Maruti to cut components’ indirect import cost by 5%.

Automobiles market leader, Maruti Suzuki India plans to trim indirect components’ import cost by 5-10 per cent this financial year as unfavourable exchange rates continue to dent profits.

Maruti Suzuki does indirect imports through its local component vendors from countries such as Japan to build finished components in the country. During 2011-12, Maruti Suzuki had to dole out vendors a compensation of about Rs 280 crore due to rapid depreciation of rupee against the Japanese yen.

“Our indirect (component) imports account for 15 to 20 per cent of our overall component sourcing. We plan to reduce it by 5-10 per cent this financial year to reduce the risk of foreign exchange variations,” said S Maitra, head-supply chain, Maruti Suzuki India.

About 10 per cent of Maruti Suzuki’s component imports are done directly by the company from Japan and Europe while the remaining 70 per cent components are sourced locally to manufacture cars.

The cost cutting programmes also include sourcing more components from the Asean region, from countries such as Thailand, rather than Japan to ward off currency risks and thereby reduce dependence on Japanese vendors. The largest carmaker also aims to reduce the number of tier I vendors to ensure better quality of components while at the same time increasing the number of tier II and III vendors. Tier I suppliers are those who provide finished components to the carmaker while tier II and tier III vendors supply components to the bigger tier I vendor for manufacturing finished components.

“In 2003-04, we had 355 tier I suppliers. We have reduced it to 250 as of now. This ensures better quality of components, as the main suppliers we are sourcing from are mostly foreign companies operating in India that have better ability to make investments and build hi-tech components. At the same time, we want to increase the tier II and III suppliers by motivating them to focus on specific components because of their inability to make large investments,” Maitra said. In all, Maruti Suzuki has about 800 vendors, including tier II and tier III suppliers.

Maitra said 35 per cent of the company’s tier I component suppliers are from countries such as Japan and Europe while about 35 to 40 per cent of the remaining are Indian and the balance 30 to 35 per cent are Indo-Japanese joint venture component manufacturers operating in India.

Maruti Suzuki’s net profit declined 29 per cent at Rs 1,635 crore during 2011-12 against Rs 2,288 crore during last financial year on account of adverse currency movement, strike at its Manesar plant and sluggish petrol car demand. The company’s annual net sales stood three per cent lower at Rs 34,705 crore for the year, against Rs 35,849 crore in 2010-11.

Source : mydigitalfc.com