‘We Are Trained To...'
Photo Credit :
& CEO, Maruti Suzuki
(Pic by Sanjay Sakaria)
Drops of water make an ocean. That is the guiding philosophy at India’s largest car maker Maruti Suzuki when it comes to managing efficiency across its value chain, from the vendor to the dealer. Its ruthless focus on organisational efficiency has made it possible for Maruti to beat inflation, commodity prices and employee salaries, and yet offer the iconic Maruti 800 at a price of Rs 1.87 lakh today — 19 per cent lower than its 2000 price of Rs 2.32 lakh. Maruti manages this through a host of initiatives that involve workers and up to Tier II vendors, as much as the management. For instance, by debottlenecking its production lines year after year, it has reduced the number of hours every worker spends in producing a vehicle by half of what it was five years ago. Mechanisation and optimal utilisation of manpower has raised service bay productivity of its dealer service centres by 20 per cent, saving them a few hundred crores in setting up new service bays. BW’s Rajeev Dubey met Shinzo Nakanishi, managing director and CEO of Maruti Suzuki, to pick up some nuggets of this ant-like perseverance. Excerpts:
Manufacturing efficiency begins at the vendor end. How do you ensure vendor efficiency?
For us, lean delivery is about vendor efficiency. The first thing we ask the vendor is timely delivery (including transportation and packaging) and appropriate quality and cost. Sometimes, they have problems such as labour or power shortage or hike in commodity prices. For vendor efficiency, we have a separate organisation called Maruti Centre for Excellence (MACE) to give vendor advice. We also have another activity. We invite vendors — only CEOs or plant managers — to see our factory or parts supply chain management to show them better efficiency.
When we started this project, our people went to Japan to learn the procedures, factory operations, etc. We have been doing this for 25 years, but vendors should also learn from us. So far, this activity was only with vendors from Tier I cities, now we are focusing on Tier II also. We want them to see our productivity, our cost reduction and implementation.
Do you continue with the 5-per cent cost reduction target for vendors?
Every year we set a target for cost reduction. The target can even be 1-2 per cent, depending on the product. We have a ‘one part, one gramme’ scheme. We also ask the vendors to do so. Last year, we had 130,000 suggestions that resulted in saving Rs 70 crore. That is a big saving for us. So we have asked vendors to implement this too. For a vehicle that has 20,000 or 30,000 parts, even if it is Re 1 per gramme, the savings are Rs 30,000 per vehicle. Last year, Maruti produced 800,000 vehicles, imagine the cost reduction. Everybody must understand that.
The weight (of a vehicle) can go down by up to 30 kg. Making parts with less weight is a tough challenge. If we achieve that, the vehicle weight comes down. That means the fuel efficiency can go up by up to 30 per cent. We also have quality circles. Right now, we have 265 quality circles in Maruti. We have asked our vendor also to join. Then, in Japan there are the 5S of lean manufacturing — seiri (sort), seiton (set in order), seiso (shine), seiketsu (standardise) and shitsuke (sustain). Without understanding those, manufacturing cannot be lean.
We are trained to make smaller, shorter, lighter, fewer and neater. Those are tools to get more efficiency and make innovative products.
What is the cost-reduction target for vendors this year?
It depends on the vendor, but we have asked for at least 2-3 per cent.
You had introduced the quality circle competition among vendors last year. What has been its impact on efficiency?
These 265 circles have to show results of efficiency and productivity improvement. The final 10-12 will go and compete in Japan. We will have a competition there every two years. Vendors have been very impressive. For example, a wire harness firm that has only girls on its shopfloor, has been very impressive. Last year, we generated savings of Rs 50 crore through quality circles.
How many such schemes would be on at any given time in Maruti, tactically aimed at efficiency within the plant?
Productivity at plant is measured in hours per vehicles (HPV). We measure how many persons are required to make the car, and in how many hours. We have a benchmark from Japan. The best is from our Kosai plant. We should reach that level — which I cannot disclose.
Where are you now compared to the benchmark?
We have reached 80-90 per cent. The rest 10 per cent is the toughest. But in some areas such as factory-wise volume, we exceed them. Unit-wise, Kosai plant is 500,000 vehicles. We are already making 800,000.
Have you also been able to improve the vehicle changeover timings at the plant?
In the press shop, if we were stamping the Swift door and we had to change the die to stamp the A-star door, we used to take two hours. We had to stop the line, change the mould and fix the A-star mould. Now, we are able to do the changeover within 5 minutes. We looked at the location of the dies and brought them closest to the line. Then, we looked at how the finished vehicle can be kept most efficiently for timely dispatch with least damage. These are inventory checks. They might seem small, but they deliver big results.
The Gurgaon plant is 1.2 million sq. metres. It makes over 500,000 cars, so there is no parking space. With the slowdown, we have to bring the cars to Manesar. Inter-plant transfer means additional cost of transportation and manpower. We looked at how to reduce that.
The Gurgaon plant was a U-shaped building. When we expanded, we built another U-shaped building opposite it. The central area cannot be used because it is for utilities. From the layout point of view, it is the worst. Plants now are being made linear. A vehicle enters from one end and goes out from the other in a straight line. Expansion is easier.
In many countries, including Japan and Korea, companies have tried out multi-level production because of scarce land. Do you do that anywhere?
I know GM does it in some countries, but that is their way. I am in no position to make any comment. But we believe production should be in a straight line. It is very simple. That is the most cost-effective way.
You ship out 800,000 cars per annum. What is the most efficient way you have found in supply chain and fleet management of trucks that transport these cars?
The most efficient is rail. One train can carry 240 vehicles in two levels. But we have just started with A-star. Containers are specially designed. Once the Delhi-Mumbai corridor starts, it will be very beneficial. Even for some domestic supplies, we send some models from Manesar or Gurgaon to our yard in Mundra Port. From there, they are sent by sea to Kerala, Cochin or Goa. This is also viable. We find it cost-effective; time is predictable and damages are least, unlike roads. We would like to enhance non-road transportation of our vehicles. In Japan, Mazda does 88 per cent dispatches via sea.
How much of dispatches are on trucks, and how much would you like it to be?
About 90 per cent are on trucks. If I say, I want to reduce this by 100 per cent, the truckers’ association will complain!
Have you been pruning dealers or vendors?
In 2003, when Suzuki took majority control, we had over 400 vendors. We thought that was too much because if we could reduce the number of vendors, we could give more volumes to fewer vendors and it would reduce costs. We reduced to 200. After that, because of growth and India-specific conditions such as strikes, power shortage, we have increased the number to 300.
Is there a component supplied by only one vendor?
Some are still single vendors — mostly high-end electronics and Suzuki Japan’s subsidiary Suzuki Powertrain, the diesel engine factory. Glass, we have only one —Asahi Glass. In tyres, there are three-four vendors.
How have you tried to improve efficiency of dealers?
We are focusing on two areas —inventory and delivery to dealer. Reducing working capital is very important because it reduces their costs. But for that, we have to deliver properly. A car is dispatched from the factory only after the dealer has made the payment. Earlier, we used to take up to six weeks to deliver a car. Now, it is down to less than four weeks.
Since the slowdown, we have given special attention to dealer inventory. Dealer inventory has gone down from 80,000 to 50,000 cars. At an average price of Rs 4 lakh, that is Rs 1,200 crore of inventory reduction, which means lesser working capital financing cost for the dealer. We also help in their inventory management. We do analyse the market, and everyday inventory, inquiry, orders and sales. We tell them about their vintage stocks — 3-4 month old stocks. That is money lying idle. Now our dealers do not have vintage stocks. Sometimes, they do not think about the age of the inventory, so this is education or cross-communication through our regional offices.
(Businessworld Issue Dated 27 April-04 May 2009)