BHEL- Another Case of Missed Opportunity

As on March 31, 2008, power equipment supplier and Navratna PSU, BHEL had orders worth Rs 85,500 crore, about four times its revenues for the year. BHEL missed its delivery promises time and again in past. It is a burning case of the failure of proactive planning by a ‘Navratna’ company. And it is because the company management works under constraints of government control and the failure to meet the targets promised is tolerated.

Since last one year, the company is trying to boost its capacity, and resorting to all avenues. BHEL is expanding its capacity from 10,000 MW per annum at present to 15,000 MW by December 2009. BHEL is investing Rs 4,200 crore in the 11th Plan period that it would have done earlier, as the constraints of capacity were known.

Bharat Heavy Electricals Ltd and NTPC Ltd has created a new JV that aims to manufacture power equipment such as turbines and generators too. There’s also a buzz about BHEL and Reliance Power forming a joint venture to manufacture power generation equipment. I don’t know how fast it will be in operation.

However, I still wonder if BHEL has tried all the ways to boost its capacity to cut down the delivery time to compete with the Chinese that are winning its prospective customers one by one. Can its own experts such as production and industrial engineers or, if necessary, the technical experts from the manufacturers of its bottleneck machine tools and operations validate that the cycle times of the bottleneck operations can’t be reduced to meet the desired capacity? Can its supply chain managers assure the nation if it has tried all the means of outsourcing of the components that is holding up the capacity? BHEL can try to explore many companies both in private and public sector in the country for outsourcing that may have unutilized manufacturing capacity. As I understand, many of the heavy component manufacturing companies, including those in defense, goes dry for orders quite often. Many have gone sick and are still waiting for orders. It may also outsource the components from abroad. Many IITians will expect Jairam Ramesh, the newly appointed junior power minister to assist and guide BHEL, so that the Chinese don’t succeed in taking over the sector. If it is not taken up seriously, it will be losing to the Chinese manufacturers forever. Adapting to some standard sizes of power plant equipment instead of highly customized demand of the ordering companies can also improve the manufacturing capacity of BHEL. It may require a marketing ingenuity and technical selling.

The bogey of poor quality of the Chinese equipment can’t deter many of the Indian entrepreneurs who hardly bother about it. If the case of poor quality is serious, Mr. Ramesh must sell it effectively through CII and FICII. BHEL must also look into pricing to compete with the Chinese. It should change its old mindset on pricing, when it didn’t face any competition. It must try to cut down its margin if it is excessive.

The Chinese unscrupulous means adapted to win the order must also be a thing to watch carefully, particularly in government orders. It can mean a havoc as Chinese are very good at that whereas BHEL will be totally handicapped in that because of the government controls.

L&T is another private company that is seriously trying to come up in manufacturing of power equipment manufacturing. Can the company join as source for the power plants fast enough? Can the Jairam Ramesh encourage some more established foreign power equipment manufacturers, such as ABB (Sweden), Ansaldo (Italy), Doosan (South Korea), Hitachi and Toshiba (Japan) or some known domestic business houses such as Kirloskars, Crompton Greaves, or Tatas to come in the country to set up manufacturing facilities for power equipment? The Chinese equipment manufacturers will certainly be handicapped in providing the cutting edge technologies so far pollution control and efficiency is concerned. It is heartening to hear from Jairam that BHEL is technically far superior, but it must compete on technology with the best in the world and not the Chinese. As it appears, BHEL is investing heavily for R&D. I wish all the research institutes including CMERI and IITs provide assistance and BHEL seeks that.

Hindujas, Thapars, JSW, Indiabulls, Videocon and many are trying to set up power plants to meet the power requirement of this developing country. Will BHEL fail them? Is it the cost of keeping single equipment manufacturing company by the government over the years?

Read Powering priorities

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