Cost Reduction Strategy at Bajaj Case Study - Management Assignment Help

Assignment Task:

Task:

Bajaj Auto is India’s biggest scooter and motorcycle manufacturer, yet it faces intense competition from some of the world’s leading scooter and motor cycle manufacturers. This case explores how it was using supplier strategies to reduce its costs and remain competitive.

In 1998, Bajaj Auto – India’s biggest scooter and motorcycle manufacturer – was struggling to shake off a strong challenge from Honda, Suzuki and Piaggio in its home market. The family-owned company, which lacks the technological resources of its competitors, had to compensate by watching its expenses. Its aim is to remain the lowest cost producer in the world.
But no matter how hard Bajaj tries to control costs and improve productivity at its plants near Pune, in West India, the incremental savings were meager. This is because most of the costs are incurred before the components enter Bajaj’s factory gates. In-house costs make up only about 10 to 12% of the sales price. Advertising and distribution costs account for a further 3 to 4%. By contrast, ‘about 65% of the sales price comes from costs outside Bajaj’s direct control. This can rise to 75% for new models. Bajaj has recently realised that further big cost savings are more likely to come from its suppliers than from the manufacturing process.

GM Style Supplier Management
Sanjiv Bajaj is heading an effort to introduce US-style supply chain management, using General Motors as a model. It is a task for which he is well suited. A trained engineer, he went into the finance department because his elder brother, Rajiv, had already been groomed to take over the core manufacturing responsibilities. Engineering expertise helps him to understand where costs can be trimmed. Bajaj, which produces 1.3 million vehicles a year, has about 900 direct tier-1 suppliers. According to the GM model, it should have 80. Many of them are small, low- technology, family-run businesses with poor productivity and slack quality control.

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