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Maruti to prune supplier base

New Delhi, May 25: The country’s largest carmaker, Maruti Udyog Limited, a unit of Japan’s Suzuki Motor Corp, plans to reduce its vendor base in the current financial year, citing the need to usher in ‘optimum-efficiency’ level and better quality.

The automaker, which has its plant located on the outskirts of the capital with an annual production capacity of 3.5 lakh units, sources raw materials, components and spare parts from these vendors.

“To generate economies of scale and improve quality, Maruti Udyog intends to reduce the number of vendors,” said an official.

The company would like to raise production to 5,00,000 units a year. “This would incur a minimal additional capital expenditure,” he said.

The company, which makes 11 models, including cars, multi-purpose and utility vehicles, currently has a vendor base of 299 manufacturers. The majority of these vendors are located within a distance of 100 km from Maruti’s plant.

This number may be pruned by as much as a quarter. Auto analysts said a smaller vendor base results in a “well-knit” base, further localisation and improved co-ordination in the supply side.

Localisation brings down the cost of components which results in lower manufacturing cost. Currently, MUL holds “strategic” equity stakes in 13 of these vendors.

The New Delhi-based automaker, in which the Indian government holds a 45.54 per cent stake, sold 3,52,415 vehicles in the last year to March 2003. The government would divest 25 per cent of it’s stake, next month, through a public issue as part of its privatisation plans.

Of the 25 per cent or 3.6 million shares through the initial public offer, 60 per cent would be offered to mutual funds, financial institutions, venture capitalists, 15 per cent to companies and large investors and the rest 25 per cent would be offered to the retail investors

Even though the company still has a 47 per cent slice of the car market owing to its dominance of the small car segment, this is down from over 80 per cent four years ago due to competition from Hyundai and Telco.

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