INDUSTRY PROFILE

Engineering

The demand for heavy engineering equipment is derived from user industries such as power, construction, cement, steel, chemicals, petrochemicals and refining. In addition, significant investments in power generation, and transmission and distribution (T&D) have driven growth of the engineering goods sector. Capital goods in the index of industrial production have seen a 34 per cent growth in the period April to June 2010 over the corresponding period in the previous year. An analysis of the various components of the capital goods sector suggests that the growth is no longer led by just a few segments such as commercial vehicles. It now extends to segments like diesel engines, industrial machinery, protection systems, ship building and repair, agriculture implements, power cables, electric motors, power-driven pumps and material handling equipment. A sharp spurt in the growth of the capital goods sector is an indicator of strong investment activity.

Electric equipments

The electrical equipment industry comprises several products such as transformers, switchgears, motors and control equipment. In 2009-10, the size of the electrical equipment industry stood at Rs 525 billion. The electrical equipment industry grew at 11.3 per cent during 2009-10.

The main buyers of electrical equipment are power utilities. A typical electric equipment component has a life of 20-25 years; hence, replacement demand would incrementally add to the growth opportunities.

The raw material cost of electrical equipment manufacturers is estimated at 50-60 per cent of sales. Primary raw materials include copper, aluminium and steel. A few large players dominate the electrical equipment industry. However, several other small and medium-sized players too specialise in specific product lines. In addition, there has been substantial competition from Chinese equipments manufacturers especially in the high voltage category. The electrical equipment industry is highly working-capital intensive as it takes 4-5 months to recover payments from SEBs, which are their major clients.

BHEL PROFILE

BHEL was established in 1956 at Bhopal and came into existence in November 1964. At first, nearly 48 years ago at Bhopal, a plant was setup, and that was the genius of heavy electrical equipment industry in India. BHEL is today the largest Engineering and manufacturing Enterprise of its kind in India with well recognized track record performance. Right from 1971-72 this organization is making profit.

Heavy Electricals (India) Ltd was setup in Bhopal in August 1956 with the view to reach self-sufficiency in Industrial products and power equipment which was vital for the industrialization of the country. To meet the total demand of Heavy Electrical equipment, BHEL came into being in November 1964.

BHEL is one of the oldest and largest state-owned engineering and manufacturing enterprise in India in the energy-related and infrastructure sector which includes Power, Railways, Transmission and Distribution, Oil and Gas sectors and many more.

Presently BHEL manufactures about 180 varieties of products under 30 major product groups. It has built up an available reputation for high quality and reliability of its equipment.

In BHEL 67.72% of shares are held by the Government of India and 28-32% is held by Financial Institutions, mutual funds, insurance company, foreign institutional investors and employees.

BHEL is paying dividend since 1976-77. BHEL has been a profit making company right since its incorporation and has been making significant contribution to the Government’s funds by way of dividend on the equity, taxes and duties etc.

BHEL has also received “Excellent” rating for 9 years consecutively in achieving Memorandum of Undertaking targets with Government of India and has been conferred the priceless status of a ‘’Navaratna Company”.

Another major contribution of BHEL to the nation is by the way of its involvement in the social development work such as adoption of backward villages, buildings and running of schools, medical centers providing self employment facilities for widows, handicapped persons etc.

BHEL is the 12th largest power equipment manufacturer in the world. In the year 2011, it was ranked ninth most innovative company in the world by US business magazine Forbes

Product profile

Thermal Power Plants Nuclear Power Plants Gas-Based Power Plants Hydro Power Plants DG-Power Plants Industrial Sets Casting and Forgings Boilers Boiler Auxiliaries Soot Blowers Valves Piping System Seamless Steel Tubes Heat Exchangers And Pressure Vessels Condenser and Heat Exchangers Pumps Desalination and Water Treatment Plants Automation and Control Systems Automation and Control Systems Transmission System Control Traction Drive System Power Semiconductor Devices Solar Photovoltaics Defence Electronics Software System Solution Switchgear Bus Ducts Transformers Insulators Industrial and Special Ceramics Capacitors Bushings On Load Tap Changers (Oltc) Electrical Machines Compressors Control Gear Transportation Equipment Oil Field Equipment Distributed Power Generation and Small Hydro Plants Systems and Services, Industrial Systems.

Environmental effects on Engineering and Electrical industry

Pertaining to the government

High incidence of indirect taxation Purchase preference in favor of public sector enterprises which results in distortion of market

mechanism. This prevents private sector enterprises from having a level of playing field. Export transaction cost for Indian capital goods are highest in the world. Indian capital goods industry also lags in strong institutional mechanism for export credit and

promotion.

Pertaining to the government

Low labor factor proportion is low when compared to other countries. Raw materials are mostly domestic in origin. Indian capital goods manufacturers have working capital requirements of 45% as against global

benchmark of 15%. Technological competence of Indian capital goods manufacturers is low. Negative perceptions about “Made in India” have damaged the ability of Indian capital goods

manufacturers to compete at optimal capacity in world markets. Quality of infrastructure is poor when compared to other developed nations. Low degree of buyer sophistication.

Pertaining to the Firm level

Ownership pattern in Indian capital goods sector is marked by the dominance of public sector enterprise.

Sub optimal market functioning. Import weights and export weight are low which leads to low competitiveness. Indian firms invest less in marketing activities and have low customer orientation. Research spending is low as a percentage of sales. Operation efficiencies are low.

Industrial buying activity

Supplier Evaluation, Approval & Review Procedure

The process of source selection consists of following stages:

Information stage

The information about suppliers is received in Supplier Development Cell. Some of the sources of data are as follows:

a) Supplier approaches directly.

b) Information received through various disciplines of organization such as Engg./MM/ Technology etc.

c) Through Web search/ News papers/ Magazine/ Business Catalogue / Exhibitions/ Seminars / Electronic media etc.

d) Suppliers technically qualified in Open Tenders

e) Customer/ collaborator recommendation

Assessment Process:

Assessment on the basis of following three criteria:

Organizational Soundness

Organizational Soundness will be judged on the basis of information furnished by the supplier on the following aspects: General information about organization, which includes:-

a) Ownership information; b) Financial information; c) Registration particulars d) General Manufacturing facilities e) Industrial relations

Quality System

Quality System will be judged on the following aspects: a) Incoming material control b) Process Control c) Control of Non-conformance d) Control of measuring & monitoring device e) Conformance to safety requirement f) Customer Supplier communication

Technical Competence

For jobs to BHEL design & technology: The technical competence of supplier will be judged on the basis of his understanding about BHEL product specification and its criteria, the process capability of the machines available with the supplier and the experience of the manpower For jobs procured on the basis of performance specification (Design & Technology is of supplier): As design and technology is of supplier, BHEL cannot give the dimensional tolerances but only specify the performance specifications in following manner:

a) Critical performance specifications b) Major performance specifications c) Minor performance specifications

While assessing the supplier for performance specification, following should be examined: (i) Design capability for the product to achieve the desired performance specification (ii) Quality Control Plan & verification of its implementation & acceptance criteria (iii) Process capability to produce critical components & major components (iv) Adequacy of final product testing

Supplier Performance Monitoring And Rating System

Supplier Performance Rating (SPR): Supplier performance shall be assessed taking into account the following main factors and calculated for each consignment / purchase order:

Quality Rating (QR): Quality rating is based on acceptable quantity of material offered for inspection or delivered by supplier and shall be calculated as: Quality Rating (QR) = (Q1 + 0.75 x Q2 + 0 x Q3) x 60/ Q.

Delivery Rating (DR) Supplier will be rated on delivery parameters wherein Delivery rating shall be 30 in case of adherence to PO delivery. For non-adherence to PO delivery (i.e. delay in supply), marks to be deducted in proportion of delay to PO delivery. Deduction = 30*delay in days/PO delivery in days

Service Rating (SR) The criteria for service rating shall be based on the Demerit factor (negative rating) to be updated by the User/ Quality/ MM group. The service rating shall be 10 in case there is no negative feedback against the supplier for the given supply. Else, the service rating should be reduced proportionally based on the Demerit factor

Usage of Supplier Performance Rating: The following action is recommended based on SPR score:-

Rating Weightage

Quality 60 Delivery 30 Service 10 Total 100

SPR Score Grade Action

>95 A1 BHEL may consider award appreciation/ commendation letter

>90 <=95 A Supplier can be considered for self certification or for reduced witness points during inspection

>75<=90 B No action in normal course. If any deterioration comes to notice on analysis, the supplier may be informed

>=60<=75

C (i) Thorough analysis for identification of areas for improvement (ii) Enquiry to be sent only after concerned MM head approval

< 60 D To be dealt in accordance with the extant guidelines on Suspension of Business Dealings with Suppliers/ Contractors.

Feed back to suppliers regarding performance rating:

The feedback to the supplier shall be posted every quarter as per Annexure ID on unit website in the first fortnight of every quarter. The supplier shall be allowed access to view his performance rating. In addition, the annual SPR rating should also be intimated to the supplier by registered post/ fax/ e-mail. In case, the supplier does not contest the SPR ratings within 30 days of posting of the SPR ratings on the unit web site, it shall be construed that the supplier has accepted the SPR ratings provided on the unit website.

REGISTRATION MATRIX FOR SUPPLIERS OF VARIOUS TYPES

Sl no.

Type of Supplier

Authority for initial recommendation

Assessment Criteria

Authority to decide assessment criteria

Authority for assessment

Final recommendation for registration

Approving authority for registration

Remarks.

1. MI MISCC / SRC

SRF, Technical Competence & team visit, if reqd.

MISCC / SRC

MISCC / SRC, Supplier Assessment Team

MISCC / SRC

Chairman MISCC/ Constituting Authority SRC

Permanent code or Development code or Trial code

2 MF -do- SRF & team visit, if reqd

-do- -do -do- -do -do

3 SU -do- Not Applicable

Not Applicable

Not Applicable

-do- -do Permanent Code

4 SURS -do- Same item (Size / application) / same class of material, performance feedback

MISCC / SRC

MISCC / SRC

-do- -do- SURS with permanent code can only be considered. Technical Competence to be verified/ assessed

5. Reputed Suppliers (Clause 5.0 of Chapter V)

MISCC / SRC

Justification for seeking registration

MISCC / SRC

SRF not required, however, statuary details shall be asked for.

MISCC / SRC

Head of Unit

Exceptional cases only

MISCC - Material Identification & Supplier Control Committee

SRC - Supplier Registration Committee (For Power Sector Regions)

SRF - Supplier Registration Form

TCA - Trained & Certified Assessor

MI - Manufacturer (Indigenous)

MF - Manufacturer (Foreign)

MC - Manufacturer recommended by Collaborator SU - Sister Unit

SURS - Sister Unit Registered Supplier

NA - Not Applicable

UNITS – All manufacturing units, PS-Regions, PEM, TBG, ISG, ROD etc. Constituting Authority (CA)

BHEL customer profile: Diverse, Loyal and Satisfied

IPP

Abhijit

ACC

Adhunik

Avantha

Bajaj Hind.

Hindalco

India Bulls

Jaypee Gr

Jindal Power

SterliteTata

Videocon etc.

BHEL Pe r f o rm a n c e Ed g e I s D r i v en B y

Lower Auxiliary Power Consumption

Boiler Efficiency

Lower Design Heat Rate

Better PLF

Lower Life Cycle Cost

Co n fi den c e r eposed b y IP P s i nd i c a t e BHEL’s

Product Quality

Execution Capability

Service Reliability

Engineering Excellence

Strategies of BHEL

1) Capacity Enhancement

2) Accelerated Project Execution

3) Product Cost Competitiveness

4) Diversification

5) Engineering & Technology

BHEL Capacity Enhancement Program:

Timely, Planned & Scalable to meet Market Demand

Manufacturing Capacity Expansion

Acquired BHPV Vizag as 100% subsidiary in 2008. Slated to enhance our capabilities in design,

fabrication, supply and erection of custom built process plant equipments.

BHEL Electrical Machines Ltd. (JVC between BHEL & KEL (Kasargod)/ GoK) for

manufacturing of products for Railways and Industries. Strategic move to enhance our presence in

Transportation, Industrial and Renewable Energy Sectors.

Strategic Focus & Execution Drive:

Positioned to Sustain Competitive Edge

Bridging skill deficit

Skill enhancement at ITIs in JV/PPP mode: Kabiguru (WB), Latur (Mah),…

Leveraging WRI Trichy to train high pressure welders

Extensive training to Act Apprentices & Customers

Lateral/ Campus/ Special/ FTA Recruitment

Retired Specialists as Consultants, Re-Employment

Site capability enhancement

Greater empowerment of Project Managers

Deploying additional Tools & Plants like heavy cranes suitable for erection of sets up to 800

MW.

18 Cranes added in 2010-11

Total Cranes as on March 2011: 126

Several process improvements to reduce PI to PO conversion time

Positioning ourselves for Steady Profitable Growth:Product Cost Competitiveness Strategies

Ma t e r ia l C o s t R e du c t io n E f f o r ts

Vendor Base Expansion: To reduce Risk & Cost Global Sourcing: Leveraging low cost China Manufacturing for high value forgings Indigenization: Efforts on to form JV with domestic steel manufacturers for indigenization of

critical steel materials like CRGO

Integrated Operations Improvement: Lean, DTC, PSM, ERP/SAP

Our Diversification Strategies:

Expanding our Offerings in New Growth Areas

Solar:Strategic Alliance with BEL for formation of JV for setting up manufacturing facility (250 MW) for silicon wafers, solar cells & modules.

Joint Working Arrangement with Abengoa Spain for Concentrated Solar Power Plant (CSP).

Nuclear:

Steam generators for new rating 700 MWe Nuclear sets.

MoU with GE-Hitachi for cooperation in Nuclear island equipment for Power plants to be set up by

NPCIL

Transportation: MoUs with Alstom and GE for participating in the tender for setting up a factory for Electric Loco components at Dankuni, West Bengal and Diesel Loco factory at Marhowra, Bihar respectively.

T & DStrategic Alliance with Toshiba, Japan to establish a JVC to address T&D business in India and other

mutually agreed countries. The JVC will

cover equipments and projects in EHVAC & UHVAC range including 765

kV transformers and reactors & GIS, in addition to other products and systems.

Water

Manufacturing Associate Agreement with GE India Industrial Private Limited (GEIIPL), for Water

Treatment Equipment.

BHEL will be able to provide more cost-effective membrane-based water treatment systems for power

plants and industrial sector for all type of input water like sea water, brackish water and waste water.

NBFC: Total Solution provider in power generation.

To finance power projects by providing funding support to attract potential customers & optimize returns

on our huge cash reserves.May also expand to other segments like Renewable where funding support is

critical.

BHEL making its Supply Chain Agile to Accelerate Project Execution

Vendor B ase Expansi on

1141 new Vendors added in 2010-11 & Vendor base reaches 25,347.

Developing BoP vendors: 40 (2008-09) + 84 (2009-10) + 42 (2010-11)

Procurement Office opened in Shanghai, China

A MA

Advanced Manufacturing Action for long lead items

T CA

Technology Collaboration Agreement with Sheffield Forgemasters UK for large size forgings

(up to1000 MW)

Information Technology

e-Procurement , Reverse Auction

R a t e Co n tr a cts

Long term Rate Contracts for Steel, Copper, CRGO, Transformer Oil

(Contribution to total purchase ~25%)

Out s ourc i ng

Enhanced thrust is being given for outsourcing of low tech/ non-core manufacturing.

BHEL Performance