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Arijit De
Mumbai, Sept 1: Tata Steel, as part of an effort to benchmark itself among low-cost producers internationally, is aiming for a sharp reduction in its cost of production from around $220 a tonne to $170 per tonne by the end of the current fiscal.
The Tata group flagship has initiated a series of cost-cutting measures that include closure of unviable mines and units of non-core, loss-making bearings and tubes divisions, reduce vendor base and outsource its IT requirements.
The moves are part of the recommendations laid down by international consultancy majors McKinsey and Booz Allen & Hamilton who were roped in last year to work out a cost-reduction plan in operations and supply chain management.
Analysts said that discounting the high depreciation charges, the company can save around Rs 600 crore annually when the process is through, if it does not increase production. In the last fiscal, stringent measures pared costs by Rs 70 crore.
"If the process is completed by the fiscal-end, taking into accountthe expected rise in domestic prices, the boost to the bottomline can be significant next year," they said.
Substantial cost saving is envisaged in coal costs, where the company has increased the usage of West Bokaro coal, which costs about one-third of that from the Jharia mines in Bihar. In Jharia, Tata Steel has also closed down some of its unviable mines.
On imported coal, which comprises around 30 per cent of the company's total requirement, Tata Steel expects to achieve savings of about $10 per tonne as its stamp-charged batteries can use soft coking coal instead of grade-I coking coal that was being imported earlier.
In its non-core businesses, Tata Steel has shut down the sheet mill of the bearings division and the seamless tube division to pare losses. The closure of the latter, as part of a decision to get out of the business, had last year led Tata Steel to reject an offer to acquire Kalyani Seamless.
With Booz Allen & Hamilton's help, the company is looking at reducing the number ofvendors. While on the one hand, it proposes assured business to fewer vendors, in turn it will be seeking assurance of better quality at lower costs.
It is also exploring the possibility of outsourcing information technology services, as it has done for its power and oxygen requirements, both of which the company is now sourcing at lower costs from BOC India and TEC.
Over the last few years, the steel major has taken several measures to focus on its core business of steel making, reduce production costs and "rightsize" manpower. It has sold the cement division to Lafarge, power plant to TEC and the entire stake in Tata Timken to Timken of USA.
In the last four years, Tata Steel's employee level has declined from 78,000 to 59,235 in March 1999. In the first quarter of the current fiscal, Tata Steel has further reduced its manpower by 2,300, besides the 1,200 employees in the cement division who will be transferred to Lafarge India.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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