Bajaj Auto Cut Cost Through Outsourcing

Cutting costs by radically changing manufacturing processes over half a decade—initially at its factory in Chakan, near Pune, and later at other facilities—was the reason the country’s second largest maker of motorcycles remained in the black despite the sales plunge.


The feat involved the way the auto maker, known primarily for its ubiquitous scooters, designed and produced motorcycles. It decided to massively outsource the manufacture of parts to a core group of suppliers, thus cutting down heavily on variable costs.



Kevin D’sa, vice-president of finance at Bajaj, credits the company’s ability to defend profit margins to this move. At present, 72% of the firm’s costs to sales are variable, while fixed costs are at 6%, he said. The remaining 22% is reflected as revenue minus cost of sales and operating expenses.



“This protects the company in the event of a slowdown or downturn and resultant volume contraction,” D’sa said.


The move also improved manpower productivity by five times since 2002, and reduced Bajaj’s suppliers from 800 to 185. Today, just 15 vendors supply 75% of the components used at its Pantnagar facility in Uttarakhand. At Chakan, 50 suppliers cater to 100% of its requirements.

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http://www.livemint.com/2010/04/13001557/Bajaj-Auto-gains-from-outsourc.html