10_MARUTI_S MAITRA

8/3/2019 10_MARUTI_S MAITRA

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SCM- Success Stories in Manufacturing

S MAITRA

Chief General Manager, SCM

Maruti Udyog Limited

Maruti Udyog: Achievements

What we call is the supply chain division in Maruti, is basically the purchasing division. It was earlier

the purchasing division; now the name has been changed to supply chain because ultimately we

need to get a product in a least possible price, which is possible only when the total supply chain

network is lean. Otherwise, it will not be possible. So, I have made my presentation only on that

basis.

To start with, I will just first give you a little update on our performance in 2005-06. The turnover in

2005-06 was 12, 481 crores, which was 10% higher than the previous year. Profit before tax was

1750 crores, which was up by 34% as compared to the previous year. We had sold 561, 822 vehicles

last year and our market share was at 55. 1%.

We were among the top three corporates in the AC Nielsen-ORG Marg survey. We also received the

very prestigious METI award from the Government of Japan. In the JD Power, the CSI, the customer

satisfaction, we have been achieving first position six times in a row. In the sales satisfaction index,

what is called SSI, we were the leader second time in a row. In the IQS, which is the Initial Quality

Survey by the JD Power Survey, our Alto and Esteem versions had got the first prize last year. Appeal

is another survey which JD Power does, on the features, and there Wagon R and Esteem were the

number one. In another survey, a customer satisfaction study by TNS, 800, Wagon R, and Swift were

adjudged the best. Apart from that, Swift had got a lot of awards last year, not only in India but even

abroad.


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The Maruti Supply Chain

Our mission is to procure components of world class quality at the most competitive cost, with

minimum lead time and just-in-time delivery, through a vendor base which is supposed to be the

most progressive and proactive. We are dealing with 11 major models, with more than 200 variants-

LX, LXI and VXI and ZX. The total number of components that we deal with is about 7100. The

indigenous component buying, last year, was at a level of Rs. 7150 crores. 70% of our suppliers are

located within 100 km radius, meeting more than 80% of our requirement in terms of value. We

really had been pushing for this, because to achieve the just-in-time inventory, it was very important

that our vendors came nearer to us. Otherwise, with the kind of infrastructure in our country today,

even meeting on time is not easy. This had been our major focus.

We do an ABC analysis as well. We have 220 vendors. The top 80 vendors supply 86% by value, and

the rest of the vendors supply only 14% by value. Some joint ventures are strategic partners, and

some are not strategic. Joint ventures constitute 34% by value, and non- oint ventures constitute

52% by value.

Cost Reduction Initiatives

The Indian market is very price sensitive. Even a little change in prices can change one's volumes

drastically. So cost reduction has been our focus, especially in:

- Commodity RM consolidation

- Raw material yield improvement

- Component localization

Localization is one thing where we have been focused, and we have been able to achieve almost 95

to 97% localization in most of our models. From Day One, our intention has been to hand-hold our

vendors and bring them up, so that they become strong. That is how we decided that we would

improve our quality and productivity.


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There is a thing called Junkai VA or cost workshops. Junkai is a Japanese word which means visiting.

We follow the three G, Gemba, Gembutsu and Genjitsu. While taking a decision, do not sit in your

chair and take a decision. Somebody might tell you, 'Sir, this has happened there -- maybe on the

shop floor--; this is what is happening and therefore let's decide like this. The Japanese manager

says, 'I will go to the shop floor, have a look at what exactly is happening. That's what they call

Gemba.

Gembutsu is to look at the affected piece. Japanese say that look at that defective piece because

then you can understand what exactly the defect has been. Genjitsu is the condition in which a

defect has happened. They believe in that. Even in VA-VE activities, we go to the shop floor, look

around, and then have a workshop. It is a brainstorming session that we have. A team from Maruti

along with the supplier team, goes down to the supplier shop floor, has a total look around, keepsnoting down the points, comes back to our office, and then we have a brainstorming session. At the

end of the brain storming session, they come out with various points of cost reduction. This is the

Junkai VA and cost workshop.

Model-focused Cost Reduction

The next thing what we have been following is a focused model cost reduction. We started this

about three or four years ago. We have 11 models. Whenever a supplier came to us, we generally

asked for 3% to 5% reduction, and we would apply this equally to all the models. Later on, we

thought that some of the models have to be reduced. We decided that Alto prices have to be

brought down nearer to the 800 cc level. We went for an absolute focused cost reduction for Alto.

Vendors had been taking loans at a much higher interest rate, and the interest rates had meanwhile

been coming down. We lined up with banks to see that the loans can be transferred to the lower

interest rates.

E-procurement, global purchasing and bundling are new initiatives which we have started.

Worldwide purchasing is coming in vogue and for the last two years, GM has a connection with

Suzuki. Suzuki, GM, Daewoo and Maruti are four global suppliers. We are trying to combine the total

volume and call in those suppliers and negotiate with them.


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For inventory reduction, we reduce the import's shipping time. Then there is the supply order

scheduling, which we have been continuously improving. Today, we have the e-nagare system,

where just a day before we tell our vendors that tomorrow the supply may be three times in this

time slot. We give a time slot, which is plus - minus one hour, and they come and supply that

particular component.

Cost reduction has to be done in all areas, even in insurance, because insurance normally has a

constant tariff and cannot reduce that, but we went in for the mega policy and that is how we were

able to reduce our cost.

A little bit about the vendor upgradation activities that we are doing with our vendors.

We take our requirement of steel, our vendors' requirement of steel, and then everything taken

together we call the steel makers and hold negotiations with them. Our savings, in 2003-04 were

about 6. 5%. Then next year we were able to save about 5. 5% and after that again 6%. So this is a

pretty good amount of savings which we were able to achieve even when the steel prices were going

up.

Yield is again very important thing. The raw material prices are going up, so how to really contain

those price rises? We have to give our vendors the price at which they are buying the raw material.

We have to do other ways of reducing cost. We do blank size reduction. We constantly look at

whatever the blank size initially people are taking, see how to reduce that. In most of the cases, we

are able to reduce it, and that is how we save our cost.

We are making bigger components in house, at Maruti, and whatever scraps are coming out, we are

trying to utilize those scraps with our vendors, so that they can make components out of those

scraps because they are making smaller components. We are also looking at even greater changes, if

they are possible. Going from CREDD to CRDD. Instead of selling our small scrap to the scrap dealers,

we give it to vendors who have foundries or are dealing with foundries for usage.

Yield improvement: now we have also extended it to plastic components and even upholstery. Our

seat had a stitching which was curved. Then the idea came out that the thread what we are using

can be reduced if we have a straight stitching, so then we changed over from a curved stitching to

the straight stitching and we were able to save thread. Our people are continuously thinking about

how to reduce our cost.


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The nesting of blanks, combination of blanks, and then a scrap comes out and that scrap we use it

for our vendors. This is how a waste was utilized. This had resulted in 2. 2 crores of saving per

annum.

We say that there are eight types of wastes which result from production. If you are doing too much

and keeping the inventory even by the side of the machine, that is waste. Idle time is a waste.

Transportation: if you go to a shop floor and you find that too many people are pushing trolleys, we

say that you are not good at all, and your layouts have to be improved to reduce transportation, how

far the man is from the machine.

Syncro trolley is what we have been doing in Maruti. Earlier a worker used to walk, pick up the thing,

and come back and fit it. What we did was that we put in a rail below and the components are there.

What happens is when a body comes, this trolley gets attached to that body and it starts moving

with the body, and the components are kept there. Therefore, instead of going and again coming

back, the worker just picks up a component from there and fixes it.

Inventory is one of the things which you cannot keep higher, the others being defects rework,

unnecessary processing and unnecessary inspection. Even for unnecessary inspection, there is a

general tendency that the moment there is any defect or something, you say 'go for a 100%

inspection; keep doing inspection, make sure that no defect is produced'. If you are doing an

unnecessary inspection, then it is a muda. Muda is a Japanese word for waste. This muda should not

be there.

So that is how we have been training our vendors and the normal system is that we select a few

vendors, say five or six at a time, call them to Maruti, teach them about what we call is a MPS,

Maruti Production System which is based on Suzuki production systems and in line with Toyota

production system, teach them first, give them a theory lesson for about six days. After that, we tell

them to pick up a pilot project and Maruti also takes part in this pilot project with them. Ultimately,

we tell them that this is how you can reduce it. We also make a little fanfare, that in the end of theproject they have to present it to our Japanese joint managing director who goes to their plant, looks

at the whole thing and then there is a presentation made. We teach them that you have to reduce

fat or muda and then we tell them to take more projects in their company to reduce costs.

In 2005-06, we had trained about 16 vendors and ultimately the savings of man- hours per day had

come to 1580 man hours and which resulted in a saving of almost 1. 03 crores per annum.


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If you look at the Alto component cost, in 2001, it was 100, and by 2005, we were able to reduce it

by 29%. Keeping the function same, how do you reduce the product cost.

For instance, the specifications: whether this size of lens is required or not required?

You are reading it so may be we can reduce the size of the lens, thereby, save the raw material. May

be the nose rest which you have, it has a size. Is it required? Maybe we could reduce the size. We

continuously keep trying to see what kind of value analysis we can do.

For instance, the specifications: whether this size of lens is required or not required?

You are reading it so may be we can reduce the size of the lens, thereby, save the raw material. May

be the nose rest which you have, it has a size. Is it required? Maybe we could reduce the size. We

continuously keep trying to see what kind of value analysis we can do.

Across 21 suppliers, we have been able to save about 3 crores of rupees and about 50 crores

working capital limit. This is how we have been able to do this vendor finance cost reduction, which

is an ongoing process. E-procurement or e-sourcing: we were able to get about 6. 8% reductions tilldate.

Then there is global sourcing and bundling. This was one of the components, such as substrates for

our catalytic converter. We use ceramic substrates, and these ceramic substrates are not made in

India. They are being made worldwide by two companies, neamely, NGK Japan and Corning of US.

Now, these people -- whenever we used to talk to them for cost reduction -- they would never

reduce. We decided that why not we bring it into the global purchasing thing. We told Suzuki, then

Suzuki told GM, then all requirements of GM, Suzuki, Maruti, everything got combined together.

Then we called those people in Japan and negotiated. Ultimately, they came down and gave a

reduction. Immediately, we were able to get about Rs. 41 per vehicle saving. Even in the project of

diesel engine, whatever procurement we are doing, -- there are many suppliers, who are from

outside - therefore, we are following this practice even with them, more and more.

Earlier the goods used to come from Japan to Singapore. At Singapore the NYK ship used to wait,

because something used to come from Indonesia by another ship, and there it used to wait for three


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days, and then the thing would again transshipped and from there it was coming to India, whereas

there was another ship which was going via Sri Lanka to Pakistan. Finally, we had a lot of discussion

with NYK people and we asked them to club the Pakistan goods with ours, because Pakistan also has

a Pak-Suzuki and there are a lot of things which are coming from Japan to Pak-Suzuki. After a lot of

discussions, we were able to combine the Pakistan volume with India volume and decided that the

ship should move from Japan to Singapore. No waiting, directly to Bombay Nava Sheva and then to

Karachi. The ship which was coming from Sri Lanka and going to Pakistan, we suggested that they

put the Indonesian goods into that ship. So that is how we were able to save almost four days in the

shipping time.

Earlier we used to follow a monthly cycle. We used to tell our vendors about the next month's

production, and there was no time given for supply. Because our payment terms are very good and

we pay to our vendors within seven days, so most of the vendors had a tendency to supply the total

monthly requirement in the first ten days itself. They would produce, all trucks would come and

dump the goods in Maruti and they would take their payments. So their money circulation was

becoming better and this was happening at our end. Once we realized this, we said no. Because

towards the later part of the month no trucks, everything looks very lean although initially there

would be a lot of congestion.

Then we started gradually into supply scheduling. From monthly, we went into fortnightly system.

From there to today, now we have gone into e-nagare where, we only tell them that tomorrow how

many times they are going to supply and this is how we have been taking supplies. Of course, thisinitially increases a little bit of inventory at the vendors' end because then some of the vendors,

especially those from far off places, had to take a warehouse here near Maruti and then keep the

material there, and from there supply on a just-in-time basis. Subsequently, we have taken up with

them about how to reduce inventory. At least at Maruti, we were able to follow this just-in-time

inventory, and the inventory has come down. Earlier, in 2001, it used to be something like 3. 8 days

of inventory, which we have been able to bring down to almost 1. 3 days level. This is how we have

been doing this e-nagare.

Because we are importing lot of things, we also planned how to reduce the inventory on the

imported ones, where it is very difficult to reduce. At Suzuki Japan, if you told them anything they

would say it was not possible and they would tell you various reasons. We were taking in form of kit,

which means that from one kit you will be able to produce one vehicle, so all the components for

one vehicle will be there. We changed from kit ordering to part-by-part ordering. We said that we

would not order any more kits. Their terms were that in one box they would put 48 kits, so the

numbers were also very difficult to manage, because if you require 500, you cannot do that because

you have got to go in multiples of 48.


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Ultimately, they agreed for part-by-parts. The moment we came to part-by-part, if 500 was the

number required we were able to get 500. Therefore, we never had an extra inventory to that

extent. Another thing for part-by-part, earlier a ship came once a month. We changed the ship

frequency to 15 days and we said, let's go by part-by-part and 15 days ship movement. As a result,

even in the imported parts, we were able to reduce our inventory. There was, again, the question of

container capacity utilization. Initially we were having 70% only and then of course we went in for

these high tube containers, and then ultimately we were able to improve it to 90%. But we are still

at 90% and we have not come to 100%.

Then this was the return trip. From our Nava Sheva port, the trailers used to bring in all the material,

say coils and all other containers, but when they went back, they went back empty. So we had to

incur a lot of cost. Finally, after some minor changes on the trunk, we were able to put in our export

vehicles (which we are actually exporting from Nava Sheva port), which is how we could use our

return trip as well. This is also one of the things which we did which gave us a lot of savings-almost 3.

2 crores per annum.

Custom clearance: we were able to, after lot of discussions, take it out of Nava Sheva port, and we

brought it to ICD here, ICD Garhi. We were able to save a stamp duty of 2. 3 crores per annum, six

days interest cost on customs duty. Because we used to get the CENVAT only when the material gets

inside Maruti and it used to take from Bombay to Maruti 6-7 days. There again, because right after

ICD that material comes within two hours to Maruti, even realization of CENVAT also becomes

easier. So that was also giving us a savings almost about 3. 3 crores per year we were able to save.Of course, Bombay customs got a little annoyed with the huge revenue they lost, and the revenue

came into Haryana here, so to that extent, of course, there was a problem. Anyway, for us there was

a good amount of saving. This was the insurance premium we were able to reduce by going into

mega policy, so we were able to get almost 9% saving out of that as well.

Maintaining an efficient Supply Chain

Now these are some of the things to upgrade our vendors. We do a supplier audit and it is one of

our main activities. There is a group Maruti Centre for Excellence. There is a team which

continuously goes to suppliers to upgrade them. During the audit, they look at various things and

ultimately they come up with this kind of a chart, a spider chart where there are 22 points and for

every 22 points each vendor is lying where, we give these numbers. We give an overall number also

and our rule is that if you are more than 60%, then the next new model that comes, you are going to

get business but if you are less than 60% then you are not going to get business. This is something


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which we follow very strictly. Every vendor really tries to go up and make sure that he goes above

60.

Another weak area which we had, and on which we did not concentrate earlier, were the second tiervendors. Our vendors are also taking many components from their vendors and those who have not

been looked at by Maruti. We have started the second tier improvement in a very big way. This is

the latest initiative which we have taken up a year ago. We make drafts such as this one that okays a

rejection, what were the rejections of different vendors when we actually started this program and

what happened after that, rejection, defects, that kind of thing. We keep doing this so that their

quality also goes up.

We have also been doing with our vendors something we call 'green initiatives'. We made a program

with CII and USAID for ISO 14000. We called in our vendors and taught them everything required to

go for ISO 14000. Next was the End of the Live Vehicle (ELV) compliance. It is a regulation which has

come into force in Europe where you cannot use hexavalent chrome, or you cannot use more than a

particular amount of lead in components. Though we do not require it in India, we began telling our

vendors that it was something that had to look at if they really wanted to become good, strong

vendors and also supply to our export vehicles which are going to Europe. So that is how we have

been implementing these ELV things gradually. By the time the requirement comes here, our

vendors will all be sufficiently equipped to take care of it.

Apart from that, we have regular training communication.

Another thing is the packing. We have totally converted to reusable packing because today we can

no longer send goods in carton boxes or wooden boxes. We have plastic bins because we have gone

in for just-in-time inventory. People bring goods into their warehouses but after that, they change

over to the plastic bins. Those plastic bins come to Maruti, we use it and give it back. We have been

following this reusable plastic bins system in 100% cases.

Then, of course, Kaizen - the theme we follow is make it smaller, fewer, lighter, shorter and

beautiful. This also conserves the usage of material, so this is also something we have been

continuously teaching our vendors and we follow a similar theme even in Maruti.

Yield improvement, of course, helps us in improving or utilizing the material much better. The other

thing that we have started recently to make even our truck drivers aware, because they are the

people who are least bothered about what is happening in the environment. Now we check each ofthe trucks getting into Maruti, the pollution levels and if the pollution levels are not right then the


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truck is sent back. This is just to put pressure on our vendors and to also make them understand that

we have to bother about the environment also.

These are some of the initiatives through which we are trying to become leaner and more agile. Ofcourse, there is no end to these things and they will probably go on.

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