JLR to source more low-cost components
JAGUAR Land Rover parent Tata Motors is preparing to source more of its components from low-cost economies to cut costs on the luxury brands, reports in India have suggested.
National newspaper The Business Standard has reported that around one third of JLR’s component requirements will be sourced from factories in India, China and Eastern Europe within the next 12 months.
It quotes Tata’s chief financial officer C Ramakrishnan as saying: “A year and a half ago, the company sourced 14 to 15% of its components from low-cost countries. Over the last couple of quarters, it rose to about 20% and we hope to take it to 30%.”
The newspaper said Tata planned to introduce some of its long-term suppliers to a team of executives from JLR, who were visiting India in search of new partners.
The move will be a further blow to suppliers in the UK, who were warned only last month by supply chain network Accelerate that they were in danger of becoming too reliant on JLR for their business.
Tata’s move is perhaps not surprising given that the price of raw materials and labour in low-cost economies mean components can be anywhere between 30-40% cheaper than in developed countries.
It is also part of Tata’s long-term strategy to distance itself from suppliers it inherited from Ford, when it bought the Jaguar and Land Rover brands from the Blue Oval for £1.15bn in 2008.
The Business Standard also quotes an analyst at a leading brokerage house, who said: “Tata Motors needs to tighten costs in order to be competitive while not being complacent on quality and technology.
“The company does not have deep pockets like BMW or Daimler, but the expertise of working in a low-cost environment like India will aid JLR operations greatly.”
Having bought the brands at the peak of the market, Tata is looking to make savings wherever it can although it is reluctant to make too many cutbacks in case it devalues the brands in what remains, a competitive market.
It has already stated it intends to close down one of its plants in the West Midlands, while it is also looking to make savings in its pension scheme and support services.
Such measures will be occupying the thoughts of the company’s new management regime, which has seen Dr Ralf Speth succeed David Smith as JLR chief executive, and Carl-Peter Forster take over the helm of Tata Motors itself.
Their immediate priority will be to see the company return to profit as quickly as possible and sentiment – at least in regard to UK suppliers – will play little part in this.
