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Ordnance Factories and Private Sector – Avenues for Technology Partnership and Co-Development

Recently a seminar on Industry Partnership for Vendor Development and Outsourcing by OFs was inaugurated by Shri Manohar Parrikar, Hon'ble Raksha Mantri. In his inaugural address, Raksha Mantri Shri Manohar Parrikar reiterated Ministry of Defence will ensure a level playing field for the private sector and that several steps have been taken towards the same. He cited example of Exchange Rate Variation (ERV) that was a long pending issue that has been addressed. Raksha Mantri touched upon issues like Performance Bank Guarantee which ends up hurting both the Indian Industry and the procuring organization as the cost gets built into the quote. He assured that a fresh procurement procedure will be released by September or October which will address most of the issues that industry faces while dealing with OFs and other DPSUs. Raksha Mantri suggested that a new & comprehensive topic on Import Substitution will be added which can also act as a guiding principle for Defence Procurement Manual (DPM).

Shri Parrikar went on to add that L1 system is right, however, the process to arrive at L1 will have to be changed to accommodate better quality and technology. He said that procedure to determine should all-encompassing to ensure that price doesn't become a deterrent to products which will be cheaper in the long run. Industry represented to consider the following:

  • OFs should consider long term partnerships with industry
  • Creation of a Technology Development Fund by OFB to support MSMEs
  • Creating a special 'Made in India' label/brand to facilitate exports of Made in India products

            Ordnance factory Board (OFB) representatives from OFs HQ, Armoured Vehicle, Ammunition and Material management Division gave their organization structure, procurement process, requirement projections and spelled out the indigenization requirements to help industry to identify opportunities to partner with OFs.

            Poised to achieve annual turnover of over Rs 20000 Crores during next two years, Ordnance Factories contribute about 30% share of defence production in India and are the largest defence manufacturing base under single organization 41 Factories. However, it faces the following issues:

  • Lack of focused approach on R&D and in-house development
  • Lack of knowledge on design leading to no development of upgrades

Whilst the larger projects may take few years to fructify, the need of the hour is to look as to how the Private Sector more so the MSME, can contribute by being part of supply chain to OF Board and indigenize the components, sub systems and sub-assemblies which are low hanging fruits, can be easily monitised by the segment. While import substitution would have a huge impact on local manufacturing, aggressive indigenization will encourage more players to become part of the supply chain in defence production and a vibrant domestic defence industrial base and a part of global supply chain.

Purchase Volumes

The purchase volumes of OFB from the period 2011-2015 are as under:

 

Outsourced Items

  • Raw Material: No further capacity enhancement for which items available in Indian market.
  • COTS items: Not to be produced in OFs.
  • Low cost, less technology intensive items: Not to be produced at OFs.
  • Pre-machined forged/cast blanks: Low tech items to be procured in pre-machined or near finished conditions.
  • Assembly/sub-assembly: Instead of components, assembly/ sub-assembly to be procured to the extent feasible.
  • Technology Intensive, strategic and complex imported items : Items for which technology is denied, shall be developed with assistance of Indian industry as long term contract /development partners as per provisions of procurement manual.
  • Ammunition hardware for high & medium caliber ammunition has been identified for outsourcing. In 2015-16, 13 items are outsourced and balance 34 is under source development.
  • Imported Ammunition components to be outsourced.
  • Some Filling and assembly plants and machineries of Ammunition Factories are to be upgraded.
  • Material Handling: To be outsourced to the extent feasible.
  • Calibration of instruments: To be outsourced wherever feasible.
  • Maintenance: Non strategic/critical activities where enough scope/vendors available in Indian market like :
    • Maintenance of CNC machines
    • A/C plants
    • Compressor plants
    • Electrical maintenance
    • General Services like IB/guest houses
    • Factory estate
    • Industrial Canteen
    • Conservancy services
  • Formation of Vendor Development Cells (VDCs) with nodal officers. Details available at OFB Website.
  • Standard Operating Procedure for vendor registration available at OFB Website
  • Items for Indianization available at OFB website
  • Public Procurement Policy-2012 for Micro and Small Enterprises followed

Possible Co-Development Areas

Some of the possible co-development areas wherein public and private sector companies can take part consist of:

  • Futuristic Armoured Vehicles
  • Futuristic Ammunition for Tank Guns & Artillery
  • Futuristic Materials
  • Electronic systems and sub-systems for Weapon Platforms including Armoured Vehicles
  • High Power Engines including Power Train for Armoured Vehicles
  • Fire Control System for various Weapon Systems
  • Composite Armours for improved protection level
  • Wheeled platform for various weapon systems
  • Tank Gun Ammunition
  • SMART Ammunition
  • Precision Guidance for existing Artillery Ammunition

Challenges Faced by Private Sector

Private sector expressed the major challenges faced by them:

  • Defence projects are complex
    • Procedures are even more complex
    • Optimal utilization of resources
  • Self certification
    • Third party certification
  • OFB need to get greater empowerment
    • Authority to engage with private sector in partnership mode
    • Major challenges being faced in outsourcing
    • Inadequate/ Inconsistent quality and reliability
    • Existing procedure of vendor development with every procurement cycle leads to blocking up of quantities as the development takes place in 2-4 years.
    • Typical material composition/specific. defence requirements leading to scarce availability of raw material.
    • Inconsistent work load, low volumes coupled with high investment in infrastructure discourage vendors.

Aligning Policy and Procedures for Way Ahead

Some of the recommendations that the private sector wants OFB to consider consist of:

  • Time bound conclusion of all tender enquiries
  • Long term partnership for ongoing projects not contractual. The model of the automobile industry could be followed
  • R & D efforts must be recognized and encouraged. Transfer of technology should be facilitated all necessary authorization for the purpose should be made available speedily
  • Private defence industry must be treated as national assets. These resources must be utilized optimally and not allowed to go waste
  • The process for Import Authorisation, wherever required, must be made more transparent and speedy like the issue of NOC for export.

Some of the challenges/area of concern for OFB that it wants to be taken care of:

  • Lead time in processing of OTE Cases & Payment.
  • Availability of legible Drawings.
  • EMD, PSD & imposition of LD.
  • Fluctuation of Requirement.
  • Slow speed of eProc Portal.

Suggested Way-Forward for Technology Partnership

As seen OFB and Indian industry, at present, is participating in Product Development activity in limited way. OFB and Indian Industry need to partner for co-development; Indian Industry should be ready to co-invest in Development of Systems and Sub-systems. The product so co-developed would be produced by OFB and industry accordingly.

            OFB also should form a “Joint Development Centre” with Private Sector companies, wherein the Design & Development responsibility to be offloaded to Private Sector company while validation & testing responsibility to rest with OFB.

Emerging Requirements

Under the 'Make in India' initiative of the Government, a list of potential 'Make' Projects has been identified by the Service Head Quarters (SHQs) in consultation with the other stakeholders in the Ministry. These projects are being contemplated to be undertaken as per category 'Make-I' or 'Make-II' of new revised Chapter-III on Make Procedure of Defence Procurement Procedure-2016 which is available on MoD website at link: http://www.mod.nic .in/writereaddata/DPPnew16.pdf

            Companies can have a look at the items to be indigenized in coming years by clicking on the following link: http://ofbindia.go v.in/download/mm/Items_for_indigenization.pdf

E-Procurement

OFB has been implementing e-procurement since year 2011 for Stores Procurement, P&M, Civil Works which is used for all cases valuing >Rs2 lakhs for Stores. Vendor Enrolment is essentially required for participation in tendering process. Company Details/Credentials & Class-III Digital Signature is prerequisite for enrolment. Till date, more than 16000 vendors are enrolled on OFB eProc Portal. For more information visit:https://www.ofbeproc.gov.in.gov.in.

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