Mumbai: Small and mid-sized auto parts manufacturers in the country are becoming makers and assemblers of several parts in the face of increased competition from firms that are doing this and the prospect of losing the business of customers, who wish to cut costs and time.
As a result, a component maker who was once making only the frame of a motorcycle body is now fitting this frame with wires and 40 other parts before delivering it to the customer. And, to speed along the process, vendors have installed machinery and developed the technical knowledge to make most of the vital parts in-house. Such suppliers, who are commonly referred to as systems suppliers, help bring down production costs for vehicle makers.
“Our outsourcing is increasing, and this is always more cost-competitive than what we would have to do in-house. We also have to handle less items, which again lowers our logistics costs,” said N.H. Hingorani, vice-president (commercial), Bajaj Auto Ltd. He did not say how much the company saved by adopting this practice.
Bajaj’s Chakan plant near Pune. The company says its outsourcing is increasing and enables it to lower logistics costs
Vendors are moving to supplying systems because competitors such as Robert Bosch GmbH or Magna International Inc. do so. Thus, even small vendors such as the Rs60 crore Remsons Industries Ltd are getting into the act. The company, which makes a range of cables for gears, is now talking to its customers right from the concept stage. “We have come up with our own designs for gear systems targeted at light commercial vehicle makers,” said Rahul Kejriwal, vice-president (marketing) at Remsons.
Remsons has designed and developed many of the parts that go into making a gear work. It has already won orders of 60,000 units annually for these products, two of which will be rolled out in the first three months of 2008.
While some vendors have developed their own technology, others such as PMP Components Pvt. Ltd—part of the Ashok Piramal Group—are acquiring overseas companies to make the transition quicker and stay in the game. PMP, which makes windshield wipers, completed the acquisition of Hungary’s Bakony Wiper System Kft in September. This buyout now allows it to offer complete wiper systems to Indian customers.
“Although the bigger vendors began this trend some years ago, the pace is picking up. They (smaller vendors) are getting into more systems for different product categories,” said Hingorani.
Vendors such as the Bagla Group were the early starters of this trend in India. Bagla’s main customer, Bajaj Auto, asked it to up quality and supply the entire systems instead of small parts. From making only a few parts that make a brake work and just the hub of a wheel, Bagla now supplies complete brake systems and wheel sets.
“The trend is towards rationalization of vendors. And so, the challenge for the components industry is to get into systems and start supplying technology-intensive products,” said Rishi Bagla, joint managing director, Bagla Group.
Vehicle makers are increasingly selecting only those who can provide a set of different components assembled together. Bajaj’s plant in Pantnagar, Uttarakhand buys components from only 16 vendors. By comparison, almost 70 vendors supply components to make one million motorcycles at the company’s Chakan unit.
Other component makers are putting more money into research and development. The NK Minda Group plans to increase its spending on research and development to 6-8% of its annual sales in five year’s time, from a mere 3% today. “Our contribution per vehicle is increasing as we are adding more components,” said Nirmal K. Minda, managing director, NK Minda Group.
Although assemblies mean lower costs for vehicle makers, they mean higher costs for component makers. They have to invest in engineering, research and development, tooling and people. “The auto component companies face major problems and the issues range from selling the concepts to vehicle makers to putting in place systems and processes to ensure that seamless transition (to making systems) happens,” added Minda.