CASE STUDY ON MARUTI UDYOG LTD (MUL) At Maruti Udyog Ltd, logistics goes beyond mere distribution management.

It is improving the quality of the supply chain itself to achieve a cost-effective distribution mechanism. Driven by this philosophy, MUL, the countrys biggest passenger car manufacturer, has created a new supply chain paradigm that has helped it achieve substantial cost reduction, from production to distribution. It has a fully established SCM department. Dependent on over 300 suppliers for some 7000 components that go into ten major models and more than 50 variants (at the time of writing this case), the company realized the need to keep control over costs at every stage to remain competitive. For this, it realized, supply chain management was critical. Cost management is crucial for the supply chain management, says Mr P. Agrawal, Deputy General Manager (Materials), Mul, adding that this was achieved only through close coordination with the vendors. This not only helped in cost rationalization of the materials used by MUL, but also in passing the benefits of cost control and quality products to the vendors. The exercise began by in-house implementation of innovative material handling solutions, resulting in cost savings by reducing wastage. MUL also gained considerably by collaborating with its vendors in localizing components supply with great impact on productivity and removing uncertainties in supply. According to Mr Agrawal, by rationalizing the inventory holding process and precise planning of schedules for indenting components, the company not only saved on holding costs but also reduced wastage. The delivery instruction (DI) was revised from monthly schedules to daily and made location wise to indent only components to meet the assembly line requirement. The strategy was adopted to tackle the fluctuating market demand, accentuated by the intense competition in the current automobile business. Mr Agrawal said the streamlining of SCM was done after a homework of value analysis and value engineering (VA/VE) that helped it improve operator and machine productivity, and reduce and recycle waste. While these practices helped MUL reduce its logistics cost considerably, its IT efforts added to efficiencies and savings. Firm schedules issued every fortnight were further fine-tuned by an online system for replenishment of inventory on an electronic card system. This avoided inventory build up or unanticipated deliveries by vendors as supplies were made only after receipt of the indent card from MUL. This brought inventory management down to the doorsteps of the vendors, who would produce only what was indented. MUL plans to extend the electronic card system for another 16 suppliers and for 250 components, following the successful implementation with 10 vendors delivering 66 voluminous and high-value parts. The percolation of its cost control effort has benefited major suppliers such as JK Industries, which reported a reduction of tyre inventory to just 10,000 from its earlier 30,000. The bottomline: savings in transportation cost and detention charges of Rs 50, 000 per month. Similarly, Lucas TVS, a major supplier of components reported savings on finished goods inventory cost from Rs 3 crore to Rs 90 lakh, said Mr Agrawal, adding that similar feedback has been received from other major component suppliers such as Kalyani Brakes. In 2003, MUL, a joint venture between Suzuki

Motors of Japan and the Indian governments dominated Indias automobile market with a 54% market share. It had the widest product range among Indian car manufacturers, with ten basic models and more than 50 variants. Three out of the topfive selling car models in India (Maruti 800, Zen, and Omni) belonged to Maruti (now Zen has been withdrawn). The company dominated the Indian small car market with a 100 per cent share in A segment and 36 per cent in B segment. Many leading companies in India such as Maruti Udyog, Hyundai, and some MNCs started experimenting with the Japanese JIT concept. The success of JIT is linked to the level of integration achieved in vendor development as also development of ancillary units around the plant, facilitating frequent interaction between the customer and vendor, and timely deliveries to the principal. This does not mean JIT cannot be practiced for items sourced from far-off places; so long as interaction s possible, physical deliveries as per schedule can be organized. With the introduction of new international freight flights as also increased frequency, weekly schedules became the order of the day for imported inputs. In the case of upcountry supplies, JIT has been successful as is evident from companies such as Kirloskars which are able to get daily suppliers through improved logistics. While every company today will like to have the material at the production line just a few hours before commencement of the shift, many constraints still exist in achieving 100 per cent success on JIT. The next stage of cost cutting exercise is on paperless transactions by hooking up vendors through a computer network facilitating ordering scheduling, receipt, issue, and all other attendant work, including accounting. The dissemination of information within the various departments, both at the customer and vendors ends, is also possible through this network ensuring greater cohesion in decision-making. As technology advanced by the day, the business-to-business (B2B) and business-toconsumer (B2C) interaction and exchange of data have acquired significance. All these facilitates direct ordering of raw materials from suppliers, on the one hand, and also taking orders from customers, on the other, crating a seamless supply chain. This link is complete, right from the vendor/sub-vendor to the customer via dealers/distributors. This form of SCM, facilitated with improved logistics, has become a matter of survival strategy for the organizations such as MUL to rely on the materials managers for speedy deliveries at competitive prices in a global village. Even though the increasing success of MNCs outsourcing from the domestic auto components industry may be hogging the limelight at the moment, there has been a persistent trend of Indian vehicle manufacturers reducing the number of component suppliers. In other words, the trend of rationalization of vendors in the Indian automotive components industry is gaining pace, primarily due to the increasing pressure on margins faced by vehicle manufactures. This combined with an increased focus on quality is also resulting in consolidation in the domestic components industry, with domestic players focusing on only their core competencies and exiting from non-core areas.

According to an ICRA report on the Indian auto components industry, leading OEMs such as Maruti, Tata Engineering, and Bajaj Auto are already pursuing vendor rationalization programmes. Maruti Udyog too has indicated that in a bid to improve quality and generate economies of scale, it reduced its vendor base from 370 as of March 31, 2000 to 299 as of March 31, 2003. The company intends to continue reducing the number of vendors even further. According to the ICRA report, vendor rationalization reduces the cost of dealing with multiple vendors besides making the process of quality control easier. Also, it enhances the efficiency of SCM. Further, by increasing the order size per vendor, the OEMs can help the vendor operate at a higher scale of operation and thus increase the vendors efficiency, the report says. Also, this proves to be a greater incentive to pursue technological improvements and enhance the capabilities of systems and processes to meet the quality standards set by the OEMs. With its strong dependence on the supply chain network, Maruti needs to manage its dealers and suppliers together in a synchronized manner, while also managing complexities in terms of sensing the demand and getting the right mix. It has to plan nearly four to five months in advance about the products that would sell and in what quantities. As a result, the company has a very strong focus on SCM, which forms the core of its IT set-up. The SCM system from i2 includes marketing, sales and production systems as well as plant and material systems, and spares systems. These applications take care of some key aspects such as demand forecasting (which is the i2 Demand Planner), production planner, vehicle production, vehicle production vehicle production tracking, stock, etc. it is currently rolling out the Dealer Management system, a centrally hosted application, which will be internally linked to MULs systems and will support all their business processes such as sales ordering, invoicing, sales, services, spares, etc. similarly, the suppliers can also log into MULs system, which outlines the supply requirements from a particular supplier. This has led to effective synchronization of the supplier resources to the companys requirements. Apart from SCM, e-procurement has been taken up as one of the key focus areas for cost reduction and improved procurement processes. The Spares Warehouse Management system has automated the spares warehouse processes for greater efficiency, lower warehousing costs, increased inventory turnover, and faster turnaround times. The Vehicle Tracking System, which has been implemented at two plants, is a middle tier layer between business systems and ship floor systems that provides correct and timely instructions to the shop floor along with feedback to the business systems, thereby enhancing the efficiency at the shop floor. It has implemented Hyperion tools for planning, consolidation, and business reporting requirements. The tools integrate with the transactional systems for data capturing and implementation of plans. Looking ahead, Maruti is undergoing an information security and IT security drive, aimed at protecting the companys IP and critical business information from external and internal threats. Also on the anvil are applications, which provide the capability to quickly pick up market feedback, sales and demand forecasts-issues such as how much will be the sales in a particular city in

particular month, any fluctuations expected in demand, etc. so that these can be incorporated into any strategic decision-making process. E-Solution In Indian auto segment, Maruti Udyog still continues to hold a majority of the market share. Given that the auto giants business operations are spread all across the country, Marutis success can be attributed to its Web-enabled supply chains. The makers of the little car that marked the beginning of a new revolution in the auto sector, has been technology savvy right from the beginning. IT at maruti has always been considered at par with other business operations, says Rajesh Uppal, IT Head. When Maruti decided to go in for an automated management system about a decade ago, there was no ERP vendor support available in the country. Without losing any time, the company decided to do it all by itself. Using a combination of software from Oracle and Computer Associates, the company built a variety of applications that facilitated its business. This homegrown system was extended to its sales and dealer network through an email based ordering system with about 250 outlets. For instance, if a dealer has to place an order, he generates it in his own machine with all the specifications (e.g. colour, model, etc.) and sends it through an e-mail to Maruti. The system there automatically checks the order, classifies it accordingly, and sends it to the respective database. In order to standardize the data, the company has provided the software to all its dealers. Even the suppliers are being gradually brought online. Benefits For a mass production player such as Maruti, an e-enabled supply chain has been extremely instrumental in inventory management, both at the dealer level and in the company. Reduction in paper work has increased efficiency, the speed of processing and managing orders, and has improved working capital management. Discussion Questions 1. Why does a company such as Maruti Udyog Ltd (MUL) require a well established supply chain management (SCM) department? 2. What are the major strategies adopted by the MUL on the sourcing side? How are these being accomplished? 3. With change in IT set-up, how has management of supply chain undergone a change at MUL right up to the shop floor level? 4. According to you, what would be the possible mix of IT tools which could be used by an automobile company such as MUL in India for effective SCM, including collaborative demand forecasting and customer relationships?