Operational Restructuring: The Philips India Way

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Case Details:

Case Code : OPER019
Case Length : 11 Pages
Period : 1997 - 2002
Organization : Philips India
Pub Date : 2002
Teaching Note : Available
Countries : India
Industry : Consumer Electronics

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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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Background Note Contd...

By the late 1990s, PIL had five manufacturing units situated in Salt Lake, Kolkata (for CTVs), Pimpri (near Pune for audio products and industrial lighting), Kalwa (near Thane for electrical lighting), Kota (in Rajasthan for picture tubes) and Loni (in Maharashtra for electronic components).

In 1997, Philips NV restructured its business portfolios and processes worldwide. This had wide-ranging consequences for PIL's operations. The company examined the long-term viability and profitability of electronic weighing, plastic and metal ware businesses and critically reviewed manufacturing processes of the consumer electronics business, specifically the TV business, to cut costs and improve flexibility.

Measures to this effect were put in place. In 1998, Philips NV increased its holding in its subsidiary Punjab Anand Lamp Industries (PALI) from 39.96% to 51%. With PIL holding around 28.8% in PALI's expanded capital, the joint holding of the Philips group in the company increased to 79.8%.

Restructuring Initiatives

In the late 1990s, the CTV market was characterized by intense competition and unprecedented price erosion. In an attempt to improve cash flows and bring down inventories, the company restructured its CTV manufacturing process.

PIL decided to leave the relatively low value adding manufacturing processes such as final assembly and testing to supplier-partners who were close to the marketplace. These supplier-partners not only had much lower cost-structures, they were also far more flexible. By having several supplier-partners in different parts of the country, PIL was able to reach out to customers in the shortest possible time and with very low inventory in the pipeline. In June 1997, PIL shifted the final component assembly process for CTVs out of its at Salt Lake factory to three new assembling centers in West Bengal, Punjab and Uttar Pradesh, to keep the assembling unit of the final product as close to the customer as possible.

PIL also started outsourcing low value components from local players, while concentrating on the production of high-value items...

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