BHEL bets on Chinese inputs to beat cost squeeze
Company looking at sourcing castings, forgings and specialised products
Industrial
equipment major Bharat Heavy Electricals Ltd (BHEL) is looking to
actively increase its vendor base in China in order to competitively
source specialised inputs needed for its Indian units, a top company
official told Business Line during a recent interaction.
Amid
a sharp increase in the commodity cycle, this is one of the key
strategies the engineering major hopes to deploy extensively to check
rising material costs, BHEL's Chairman and Managing Director, Mr B.P.
Rao, said.
“There are some clear advantages in
sourcing products from China, provided the quality aspects are strictly
adhered to. We are looking to increase our source base there,
especially for materials such as castings and forgings, as well as
specialised products such as P91 and P92 steels,” Mr Rao said.
‘P91'
and ‘P92' steels find use in pipelines and power unit components that
are part of conventional boilers on account of their high strength at
elevated temperatures.
BHEL has deputed marketing
and sourcing personnel at its newly established China office who would
facilitate the procurement of raw materials. The options in the long
term include enabling the company to order power generating parts when
they see potential for procuring for another project.
“The
idea is to explore and establish a vendor base to procure inputs in the
long run,” Mr Rao said. According to analysts, despite rising labour
costs and a widespread power crunch, Chinese intermediate goods
suppliers continue to be ahead of European and Japanese companies due to
the massive capacity additions that China has made during the last 10
years.
The Chinese still score over suppliers from
other parts of the world in terms of shorter delivery lead times, apart
from savings on costs.
Material costs down
Sourcing
from China, along with a bevy of other cost-cutting measures, has
enabled BHEL to keep material costs in 2010-11 at the previous financial
year's range of around 59-60 per cent. This, despite a sharp uptick in
material costs over the last few months.
“We have
been focussing extra hard on material cost reductions. Integrated
operation improvement initiatives like design-to-costs and lean
manufacturing have also been initiated,” he said. Besides, higher
expenses by the company on research and development, specifically on
indigenisation of products that were being imported earlier, is further
helping the company prune overall project costs.
Mr Rao said he was confident of pegging input costs this fiscal in the same range as was achieved in 2010-11.
“Commodity
prices are increasing. So there will definitely be pressure on our
costs… But imported technologies are going to be more localised during
this year than last year. Combined with all the other measures, we
should be able to keep costs in check.”
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