Cost reduction shedule for hydralic winch-8 ton : A Sai India Ltd.: Bangalore-Indian Institute of Management: Bangalore

Abstract

Over the years, SAI INDIA LIMITED (SIL) has been unable to penetrate the lower capacity end of the mobile crane segment because of the low price barrier. Customers in India have traditionally used a hydromotor of vane design along with a drum brake and a gearbox. To replace this with a Hydromotor of radial piston design is an extremely difficult proposition because even though the Radial Piston Hydromotor is much more rugged and efficient than the vane Hydromotor, it is also relatively more expensive. Recently SAI spa procured a planetary gearbox that was much less expensive than the earlier gearbox used and with the use of this gearbox SEL was able io decrease the cost of the 8Ton Hydraulic Winch which is used on the 8T mobile crane, but Ae cost still remains to be higher than the market acceptable price of the product. Currently the 8T Winch market is at least Rs 1.26Cr and represents the greater portion of the mobile crane market. For SEL which has a turnover of around 4Cr, this works out to be a considerable market and so it was decided that a study needs to be conducted to determine methods of cost reduction on the 8T winch. Initially a costing of the product was undertaken considering, apart from the material cost, some of the Direct Overheads. This was done since it had been observed that some of the Direct Overheads were increasing abnormally and an effort needed to be made to trace these costs to different products. Also istwas only through a detailed costing that we could identify the Cost Components for Cost Redaction Next the Cost Components for cost reduction were identified. Having done this, some elimination needed to be done for the sake of restricting the project to manageable limits. Therefore those cost components which were found to have the greatest potential for Cost Reduction and were likely to be the fastest to reduce were considered for cost reduction. Then the different methods of cost reduction were considered, and it was discovered that Indigenization would be the most effective method of cast reduction. As some of the components of the 8T winch were already under the Indigenization program, it was decided to concentrate on these, and a few other components that were easy to Indigenize, for the purpose of speedy cost reduction. The Indigenization was considered in three Phases with the Is1 Phase consisting of the components that are easy to Indigenize, or already under Indigenization. Only tentative plans were made for the 2nd and 3rd Phases, as sufficient information regarding the processes is not currently available. Finally a methodology for the Indigenization program was recommended, considering the resources, available and required, in terms of manpower and equipment, and the processes involved in the Indigenization program. It was further recommended that a task force should be formed with a coordinator, to monitor the progress of the cost reduction program. The task force representatives were suggested, considering the load of routine work and the time each person is able to spare for this project, given the importance of this Cost Reduction Program Though considerable cost reduction can be achieved through Indigenization, it is recommended that SIL gets involved in the design stage itself with SAI spa so as to attack costs at the initial level itself. In future, it is further recommended that SIL sets up its own full-fledged design centre where costs can be attacked right from the start of the product development.