A Case Study of Impact of Changes in the Manufacturing Cycle in Supply Chain Management in Bhel-Hpv Plant, Visakhapatnam

G. Venkat Rao¹, G. Venkateshwar Rao²

Abstract: The manufacturing process cycle is a critical sub-stage in integrated Supply Chain Management. The savings from manufacturing supply chain of Supply Chain Management will improve the revenue and returns. BHPV in Visakhapatnam, a public sector engineering unit is made a subsidiary in 2008 and merged into BHEL in 2010. The study is formulated to examine the savings in manufacturing hours and cost in four manufacturing cycle changes in the Supply Chain Management process in each year from 2008-09 to 2012-13. Therefore, a total of 20 manufacturing cycles in the supply chain management are collected at two intervals, one before and another after the change is implemented. The evaluation is done in terms of manufacturing cost and hours saved and its impact on financial performance parameters Return on Investment, Return on Assets, Return on sales and Value Added. The analysis shows hypothesis H1 and H2 are true as significant relationship exists for the years under consideration with savings in cost and hours. The Impact of manufacturing process cycle changes on the financial performance in each year is positive except for the year 2009-10. However, the value added is positive and increasing for all the years under consideration. The changes in the manufacutring cycles of supply chain management have contributed to the revenue and time improvement in BHEL-HPV Plant at Visakhapatnam.

Keywords: Manufacturing Cycle Chain; Supply Chain Management; Cost Savings; Time Savings; Financial Performance

JEL Classification: N50

1. Introduction

The manufacturing process cycle is a critical stage in operating cycle of the maufacturing Organisation. The conversion cycle is invariably linked to financial health of the Organization (Davis, 1993). The extended manufacturing time span consequentially increases the cost in inventories and human resource. The shortest manufacturing process cycle is feasible with integrated Supply Chain Management (Cavinato, Joseph, 2002; Marien, Edward, 2000).

The innovation in technology and processes in supply chain management is expected to decrease the time cycle and cost of the product. The rate of change in improvement in time and cost is expected to be 2 to 3 times by replacing with new technology (Kearney, 2017).

Concept of Supply Chain Management (SCM):

The integration of key business processes from the end user through original suppliers that provide products, services and information that add value for customers (Lambert, Emmelhainz and Gardner, 1996). The successive transform of raw materials into intermediate goods, then to final goods and deliver them to customers (American Production and Inventory Control Society). These views present supply chain management as the processes to add value to raw material to satisfy the end user.

The Supply Chain Management is concerned with the philosophy of nurturing the supplier and operates in a win-win situation by providing goods and services to the customer in a timely and cost-effective manner (Sunil Chopra and Peter Meindal, 2007). The management of supply chain is crucial and has impact on delivery chain, customer satisfaction and returns to business investment. The Supply uncertainty due to unreliability of vendors, process uncertainty due to internal processes and demand uncertainty are some of the major hurdles to effective SCM (Lambert & Cooper, 2000).

The Supply uncertainty can be addressed through a number of initiatives such as vendor development, certification, sharing of production planning information and transport arrangements. The Process uncertainty is due to process time, differential methods, machine breakdowns, uncertain yields and absenteeism, which can be eliminated by good maintenance practices and application of better technology. The Demand uncertainty can be reduced by forecasting techniques and developing a better communication with customers (Agrawal, 2001).

Effectiveness of Supply Chain:

The supply chain process is integrated as a system in the Organization with both internal and external sub-systems like vendors, customers and logistics. The movement of products from vendors to customers through manufacturing facilities, warehouses and third-parties are included under its domain (Silivia Rossi, Claudia Colicchi et al, 2013). Hence, supply chain must work effectively, for which there are five key issues (USAID | Deliver Project, 2011).

(i) Movement of Products in the manufacturing cycle;

(ii) Movement of Information;

(iii) Timing of Service;

(iv) Total Logistics Costs; and

(v) External and Internal Integration of Activities.

Strategies to Improve Effectiveness:

The Supply chain optimization ensures competative advantage (Porter, M. E. 1985). The main objective being the right product is available when it is needed, where it is needed and in the right quantity without excess inventory or extraordinary efforts such as expediting in the supply chain (Beamon, B. M. 1999).

The Strategies have enabled organizations to optimize the design and performance of suppliers, the processes that connect them, and the internal and external logistics processes through which they deliver (Fine, Charles. H. 1999).

Financial Performance and Supply Chain Management:

The financial performance refers to the degree to which financial objectives i. e. measuring the results of a firm’s policies and operations in monetary terms has been accomplished (Bowersox and Closs, 1996). The savings from manufacturing supply chain of Supply Chain Management will improve the revenue and returns. The impact on the bottomline increases profits and financial performance.

BHPV was established in the year 1965 as a major public sector engineering unit in Visakhapatnam. BHEL has taken over BHPV as its subsidiary unit in the year 2008 and was merged into BHEL in 2010. The BHEL-HPVP is the 17^th unit under the public sector Bharat Heavy Electrical Limited (BHEL). In the integration process several changes in the competitive strategies, policies, procedures, work practices and operational activities are implemented. As a part of above changes, renovations of old machinery and equipment have been taken up by BHEL management. Further, 75 percent of obsolete machinery and equipment were renovated and replaced with computerized numerical system of technology. The managemen has initiated modernisation strategy to purchase and install 120 numbers of CNC machines. Out of these 120 CNC machines, 12 machines were installed and operations are in progress. Since BHEL-HPVP unit is transforming its manufacturing process cycle by implementing latest technology and procedures. Hence, this unit was selected to examine the impact of manufacturing cycle changes on the overall performance of HPVP.

2. Methodology

Methodology is the approach adopted in the course of conducting the research. BHEL has implemented many changes in the manaufacturing cycle on post acquisition of erstwhile BHPV. The case study is conducted with the objective to assess the impact of manufacturing process cycle on supply chain management and the financial performance of the BHEL-HPVP Division. The study is formulated with the following hypothesis.

H1-Changes in manufacturing cycle of SCM with respect to manufacturing cost have an impact on the financial performance parameters.

H2-Changes in manufacturing cycle of SCM with respect to manufacturing hours have an impact on the financial performance parameters.

The study is conducted with secondary data collected from the manuals of BHEL-HPVP unit.

In the first phase, the four manufacturing cycle changes in the Supply Chain Management process in each year are considered for 5 years from 2008-09 to 2012-13. Therefore, a total of 20 manufacturing cycles in the supply chain management are collected at two intervals, one before the change is implemented and other after the change is implemented. The evaluation is done in terms of manufacturing cost and hours saved and its impact on financial performance. The financial performance is evaluated with the following financial parameters (i) Return on Investment (ROI) (ii) Return on Assets (ROA) (iii) Return on sales (ROS) and (iv) Value Added

1. Return on Investment = Profit / Investment

2. Return on Assets = Annual Net Income / Average Total Assets

3. Return on Sales = Net Income / Sales

4. Value Added = Price that the product or service sold at – Cost of Producing Product

The data on manufacturiing cycle in the particular process is collected from the industrial engineering and costing department and analysed from Time and Cost perspective.

3. Results and Discussion

The standard time recordings are collected from the manuals of the Industrial Engineering Department as per the standard practices of the Organisation. The cost saved in terms of rupees is from the audited records of the respective depatments.

Mafucturing Cycle Changes:

1. Group Stress Relieving Activity: Stress relieving (SR) activity is carried out for the heavy fabrication equipment that is fabricated in the workshops. It is the penultimate operation of the fabrication activities. After completion of all quality checks, this operation is carried out. This process consists of keeping the equipment on the bogie of the furnace, keeping the bogie inside the furnace, closing the doors, lightening the burners and maintaining temperatures according to the quality system to meet the metallurgical requirements. Instead of independent job loading in existing method, similar cycle jobs are identified and regrouping is done. There by increasing productivity and effective SCM structure.

2. Shop Working Area Optimization: The shop working area is a vital aspect. Space utilization in production area assured affective SCM process identifying undemanded product coverage area and obsolete machinery coverage area in production shops and clears them for space and better utilization.

3. Machining Drilling holes: The drilling of tube sheet is a long cycle item and critical operation in Heat exchanger fabrication which occupies time in heat exchanger fabrication cycle. Hence, with implementation of CNC technology, drilling time of tube sheet has reduced with high accuracy in tube holes and quality.

4. Sub-Assembly of Horton Sphere of Petals: Horton sphere of different number of petals and cover under the category of storage vessel of spherical shape. Spheres construction is made out of petals, the number of petals vary depending upon the size of the sphere. Regular practice involves all the petal courses sent for rectification to make as per layout to fit into exact slot in the sphere. It carries more time at sight due to lack of proper infrastructure and facilities.

5. Pre-bending and rolling of shell plates: Each shell course in pressure vessels, storage vessels and other products. Plate materials are to be prepared suitably and then rolled into shell form on rolling machine. Plate material is to be pre-bent before rolling. These pre-bent operations are carried out in press shop. After pre-bending this has to be moved to shell section for rolling operation. At later stage, both pre-bending and rolling are done on the same machine. This saves inspection time, transportation time and shop movement, thereby increases productivity and effective SCM. It describes that rolling operation of plates; the plate material is to be pre-bent to the radius required. This operation is carried out in presses division and then they are moved to rolling section for rolling operation in cases of the above thickness of 50mm. In the proposed method a new rolling machine has been envisage which can perform both pre-bending and rolling on the same machine up to thickness of 90mm. This saves operational time, transportation time and inter shop movement delay.

6. Profile gas cutting operation: Profile gas cutting machine, paper template is essential for RF pads, Trunions, lifting lugs, support plates among others. Changes of each size and shape of a component a new paper template is to be prepared. In CNC cutting machine, there is no need of paper template and direct cutting is possible. There by, improving supply chain process and production.

7. Banana Bends Rectification: The boiler products, most of the components concern with pipe materials. A small bought out items and other various sizes of pipes assembled and welded within small gaps on a straight pipe. The ultimate result, a bend formed on straight pipe due to manual welding. These bends are removed manually on straight pipe with hydraulic presses of 250 tons or 400 tons. Over a time these practices upgraded with CNC technology, resulted an improvement in SCM process and productivity.

8. Cycle Time Reduction on Layout Checking of Bends: After bending of each pipe, keeping bend on layout, and check any deviations, such deviations are marked and rectified. For various sizes of bends and multiple bends are required, separate layouts and the checking process repeated to keep design parameters and to maintain quality and suitability. Instead of 180 degree checking each bend, random checking with templates consumes less time. The ultimate result is cycle time reduction.

9. Multiple Pipe Cold Bending: In the present practice multiple pipe bend of 180 degrees on a single plane machine involves layout marking, push and bend and keeping bend on layout for checking required parameters. This sequence will be repeated twice or thrice for this type of multiple bends on single plane machine. In order to upgrade this process, a multiple pipe of cold bending on a CNC multiple 185 plane machines was envisaged. Hence an improvement is noticed in harmonious supply chain relationship.

10. Pipe Welding: Pipe to pipe assembly, welding and grinding operations carried manually by using tackles and tools. In upgrading this activity, the above operations carrying on rotary welding machine can automatically aligned, assembled, welded and grinded thereby resulted in time and cost saving.

11. Facing and Beveling of pipes: The existing work practice, marking on pipe, loading, facing and beveling on portable pipe chamfering machine. All the above operations except marking and loading are carried on 80 CEP Automatic Tube cutting and Edge planning machine. Comparatively, the above work tasks are completed more early than manual operations. This resulted in an improvement over the previous practices.

12. Drilling holes on Header pipes: Boiler headers drilling carried on radial drilling machine. Drilling includes both center drilling and pre-drilling. As an improvement in operations, CNC Gantry drilling machine installed in this machine both center drilling 191 and pre-drilling carried with same set up time, thereby resulted in reduced cycle time and in value chain of SCM.

13. Pipe Cutting and Deburring: Activity on nozzle pipes and manhole pipes cutting and deburring operation performed on Muller flame cutting machine. In re-engineering process and an advent of sophisticated technology, a pipe sawing band saw (600mm) 193 machines was installed and carried the above operations on this machine which results in a specified positive outcome in the above operation.

14. C/Seam and L/Seam Grinding: Boiler Drum C/Seam and L/Seam joints after completion of welding and grinding operation manually performing by using abrasive grinding wheels. In place of these grinding wheels, abrasive belts of LS and CS grinding machine introduced. With the introduction of this abrasive belt system, an expected output and integrated SCM was obtained.

15. Preparation of Bevels on pipes: In existing system, pipes of diameter 600mm and thickness of 40mm gas cutting and beveling operations are carried manually. By installing computerized numerically controlled pipe edge preparation machines, the above manual operations are taken up on this machine and yields more returns.

16. Panel processing: An obsolete panel processing machine consists of 6 torches and 18metres length and comprising of 4 pipes used for welding. Instead of above machine a modern panel processing (20 torch) CNC panel processing comprising of 10 pipes was erected in a new bay which yields an output of 3 times more than previous one

17. Drilling on Boiler Drum: Drilling of holes on boiler drum carried on horizontal boring machine of large diameterand higher thickness. With the assistance of method study, an easy and economical method has developed in the place of above operation. This method has both gas-cutting and boring on horizontal boring machine provides a better output and effective SCM.

18. Welding Operation: In present work practices cross-sectional and longitudinal seam welding of shell courses in fabricated equipment carried manually by welders. Instead of above manual operations, submerged arc-welding machines employed and which yields more output in welding.

19. Material Handling In Material Preparation Shop: Plate material stacked in the storeyard for picking up with trailer, tractor and mobile crane units from plate material yard. In the present system, handling of plate material by mobile crane and tractor and trailer unit involves a number of handlings and moved through longer distances to feed production shops. Break down to any of this equipment is causing further delay in supplying material to shops. So in order to overcome this problem, Gantry crane facility established, thereby reduced cycle time and enhanced space utilization in the store yard.

20. Material Handling in PV Assembly Shop: In PV assembly shop provided with handling capacity of 60 tons in a single handling. In case of more weights, two 60 tons EOT cranes are used in Tandem to lift up to 120 tons. For equipment weighing more than 120 tons, lifting with great difficulty and consuming more time. In order to overcome this situation Jacking and Beam arrangement designed and developed to lift up to 300 metric tons without higher capacity EOT cranes. With this material handling design, considerable time saving and opportunity in SCM for long term competitive advantage.

The consolidated savings in cost and time for the sample 20 changes are presented in table no. 1.

Impact of Manufacturing Cycle Changes on Financial Performance:

The financial parameters of the respectives years are analysed with cost savings to estimate the impact of manufacturing cycle changes (table no. 2). BHEL- HPVP unit for the year 2008-09 has earned profit of Rs 96. 92 crores with an Investment of Rs 48. 96 crores. The return on investment (ROI), the return on sales (ROS), and the return on assets (ROA) are calculated as 197. 9 percent, 114. 8 percent and 35. 6 percent respectively. The value added for the company is 23. 5 percent.

In the year 2009-10, BHEL-HPVP has earned a loss of Rs 7. 5 crores with an investment of Rs 41. 03 crores. The return on investment (ROI) and the return on sales (ROS) are negative with 18. 2 percent and 7. 19percent respectively whereas the value added is 35. 85 percent. In the year 2010-11 the Profit earned by the company is Rs8. 77crores with an increased investment of Rs. 64. 35crores. The return on investment (ROI) is 13. 6 percent and comparitively more than the preceeding year. The return on sales (ROS), return on assets (ROA) and value added are 6. 4 percent, 2. 95 percent and 41. 2 percent respectively. The financial performance presents an improvement over the previous year.

The return on sales (ROS), return on assets (ROA), return on investment (ROI) and value added in the year 2011-12 are 6. 91 percent, 4. 04 percent, 14. 2 percent and 45. 2 percent respectively. And the net profit has improved to Rs. 10. 44 crores with an improvement over the previous years. The table no presents value added was increasing continuously from 2008-09 to 2011-12. The financial year 2012-13 presents net profit as Rs. 35. 04 crores with an improved turnover of Rs. 240. 27 crores. The return on sales (ROS), return on assets (ROA), return on investment

Table 1. Consolidated Statement of Savings in Time in Hours and Cost in Rupees

(ROI) and value added in the year 2012-13 are 14. 5 percent, 10. 8 percent, 36. 9 percent and 46. 1 percent respectively. The table no. 2 presents except in the year 2009-10 the finacial returns show positive trend but value added in 2009-10 is positive.

Table 2. Finacial Changes due to Manufacturing Cycle Changes in Five Years

The relationship was estimated between the financial performances for five years, after the manufacturing cycle changes in each year. The analysis show significant relationship for the years under consideration namely 2008-09, 2009-10, 2010-11, 2011-12, and 2012-13. The mean and standard deviation scores for compounded values are provided in the table no. 3.

Table 3. Mean and Standard Deviations for Compounded Financial Parameters

4. Conclusion

The hypothesis H1 and H2 are true as the savings in time and cost are estimated as positive and the cumulative impact is also positive. The Impact of manufacturing process cycle changes on the financial performance in each year that is 2008-09, 2010-11, 2011-12 and 2012-13 are positive except for the year 2009-10. However, the value added is positive and increasing for all the years under consideration. Therefore the 20 changes in the manufacutring cycles of supply chain management have contributed to the revenue improvement in BHEL-HPV Plant at Visakhapatnam.

The manufacturing cycle time reduction will result in improving the revenue and also reduce the supply chain time. The supply chain effectivess is improved with positive changes to the manufacturing cycle.

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