Royal Enfield’s capacity challenge

Royal Enfield, the oldest motorcycle manufacturer in India, is on the verge of what could be its biggest expansion drive so far.

The company, which sold 50,000 bikes in the last fiscal, is struggling to meet demand even as it operates its Chennai plant at full capacity in three shifts.

Which is why R L Ravichandran, managing director, Royal Enfield, along with other senior management members of Royal Enfield’s parent – Eicher – are having serious talks on how to create more capacity.

Speaking exclusively to Autocar Professional, Ravichandran says the long term goal is to increase Royal Enfield’s current capacity five-fold to touch 250,000 units annually. Towards that target, the company will have to set up a new facility. Serious thought is also being given to using its idle plant at Jaipur. The Jaipur facility, which has an annual production capacity of 34,000 units, was set up in 1999. Reaching the 250,000 mark is a long term plan, and Royal Enfield plans to reach half of that figure “if possible in the next five years,” says Ravichandran. Royal Enfield’s earlier stated goal is to achieve at least 15 percent growth every year. Demand is strong, both in the domestic and export markets.

Even as the mid- and long plans are being drawn in the boardroom, some quick steps are being taken in Royal Enfield’s Chennai shopfloor to create space and crank out more bikes. Like its big-volume peers, Royal Enfield is also facing the problem of supply constraints from its vendors. So the company has decided to take a two-pronged strategy to debottleneck its production capacity as well as ensure availability of parts on time. The first step is to start outsourcing the painting of certain parts to vendors.

Painting of components like headlamp casings, cover tubes, fenders and the toolbox of the much-in-demand Classic will now be outsourced to create more space in the paint shop. “We have already located, visited, checked, and approved their process to ensure that those parts match the finish of other components like the tank, for example,” says Ravichandran. While some jobs are going to get outsourced, Royal Enfield also plans to start producing certain parts in-house. The company's production has also been hit as many suppliers are unable to keep pace with its demand.

Some key components like the body frame now may be made in-house. Ravichandran says, “Our frames are very different. Both the size and the weight are unlike others. It requires special skill to make the frame. There’s a capacity constraint at our vendors. And, of course, our petrol tank. It’s very large. Till now, we have made do with captive capacity with some people. When our production increases, the captive staff cannot increase capacity at the same speed like some of our small component vendors. For these two challenges, we are working on new ideas and alternatives.”

It’s not only the bikes that are demanding attention. RL Ravichandran and his team also have to ensure the swift and efficient replacement of the old engine with the new Unit Construction Engine. And that transition is almost complete. The company is focusing on improving quantity and quality of production in order to meet the burgeoning customer demand. So, Royal Enfield, he says, is not going to add to its current dealership base of 135 outlets (10 of which are company owned) anytime soon.

Meanwhile, Royal Enfield is in overdrive in doing some serious resource and investment planning. However, the big results of these plans are likely to come only from 2011. Last month, the company’s sales remained nearly flat (year-on-year) at 4,300 units. This even as its models have a waiting period of four to six months. With the new capacity- creating measures set to kick in, it hopes to garner some thumping volume growth in the future. The new initiatives will also be planned to ensure a smooth entry of Royal Enfield’s two all-new models – the Café Racer, and a 500cc cruiser, both of which are due in 2012. Till then, the manufacturer will be working overtime to ensure demand doesn't flag.