Ordnance Factory Board 2.0 is a positive step towards meeting future challenges in the armed forces
Lt Gen. Ashok Shivane (retd)
Indian ordnance factories are the oldest and largest industrial set-up which function under the Ordnance Factory Board (OFB) with the primary objective of achieving self-reliance in equipping the armed forces with state-of-the-art battlefield equipment. The first factory was the Gun and Shell Factory, Cossipore, which was set up in 1801. On the eve of Independence, the country had 18 ordnance factories (OFs). Nearly half the factories that the country possessed at the time of Independence were created to sustain the allied war effort and, hence, owe their existence to World War II. The rest had been set up at different points of time, particularly after realisation of the neglect in Indo-Sino conflict 1962 and security imperatives post 1971 conflict. Today, there are 41 OFs organised under five-line functions and four staff functions each headed by an additional DGOF / Member under the DGOF and Chairman OFB. The OFB was last restructured in 1979 and assigned the role of dedicated manufacturing base for military hardware, indigenisation and transfer of technology (ToT) absorption, maintenance of ‘War Reserve’ capacity and life cycle support. It was expanded to cover Quality Management including input material inspection (2005) and focus on in-house R&D resulting in role of Lead Integrator (2006).
The OFB has responded creditably to challenges in times of national security crisis and supplied critical military ware in all wars fought by India, including the Kargil crisis and the recent surgical strikes. The OFB being an integral part of the government, is obliged to make all types of equipment with life-time warranty as demanded by the army, irrespective of its number or value commercially viable or not.
Perception and Realities of OFB 1.0
The main perception of OFB 1.0 was that it is operating in a sellers’ market with captive clients and, therefore, it enjoys the freedom of choosing what to deliver, when to deliver and at what cost. The market pressures, which motivate the private entities to innovate, adopt best practices, and deliver value to the end customers, are missing in the case of the OFB. It is these market pressures which bring in a culture of constant feedback and performance evaluation with a view to ensure survival in a competitive market. The OFB, on the other hand, is always assured of government support despite sub-optimal performance. As there is no threatening pressure, there is a lack of resolve to modernise, adopt industry best practices and raise the workforce quality threshold. Issues related to product quality, responsiveness to the demands of the Services, cost-effectiveness, industrial productivity and capacity utilisation have also been flagged by the Comptroller and Auditor General (CAG). This, even with limited truth and causative factors even beyond the OFB, mandated a transformation with times and change of government policies, to rejuvenate the organisation and give it a competitive edge and a credibility uplift.
Challenges and Transformation Drivers for OFB 2.0
The defence ecosystem in India has been given a major fillip in the recent years with major government policy initiatives under ‘Make in India’. This has rightly given a boost to defence private sector to compete on an equal platform to the erstwhile captive players like the OFB and defence public sector undertakings (DPSUs). Thus, the challenge for the OFB was ‘Perform or Perish’. Transformation to OFB 2.0 was, thus, not only a necessity, but also the only option for developing a competitive and cutting edge to survive in the new environment.
The three key challenges for credibility check confronting the OFB were meeting production targets including spare management, quality control and cost competitiveness for ‘best bang for the buck’. Besides these, it is incumbent that the OFB ensures indigenisation, periodic upgradation and export orientation under the ‘Make in India’ initiative. A major concern and challenge of the OFB from its principle customer is the frequent workload fluctuation, mid-course target revisions, delayed indents, and non-uniform order across product segments, resulting in areas with sub-optimal workload. Further, the bureaucratic functioning under ministry of defence (MoD) and its verticals, often results in delayed processing/sanctions impacting performance adversely and even cost escalation. Another major area is the perpetual contradictions with Director General Quality Assurance (DGQA) and its long-drawn status quo-ist Authority Holding Sealed Particulars (AHSP) and ATP system. Also, the sequential testing cycles in QA/QC, results in prolonged delays of equipment supply to users. The need is to make the OFB more responsible and accountable for its products first through joint inspections, and then leading to self-certification by the OFB of supplied products. After all, self-certified export products have met the aspirations of foreign customers and so, why should not the system percolate to domestic customers? However, besides OFB, the entire eco-system in which it functions needs a de-novo review, for a holistic solution to the larger challenges of status quo and non-optimal performance, rather than passing the buck to the OFB, who avoids to respond because of the fear of aggrieving the MoD or its customers.
Another challenge is the silo functioning of all stakeholders with minimal integrated interaction between user, the OFB, Defence Research and Development Organisation (DRDO), private sector, DGQA or MoD, resulting in huge communication gaps at decision-making levels. Notwithstanding the numerous challenges, the OFB in recent times has donned the path of transformation to OFB 2.0.
Transformation and Reality Check OFB 2.0
Defence Market Share: The customer profile of the OFB for 2018-19 is predominantly army (76 per cent), navy (3 per cent), air force (5 per cent), besides ministry of human resources (MHA), civil trade, export and other defence departments. It has not only expanded multi-fold in volume and inventory but also diversified to a wide range of customers in the domestic and international markets. The value of issues for 2019-20 is estimated to have crossed Rs 15,500 crore business.
Outsourcing as Tool of Strategic Management: Outsourcing of non-core items / low technology simple items and vendor development has been one of the recent management policy choices to make it more efficient and competitive. Accordingly, 275 items being manufactured by OFs have been declared as non-core by the government. Besides, the OFs have outsourced several components/assemblies in their products under manufacture, from DPSU or private vendors to enhance efficiency in terms of cost, time and quality. The ultimate test of success of the outsourcing strategy would, however, depend on how it is able to develop and retain reliable and competitive vendors for supply of its required services/items, through an integrated policy of outsourcing and creation of effective long-term vendor development relationship.
User Centric Outreach Initiative: In a major outreach initiative, the OFB has institutionalised along with user, ‘Quarterly Interaction Meets’ at field level including high altitude areas, to enable greater synergy and develop mutual trust and confidence. The OFB has also started conducting short capsules and courses at the newly established Ordnance Factory Institutes of Learning, for better understanding of equipment. Several bulletin and advisories have been periodically published with the user perspective for equipment upkeep. Visits by user to manufacturing facilities are also periodically organised to have the correct perspective of the processes including quality control.
Innovativeness and R&D Paving the Path of Self Reliance: As a major initiative taken up in recent times, the OFB has focused on indigenisation as its core strength to be a shining example of ‘Make in India’. The contribution of R&D products in the OFB’s turnover in 2018-19, was Rs 3,137.28 crore and R&D expenditure in 2018-19 was Rs 90.18 crore. On the indigenisation front, it has achieved an overall indigenous content of 89 per cent and for ammunition 97 per cent. It has developed over 128 indigenous end products. This has been essentially due to a cultural shift of developing a defence eco-system integrating the academia, DPSU, private industry and scientific community, through its revitalised R&D centres (ODC: Ordnance Development Centre). A total of over 218 IPR applications have been filed by the OFB. Memorandum of Understanding (MoU) with Council of Scientific and Industrial Research (CSIR), projectwise collaboration with IITs/IISc/NITs, creating ‘Centre of Excellence’ at IITs and development of futuristic technologies with Indian private industries through iDex platform is the new mantra. Much progress has been made to decipher the ‘Know Why’ of complex platform designs, resulting in better understanding of systems for indigenisation with cheaper cost and integrating upgrades into complex deciphered platform designs. A major boost to the R&D can be estimated by the fact that 25 per cent of annual value of supplies of OFB is contributed by 100 per cent indigenous products developed through its inhouse R&D e.g., tank engines, up gunning of 130mm to 155mm/45cal gun, upgradation of AD Gun L-70, Dhanush 155mm/45Cal, BMP-II armament upgrade, Mine Protected Vehicle, Commander TI sights, import substitution of various ammunition and development of small arms for the nation.
Quality Management System and Boost to Manufacturing Technology: A major technology boost to infrastructural resources has been undertaken to include best industrial practices, manufacturing automation, high-end automated Quality Management Systems nearing six sigma level and Quality Function Deployment. All 41 factories are ISO:9001 certified with fully equipped inspection facility, 67 laboratories in 36 factories are ISO 17025:2005 (NABL) certified, 36 factories are accredited with ISO 14001:2004 Environment Management Systems and five factories are accredited with ISO 50001:2011 Energy Management System. A major boost to ‘Swachh Bharat’ has also been given in terms of toilets, waste management, dual pipeline and rainwater harvesting. Besides, as part of on-line automation, NQDBMS (Network Data Base Management System) has been established where all the quality data are put and shared with SQAE. It has resulted in better communication, transparency and traceability. OFB 2.0 has also made strides in 3D modelling of equipment design, digitisation of major platforms, dynamic e-modelling analysis for scientific analysis of upgrades and designing of new platform analysis, biometric and QR coding for ensuring traceability and accountability in the manufacturing line.
Export Orientation and Performance: The OFB has been traditionally supplying its products to the Indian defence forces, and exports of selected items were essentially limited to friendly countries in the neighbourhood. With the recent policy initiatives by the government towards export, the OFB is now giving special thrust to exports of explosive, ammunition, Mine Protected Vehicles, Large Calibre Artillery Gun Ordinance, L70 AD Gun Systems worldwide. An export strategy and a vertical has been created for facilitating this new initiative which has received a positive response. From a meagre value of export of Rs 3 crore in 2015-16, the projection for 2019-20 is Rs 500 crore with Rs 328 crore-worth order already in hand, thereby reducing its import dependency tremendously both in terms of strategic autonomy and cost. In addition, its largest ever export order, the OFB has already supplied 50,000 artillery shells to United Arab Emirates (UAE). An additional order worth Rs 315 crore (USD45.75 million) contract was also received last year. The repeat order, with an increased number after two years, is considered to be an endorsement of the quality and delivery schedule followed by the OFB. Thus, on the export front, the OFB not only spearheads the government export orientation target but has established credibility in the international market.
Indigenous Life Cycle Upgradation of OFB OEM Equipment: The OFB as the original equipment manufacturer (OEM) of a large number of military equipment has taken up the ownership of all product improvements/ system upgrades / platform upgrades and life cycle sustenance needs / Life Extension Programmes. A systematic and scientific spiral technology enhancement perspective is being evolved. It entails three levels, Level 1 (within five years) will address operational immediate time critical upgradation need-based on existing mature technology; Level 2 (within 10 years) will address desired capabilities based on emerging technologies for next generation upgrades as R&D (ODC) projects, and Level 3 (within 15 Years) will address Loop Ahead Technology for generation after next AFVs/ upgrades along with academia / scientists as science & technology projects.
Competitive Costing Model: There is a misplaced apprehension of escalated costing of the OFB items due to its archival costing model especially ‘fixed and variable overheads’. The OFs operate on ‘no-loss, no-profit’ basis. However, with better utilisation of the labour, plants, machineries, stores, process improvement, automation and skill upgradation of labour force, there is scope for cost reduction. The reduction in overhead charges is also not uniform across the group of factories, suggestive of absence of systematic efforts to curb the overhead charges. In addition, the pricing and accounting system of the OFB is archival as regards production cost with overhead cost being a major bone of contention and often misunderstood as unethical as it includes wages based on central government policies. The accounting system followed by the OFs needs to be re-oriented towards commercial accounting format, a change that will enable them to perform financial management functions more effectively. Certainly, the bottomline is that any cost of item by the OFB has to be certainly cost competitive, if not cheaper, due to its inherent advantage of existing infrastructure and decades of experience.
Manufacturing Technology, Automation and AI in Manufacturing Technology: Inroads made into 3D modelling, dynamic analysis, digitisation / bar coding of platforms and installing biometrics in production line in some OFs, have been pathbreaking. Modernisation of OFs is an on-going process with an objective to create, maintain and modernise all the capital assets, with appropriate contemporary technology for indigenous production of defence equipment. State-of-the-art modernisation of OFs with environment-friendly green smart factory concept have been initiated in factories at OF Medak and OF Ambajari. AI, robotics and 3D printing are also areas that have gained attention of OFs and are making inroads based on a vision plan with definitive timelines for implementation.
Modernisation of OFs has met with tremendous success including visit by reputed foreign defence industries. ODCs as R&D centres are doing a yeoman service but need to be further institutionalised, integrated into the ecosystem and empowered by state-of-the-art hardware, software and specialist skinware to function as ‘Centres of Excellence’. In the area of automation and application of IT, even in the form of a rudimentary Enterprise Resource Planning (ERP), supply chain management and seamless integration with stakeholders, has radically transformed the internal lead time, improved accuracy, built in accountability and achieved transparency.
The transformation of the OFB, though certainly delayed, should have seen OFB 4.0 by now. Nevertheless, OFB 2.0 is a positive development for the nation at large and the defence industrial base in particular. OFB 2.0 is a transformed force focused on empowering the nation to fight and win ‘Indian wars with Indian solutions’ and reversing the trend of being import driven to that of being export driven. However, the OFB is only a subset of the entire defence ecosystem which must undergo a holistic transformation in culture, structure and demonstrative performance, for the Indian defence industrial base to evolve to its true potential. In the meantime, the transformation of OFB 2.0 must be encouraged, supported and empowered by all stakeholders, in the best interest of the nation and desired strategic autonomy.
(The writer is former direct-general Mechanised Forces and author of AFV Systems India: Modernisation Strategy and Future Opportunities. He is also a consultant for combat vehicles with Ministry of Defence/ Ordnance Factory Board)