bangladesh

India

India’s story of trade in textiles and clothing in very different. There is a low level of Intra Industry trade (Figure 5) but at the same time, there is a low level of contribution of Textile and Clothing to total exports of the country (Figure 6). This is largely due to India’s large country size. As a result, India’s trading patterns seem to be highly diversified, from primary commodities like Rice to high value added products like pharmaceuticals. At the same time, India has not shown a strong tendency for export led growth in merchandise as compared to China and Bangladesh. It has instead focused on export in services, typically IT services.

Figure 5: Textile and Clothing IIT in India

Figure 6: Textile and Clothing exports as a fraction of Total Merchandise exports in India

Another interesting point is that India’s export patterns do not follow the trend of transition from textile to clothing that was followed by China and Bangladesh. In fact, the contribution of textile and clothing to total exports are nearly equal and seem to be moving together, both in terms of contribution to total exports and absolute value. (Figure 7)

Figure 7: Total Exports in Textile and Clothing in India

Pakistan

Pakistan still seems to be having a higher level of export in textiles as compared to clothing (Figure 9). At the same time, IIT in both these industries is low  (Figure 8) suggesting that these industry are still in either  infant or rapidly growing stage. The transition from textile to clothing industry still hasn’t taken place in Pakistan. This is also supported by other macroeconomic evidences about South Asian countries collected at the beginning of the paper. Out of all 4 South Asian nations, Pakistan has the lowest level of Value Added to GDP coming from manufacturing sector (Table 2). This suggests that Pakistan’s Textile and Clothing sector (and possibly industrial sector as well) is lagging behind as compared to Bangladesh, India and Sri Lanka.

Figure 8: Textile and Clothing IIT in Pakistan

Figure 9: Textile and Clothing export as a fraction of Total Merchandise Export in Pakistan

In fact, analysis of Industries’ share of GDP for the last 2 years actually shows a stagnation and decline in Pakistan’s industrial sector characterised by a drop in contribution of around 21% to around 19%. This could possibly be attributed to political instability and domestic conflict in Pakistan in different areas.

1. There is an ongoing conflict in its North-West provinces bordering Afghanistan against Taliban and related factions.
2. A conflict in South-West provinces of Balochistan. Factions in Balochistan are demanding autonomy and independence from Pakistan.
3. In addition, Pakistan’s relations with India have become extremely stressed over the past couple of years in the region of Kashmir.

Sri Lanka

Sri Lanka seems to be another interesting case. It’s IIT has remained low in both textile and clothing (Figure 10). In terms of exports, it seems to have taken a direct jump to clothing (Figure 12). It’s clothing exports have risen while maintaining negligible export of textiles as a percentage of its total exports. While it may have been possible that Sri Lanka made a switch before the time frame considered in this analysis, a study of Sri Lanka’s total merchandise trade shows that the country has historically indulged in negligible trade that has risen rapidly since the 1990’s only (Figure 11). This suggests that a direct jump was made instead of a transition from textile to clothing.

Figure 10: Textile and Clothing IIT in Sri Lanka (Dip around 1998 and 2000  is due to unavailability of data)

Figure 11: Sri Lanka’s Total Merchandise Export (in mm)

Figure 11: Export in Textile and Clothing as a fraction Total merchandise export and Import in Clothing as a fraction of total Merchandise Import in Sri Lanka (Dip in 1998 is due to unavailability of data)

On the other hand, there seems to be a correlation between import of textiles and export of clothing. This seems to suggest that Sri Lanka has adopted the Global Value Chain approach in order to use clothing as a tool of industrialisation. This also seems logical since Sri Lanka happens to be a very small island nation with limited land and human resources. At the same time, Sri Lanka has the same level of reliance on Textiles and Clothing together as a share of its total exports as Pakistan. However, in case of Pakistan, textiles take a majority share of the two and it’s the other way around in case of Sri Lanka.

Conclusion

The above analysis shows that all 4 nations are still developing Textile and Clothing industry as a source of employment as well as revenue from trade. However, the approach and its result has been different for all 4. In case of Bangladesh, it has followed the same trend as China but has led to an over dependence on trade of clothing due to lack of alternative industries to shift to. In case of India, the two industries are growing and moving in parallel. Since India is a big country and has trade revenue from other higher value sources (services and pharmaceuticals), it lacks the focus in these industries like present day Bangladesh or China of 1980’s. Pakistan is still at a nascent stage of industrial development compared to all other nations and is still trading more in textiles as compared to clothing. Sri Lanka has adopted the approach of being a part of a GVC in clothing industry wherein it imports textiles as an intermediate product and processes them to produce clothing as the final good.

Comparison of these nations with each other is difficult due to huge variations in their sizes relative to each other. Hence, relative parameters like percentage of total exports and IIT were used for most of the analysis. In absolute value of exports, Bangladesh is leads in export of clothing and India leads in export of textiles. However, transition to other high value industries must take place for Bangladesh and Sri Lanka if they wish to sustain the growth levels that they have achieved through export of clothing. At the same time, Pakistan should find a way to transition to manufacture and export of clothing. India should look towards mechanisation and modernisation of its textile and clothing industry if it wishes to stay competitive with its low cost neighbours.

There is another aspect of this trade phenomenon. The competition between these nations for business opportunities also creates a price war between them which MNCs of clothing and apparel industry exploit by bargaining between them and getting better deals for themselves. As a result, the wages in these countries tend to remain low and the real proceeds from this trade go to the MNCs which enjoy a strong negotiating power against them. This is a long term challenge that South Asian countries can only tackle with cooperation instead of competition.

References

[1] Keane, Jodie and Willen te Velde, Dirk. 2008. The role of textile and clothing industries in growth and development strategies. [Online] Available at: https://www.odi.org/sites/odi.org.uk/files/odi-assets/publications-opinion-files/3361.pdf [Accessed: 2016, December 8]

[2] WTO Database: http://stat.wto.org/Home/WSDBHome.aspx?Language=

[3] World Bank Databank: http://databank.worldbank.org/data/home.aspx

And so it begins...

This is the second blog that I'm starting in less than a year now and just like the last one, I have a bunch of mixed feelings with this one as well. The positive side of this mixed bag are feelings of promises, ideas, excitement. The negative side being worries about time constraints, criticism and conviction in it's purpose.

However, unlike my previous blog, this one is intended to serve a more concrete purpose. I am an economics grad student in Budapest. For as long as I can remember, I have had a habit of coming up with random applications of things that I learn. These applications range from making funny stories about chemical reactions in organic chemistry to writing love letters in discrete mathematics.

The basic intention behind such actions has been to score better. Considering the given examples, in an exam or in bed. Although I have realised over time that I do this thinking even when there is no real incentive for me. I do it to make reinforce the things I learn and to grasp the concepts better. You see, when I apply what I've studied in such ways, it becomes a fun exercise for me and as a result, I'm able to transform the mundaneness of classroom/textbook education into an enjoyable exercise.

I don't mean to imply that my classes are boring or my textbooks make me sleep. I enjoy both of them for the most part. I believe it has to do with this deep curiosity about the fact that all people do not like all subjects equally. It is very understandable that everyone has different tastes. My sister loves classic novels, history and fashion but she cannot do differential calculus even if her life depends on it. I can write beautiful C++ codes. In high school, I orgasmed after solving a physics numerical on rotational mechanics at times but I look like a homeless person on most days and it takes me ages to finish a fiction novel.

Given this fact that everyone is not equally efficient in performing in certain areas, I always thought about how I can become manageably good in my areas of weakness. This thought extrapolated to the following question: "Given that a student is weak in a subject, how can he/she study in a manner to become manageably good at it, if not the best?" The only reason this question exists is because I couldn't write my sister's math exam and she couldn't write my history quiz. We all had to do our part.

Hence, I developed the habit of applying my learning in random ways. Over the last 1 year, I have done more of the same and I think it's time that I started writing them down and sharing with all those who might find it interesting. So basically, this blog will have ideas, stories, letters/poems etc. Anything in which, I apply the concepts I study or have studied in the past in ways only my imagination can come up with. I request you to feel free to share your thoughts, criticisms and appreciation in the comments section below.