How to Solve a Problem Like OFB a New Study Anticipates Higher Prices, Fewer Products and Reduced Manpower
Earlier this year, the defence ministry announced that the Ordnance factory Board (OFB), consisting of 41 factories, 13 development centres and nine institutes, would be converted into a set of seven corporate entities.
Unsurprisingly, this announcement has led to uncertainty about how the OFB could evolve successfully as a corporate entity.
A new study conducted last month has attempted to project the challenges that might emerge in this process for OFB that traces its origins to the early 18th century and employs an estimated 80,000-strong workforce.
This study, which took the form of a wargame, was conducted by Insighteon Consulting, a firm that brings together experts from diverse fields to generate probabilities from simulated real-world scenarios in time-frames that would be far quicker than more traditional studies.
Colonel Rajiv Chib (retired) of Insighteon Consulting told StratPost that while the exercise arrived at a number of not-unexpected conclusions, a few surprises also emerged, in addition to more general steps the defence ministry could take to promote the viability of OFB, not to mention, other Defence Public Sector Units (DPSUs).
According to Chib, Insighteon Consulting typically carries out exercises by bringing together large numbers of domain experts and crowdsourcing probabilities, projections and solutions. These domain experts are given wargame appointments to simulate a comprehensive set of stakeholders that includes users, buyers/customers, Original Equipment Manufacturers (OEMs), competitors, contractors and regulators.
The defence ministry and the armed forces were briefed on the results of this particular wargame last week.
One of the conclusions that Insighteon’s wargame on the Corporatisation of OFB arrived at was an anticipated rise in prices of equipment, at least in the short term. Changing from a ‘No Profit No Loss’ system to embracing the operations under corporate pressures is expected to lead to the adoption of a ‘cost-plus’, which, coupled with reduced demand and budgets is expected to result in higher prices. “With corporatisation, working capital and the cost of research and development is expected to be a major concern,” said the former PWC consultant.
Chib warned, “Care would have to be taken to ensure this rise in prices does not result in imports becoming effectively cheaper.”
The continued production of some ammunition items is at risk of being stopped entirely due to erratic demand and consequent financial unviability for the new corporate units.
Further, this corporatisation, is also expected to lead to a decrease in the range of products manufactured by OFB, in general, in the course of a rationalisation process. Over time, products offered by various DPSUs that are analogous to each other are expected to be discontinued. This would become even more essential with the stated goal of the government to rationalise the number of DPSUs from the potential fifteen to four.
Another issue that remains a challenge to be resolved is the maintenance of ‘surge capacity’ that could enable OFB to supply critical items to the armed forces over and above normal in times of emergency. “Such projections would have to be agreed between the supplier community and the manufacturer, and funds would have to be allocated for the maintenance of such capacity, otherwise it would be financially unviable for the new corporate units,” explained Chib. Such an understanding would help in reducing the need for fast-track imports in emergency situations.
Finally, the wargame concluded that OFB should expect a 15 to 25 percent reduction in manpower over a period of time. But this is mainly expected to be accomplished by reduced recruitment over time and not retrenchment, with the rationalisation achieved by corporatisation.
While many of the seven new entities of OFB will look to boosting exports for revenue, additional challenges will arise with respect to — for example export licences for third-party components, and more importantly, marketing products around the world.
Chib ends by adding one conclusion that did not directly emerge from the war game, but appears to be an inevitable requirement. “With the beginning of corporatisation and rationalisation of the government-owned defence industrial complex, India will require an exports promotion and marketing body, on the lines of Russia’s Rosoboronexport, staffed with domain and product specialists drawn from Indian defence industry to compete and sell through specific marketing efforts in targeted countries,” he said.
While this is something that might take time to set up, Colonel Chib thinks this might be the most effective way to boost exports, instead of leaving the newly corporatised entities to their own devices.