On a Fine Balance: The Story of BMD Corporation’s efforts to increase

Manufacturing Competitiveness through People Management

Probaho was smiling. Half irritated, half anxious, but overall a sense of composed curiosity made him
wait like a tightened spring for the time being. How things repeat itself, not as a prediction but almost
as a pattern. The long-anticipated cancellation order has come. He was waiting for another order,
from the same Labor Court on legality of an initiative taken up by the trade union of which majority
of the employees were members.

It was sweltering heat of May 2017, when Probaho took charge of the Gangapur factory of BMD
Corporation Ltd. The situation of the factory was tense as well as heated up. While handing over the
charge, his predecessor told him “Probaho, you’re getting a chance of a life-time to witness a real
tripartite process. Only the issue is in this case is that it will not be a settlement, rather it’s going to
unsettle a lot of things”.

Background

BMD Corporation Ltd has been a leading packaged food company in India. Some of their best-selling
products were: packaged breakfast (in cereals as well as non-cereals category), cakes and sliced
breads, chocolate and biscuits.

The Company had five factories spread across India. Gangapur, Vasangunja, Shaktinagar, Onda and
Shikrigarh. BMD Corporation being a professionally managed company, always focused on
productivity with appropriate technology induction. As a strategic choice, BMD invested in capacity
ahead of time, so that differentiated products can be introduced to market. With aggressive marketing
campaigns and sales distributions, as the consumer demands picked up, the consumer could be
serviced from these factories with very high economy of scale. After considering a number of options,
BMD decided not to venture into contract manufacturing route and these five factories remained the
manufacturing source.

Among all the factories of BMD, Gangapur has long been a very interesting place from people
perspective. Gangapur has been the first factory of BMD, established more than a hundred years ago.
As the company grew the other factories started coming up. Vasangunja was the second factory and
Shikrigarh was the third one. Shaktinagar was set up in 1970s and Onda was the latest one, starting
its operation as late as 2008. Given the nature of the products, freshness and speed to reach the
market was critical. Thus, having five factories almost evenly spread across north, south east and west
helped the company to build a balanced manufacturing network.

In very early days of its existence, the employees set up a union titled BMD Manufacturing Workers
Union (BMWU). BMD, as an organization always believed in representation of workmen and it
acknowledged the initial efforts and recognized the union formally. Since then BMD entered into
collectively agreeing about the terms and conditions of work (such as wages, work norms, meaning
how many people will work in each work center etc.) through Long Term Agreements. This was a
pioneering move in the industrial scenario of the country.

Quickly Gangapur turned into the main point of interest for the local and state level political leaders
to lay their hands on the BMD Manufacturing Workers Trade Union. Even from the Pre-Independence
time some of the towering leaders have been part of the union. BMD was also the largest private
sector employer in the state, where generally the Industrial Scene was among the least developed in
the country. The benefits, pay to employees and the basic employment practices were far superior to
the other possible formal private sector employers (which were really few and far between).

This was a boon and bane together. As Gangapur offered high wage and benefits, internally the supply
attractiveness for skilled manpower was never a question. But at the same time, this high benefits etc.
always put BMD in center of attention in the state where large scale private sector employment was
abysmally low. Therefore, Gangapur as a factory has always been in the centre of a complex
sociopolitical web.

BMD at a central level allocated budget to all the five factories. Factories with larger budgets can
experiment with newer technologies, can run pilot manufacturing centers with state-of-the art
developments such as Industry 4.0 or connected manufacturing systems etc. Most importantly, a
larger capital allocation could possibly mean increase of the manufacturing capacity and enlargement
of the factories, which results in role expansion and promotion of the managers. Therefore, typically
managers have an incentive to attract larger shares of the budget to their respective factories.

Factories are cost centers, therefore, there are two ways in which a factory can justify its demand for
an increased budget. One, doing the same production operation at a lesser cost than other factories,
so that it makes becomes more attractive as the manufacturing unit of choice, in a network of
factories. Two, by building certain manufacturing capabilities, which translate into that factory serving
one or more strategic requirements (making newer type of products, shifting the quality table to a
different paradigm, reducing the time to the market, having manufacturing capabilities of futuristic
products which can earn higher margin and so on). However, for the product line of BMD these two
ways are not mutually exclusive. Innovation and experiments for new product introduction, addition
of state of art supply chain capabilities required significant investment in machinery. Modern
equipment and manufacturing systems would naturally lead to upgradation of skill sets and
capabilities of the operations teams. This addition of new manufacturing capabilities and better skill
then results into efficient running of the factories, which in turn reduces the unit cost of production.

In a way the factory managers are in a competition with one another to enhance the manufacturing
attractiveness of their units. Because with that, is intertwined their own professional success.

Therefore, it makes no sense for the company to invest in a place where the productivity is already
low and production cost is high. And as a ten-year-old veteran in the company, Probaho had no doubt
that the numbers are not in his favor. And that’s putting it mildly.

The biggest challenge BMD Gangapur battled with was high surplus workforce. Starting mid 70’s, a
one to one replacement of retiring workers with their sons/son in laws started in Gangapur. At that
time, the idea was to maximize production and the installed capacity was more than manned capacity.
A large number of manufacturing operations was also manual. Given the brand name it enjoyed and
the wide-reaching distribution network, the company wanted to ensure that it maximizes production.
This system ensured that there is adequate manpower always available to man the installed
manufacturing capacity. The comparatively higher gross margin earned by BMD also meant that it
could afford the system. However, in the next two decades, staring early to mid-nineties the
manufacturing technology changed very rapidly, also the market saw entry of a number of players.
Thus, BMD had to take a hard look in its factory configurations.

In 2005 Gangapur factory management, with support of factory employees and the BMD
Manufacturing Workers Union embarked on a bold structural change. It stopped addition of workforce
without any regard to productivity. Three years later the factory also went for an ambitious VRS
scheme. This had only a few takers. All this started jeopardising the existence of the factory. In the
one and half/two decades the factory witnessed some really undesired and detrimental events to
Industrial Peace. Events of self-immolation in front of the factory gate on demand of a job, placing a
dead body of a deceased employee on the shop floor and not letting it out, you name it the factory
had seen it all. However, it was till sometime when a real meticulously crafted Voluntary Retirement
Scheme was launched and a large number of employees opted for it. This saved Gangapur from a sure
closure.

However, having those problems and the legacy of the firm ensured that both line managers and HR
department took People management practices seriously. Over the last ten years, the factory team
was successful in delivering the message that any kind of hiatus on production process was completely
unacceptable and nonnegotiable to all stakeholders. That also bore fruit, as the workforce came down
with superannuation, the factory management started getting the first wave of investment which
resulted into more productive machines and higher industrial automation.

Proposals for Automation and Response from the Union:

Cut to 2017. All these were history. While Gangapur made some progress, the others made much
more. The core problem for Probaho was simple. How does he make the Gangapur factory more
productive, or it is a lost battle?

The factory leadership team thought through this problem with a ten-year horizon. In order to remain
competitive, they would need to reduce their workforce at the same time retaining the production
capacity. And they have to do it fast. The way to do it is to introduce machines with higher output but
with equal number of workstations. This was a capital-intensive step and the decision depended on
the financial viability. Additional costs incurred on modernization of operations had to be offset by
reduction of workforce in real time.

Retrenchment of workforce under the relevant legal provisions was an option that Probho was
contemplating. However, it was rife with a possibility of a prolonged confrontation with the employees
and the trade unions. Besides such a confrontation was likely to lead to loss of reputation and
investors’ confidence in BMD

The other route was to try the VRS scheme once again. The factory team proposed a plan to the factory
employees wherein they will be offered forty-five days of average pay per completed year of service,
taking which, they could voluntarily retire or a retrenchment application would be filed to the
government. The first response was that of a disbelief. In the time period which the union members
have witnessed, they neither experienced this urgency to stay competitive or this aggressive stance.
So, the options to the union to respond to such a proposal were boiling down to two alternatives – 1.
Do not agree to it and raise a dispute through the mechanism 2. Agree to it and jointly plan for the
execution, preferably through the routes of a settlement.

Interestingly the internal situation of the union brought in a completely different twist in this entire
scheme of things.
The situation within the Union

Having the factory saved from the brink of destruction with the 2008 LTA, the following events took
place:

1. Number of technology inductions,

2. Timely long-term agreements

3. Major investment in sending a batch of nearly 100 employees for a one year long residential training

The LTAs were generally well accepted, with all employees collecting their post LTA lump sum within
a day. Both gave a consistent message that the company strongly believes in collectively agreeing
upon mutually beneficial outcomes; building a skill pool internally; to provide for career paths to
employees and creating an internal labor market.

These fair and consistent way of handling the IR also paid rich dividends. At a place where employment
is scarce, let alone one of BMD’s standard, a VR scheme saw around a third of the total employee
strength separating voluntarily, giving a much-needed boost to improve workforce productivity.

However, the clouds on the horizon accumulated in Gangapur from another part in the sky. BMD
strongly believes in “One unit One Bargaining Agent” philosophy. Around 1937, the Gangapur BMD
Manufacturing Workers’ Union got them registered under the Trade Union Act 1926, and obtained
the registration certificate numbered 64. According to the Union Constitution the powers of convening
a general body meeting is vested in the hands of the President, and election of the Executive
Committee of 11 office bearers, including that of the President, can happen through this general body
meeting. There is the provision of President Election by secret ballot, with the caveat of “if the
executive committee so decided.”

Disproportionate concentration of power in the hands of the President, given by the Trade Union Bye
Laws, and the fact that there has been an acute lack of internal candidates for this President role, have
some-how ensured that these executive committees in the last two decades, led by external
Presidents, decided to go for election, only after the Hon Court has instructed them to do so. These
court orders generally followed the union registration cancelled by orders from the Labor
Commissioner cum Registrar of Trade Union. 31st March 2000, 23rd July 2006 have been the two most
recent examples when the cancellation of registration order was served to the union, on account of
non-conducting the union election.

The current executive committee and the office bearers of the Gangapur BMD Manufacturing
Workers’ Union, regn no 64, led by the President Shri Anant Singh (a local person, working as a faculty
in a nearby college) was elected in Dec 2010. Subsequent to the election result and in response to a
letter given by Shri Singh, a reply from the then Branch Manager (Statutory Factory Manager) was
communicated which categorically mentioned that this “list” of office bearers are being “recognized”,
and in case it is found that the nomination of the office bearers and committee members have not
been done in accordance with the provisions of the union constitution, management reserves its
prerogative to withdraw its recognition as per the said list of office bearers was concerned.

The LTA was signed with this union on 17th July 2011. The term of the executive committee of the
union was extended from one to three years in 2013, as a decision taken in the Annual General
Meeting. Introduction of new technologies, the historic Gangapur VR successfully completed on
September 2015, and the next LTA was signed on 9th June 2016 (an almost back to back LTA after a
significantly long period) where all business-critical milestones were achieved, following a principle
driven partnership approach with this union. These were testimonials that the relationship with the
union has been productive and truly partnering.

However, there were allegations from various quarters that the functioning of the union is contrary
to the provisions laid out in the union constitution as elections are not being held. The management
took a stand that Union election is an issue, completely internal to the union and they as management
had nothing to do with that. This became a bone of contention before the LTA as well, however with
repeated representation to various authorities and explaining why they wanted to conclude the LTA,
it was successfully signed.

The labor department in the mean-time kept writing letters to the union repeatedly asking for
documents which they felt could give proof to the union’s claim that an election was held on April
2016. The documents they have asked for included: notices regarding appointment of observer,
declaration of election dates, eligible list of voters, nominations received for post of President,
Electoral Symbols, Election result and the certificate of Election being concluded by the observer etc.
The union responded to these correspondences maintaining that there are petitions raised in
Gangapur Civil Court and the Patna High Court respectively on this matter hence it is sub juris. They
also maintained that the election is internal to the union and the Labour Commissioner cum Registrar
of Trade Union cannot interfere in the same.

Not being satisfied with the responses, the LC cum Registrar paid a field visit to the factory on 26-12-
2016. He subsequently issued a form D to the union on 23rd February asking them to show cause why
the registration should not be cancelled, citing the failure to furnish documents (inspection of which
is well within the jurisdiction of the LC cum Registrar u/s 28 of the Trade Union Act 1926). The union
responded on 21st March 17 maintaining their stand. Another form D was issued by the Labor
Department on 23rd April 2017 acknowledging the receipt and expressing dissatisfaction that the
documents sought in the earlier letter was not received. The union responded to this correspondence
by a letter on 25th May, where they put a strong allegation against the LC cum Registrar alleging that
he was working under pressure and with vested interests from the Minister of Labor Resources. On
9th June, 2017 the Labor Department issued an order (dated 8th June) of cancellation of the
registration certificate of Gangapur BDC Manufacturing Workers’ Union regn no 64. This order
categorically directed the management to display this cancellation order to the notice board and not
to engage in any collective bargaining discussion with the current union office bearers.

And there was Probaho, just taking charge and in the middle of all this conundrum.

Discussion Questions:

1. As a practicing manager what should Probaho do? He has a couple of choices and each of
the choice comes with their respective tradeoffs. Can these tradeoffs be articulated and a
decision framework arrived at?
2. What is a sustainable route towards achieving the targeted productivity and which
legislations help therein?
3. Which parts of the existing labor legislations you think is the knot of the problem with the
Union?
4. What new introductions in the Code of Industrial Relations 2019 may make the situation
better?
Exhibit – 1 Workforce Situation & productivity comparisons for BMD Corporation Gangapur

Year On Roll Requirement Superannuation Death in

Harness
2010 1342 1120 0 4
2011 1342 887 114 5
2012 1228 887 74 6
2013 1154 887 69 7
2014 1085 887 84 6
2015 1001 887 77 4
2016 759 569 57 6
2017 702 569 45 5
2018 657 569 36 7
2019 621 569 56 5
2020 565 43
2021 522 42
2022 480 43
2023 437 33
2024 404

Productivity in terms of Million Packets of Product Produced Per Man month Deployed
Year Gangapur Vasangunja Shaktinagar Onda Sikrigarh Overall BMD
2015-16 0.57 1.01 1.07 1.54 1.15 1.01
2016-17 0.66 0.81 1.16 1.56 1.05 0.99
2017-18 0.64 0.91 1.15 1.31 1.12 0.99
2018-19 0.68 0.90 1.21 1.35 1.36 1.04
2019-20 0.71 0.92 1.26 1.40 1.38 1.07
2020-21* 0.77 0.94 1.32 1.43 1.40 1.12
2021-22* 0.82 0.98 1.38 1.44 1.41 1.16

Employee Cost as a percentage of total production cost

Year Gangapur Vasangunja Shaktinagar Onda Sikrigarh
2014-15 51.60 28.79 28.15 27.22 12.84
2015-16 49.17 27.60 33.91 23.20 13.54
2016-17 44.90 28.58 32.36 23.22 14.59
2017-18 46.03 30.54 30.23 23.45 15.45

Factory Manpower
Gangapur 522
Vasangunja 753
Shaktinagar 645
Onda 287
Sikrigarh 197
Exhibit 2 : Workforce Cost in BMD Gangapur
Comparison of all factories of BMD on Employee Cost

Factory Employee Cost per ‘000 Packets of product

Gangapur 31.03
Vasangunja 23.48
Shaktinagar 28.41
Onda 24.6
Sikrigarh 18

Exhibit 3 – Excerpt from the Certified Factory Standing Order Applicable

1. The Management shall have the right to shut-down either wholly or partially any department
or departments due to adverse trade conditions, stoppage, lockouts, strikes effecting one or
more departments of the Company’s business, reduction of shift, failure of power supply, fire,
catastrophe, breakdown of machinery, shut down for periodical repairs, reconstruction or
extension, want of sufficient order, unprofitable working, epidemic, civil commotion, force
major or any other cause whether of a like nature or not, beyond the control of the Company.
a. The Company shall be the sole judge of the sufficiency of such cause…
b. The fact of such stoppage or shutdown or closure shall be notified by a notice on the
Notice Board.
c. If and when a department or departments are to be responded after a shutdown,
closure or stoppage, the date of resumption of work in these departments will be
notified by Notice on the Notice Board and at the Factory Gate.
d. In the event of a shutdown, stoppage or closure for any of the causes mentioned in
Standing Orders other than a lockout or a strike, if the company is unable to provided
work for all employee, any class of employee, or any particular employee or
employees, the Management shall be entitled without notice to lay off from work or
duty all or such employees as the Management shall select for any period or periods.
2. Employees who have been laid off owing to such stoppage will be treated as under: -
i) Temporary employees will be discharged without notice;
ii) Wherever possible, the Company will offer suitable alternative employment to
permanent employees; employees who are provided alternative jobs will be paid the
rate and hours (if any) of the jib to which they are transferred. As far as possible, the
Company will make efforts to offer jobs carrying earnings equivalent to these which
their employees were earning in their original employment.
iii) If it is not possible for the Company to provided alternative employment, employee who
may have leave to their credit will be asked to go on leave with pay for the period of
their leave still outstanding.
iv) Employee who have no leave to their credit shall not be entitled to any payment for the
first seven days of the layoff. Thereafter they will be paid 75 per cent of their basic
3. The company may in the event of a strike affecting either wholly or partially anyone or more
department or departments of the Factory close down either wholly or partially such
department or departments and any other department or departments affected by such
closing down and for any period and periods. The fact of such closure shall be notified as soon
as practicable by notices posted in the departments concerned and at the main entrance to
the factory. Prior to the resumption of work the workers concerned shall be notified by a
notice posted on main entrance to the factory.