Mahindra & Mahindra Ltd (M&M) has embarked on a new sourcing strategy under which purchasing of components for all its vehicles will be brought together under a single umbrella.
This One Sourcing policy is a shift from the company’s existing model, where components for manufacturing trucks, automobiles, two-wheelers and tractors are being sourced through various departments.
Beneficial to vendors“This is beneficial for both M&M and the vendors. Our benefit is that, we get better economies of scale, enabling us to negotiate better with the suppliers. The bargaining power comes with economies of scale,” Hemant Sikka, Chief Purchase Officer (Automotive and Farm Sectors) at M&M, told
“The vendors get exposure to various fields, apart from orders from across the business segments. As we are engaging with them on a regular basis, this will enable vendors to take a much more futuristic view on technologies when they showcase their products.”
Now the purchasing decisions are being made through a single point — M&M’s strategic sourcing department in Mumbai. This will reduce hassles for both the company and vendors.
The move has resulted in the total number of suppliers increasing to about 650 from 450. M&M intends to reduce the supplier base to 450 in the next three years. One Sourcing would also enable M&M to shortlist the best suppliers and make them its core vendors by offering additional contracts.
“It will also help us weed out the weaker ones,” Sikka added.
M&M’s total purchase for this year under One Sourcing will be about ₹26,000 crore, which is expected to rise as new models come in. At present, majority of the company’s vendors are from the Mumbai-Pune-Nashik belt, while there are certain important suppliers from the Southern and Northern region.
According to analysts, streamlining the sourcing process would help market leaders retain their edge in their respective segments.
Commercial, passenger units“In line with the global trend, Indian original equipment manufacturers are looking to reduce suppliers over the next four-five years, which will benefit market leaders in their respective segments,” according to a study by Edelweiss Research, a market research firm.
About a year ago, Tata Motors had realigned its sourcing strategy by bringing in commercial vehicles and passenger vehicle supply chains under one team.
On Tuesday, M&M’s stock gained 0.5 per cent to ₹1,256.05 on the BSE, while the benchmark Sensex closed 0.57 per cent lower at 28,338.05 points.