Fight Back: VST Tillers Tractors fixes supply glitch to push growth
At the start of 2013, VST Tillers Tractors had problems sourcing critical components, leading to fall in production of tractors to 6,233 units in FY13 from 7,038 in FY12.
The unavailability of components affected production as the company used to procure components from a large number of small suppliers. Unable to meet the demand due to components shortage, the management adopted a three-pronged approach to make supply chain management more efficient. For one, the company offered good payment terms to suppliers and reduced the number of suppliers.
Credit to suppliers was between 60 and 70 days compared with the industry standard of 80 and 90 days, which increased supplier interest and involvement. A large part of the components supply was routed through large suppliers, a shift away from the earlier practice of procurement from a large pool of small suppliers. What also helped was a drop in demand from other auto manufacturers, which meant an opportunity to tap excess capacity at attractive prices.
The three-pronged strategy worked well for the company and it is now building a new plant for tractors at Hosur in Tamil Nadu, at an investment of Rs70 crore. The installed capacity of tractors will go up to 36,000 units in the next three years from 12,000 now.
“We are targeting tractor sales volume of 7,000 units in FY14 and 12,000 units in FY15 and our focus in three years will on 0-20 HP category in tractors,” said VN Mahendra, managing director of VST Tillers Tractors. He said the company was expecting industry volumes in the 0-20 HP category to triple in three years and that it would strive to grow at a par with the industry during this period.
There is rising competition in the 0-20 HP segment with key tractor players such as M&M, Sonalika and TAFE trying to grab market share in a segment where high wage pressure in rural areas is leading to mechanisation of farm equipment. The company is confident of an increase in volumes on the back of a new marketing strategy, while expanding its retail presence in existing geographies and new markets.
“We now have 150 dealers, out of which only 80-90 are active retailers. Our strategy is to first focus on retail outlets with relatively lower sales or de-active retail outlets. We have been getting good volumes from Maharashtra and Gujarat and our emphasis is on more volume traction from Karnataka, Tamil Nadu, North-East and Odisha markets,” said Mahendra.
In the power tiller segment, the company expects a volume growth of 20-25 per cent, although Chinese companies are offering products at 20 per cent discount on prices. The company expects to maintain amarket share of 40 per cent on the basis of sales support, quality and consistent availability of spare parts. With polls in the next two months, sales volume are likely to remain muted as power tiller sales are driven by subsidy provided by the central government.