atmanirbhar bharat: view: a corporatized artillery factory council is aligned with Atmanirbhar Bharat
Global competitiveness requires lean, lean and efficient organizations that have management skills that meet global standards with minimal government interference. In keeping with the spirit of “minimum government and maximum governance”, one of the most difficult tasks the government has undertaken has been an attempt to corporatize the OFB. This could easily be considered one of the most difficult modernization efforts of a gigantic organization, anywhere in the world.
The Ordnance Factory Board (OFB) is the coordinating body of the 41 Ordnance Factory (OF), a production arm of the Department of Defense Production (DDP), Ministry of Defense. These factories have a vintage of over two centuries (British heritage) and produce a wide range of products from troop uniforms to complex ammunition, explosives and battle tanks. They were set up as integrated units to meet the needs of the Indian armed forces in times of war and peace.
For many years TOs have transported excess capacity, especially during peacetime when full capacity has not been used. This excess capacity (mainly in the form of installations and machines) is permanently maintained by the OFs. To add to this, OFs, being strongly coupled with complex defense production mechanisms encompassing quality, products, compliance and administrative procedures, find it difficult to use their assets in alternative applications. Such underutilized excess capacity has resulted in a high cost structure for the overall management of OFs.
Global competitiveness, technological proliferation, technological obsolescence, the pace of modernization of manufacturing processes, the integration of contemporary technologies such as AI, AR, virtual reality in manufacturing processes, impose a huge asks organizations. Change is the only constant and therefore this organization must also evolve. The mode of fully integrated operations and unloading of final products to the end customer is a thing of the past. The new rule of the company is to offload business segments via alliances that are not aligned with the core competence of an entity. Such unloading is supported by the need to optimize the total costs of unloading products for customers.
The Union Cabinet at its meeting held on June 16, 2021, took a major decision to introduce a long-awaited reform in defense manufacturing by converting OFB into seven Indian government-owned business entities with professional management. This is a historic and bold move to allow OFB to realign its operations to meet evolving business rules. Competing demands such as social welfare, agricultural competitiveness and other sectors have posed a huge challenge to the GoI in budget allocation. The budget of the Ministry of Defense decreases as a percentage of GDP from year to year. The Indian armed forces have little choice but to adapt to tenders to reduce costs. The private sector has also reached maturity. A light and efficient entity will be better placed in this competitive race.
The corporate entities will be autonomous while exploring opportunities for a better use of assets, resources through new partnerships / alliances, diversification and entry into new markets. The incorporated entities will be competent as well as being accountable and responsible for the ammunition supply to the armed forces of India and elsewhere. This should translate into sustained orders and revenues from improved product quality. The corporate entities will also perform well and will be able to gradually reach performance levels of six sigma standards by adopting a well-defined and graduated action plan. Corporatization is an exercise in transforming OF into productive and profitable assets, deepening specialization in the range of products, improving competitiveness, improving quality and profitability. Incorporated entities will be able to source inputs from other cheaper suppliers instead of relying on sister FOs, thereby removing inefficient and complex supply chains.
Of course, the corporatization of OFB is not a panacea for all its illnesses which have persisted for decades. However, incorporated DPSUs can now embark on their respective growth journeys supported by their own 3S, i.e.
strengths, strategies and surpluses. The corporatization exercise is expected to prompt DPSUs to focus more on innovation across multiple product chains in India and elsewhere. With the transformation into a corporation, DPSUs will be allowed to enter into strategic partnerships with domestic and foreign companies, research and development entities, obtain debt / equity funds and explore export opportunities. The wide range of opportunities in defense manufacturing, coupled with an increased focus on markets and customers due to corporatization, is expected to turn OFB into the 21st century manufacturing ratnas in India.
The corporate OFB will have the potential to compete with the best in the world. While the government can make structural reform, a change in staff attitudes is a critical prerequisite. Change is needed from within, moving away from comfort zones can produce magical results, given the huge investment made by the government in terms of infrastructure, skills and training. It’s time for people to play.
Colonel KV Kuber is an Indian Army Veteran and Director, Aerospace and Defense, Ernst and Young LLP
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the views of www.economictimes.com