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    Published : 10 th August 2008 Chennai

When surplus inventory cannot be wished away

D. Murali and S.P. Srinivasarangan

Chennai: With continual improvements in supply chain practices, coupled with the adoption of JIT (just in time) inventory methodologies, it may be logical to expect the elimination of inventory build-up and the problem of surplus inventory. But no, sale of scrap material is an integral part of the manufacturing process, says Mr S. JaganniVasan, founder and managing director of Matex Net Pvt Ltd, Bangalore. “And I believe this will continue to grow,” he adds.

What is scrap to a seller could be an asset to the buyer, emphasises Mr JaganniVasan, during a recent interaction with Business Line. “Piling up of inventory happens due to obsoleteness in technology. While inventory pileups and JIT could take care of the supply side from the raw material angle, the inventories that we deal with are from process and obsolescence of machinery and spares,” he explains.

Matex Net, an online material exchange company that is active in the B2B (business-to-business) market space, had started off as a bulletin board service in the mid 1990s. Entering the area of online sale of surplus inventory/ scrap, at a time when it was still considered risky, and when the advantages of an e-auction were not easily accepted, Mr JaganniVasan reminisces how he had to work at popularising the model, by being continuously on road reaching out to corporates and the Government, as well as speaking at seminars to drive home the benefits of transacting online.

The hard work of that early period seems to have paid off for him. The company, which has an investment from ICF Ventures, has created a niche for itself in this space and currently employs over 120 people, with offices across the country. Having established a strong presence in the domestic market, Matex Net is readying itself for an expansion into the South East Asian market.

In this interview, JaganniVasan talks about the early challenges he had to encounter including educating the market, the drivers in this business and the company’s plans to expand into the industrial towns in the country.

How did the idea of selling of scrap/ second-hand assets originate?

I always had an interest in inventory management, and the issue of inventory carrying costs was something I debated within myself. I had this view that what was surplus to one could turn out to be a buying opportunity for another.

Initially, it was a big challenge as we had to educate our customers and make them feel comfortable about transacting online. However, the first mover always faces such challenges. Internet penetration, connectivity and Internet suaveness were real issues early on – some we could handle and a few others that we could not. It was a big learning exercise.

It was only when the sellers saw more bidders coming in, did we witness an effective market making and a higher price realisation through this mode. That’s how we started building our credibility and the customer base.

What are the product lines/verticals that you are focusing on? What are the drivers in this business?

Currently we are focusing on two verticals – trading, where we deal with forward and reverse auctions, and motors, where we are involved with the sale of repossessed vehicles for banks and NBFCs and new/old vehicles for corporates.

Market making, number of bidders and price maximisation are the key drivers of this business. We look for opportunities in areas that allow us to use the e-auction platform.

Are there plans to expand into more locations within the country?

While our initial expansion was in the South, we now have a pan India presence with offices in over 20 locations, including in all the metros and mini metros. Every industrial town presents an opportunity for us to target and expand. Our plan is to reach these towns through a ‘hub and spoke’ model.

What is the thought process behind your expansion into online sale of second-hand motor vehicles? What are your plans in this space?

While individual owners may go to established players, we believe there are opportunities in tier 2 and 3 towns, where bulk purchase happens. Travel agencies and BPO companies replace their vehicles at periodic intervals. Also, repossessed vehicles by banks and NBFCs come to the market for sale. We are targeting this space, as we think we can offer a better price discovery mechanism.

Are there new verticals you are looking to expand into this year?

Our plan is to firm up the automobile vertical as it is yet to become mainstream. We may look at adding mining and earth moving equipment this year which will form part of the motors segment. Sale of NPA (non-performing asset) is another vertical where we are looking to gain a foothold this year.

What is your revenue model? What is the value of transactions you put through last year?

Matex Net collects a percentage of the sale value on cleared material. We completed about Rs 450 crore worth of online sale of excess inventories last year and we are targeting to achieve about Rs 750 crore this year.