Cutting Down on Inflation

Cutting Down on Inflation

The Construction Equipment Manufacturers (CEMs) across the world are working on measures to reduce production costs. Design and engineering improvements are also being carried out on the products to make them more affordable for customers. P.P. Basistha finds out the details.

CEMs have started feeling the heat of rising inflation that affects production costs. Sumptuous raw materials and outgo of higher wages is reducing profit margins of manufacturers. Rising inflation is a natural phenomenon in any economy when demand exceeds supply. However, the present situation seems different for equipment producers, as rising inflation followed by the initiative of the central bank to restrict monetary supply, is bringing the actual demand of equipment down when competition among equipment manufacturers is high in the price sensitive construction sector.

Cutting Down on Inflation
The current situation is forcing manufacturers to explore new possibilities in order to reduce production costs with high sales volume. "Equipment manufacturers in India have been getting seasoned to rising inflation during recent years. But the present paradoxical situation is making its impact on both supply and demand while high interest rates is reducing the demand. As a result, we are being put to a position where we increasingly have to resort in balancing out the situation at its best," said, Mr. Rajesh Sharma, Vice President, Sales, Escorts Construction Equipment India Limited (ECEL). He mentions, "In response to the situation, we are absorbing the rising costs while part of it is being passed on to customers."

According to Mr. Sharma, "at ECEL, we carry out design changes making it easier for customers to afford the equipment from operation point of view. Design and engineering modifications are being made in sync with Indian job site requirements, enabling the equipment to withstand the abuses and misuse while performing its task. Equipment are much exposed to abuse as operating hands are comparatively less technically qualified in India." He mentions, "engineering improvements can be seen in our equipment, allowing them to function more effectively in India's diverse and harsh weather conditions. The improvements are being incorporated in all of our products."

Mr. Sharma said that we are undertaking value engineering in our pick-n-carry cranes by improving safety features and engines. The value engineering will allow machines to be more fuel-efficient and deliver higher productivity." He adds, "to make the equipment further affordable for customers to own and operate, we have introduced customized service solutions." ECEL will launch new products across the world shortly.

Mr. Sharma informed, "our new production facility in Faridabad has a flexible assembly line to manufacture equipment across verticals. The layout of the plant is ready to restrict unnecessary movement of materials. Besides, systems are in place to cut down on material wastage, enabling us to restrict cost of production to a good extent." ECEL's unit in Faridabad, Haryana has an annual production capacity of 7,000 units comprising backhoe loaders, pick-n-carry cranes, and compactors.

Cutting Down on Inflation
With rising raw materials and commodity prices, it is challenging for companies to keep their equipment prices stable. Mr. Amit Gossain, Vice President, Marketing & Business Development, JCB, India Ltd. says, "Being a premium product manufacturer, we always ensure that our equipment are cost competitive. Launch of highly fuel-efficient JCB ecoMAX engines which are being fitted on our backhoe loaders is a new step towards the direction." He mentions, "Our products continue to be recognized as highly reliable, productive and durable, characterised by faster cycle time, have high digging force and have less maintenance support requirements. To ensure that our machines are reliable, we make them pass through several qualifying tests during production process."

Cutting Down on Inflation
Mr. Gossain adds, "Based on heterogeneous nature of Indian construction market, we are now in the process of expanding our products portfolio. The new products, comprising 2DX backhoe loaders, skid steer loaders, and telehandlers will provide better value to customers by undertaking niche jobs in a more efficient manner. The extended portfolio of equipment will find its use in nursery and irrigation applications, palletisation functions in brick yards or other material handling at construction sites.

The manufacturers during recent years have been increasingly impacted by the volatility in commodity prices. Now rising inflation is enhancing their fixed production costs. To counter the impact, JCB has made its flagship plant in Ballabgarh, Haryana producing backhoe loaders and pick-n-carry cranes well integrated, & supported by extensive automation.'

Fully integrated; the facility contains a fabrication shop, powder coating shop, assembly shop, transmission and engine assembly shop, all under a single roof. The line of shops is entirely integrated with one another. The integration of the shops reduces any possible production downtime.

Challenge of Quality Retention

Cutting Down on Inflation
Rising production costs as a fall out of inflation has brought a big challenge for manufacturers. Preserving quality while keeping cost of products in view, so as to retain market share, is equally posing a challenge before equipment makers. According to Mr. Nagesh Kudva, Director, Conmat Systems Private Limited, "rising commodity and other input costs have added to our production costs. It has indeed been challenging for us. However, we have decided to absorb at least 7-8 percent of rising costs, rather than passing it to our customers."

Cutting Down on Inflation
He mentions, "Despite absorbing the costs, we do not compromise with the quality of our products. In accordance with this, we have made technical improvements in our concrete batching plants in order to make them more economical for customers to operate. Our mobile concrete plants are now equipped with flyash screw conveyors and the changes have also been made in computer software in the plants. With the new software, the plants will now generate more authentic data regarding consumption of cement, sand and other raw materials required for producing concrete. He explains," With authentic data being generated, the contractor will now be able to manage his inventory more efficiently and maintain stocks accordingly. In addition, they can also analyze the consumption pattern of raw materials, to understand whether it has been higher than the desired requirement."

Mr. Kudva said further, "we have reduced bin heights of our mobile concrete equipment. The change will allow front hoe and wheel loaders carry loading operation without material losses & quick usage as no requirment of loading ramp." Height modification has been made in Conmat's 20-25 cu‎m model CBP 200M and CBP 250 M mobile concrete batching plants.

Regular review of the order position and delivery schedule of orders is made, jointly by company's marketing and production personnel. Production plan is made based on the reviews made. This in turn allows Conmat avoid inventory blockage timely deliveries.

Cutting Down on Inflation
Improvements in product design is also being made by Propel Industries, thereby minimizing operating costs for customers. Mr. V. Senthil Kumar, MD, Propel Industries said, "we have made design improvements in our crushers. As compared to conventional gear box design, our grizzly feeders are now equipped with vibratory design. The new design has made the equipment less prone to maintenance. It has also reduced power consumption from 22 kw to 8 kilowatt. Over all, design improvements has led to enhancement of equipment productivity at least by 15-20%."
Cutting Down on Inflation
Mr. Kumar further said, "jaw plates of our existing crushers with capacities of 160-220-250 TPH units, have been provided with better metallurgy for extended life." Propel will shortly launch new range of vertical shaft impactors and jaw crushers. It will also introduce new 300 TPH crushing units.

To provide cost competitive products to customers in a large way, Mr. Kumar informed, "we have completed 100% indigenization of 20 tons hydraulic rock breakers, manufactured under technical collaboration with Socomec of Italy. The localisation has allowed us to bring the cost of the equipment from Rs.14.5 to Rs.12.5 lakhs. Taking the process forward, we will also localize other range of Propel-Socomec rock breakers." He added, "to maintain quality standards, the complete production of our equipment is undertaken inhouse. This allows us to have better economies of scale."

Cutting Down on Inflation
According to Mr. R.S. Raghavan, MD, Proman, we work with java based ERP system which helps us to control our inventory and plan our resources effectively, to keep our logistics costs in check, we have full fledged production planning team which systematically manages our supply management that involves sourcing of components from vendors and delivery of finished products to the customers job site. The quality crushing units are developed by Proman, based on our technical collaboration with the world's best crushing equipment manufacturers. Requisite R&D support is provided by our parents. Based on the assistance, we are able to regularly carry our improvisation of the crushing units and offer them at best price to customers."

Given prevalence of high competition in the market, companies to a large extent are willing to absorb costs rather than passing it entirely to customers. Value engineering is being done in the productline, to make customers avoid brand substitution.

According to Mr. Dilip Mirchandani, Manufacturing & Engineering Head, (M&CE) Voltas Limited, "rising cost of production has been a concern for us but we are tackling the issue by setting up a CFT (Cross Functional Team) which constitutes personnel from production, design and materials department.Our CFTs have been working out on various alternate methods to keep production costs in check by doing value engineering, alternate vendor development, standardization and good deal of non-moving inventory items at our plant have been changed through design modifications making them to be used in various equipment. All the modifications are being carried in house to ensure quality and in turn keeping us abstained from passing out rising costs to customers to a good extent."

Cutting Down on Inflation

Components to be used in equipment are produced by Voltas. It also outsources parts from vendors. However, outsourced parts are in modest volumes. To keep prices of outsourced items in check, the company procures items from its pool of vendors. Mr. Mirchandani says, " we ensure that quality products are being delivered by our vendors. We have appointed technically qualified personnel to carry out inspections of the production facilities of the vendors. The personnel on a regular basis carry out both field inspection of finished components and inline inspection while the components are being produced.

However, it is difficult for Voltas to secure sizeable volume discounts from vendors, since quantity of outsourced items remains very low due to market conditions.Mr. Mirchandani informed, "to bring down production cost of crushers, we are making design changes to optimize the usage of steel on the product aided through necessary design tools. Further, to minimize inventory load only long lead components which takes time to be sourced are stocked in advance, while other components are sourced as required based on production volumes."

Cutting Down on Inflation
Schwing Stetter is taking on rising production costs by carrying out improvements in its production process. Mr. V.G Shakthikumar, Chief Operating Officer, Schwing Stetter India, Private Limited says, "we have put in place 'Value Stream Mapping Systems' (VSM). Based on the system, line production analysis is undertaken. It evaluates production flow followed by eliminating production losses. With implementation of VSM, we have brought down our inventory level and period of billing cycles. Our inventory stocking period for short lead parts is now 15 days in place of 2 months earlier. For long lead components, it has been brought down from 6 months to 3 months. Most importantly, VSM has facilitated in bringing down production period of a pump from 60 to 30 hours."

Cutting Down on Inflation
Mr. Shakthikumar informed, "we have also replaced manual movement by deploying 1 ton crane for transporting parts and machinery at our concrete production plant. Further, manpower has been rationalized. To engage the rationalized work force, we have created cellular work stations. The work stations provide parts and component support to main assembly line." Schwing Stetter India's production facility is located at Irungattukottai at SIPCOT Industrial Park in Tamil Nadu. The plant has individual production units for manufacturing batching plants, concrete pumps and transit mixers.

It is quite commendable that equipment manufacturers have put up a well drawn plans to counter escalating production costs. It is well likely to bring dividends to producers by ensuring retention of market presence. Equally, customers will benefit as they stand to gain from improved features of the products, thereby having better equipment uptime, during present period when profit margins are increasingly coming under acute pressure.
NBM&CW January 2012
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