Ceat Outsourcing up 25% in Q3

Outsourcing is becoming an ever-larger focus for Ceat, India’s fourth-largest tyre manufacturer. Following the announcement of the company’s July-September results chief financial officer K J Roa reported that, of the 44,000 tonnes of tyres sold during the quarter, up to 10,000 tonnes were sourced from contract manufacturers, including overseas based companies. Compared with the corresponding quarter of 2006, outsourcing grew by 25 per cent whilst overall volumes increased by just 7 per cent year-on-year.

In addition to tyres imported under an agreement signed with Pirelli, Ceat has outsourced production for a number of low-margin items such as tubes, slabs, and tyres for two and three wheeled vehicles. Due to production restraints the manufacturer also currently imports a number of PCR and TBR tyres. In future, said Rao, China will take on an important role as an outsourcing location for the Indian company. Currently a number of products are undergoing testing, and over the next two months volumes from China could rise.

Ceat employs two outsourcing strategies: Supplying the raw material to the manufacturer and paying only the conversion price for the tyres, and paying on per-tyre piece basis. In both instances Ceat claims the costing is similar to its own production. “At this juncture, we are successful in getting the similar kind of margin as where we are manufacturing products,” Rao said.