Page 267 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Production and Operations Management

Notes Between 1989 and 1992, RIL further backward integrated it’s operations. It set up facilities
to manufacture LAB directly from kerosene with n-paraffin as intermediate raw material.
It also commissioned the facilities for the manufacture of paraxylene (input material for
manufacturing PTA). Both these facilities were set up at it’s Patalganga complex. At it’s
Hazira complex, it set up an ethylene cracker complex, and commenced manufacturing
MEG, PE, ethylene dichloride (a feed stock for manufacturing PVC) and PVC. It also
planned a world scale caustic soda chlorine facility to produce chlorine for meeting it’s
own captive needs for the manufacture of ethylene dichloride, and also for sale in the local
market.

In order to expand its activities at Hazira, in 1992, RIL sponsored Reliance Polypropylene
Ltd. and Reliance Polyethylene Ltd., both joint ventures with C. Itochu, Japan. These
companies were to manufacture 250,000 MT of polypropylene and 160,000 MT of
polyethylene respectively. They mobilized over Rs. 6 billion from the capital market in
November 1992 to part finance the projects which were expected to go on stream by the
end of 1994.
During 1991-2, RIL secured a licence to set up a 9 MT refinery. It subsequently promoted a
new company, Reliance Petroleum Limited, in which it had a 21 per cent stake, for setting
up the refinery which would meet it’s feed stock requirements of naphtha for the
manufacture of paraxylene (PX) and kerosene for the manufacture of LAB. Due to regulatory
restrictions to market petroleum products directly, the new company entered into a
marketing and distribution arrangement with the state-owned Bharat Petroleum
Corporation Limited (BPCL), the third largest integrated refining and marketing oil
company for marketing the products of the refinery. However, when the restrictions were
removed, RIL started to set up it’s own outlets throughout the country. In 1994, RIL
completed it’s vertical integration chain by entering into oil and gas exploration. It has
since announced a number of gas strikes on the east coast.
In addition to vertically integrating it’s operations, RIL also expanded it’s existing
businesses, in each of which it had already achieved positions of absolute leadership in the
domestic market. It was now in the process of setting up new capacity to manufacture
120,000 MT of PFY, 100,000 MT of PSF 80,000 MT of PET and 350,000 MT of PTA. This
complex at Hazira is planned to be bigger than their polyester complex at Patalganga. On
completion, the total polyester capacity of RIL would be over 500,000 MT and that would
make them the No.1 integrated producer in the world.
According to Dhirubhai Ambani, “By operating as if the environment was deregulated,
we have a head start. But others are catching up. On the Indian side, the visibility and
success of Reliance has made others develop the courage to think big. The Reliance formula
is no longer a secret. Also, they will not have the impediments we had. They will be on
tested grounds. More importantly, they will be able to benchmark themselves against us.
At the same time, there is also a big change in the global companies. Earlier, they were not
very interested in India—the country did not have credibility. Now they see India as a
major growth opportunity. So, they will provide a driving force. They will push their
technology… they will educate our domestic competitors.”
According to RIL assessment, this area still offered almost unlimited opportunities for
further growth. In order to justify entering into a new area of opportunity, it was essential
that it must provide opportunities for the kind of Return on Assets and growth performance
that Reliance had come to expect. The benefits of focus are obvious, yet to a group that is
in hurry and has a management team accustomed to achieving the impossible, the new
opportunities are almost too attractive to resist.
Source: Upendra Kachru, Production and Operations Management – Text and Cases, First Edition, Excel Books, New
Delhi 2007.

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