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 Nashik Unit Overhaul Contd...

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.

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?