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Honda to reduce stocks to keep lean

Honda to reduce stocks to keep lean
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First Published: Thu, Jun 19 2008. 12 46 AM IST

Green drive: Honda’s new hybrid version of the Civic sedan is displayed at its launch in Delhi on Wednesday. The car is priced at Rs21.5 lakh.
Green drive: Honda’s new hybrid version of the Civic sedan is displayed at its launch in Delhi on Wednesday. The car is priced at Rs21.5 lakh.
Updated: Thu, Jun 19 2008. 11 02 AM IST
New Delhi: Honda Motor Co.’s India unit is planning to reduce stocks at each level of its supply chain and minimize the number of variants of future models to trim costs amid a cooling market and rising prices of raw materials.
“We are trying to (reduce stocks) at every single point and make lead time as short as possible,” said Masahiro Takedagawa, president and chief executive officer of Honda Siel Cars India Ltd. “The entire lead time, sometimes...it takes 120 days and we have lots of room to improve.”
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Honda buys as many as 15,000 parts per car from 104 suppliers in India, and other companies from Japan and Thailand. It then ships fully built cars to 80 sales outlets in the country and Takedagawa wants to reduce stocks at all these points. While he wouldn’t say by how much he is looking to reduce the stocks, he said that this move would result in cost savings of up to 3% for the company.
“If you compare it to the net profit, it’s not a small amount, particularly in the high interest rate environment,” said Takedagawa.
Honda’s local unit is not listed in Indian bourses and is hence not required to reveal financial numbers.
Green drive: Honda’s new hybrid version of the Civic sedan is displayed at its launch in Delhi on Wednesday. The car is priced at Rs21.5 lakh.
Inflation in India, at a seven-year high, is eroding purchasing power and the country’s central bank has raised benchmark interest rates 12 times in the past 18 months to curb money supply.
The price of fuel and raw materials such as steel and aluminium, which has gone up by as much as 40% in the last six months, is further denting consumption because of the rise in vehicle prices.
“Everybody is facing input cost problems, high interest rates and inflation. We have to accept it,” said Takedagawa. “We are not looking at volumes, but in reducing costs by processes and applying this to the supply chain of our vendors as well.”
Honda sold 62,802 units in the last fiscal, compared with 61,325 units a year ago. This growth of 2.4% was the lowest for the company in recent times.
The company plans to enter the compact car segment, which accounts for eight of 10 cars sold in the country, next year with its Jazz model.
“We are (planning) to minimize variants of each model,” said Takedagawa without giving any details. Fewer number of variants would mean greater scale economies in sourcing of parts. He spoke to Mint on the sidelines of the launch of the Civic hybrid, priced at Rs21.5 lakh, as a fully imported unit and India’s first hybrid car.
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First Published: Thu, Jun 19 2008. 12 46 AM IST