JLR sets the tone for savings at Tata

Mumbai: The turnaround at Tata Motors came about from a mix of short-term and long-term measures, a key executive working on its Jaguar Land Rover (JLR) project said. The immediate task was to keep a tight leash on material costs at the luxury unit. Then came longer-term steps like identifying new low cost sourcing bases and changes in production platforms.

In the coming years, the Tata group could apply the learning from JLR across its companies.

Raju Bhinge, CEO of the Tata Strategic Management Group (TSMG), one the largest management consultants in South Asia and part of the $70.8-billion (Rs 3.25-lakh crore) Tata group, told FE in an exclusive interview that the JLR turnaround in the second quarter was mostly aided by cost reduction, since that was the only way the company could turn profitable, given the bleak market for luxury cars.

TSMG has an alliance with Germany’s Roland Berger to jointly undertake projects in India and overseas. Tata Motors had engaged Roland Berger and KPMG to help it cut costs at the UK unit after the global financial meltdown crimped demand for luxury products. JLR, which cut 2,200 jobs over a year, had said in September it might close one of its two factories in England’s West Midlands.

Last month, Tata Motors surprised analysts by showing a Q2 net profit of Rs 21.78 crore on a consolidated basis (with JLR), a leap from a net loss of Rs 942 crore in the July-September quarter last year. This was despite its revenues dipping by 8% y-o-y. A key driver of this was a profitable improvement of around 41 million pounds (Rs 312.9 crore) at JLR through cost cutting. Ravi Kant, vice-chairman, Tata Motors had said then, “We are taking some restructuring measures in JLR as well reducing costs this quarter (Q3). Also, there is a lot of inventory correction put into place.”

For the quarter, consumption of raw materials fell to Rs 11,930.32 crore from Rs 13,711.4 crore a year ago. Says Bhinge, “Given that the market is what it is, we had to see how we can bring down the fixed costs, bring in more low-cost sourcing and lower the variable costs.” The task of the consultants was to reduce the break-even point of the company, since it would take another 2-3 years for the market to revert to the 2007 levels.

Some short term measures to control costs included taking a...