'With One Sourcing, we get economies of scale, which enables us to get a handle on costs. And suppliers have a single point of contact.'

Hemant Sikka, M&M’s chief purchase officer, on the new ‘One Sourcing’ policy, working with SsangYong and the challenges of sourcing in a globalised world. An interview by Brian de Souza.

What is your area of responsibility and what are the challenges you have faced in a time of slowdown?
We have done a major restructuring at M&M on the sourcing front from April 1. Earlier, our sourcing was done individually by the respective businesses. Now all sourcing for AFS comes under one team, consolidated. This is a big change for us. Our total purchasing business is now worth Rs 34,000 crore. This includes the entire capex which includes not only the parts that go into a vehicle but the machinery required across the businesses as well. This also includes machinery for civil construction, for example, that is now sourced centrally.

What went into this decision on One Sourcing and what were the imperatives?
We believe that One Sourcing is a win-win situation for both Mahindra and our supplier community. This is because we get economies of scale, which enables us to get a handle on costs. From a supplier perspective, they have a single point of contact with us. They do not have to deal with many people. Now, we have one person sourcing pistons or seats for example, for the whole group. This is a huge streamlining.
Since we deal with a wide product spectrum ranging from two-wheelers to UVs to trucks and tractors, this gives suppliers huge risk mitigation. The automotive sector has not grown uniformly. Two years ago, the sector grew and tractor sales were subdued. Last year, it was tractor sales that were in high gear.
Since we deal right from the XUV500 to two-wheelers, suppliers have a longer technology shelf life with us. For us, a technology that is incorporated in the XUV500 can potentially percolate down to other products such as the Bolero or Scorpio. Take LED tail-lamps – this technology has percolated across the segment. Another example is the flip key that was a high-end car feature; now we have it in the Centuro bike.

Did the slowdown also have something to do with this?
It was not really driven by suppliers. At M&M, we have believed this is the right thing to do. So we have communicated the new structure effectively with our people. It has been fair, transparent and with all the facts placed on the table. This has helped generate acceptance across the company. We devoted a whole session to One Sourcing at our supplier meet in Switzerland recently. This is exciting for the sourcing person who gets a whole new exposure to the business.

In a dynamic world, what is the basis of sourcing — a brand or vehicle or the platform itself?
As a company, we are moving to modular platforms. From a purchasing point, the key aspect is carry-over parts, which is the number of parts that can be used in more than one product or platform. We have to do a lot in this regard as compared to other MNCs but are making progress.
We can also carryover parts from SsangYong. We are working seriously on commonisation of parts. Having said that, a platform strategy brings in great synergies in carry over parts and we have done some work but there’s more to do.

What are your views on Tier 1 suppliers and their pursuit of technology?
My last assignment was with SsangYong and there are two things that are key as far as the Korean eco-system for suppliers goes. For one, how they manage their Tier 2 and 3 players. We have a lot to learn from the Koreans on this front. In India, the OEMs have to work with Tier 2s and sometimes, Tier 3s. Tier 1s have not fully taken on that responsibility as in Korea, where Tier 1s take care of suppliers down the line and OEMs deal exclusively with the Tier 1 vendor.
Then there are R&D investments. Korea has absorbed technology from Japan and Germany and the suppliers are doing product-related R&D. This is not quite the case in India. Suppliers here have invested enough in capacities but not in R&D.

Of your 100 top suppliers, how many have upgraded themselves over the last few years?
Of these 100, some have done well in R&D capabilities and have diversified into new technologies. They have
a range of management and human skills and are, indeed, very evolved. And there are some that have not kept pace.

Have these suppliers asked you for help?
Yes, they have and we of our own accord have offered to do so as well. Under One Sourcing, we have established a new department of 35 people under a GM rank that works exclusively with suppliers to help them improve their quality processes. Mahindra has also provided help in non-technical skills building. This includes strategies, visioning, risk management, HR practices and succession planning. This is an entire different department. The suppliers didn’t ask us but we found this to be a gap and have reached out to them.
In a larger sense, one of my concerns is supplier training. It is increasingly difficult for suppliers to get top-of-the-line skills into manufacturing. If they do not get the brightest, who are in any case not coming into manufacturing at present, then OEMs, suppliers and industry at large have to invest in building skills. At Mahindra, this fits in with our Rise pillar whose essence is driving positive change.

What kind of feedback do you get from your suppliers?
In the past 10 years, our suppliers have benefitted and our purchasing has gone up from Rs 2,000 crore a year to Rs 34,000 crore a year. This means the scale of business has gone up while we have rationalised our supplier base. So our per capita spend per supplier has gone up and that is good business for the vendor. Together with suppliers, we do activities on quality, risk diversification, making processes simple. We believe we are very ethical and fair in our dealings with suppliers.
However, we have to improve on certain things. One issue is how to increase business by increasing carry-over parts. We also get feedback on how we can be more authentic with our schedules and fluctuations. So we make it a point to share with suppliers whatever information we have by the end of the day, as soon as we know. This helps in their planning. Suppliers must also have the confidence in us that if plans change, we are definitely there to support them.

What have you heard from your counterparts at SsangYong on M&M’s suppliers?
They have certainly appreciated the relationships we have and nurtured with our suppliers. Incidentally, we have more suppliers than them. Another aspect that our colleagues at SsangYong have appreciated is our commercial or cost focus.

Are there parts/aggregates that you as an OE can get better suppliers?
There are certain categories in which we as an industry have not achieved global scale. Some categories in the ‘under-hood category’ could possibly apply. Multinational suppliers have come into India setting up joint ventures and are slowly filling in the gap.
These players are bringing in new technology and make dealings a lot better. The local management team understands the local clients a lot better. All countries are on a learning curve and as we go along, India will eventually get to global scale.

How do your suppliers in Maharashtra fare and what is the kind of quality they offer?
We have our largest plant at Chakan, near Pune. Most of our suppliers, even those in the north, have set up facilities in Chakan catering to us and others. Pune is now one of the biggest auto hubs. It has become also a country-specific hub, in a sense, with the German companies preferring this area while the Koreans seem to prefer Chennai and the Japanese, the Delhi-Manesar area. Indian suppliers also have facilities in the Pune-Chakan area. We are happy with the kind of industrialisation that has happened in and around this area.

Who are the suppliers that you admire, albeit they may not be your biggest?
The first name that comes to mind is Bharat Forge. We admire Baba Kalyani’s vision of making it the biggest forging company in the world, putting in systems and processes to achieve that distinction. We are developing six engines with SsangYong and the crankshaft for these (even for Korean engines) will be supplied by Bharat Forge. The company is globally competitive on cost and quality. We also admire Bosch, the TVS Group of suppliers and the Motherson Group, who are among the best in the business, and we have strong relationships with all of them.

Finally, how would you encapsulate M&M’s purchasing philosophy?
Our purchasing philosophy rests on several strategies. Firstly, One Sourcing is the key strategy that I have elaborated on earlier. Secondly, we wish to protect our suppliers’ business. So here the game-plan is that we have three suppliers per commodity across our products and only one source per platform. So if we have a Scorpio platform, and it comprises an SUV and pickup, it will be the same supplier for both. This is driven right from the top and we follow it totally.
We believe in working very closely with our suppliers. Since all engineering and R&D are done here, we get the suppliers on board early on. This can be challenging as the price is not typically fixed at the initial stage but we do try and get our target price.
We are also doing joint technology projects with our suppliers. To mention some, we have done the Fuel Smart technology for the Maxximo and the micro-hybrid along with Bosch. So we are developing technology for the Indian market.