Industrial equipment major Bharat Heavy Electricals Ltd (BHEL) is looking to actively increase its vendor base in China in order to competitively source specialised inputs needed for its Indian units, a top company official told Business Line during a recent interaction.

Amid a sharp increase in the commodity cycle, this is one of the key strategies the engineering major hopes to deploy extensively to check rising material costs, BHEL's Chairman and Managing Director, Mr B.P. Rao, said.

“There are some clear advantages in sourcing products from China, provided the quality aspects are strictly adhered to. We are looking to increase our source base there, especially for materials such as castings and forgings, as well as specialised products such as P91 and P92 steels,” Mr Rao said.

‘P91' and ‘P92' steels find use in pipelines and power unit components that are part of conventional boilers on account of their high strength at elevated temperatures.

BHEL has deputed marketing and sourcing personnel at its newly established China office who would facilitate the procurement of raw materials. The options in the long term include enabling the company to order power generating parts when they see potential for procuring for another project.

“The idea is to explore and establish a vendor base to procure inputs in the long run,” Mr Rao said. According to analysts, despite rising labour costs and a widespread power crunch, Chinese intermediate goods suppliers continue to be ahead of European and Japanese companies due to the massive capacity additions that China has made during the last 10 years.

The Chinese still score over suppliers from other parts of the world in terms of shorter delivery lead times, apart from savings on costs.

Material costs down

Sourcing from China, along with a bevy of other cost-cutting measures, has enabled BHEL to keep material costs in 2010-11 at the previous financial year's range of around 59-60 per cent. This, despite a sharp uptick in material costs over the last few months.

“We have been focussing extra hard on material cost reductions. Integrated operation improvement initiatives like design-to-costs and lean manufacturing have also been initiated,” he said. Besides, higher expenses by the company on research and development, specifically on indigenisation of products that were being imported earlier, is further helping the company prune overall project costs.

Mr Rao said he was confident of pegging input costs this fiscal in the same range as was achieved in 2010-11.

“Commodity prices are increasing. So there will definitely be pressure on our costs… But imported technologies are going to be more localised during this year than last year. Combined with all the other measures, we should be able to keep costs in check.”

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