Cummins India - Consumer Driven Modularization Strategy

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Case Details:

Case Code : MKTG104
Case Length : 15 Pages
Period : 1999-2004
Pub Date : 2005
Teaching Note :Not Available
Organization : Cummins India
Industry : Power Gensets, Diesel Engines
Countries : India

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Gensets in India Contd...

Large manufacturing companies have been building captive power plants running on diesel since they are more economical and take short period to build⁴. While many industrial consumers pay well over 10 cents per unit (kilowatts per hour) to the State Electricity Boards (SEBs), power through captive diesel plants can result in savings of around 3.5 cents per unit.

This translates into very significant cost savings, especially for power intensive industries such as cement, chemicals and steel. Moreover, the reliability and quality of power is also better. Agricultural, office and residential consumers have been meeting the deficiency of power supplies by buying portable power generating sets, popularly known as gensets, operating on diesel. Diesel gensets took off in India, especially after 1991 when the GOI formulated a policy to encourage private investment in the power sector. A number of companies, generally joint ventures involving foreign investors, began to manufacture diesel engines that powered captive generators, or assembled and installed the gensets themselves.

Companies which were already operating in the industry expanded their operations. Some of the major players in the genset industry included Honda Siel Power Products Limited, Birla Yamaha Limited, Hindustan Power Plus, Wartsila Diesel India Limited (Finland) and Cummins (US) (Refer Exhibit I for details on the major players in Indian genset industry).

Cummins entered India in 1962 to manufacture diesel engines. It was a leading genset manufacturer concentrating on high-end power intensive industries.

From early 2000 onwards, Cummins India Ltd (CIL) also started to concentrate on medium and low horsepower (HP)⁵ gensets to cater to farmers, hospitals, small retailers and domestic users since these consumer segments were expanding rapidly.

The company adopted a new technique called modularization i.e. customizing each product to meet the unique requirements of each consumer segment.

Background Note

Cummins was founded on February 03, 1919 as The Cummins Engine Company by William Glanton Irwin, an investment banker and Clessie Lyle Cummins (Clessie), an auto-mechanic. Clessie was convinced that an engine technology invented by Rudolph Diesel in the 1890s, which was still unproven, commercially held great promise for its fuel economy and durability...

Excerpts >>

4] Diesel-powered plants have short gestation periods -around 18 months (half that of a coal-based plant) and have lower capital costs. Smaller plants are usually based on diesel power generators. It is estimated that 83 percent of the captive power plants under 5 MW are run on diesel and about 52 percent of plants in the 5-25 MW range also use diesel generators.

5] A unit of measurement of mechanical power. It indicates the ability of a machine to do a specific amount of work over a period of time. It is equal to 550 foot-pounds per second in mechanical power or 746 watts in electrical power.