Page 266 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 13: Production Planning and Control

The second element of the strategy was to purchase technology from the best foreign Notes
source rather than to create joint ventures. Conventional wisdom, at that time, believed in
joint ventures for capacity expansion but RIL had a belief that joint ventures slowed
everything down and hence they kept away from them.
The third element of the strategy was speed. RIL considered the cost of time to be critical
and did everything to compress time in both their projects. For instance, RIL set up it’s
worsted spinning plant within eight months of grant of the licence. However, for the PFY
plant, it got it ready in fourteen months—even surprising its collaborators, DuPont. For
example, RIL laid scores of kilometers of pipes in readiness for the equipment to arrive
and to be installed as soon as it landed, instead of linking the various pieces of the equipment
after receipt. By 1983, PFY was the major revenue earner in RIL’s portfolio. It maintained
this position by continuously modernizing and expanding its PFY capacity.
This was a strategy the company would follow for all it’s businesses. It would also
continuously modernize and increase capacity to mop up all incremental market growth
to build a position of absolute industry leadership. This continuing capacity growth gave
it other advantages also; for example, it allowed the company to emerge as the lowest cost
polyester producer in the world. Beyond the cost advantage, RIL used capacity as the
company’s key instrument for enhancing customer service.
In 1984, RIL sought to further expand its Polyester portfolio. It obtained a licence for
manufacturing 5,000 MT of Polyester Staple Fiber (PSF). In addition to expanding its
Polyester portfolio, RIL sought to further backward integrate its operations. It obtained
licences to manufacture fiber intermediates—Purified Terephthalic Acid (PTA) and Mono
Ethylene Gycol (MEG). RIL had started manufacturing polyester from Dimethyl
Terephthalate (DMT)—an alternate raw material for PTA. It also obtained the licence to
manufacture 50,000 m. tones of Linear Alkyl Benzene (LAB), an intermediate for the
production of detergents market, triggered by the success of Nirma, a new low-cost brand.
Throughout, RIL obtained sanctions for capacities, which were far in excess of it’s needs of
these products for captive consumption.

RIL, in keeping with it’s strategy of continuous investment in additional capacity, expanded
it’s capacities in each of these businesses. In fact, in a number of cases it expanded the
capacities even as it was installing the originally sanctioned smaller capacities. Further in
each of these businesses, RIL achieved a level of capacity utilization that was far higher
than that of most competitors.
RIL also started to use this capacity to expand its markets. It not only used it’s scale to
advantage, but also upgraded it’s quality to export a major part of the output. It marketed
products both under its own name and through well established international companies
like DuPont. To support exports, the company set up Reliance Europe Limited, a wholly
owned subsidiary in London. The improvement in quality necessary for export together
with it’s experience with international customers was used by RIL to reinforce the
company’s competitive advantage at home.
Beyond export, the company also pursued an aggressive strategy of demand creation at
home. It created special development groups to find applications that would use RIL
products as feedstock. It provided such services free of cost to potential investors in these
product areas and also used it’s own network to help these investors secure both funding
and distribution. As a result of such “demand-creation-activities” at home and abroad, RIL
was able to achieve 100 per cent capacity utilization in PSF, for example, while most of its
competitors did not achieve more than 50 per cent capacity utilization.

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