Crompton Greaves' Operations

Overhaul

The Bluechip's Downfall

Crompton Greaves Ltd. (CGL), the flagship company of the
L. M. Thapar group was one of India's leading private sector
electrical engineering companies. CGL manufactured a wide
range of transformers, switchgears, control equipment, motors
and related products and railway signaling equipment besides
consumer products.

CGL was incorporated in 1937 as a 100% subsidiary of the

UK based Crompton Parkinson Ltd., (CPL), under the name of
Parkinson Works Ltd. (PWL). In 1948, the L. M. Thapar group
company, Greaves Cotton & Co Ltd. (GCCL), acquired a 26%
stake, which was later increased to 50% in 1956. In 1966, a
joint venture company (between GCCL & CPL), Greaves Cotton
& Crompton Parkinson Ltd. was amalgamated with PWL. The
company was renamed as Crompton Greaves Ltd.

Over the years, CGL evolved from being a single location

company manufacturing ceiling fans and AC industrial motors,
into a multi location, multi product company. In the late 1970s,
CGL entered into various technical collaboration agreements
with renowned companies from USA, UK, Europe and Japan.
These activities (many undertaken as joint ventures), were in
related products, supplementing the company's main business.
While many of these companies were amalgamated with CGL,
some of them were divested as well during the following years.
In 1987, CGL began its diversification moves and entered the
telecommunications and industrial electronics arena. The
company also undertook turnkey engineering projects and
began providing information technology services.

During the 1980s, CGL was in dire straits with profitability

at all time lows. Nohria said, "In 1982 and 1983, industry in
general and the electrical industry in particular was gripped by
recession, and the scenario changed from a seller's market to a
buyer's market. Falling demand combined with higher
production capacity and employment levels resulted in
declining productivity during 1982-84 at Crompton Greaves."
The CGL management realized that it would have to take steps
soon enough to put the company back on track. Nohria
believed that operational efficiency was one of the keys to
organizational effectiveness and long run profitability. Besides
working towards an overall restructuring of the company,
Nohria decided to focus on total quality management to
improve CGL's performance.

The Nashik Unit Overhaul

Nohria began by talking about improving quality and
response to customer demands and improving delivery.
Shopfloor workers were sent to visit customers and get first-
hand responses on products. Cross-functional task forces were
created to look into rejections and deliveries began to be
monitored closely.

The most evident of the company's efforts were at the

switchgear unit in Nashik, Maharashtra. This 1400 worker unit
was one of CGL's heaviest investments, with the maximum CNC
machines , high voltage testing laboratories and state-of-the-
art manufacturing facilities.

As part of the plans to increase resource productivity, the

unit had its first total quality management program in
December 1991 wherein CGL emphasized that the entire
approach should be changed to 'value added management.' In
the earlier setup, CGL followed an European model wherein the
planning department worked out the optimum load based on
capacities, and told marketing what mix of orders to bring in.

In the new setup, the marketing department gave the

customer demand figures and everything was geared to deliver
on the date the customer wanted. During 1993-95, the unit had
over 21,000 kaizens , making it the unit with the highest
number of kaizens in the country. The biggest change was
regarding the reorientation of the production process itself. The
unit began using the concept of single piece flow (SPF), which
had been successfully used by different industries abroad. One
group of machines was arranged so that work proceeded in an
anti-clockwise, 'U' shape. Rather than one product being made
at different points on an assembly line, one entire product was
made from start to finish by one cell.

This was combined with the concept of kitting, (providing

only enough material to produce one item at a time) which
meant less wastage and better inventory control. The inventory
carried declined from 2.87 months in 1992-93 to 2.35 months
in 1994-95. The inventory-turnover ratio went up from 2 in
1992 to 7.5 in 1995. This was largely due to a computerized
model installed for inventory control. Minimum, maximum and
re-order levels were determined by this model and it covered
all the 'A' and 'B' items . At any given point of time, the growth
in sales was always greater than the inventory build up.

The above setup offered many other advantages. While

production volumes were more or less the same, they now
required only one-fourth the floor space. This released space
for new products. Turnover or rotation of space therefore
increased by three times. Also, smaller batches offered more
flexibility and therefore higher customization. SPF also
increased the pressure on processes by identifying problems
and bottlenecks very quickly. For instance, one shop had a
board with different-colored bulbs that indicated the reasons
for various bottlenecks. For instance, if there was no material or
no order, a red bulb lit up; if the basket was full, a yellow bulb
lit up, and so on. This resulted in efficiency improving by 10%.

CGL found out that the steel brought into the factory was
worked on for 1-48 hours, but was kept in the factory for as
many as 147 days. Factory sources revealed that though the
investments in new machinery brought down the working time
by 50% from 48 to 24 hours, the efficiency could further
improve if the above problem was tackled.

CGL worked on the housekeeping front as well to make

the unit more efficient. Material was organized so that no
searching was required. All the items were allocated a place,
close to where it was used, with the date and inspection status
marked on it. The layout was correspondingly changed so that
minimum transport was required. None of the machines were
grounded, which meant that layouts could be changed easily.
Several meters of pipe in different colors were put up so that
problem lines could be easily identified. Fixtures were also
colored according to the product they were used to make.
Detailed instructions in both English and the local language
Marathi were put up at various spots. Charts displaying the cost
of energy per machine per hour were put up to reduce energy
wastage.

CGL formed cross-functional teams to identify and solve

problems on the shopfloor. For instance, a malfunctioning
magnetic sensor (which would have cost Rs 80,000 and taken
six weeks to import) was fixed for just Rs 440. This was made
possible by a technician who went to Pune and spent two days
with a local manufacturer to set the sensor right. To reduce set-
up times and ensure faster changeovers, teams were formed to
work towards bringing the time elapsed in exchange of dies to
a single minute. 'Andon' devices were installed on automatic
lines to warn of faults that would have otherwise been passed
without being noticed, and later rejected or reworked. For
instance, any fault in the insulation of copper wire resulted in a
signal from the andon device installed.

Reaping Benefits
CGL's efforts seemed to have paid off initially as between
1990-95, CGL doubled its turnover crossing the Rs 1000 crore
mark. Productivity went up from Rs 6 lakh per man per year to
Rs 12 lakh. Profits also increased by six times. There was a 30%
reduction in the total number of workers needed because of the
increased efficiency. However, CGL did not retrench any
workers and instead redeployed them where necessary. The
time spent by employees on training also went up from 1% to
3%.

Since CGL assured job security to the workers, the union

agreed to productivity increases of 38% in 1991, and a further
20% in 1994. There were significant positive changes in the
attitudes of the workers as well as the management. While
skilled workers began contributing in routine tasks (such as
unloading of material) if required, they were also given
sufficient authority (such as to refuse to use inferior materials.)
The management also began measuring managerial efficiency
based on certain internally decided parameters. The efficiency
was found to have gone up from 23% to 51% during the same
period. The unit also began using information technology to
further improve its efficiency.

A company official commented, "We are beginning to use

Infotech for fast information, to compress the business cycle
time from the receipt of the order in the branch, to planning
and delivery." CGL also formulated a vendor development
program for many of its 804 vendors besides linking several
ancillaries to the company through computer networks.

Down Again

CGL could not replicate the success of its Nashik factory

on a corporate level. Over the next decade, CGL's performance
declined significantly. A main reason behind this was the fact
the company's presence was predominantly in low margin
businesses and its pricing power was low. A significant portion
of the revenue came from motors and consumer products like
fans, lights, luminaires, and telecom equipment. In motors,
although CGL supplied the entire range, technology was fairly
simple and entry barriers were low.

The domestic motors market was dominated by the

unorganized sector and margins were low. In consumer
products also, entry barriers were low and CGL fought with the
unorganized sector for shelf space. The telecom equipment
market was characterized by high competition, including MNCs.
All this resulted in CGL reporting net losses in the fiscal 2000.
The company's long term competitive position was rather weak
in the absence of technology support. Also, CGL spent just 1.5%
of its turnover on R&D, which was significantly lower than that
spent by multinationals like Siemens and ABB and even Indian
conglomerates like BHEL and L&T.

In the late 1990s, CGL revealed plans to split itself into

three companies - power and industrial systems, consumer
products and digital, to be headed by independent
professionals. This was expected to enable each company to
form separate strategic alliances to enhance competitive
strengths. However, procedural delays led to this plan being
deferred. CGL then set up a five-member committee to review
its operations. The head of this committee was Sudhir Trehan,
who had taken over from Nohria as the CEO in 2000.
 Trehan immediately began taking steps to prune costs
such as consolidation of production capacities at factories,
closing down of some of the corporate offices, shifting of
factories from high cost locations to low cost locations and
reducing employee strength etc. Trehan's moves prompted
analysts to remark that CGL seemed to be planning to rewrite
its Nashik unit success story all over again with another
company wide operational overhaul in the offing.

Questions for Discussion

1. Analyze the steps taken by Crompton Greaves at its Nashik

unit to improve operational efficiency. Comment on the
advantages of the single piece flow (SPF) system adopted by
the company?

2. Study the steps taken at the Nashik unit on the people and
housekeeping fronts to supplement the overall 'value added
management' initiative. In what way did they help the unit in
improving efficiency?