Daimler to replicate India outsouring model in other plants

CHENNAI - German auto group Daimler, setting up a 36,000 per annum truck unit near here, sees localisation as the key for growth in the price-sensitive commercial vehicle market and would replicate the Indian outsourcing and production model in plants elsewhere.

“Our trucks will roll out with 85 percent localisation in terms of material value in 2012. What is unique here is the low in-house component production. For example, overseas the vehicle frames are made in-house. In India, it is outsourced. Only fuel injection systems and electronic components will be imported,” Daimler India Vice President (Procurement and Logistics, Commercial Vehicles) Erich Nesselhauf told IANS.

Already around 30 prototypes of light and heavy duty trucks with nearly 80 percent local components are hurtling down at the company’s 5.93 km test track near here. The results are analysed and modifications suggested by around 150 engineers at the company’s research and development (R&D) wing.

Thanks to the focus on sourcing, the company’s production cost will be competitive to Indian companies, said Nesselhauf.

Unlike many other overseas auto makers who brought their vendors here, Daimler India decided to utilise the Indian makers, adopting a mix of single and multiple vendor policy.

“Only a few components like starter motors, wheels and tyres will be sourced off the shelf. Even fasteners have to be modified a bit to suit our quality standards. There are some common parts for making different models that help in cutting the cost,” said Nesselhauf.

Operating in various markets, the German company knew the benchmark costs of each component and hired around 125 experienced engineers from other auto manufacturers.

In prospective vendors, the truck company looked at their quality certifications, their capability to handle varied projects as well as their financial strength.

Once everything is sorted out, Daimler India signs up a three-year supply contract, expecting the vendors to bring down their price over the period.

“It was tough negotiating the rates with them. They had a clear idea of the costs as well as the processes involved in making the product and how it will be used,” a vendor told IANS on the condition of anonymity.

Daimler India has signed up around 250 vendors, many of whom will be locating their production facility here.

“The top five vendors will be investing around 80 million euros (Rs.492 crore). Of the top five, one is a global vendor and the remaining four are Indian companies. Vendors have started construction work as their equipment needs some lead time for supplies,” Nesselhauf said.

“We will maintain 3-5 days’ inventory based on the parts and their lead time,” he added.

“Supplying to us is one of the fastest routes to our global sourcing network. Already some Indian companies have started shipping out truck components to our global needs,” Nesselhauf said.

On the technological assistance rendered to the vendors, he said: “Wherever needed we have sent the vendors to Germany/Japan for training or brought our experts here so that the suppliers can meet our standards.”

Concurring with him Pankaj Mittal, CEO of Motherson Sumi Systems Ltd, told IANS: “A German expert in plastic components came to our plant and explained in detail the processes so that we got the clarity in eliminating the waste. He told us the best ways to make the tools.”

Motherson Sumi will be supplying wiring harness and plastic components to Daimler India.

In order to be sure about the component quality Daimler India at times checked the vendor’s supply chain.

“For example, in the case of cylinder blocks we go to the castings company and help them to scale up in the quality ladder. Similarly in the forgings we check the entire composition,” Nesselhauf said.

“You might have heard these practices by car makers. But we are the first one to do in the trucks segment,” he claimed.

(V Jagannathan can be contacted at v_jagannathan@yahoo.com)

–Indo Asian News Service