This follows a detailed study conducted by the car manufacturer on the possibility of localising Ikon engines which are presently imported from South Africa. Engine is the only major component that is not sourced locally by Ford India for Ikon which currently carries an indigenisation level of 75 per cent.

According to Ford India vice-president (supply) Sandip Sanyal, the decision to go for partial localisation stems from the fact that present volumes of Ikon does not justify total indigenisation of the engines which is otherwise called 5C localisation.

Under 5C localisation all constituents of an engine viz. crank shaft, cam shaft, cylinder head, cylinder block and connecting rod are made indigenously. But this calls for significantly high investments and require a critical volume to justify it, he added.

Ikon is presently selling only 21,000 units a year and this volume is further split into three power trains 1.3 litre petrol, 1.6 litre petrol and 1.8 litre diesel thus making any large investment in engine localisation unviable. A sale of over a lakh units is required for total localisation of engines, he added.

A selective localisation would mean sourcing some of the engine components locally and importing the rest. The components would then be assembled and tested locally.

Ford India has already identified the place within its factory premises where the engine unit would be set up. Equipment suppliers have been identified and the officials are confident of getting the engine unit operational in 18 months from the day the final nod is given.

One of the reasons for Ford India to pursue this idea seriously is to bring down its inventory cost further. Today, on account of imports, it is required to maintain almost six weeks' stock of engines thereby incurring significant carrying costs. In fact, most of the Rs 50-crore working capital currently used by the company is towards meeting the carrying cost of engines, senior officials say.

Presently almost 50 per cent of the components procured locally, in value terms, come under just-in-time (JIT) production and hence incur negligible carrying cost. The company is working towards increasing this to 75 per cent by the year 2001 by bringing in all the suppliers located within its 50 kms radius under JIT.

For those component suppliers located in other parts of the country, it is studying the prospects of identifying logistics companies that will warehouse the components and supply it on a JIT basis. This would be possible once the volumes improve and more models roll out. A 100 per cent shift to JIT would mean 20 per cent savings in the inventory carrying costs.

These savings will significantly enhance Ford India's competitive position vis-a-vis its competitors even as the Indian customers demand more and more value for their money.