10:30 am, Thursday 09 Nov 2017

We have a good visibility on cost reduction in FY18: Girish Wagh, Tata Motors

Business Standard

Cost reduction exercise is being done on existing vehicles and it is going to help us, says Girish Wagh

The loss-making domestic business of Tata Motors is attracting the attention of top management including Chairman N Chandrasekaran. Commercial vehicles (CV) comprise about eighty per cent of this business and holds key to overall profitability. Girish Wagh, the head of CV business at the company, speaks to Ajay Modi on various efforts that are being taken to cut down losses and move to profitability. Excerpts:

You have been heading the CV business for about four months now. What is your assessment so far?

I have been spending a good amount of time in meeting the customers and other stakeholders to understand what they think about the products, their requirements and what they think we should be doing. I have been also meeting dealers, financiers and other influencers to get their take on our business and things that we need to work on. This is also important to see how the market is panning out in medium and long-term. This will go into our long-term product planning and the value-added services. We also met customers who wish to buy but have some concerns to convert them into sales. Dealers need to be engaged. It is critical to have highly energized dealers as they are our front face.

Cost reduction is going to be a key pillar in moving to profitability. Can you take us through it?

We have started working in a very focused manner on reducing cost. We are looking at the cost structures of each product to save costs on most of these. A lot of effort is going on there. We started with a very aspirational target to reduce the product and the operational cost. Then we started looking at each and every product, part and aggregate cost. More than 2,500 people within the company are involved in this massive exercise. We are therefore doing value engineering (reducing the cost of a part without reducing the value to the customer) and value analysis (increase value delivered at the same cost).

Is there a visibility on cost saving?

This is a systematic and wide-scale effort. We have a good visibility of cost saving this year. Suppliers are also participating in this exercise. As far as manpower rationalisation goes, we have gone through an organisation wide exercise to improve the effectiveness of the organisation.

The CV market is seeing steep discounting. Is this sustainable and what is the company’s approach?

Discounting is there in the market. We are certainly keeping a track of what is happening in the market but we are clear that we are not going to buy market share even though we offer discounts. Our approach has been to understand the needs of a customer as he may not only be looking at the initial price alone. We try to work out a return template for the customer and show how the vehicle makes sense over the entire life cycle as a large part of expenditure by an owner happen post-purchase. Our focus has been to reduce total cost of ownership and we use this as one of the levers to convince the customers. Our aim is to package product and services which will reduce his total cost of operation.

The company had plans to do away with the inefficient component suppliers. What is the progress?

We have a large number of suppliers, in excess of one thousand. We now have a strategy in place and we are trying to reduce the number. A plan has been shared with the supplier community. We will follow a grow, fix an exit strategy. If a supplier is doing very well, we will grow them. We will fix the suppliers who have a long-term potential but is not able to deliver. Thirdly, we will stop buying directly from suppliers who do not meet our expectations though they may become suppliers to our tier I suppliers. We are doing it in a transparent manner on the basis of performance.

The country will move to BSVI emission norm from 2020. How is the company prepared for this?

A significant part of our resources is being put towards this. We have made good progress and so have our suppliers. Cost reduction exercise is being done on existing vehicles and it is going to help us. We are ensuring efficiencies so that when we launch these BSVI vehicles we are sitting on a good cost structure. Good amount of effort is being put on a commercial and technical side.

The industry has had low single-digit growth in light CV last year and heavy CV segment was flat. How do you see the prospects this year?

The year started on a slow note. The industry has picked up very well in Q2 and we see the same trend going ahead. We do see the growth of higher single-digit or low double-digit growth for the industry this year. There is a lot of focus from the government through various initiatives on road infra, smart city, etc and it augurs well for the industry. On the consumption side, there is a good growth happening and it helps the small and light CV business.

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