Maruti Pools Efforts with Vendors to Cut Costs

New Delhi: In its drive to cut costs, Maruti Suzuki India is expanding the basket of raw materials sourced jointly with vendors apart from hedging forex together to avoid averse currency movements. The country's largest car maker, which has already hedged 40% of total exposure of 100 billion yen (over Rs 6,530 crore) together with vendors for the ongoing fiscal, is now planning to source plastics together in order to reduce costs. "About five years back, we had started sourcing steel together with our vendors from suppliers. We have also done the same for aluminium about two years back. Now we intend to do the same with plastics," Maruti Suzuki India (MSI) Managing Executive Officer (Supply Chain) S Maitra told PTI. Commenting on the need for such joint contracts with vendors, he said: "When we source raw materials independently, the suppliers quote different rates to us and another to vendors". After such combined sourcing, the company has been able to achieve 5-10% saving on costs, he added. "Now we are looking to take up similar approach for plastics, as a large quantity is used by us as well as our vendors. We have had talks with Reliance Industries which is the biggest supplier," Maitra added. Apart from the commodities, the company has also pooled in efforts to hedge yen exposure together with its vendors. "For FY13, the combined exposure of Maruti and its vendors is 100 billion yen and 40% of that has been hedged," MSI Chief Financial Officer Ajay Seth said. He declined to disclose the rate at which it has been hedged but said: "It is much better than the current yen-dollar exchange rate". On the contract for steel for the next six months, Maitra said the company has started negotiations with domestic suppliers. "The Indian steel suppliers have asked for about 5% increase in the price. We are negotiating it and have not come to a final price," he said, adding the firm is yet to start the process with foreign suppliers. MSI and its vendors source steel from domestic firms, including Tata Steel, Essar, Hero and Bhushan. Its main overseas steel suppliers include Posco and Nippon. Maitra also said MSI has asked its vendors to take up other cost efficiency measures in order to bring down costs. "We have been asking them to focus on improving efficiency, optimise manpower and take up other cost saving measures so that the overall costs can be brought down by 3 to 3.5%," he said.