Maruti, Hero Honda rein in runaway costs

High commodity costs are driving car and bike companies up the wall as they scramble to increase efficiencies while weighing raising prices.Maruti and Hero Honda,leaders of the car and bike segments respectively,said input costs were hitting margins,prompting them to go for urgent counter measures.Both the companies that face pressure despite recent price hikes witnessed a near 20% drop in year-on-year net profit in the last quarter.The pressure is very serious.All commodities are going up,including steel,copper,rubber and plastic products, said S Maitra,managing executive officer (supply chain),at Maruti Suzuki.Maitra said that Maruti had gone on an overdrive with a series of measures aimed at mitigating some of the effects of the costly inputs.

The company has been pursuing programmes with its 250-odd suppliers and inside its own plants.One key programme is wuda,a Japanese term for wastage,which is used to ensure lean manufacturing.The idea is to make ourselves lean,so that wastages come down, Maitra said.

Maruti is also pursuing the gemba programme as part of which it handholds suppliers to make them more efficient.Every two months,we take a bunch of suppliers,around seven-eight and teach them about lean manufacturing processes.Then we pick up four to five efficiency projects within their factories to improve overall output.

The company has also been working on yield improvement.We look at reducing wastages so that less amount of raw material is required for making a component. It had a programme called 1 component 1 gram wherein everyone,including suppliers,was expected to reduce the weight of the component by at least one gram.

Hero Honda has also been facing similar input pressures.Ravi Sud,CFO,said that the issue was acute,prompting the company to even consider passing on the higher costs by way of another price hike.Steel,rubber,all are going high.Steel prices are up by 20-25 % since January and the issue is serious as it is leading to compression of margins.

Sud said efficiency enhancement programmes were constantly on to ease the pressure.However,they are not enough,leaving us with only a couple of options.Either we continue to absorb the increases and take a knock on margins.Or,we pass on the increase in the market,fully or partially.

The company had last raised prices in December and Sud said a similar measure cannot be ruled out.We are reviewing the situation and a call has to be taken soon.