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COST DETAILS OF BAJAJ AUTO

Submitted byPoonam. J 1121446 Date of submission: 03-10-2011

Bajaj Auto is a major Indian vehicle manufacturer started by Jamnalal Bajaj from Rajasthan in the 1930s. It is based in Pune, Maharashtra, with plants in Chakan (Pune), Waluj (near Aurangabad) and Pantnagar in Uttaranchal. The oldest plant at Akurdi (Pune) now houses the R&D centre ahead. Bajaj Auto makes and exports automobiles scooters, motorcycles and the auto rickshaw. The Forbes Global 2000 list for the year 2005 ranked Bajaj Auto at 1,946. It features at 1639 in forbes 2011 list. Over the last decade, the company has successfully changed its image from a scooter manufacturer to a two wheeler manufacturer. Its product range encompasses scooterettes, scooters and motorcycles. Its real growth in numbers has come in the last four years after successful introduction of a few models in the motorcycle segment. The company is headed by Rahul Bajaj which is worth more than US$1.5 billion. Bajaj Auto came into existence on 29 November 1945 as M/s Bachraj Trading Corporation Private Limited. It started off by selling imported two- and three-wheelers in India. In 1959, it obtained license from the Government of India to manufacture two- and three-wheelers and it went public in 1960. In 1970, it rolled out its 100,000th vehicle. In 1977, it managed to produce and sell 100,000 vehicles in a single financial year. In 1985, it started producing at Waluj near Aurangabad. In 1986, it managed to produce and sell 500,000 vehicles in a single financial year. In 1995, it rolled out its ten millionth vehicle and produced and sold one million vehicles in a year. Bajaj Auto reported a 16% growth in sales in August with a total sales of 3.82 lakh units compared with 3.29 lakh units same month last year. The companys motorcycle sales was up 17% to 3.38 lakh units compared with 2.89 lakh units in August 2010. Commercial vehicle sales grew by 11% to 44,685 units from 40,188 units same time last month. Exports during the month grew 40% to 1.38 lakh units from 98,000 in the corresponding period last year. As per the company, the Pulsar and Discover brands contributed 85% of the motorcycle sales wit the company having the highest ever motorcycle sales in a month.

Classification of cost
(% of Sales)

2008 material cost tools and spares labour cost factory and admin expenses Distribution cost 72.9 0.8 3.8 3.4 4.8

2009 73.2 0.7 4 3.6 4.9

2010 67.6 0.6 3.4 2.9 3.9

2011 70.9 0.5 2.9 2.3 3

Material Cost

Material cost has reduced from 72.9% of sales in 2008 to 67.6% in 2009 and then again increased to 70.9% in 2011.

Other Costs

Other costs
tools and spares factory and admin expenses 4.8 3.8 4 3.4 3.6 4.9 3.4 3.9 2.9 2.9 2.3 0.8 0.7 0.6 2009 2010 0.5 2011 3 labour cost sales and after sales

2008

From the above chart following findings can be drawn Share of tools and spares has been decreasing by 0.1% over the four years despite of little decrease it shows the efficiency of the production team. Share of labour cost has been decreasing despite of inflation in recent past. This is due to increase in sales which have resulted in economies of scale. Labour cost has increased from 377cr. To 477cr. But the proportion increase in sales in more than labour. We can see a decrease in share of factory and admin expenses from 2009 to 2010. This is because of efforts done by R&D department. We can see a downward trend in share of sales and after sale services cost. This is because three vendors have supplied zero defect components for more than 36 straight months (Platinum).

Efforts made by the management in terms of cost reduction, cost control, process efficiency The company has made various efforts in conserving the energy which has resulted in reduction of cost in a significant manner. Following are the efforts by BAL. Electrical energy saving was achieved by replacing-conventional lamps with Light Emitting Diode (LED) street lights and LED mid-bay lamps; installation of portable as well as auto load/unload compressors in various shops, installation of transparent roof sheets for optimum utilisation of natural lights; Installation of fan-less cooling towers for compressor house.

Water saving was achieved by usage of recycled water, drip irrigation/sprinkler system for gardening, revising water change frequency of paint booth water circulation system; regulating pump off timing through timers and replacement of old underground water pipes by above- ground pipes to avoid wastage of water due to leakage; installation of time controlled auto system for water pumping in shops. Use of treated water for construction at Pantnagar plant.

Liquified petroleum gas (LPG)/propane saving was achieved by reduction in number of initial heat up occurrences from two to one for continuous gas carburising (CGC) furnace; installation of waste heat recovery system for pre-heating of combustion air in paint shop; reduction in hot water temperature for pre-treatment process; use of reflective coating inside furnaces for better heat retention.

Major initiatives in utilization of renewable energy were taken by use of solar water heating system for shops, canteens etc; installation of natural air exhaust (turbo Ventilators) in shops.

Impact of measures taken As a result of the initiatives taken for conservation of energy and natural resources, the company has effected an overall reduction in consumption and resulted in reduction in factory and admin Cost.

Process Efficiency R&D has been working on improving its operations in number ofareas, such as: 1) Manpower: Expanding the team size in areas of design,analysis and validation to keep up with the rapidly expanding aspirations of the Company. 2) Facilities: Enhancing R&Ds design, computing and testfacilities. A notable addition has been a world class NVH(Noise, Vibration and Harshness) laboratory, which has been commissioned. This will give Bajaj Auto the ability to make even more refined products. 3) Technology: R&D has developed the 4V DTS-i technology for outstanding engine performance. Design optimisation has enabled it to be used on the Pulsar 135 LS, which competes at a lower price point. The DTS-i is controlled by a new generation CDI (Capacitor Discharge Ignition), which takes continuous load and temperature inputs to compute the optimum timing of each spark plug. 4) Over 50% of BALs vendors have achieved a status of supplying zero defect components to the Companys plants for six straight months at least once during last four years. 5) Almost 40% achieved zero defect supplies for 12 straight months