Boston: Commercial vehicle maker Tata Motors Ltd is undertaking product innovations in its commercial vehicle line-up. This will reduce consumption of steel and other metals in its vehicles in a bid to control production costs that are spiralling out of control with price of steel, one of the biggest components, up by around 40%.
The company, which has a dedicated manufacturing plant for the Ace at Uttarakhand, with an installed capacity of 225,000 per annum, is poised to ramp up production.With a reworked design, that brings down usage of steel in the sub-one tonne category there could be significant reduction in the cost of production per vehicle, translating into significant savings.
Vendors of the company told this reporter that the company is in advanced stages of prototyping a new version of its Ace mini truck, which will use an estimated 20kg less steel per unit. The company sold close to 90,000 units of the Ace last year. A quick back-of-the-envelope calculation indicates savings of up to Rs18 crore last year, had this weight optimization effort been mounted last year.
Cutting down raw material costs by reworking designs
A Tata Motors spokesperson in an e-mailed response to Livemint said “While at any given time Tata Motors is working on several innovations on products and performance, sharing details on them erodes our competitive advantage”.
Raw material costs account for the single largest spent by Tata Motors and this experiment is likely to bring succour at a time when its net profits are under pressure. The company announced a 30% drop in net profits in the quarter ended June (Rs326.11 crore ) as against the same quarter last year.
Vendors who spoke with Livemint independently confirmed the company is now asking its vendor community to take this as a possible route to reduce cost .The company’s component vendors have been pressing for an upward revision of the pre-negotiated price for their supplies but the company has not yet taken any decision on that front.
At a meeting with company senior management including vice-president ,materials, commercial vehicles business U.K. Mishra in the last week of May, vendors were told their best bet to tide over a crisis with rising costs would be to come up with better designs that would reduce the use of expensive raw material such as steel.
“Instead of giving us revised prices, Tata Motors executives asked us at the Uttarakhand meeting (to discuss price revision) to use technology and come up with new designs for products that will help reduce costs. We’ve been told they will accept and approve such new designs on priority so that we can get over the price crisis faster. We have also been told vendors who come up with improved designs will get assured business from the company”, one vendor, who supplies to almost all the company’s commercial vehicles, said.
Trial on for developing new prototype
According to these vendors who do not wish to be named, the company is currently trial-testing a new prototype of the Ace , with a lighter load body carrier and is likely to start commercial production of this version in 3-4 months from now.”
The new design has helped bring down weight from 104kg to 84-86kg. This translates into immediate savings of around Rs1,000-12,000 in steel cost alone.
When the cost of processing that much steel is taken into account, savings could be to the tune of more than Rs2,000 per vehicle”, one of the two people who spoke on this project said.
For the end-user of Ace, a lighter vehicle can translate into one that delivers better mileage. And, if the company decides to pass on its savings to the consumer with a reduction in pricing, it would translate into better sales.
Other commercial vehicles may see some modification too
The second of the two people who spoke about the Ace project said the company is enthused about this project and may extend it to other commercial vehicles in its portfolio.
Tata Motors sold 44,683 commercial vehicles in the domestic market last fiscal, a growth of 11% over the year before. Cumulative sales from exports for the fiscal were at 5,728 units, a drop of 31% over 8,340 in the same period the year before.