Mul Kicks Off Cost Cutting To Make Up Price Cuts

The largest savings are expected to come from the vendors. MUL recently sent 11 of its top vendors to Japan in order to attend a week-long workshop on cost reduction organised by the Suzuki Motor Company.

The workshop discussed ways to increase the local content in the components being produced by these vendors in order to bring down costs by four to five per cent.

"We have set target prices for all our models -- including the Alto," MUL managing director Jagdish Khattar said. Khattar also mentioned that vendors would look at cutting costs on their parts even to the tune of 81 paise, in some cases.

 

In order to give the vendors better volumes, which in turn will help them get better economies of scale, the company has rationalised its vendor base from 350 to around 200, though a few more may be added to the list.

The austerity measures are not restricted to the vendors. These are being extended to all departments. "Our internal cost cutting initiatives took-off in January this year," Khattar said. So, today, every department of MUL has a cost cutting target to meet this financial year.

For instance, the engineering department of the company has to lower costs to the tune of Rs 60 crore this fiscal.

Morever, it would review the austerity measures initiated in each of its departments -- marketing, warranty, engineering, administration, R&D etc -- every two months.

But Khattar was quick to add that many of these plans could go haywire "if the rupee continues to weaken against the dollar".

The market leader's move to reduce costs becomes significant seen in the light of the recent statements made by Arun Shourie, Union minister for disinvestment and Pradeep Baijal, secretary, department of disinvestment.

Both had given clear indications that disinvestment of the government's (50 per cent) stake in MUL would take place shortly.

With its profitability and market share having taken a beating over the last two years, such a move is sure to push up the company's valuation at the time of the disinvestment.