M & M To Prune In-House Component Production

Mahindra & Mahindra's (M&M) tractors division has decided to prune the number of components produced in-house by over 80 per cent.

In three years, the company is planning to reduce the number of components produced in-house to just 10 from the current 60, as it could lead to cost savings of around 10-30 per cent.

K J Davasia, executive director & president, M&M's farm equipment sector said, "The objective is to create a lean and mean organisation which is more flexible. We created in-house facilities to manufacture all the components at a time when it was considered prudent. When component manufacturers can produce the same components of same quality, why should we produce them?"

"The exercise will lead to savings of about 10-30 per cent," he added.

Following the completion of the outsourcing initiatives, M&M will focus on assembly and marketing of tractors, in addition to research and development (R&D), which is crucial to automotive companies. The company has in recent times stepped up its R&D activities considerably, and has about 500 engineers for the tractors division alone.

According to company officials, its R&D spend is about 3-4 per cent of its revenues, a figure that is rather high for Indian companies, considered to be weak in R&D.

Davasia, however, said that M&M might fall short of its sales target of 65,000 tractors during the current fiscal. He said that sales in the fourth quarter may not be too high in view of low agricultural incomes, and the upcoming elections in four states, including Uttar Pradesh and Punjab, two of the largest tractor markets.

"We will however concentrate on maintaining our market share. Also, our retail sales have not been very low if we take into account that we have reduced our dealer stocks from 12,000 units last year to just over 4,000 units this year," he added.

...to set up mini assembly plants

Mahindra & Mahindra is planning to set-up 'skid plants' across the country, to save on octroi and lower logistics costs. These plants will source and assemble parts such as tyres, seats in states where M&M does not have manufacturing plants. Already, one such plant has been set up in Dharwar, Karnataka, and 5-6 plants more are in the pipeline.

Gautam Chakravarti, executive vice president, said, "As implementation of value-added tax (VAT) has been deferred, skid plants will result in savings for us in octroi which we have to pay to state governments on our tractors. We are also considering options such as common transportation means for our tractors and utility vehicles to reduce costs."

The initiative has been taken as part of the tractor division's organisational restructuring programme, 'Vishwajeet'.