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.

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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 Nashik Unit Overhaul Contd...

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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

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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.

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Down Again Contd...
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?

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