Value Chain Analysis of Maruthi Suzuki

Value Chain Analysis of Maruthi Suzuki
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Submitted To: Submitted By: Dr. A. Shivakanth Shetty Gopal.T Section-a Roll No-59 Venu
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Value Chain Analysis of Maruthi Suzuki Pgdm General 10-12
Value Chain of Maruti Suzuki
The term value chain was coined by Michael Porter. The value chain is a comprehensive set of activities that are required to bring a product from a concept stage to marketing and consumption of end products. In competitive terms, value is the amount buyers are willing to pay for what a firm provides them. A company is profitable if the value it commands exceeds the costs involved in creating the product.
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Porter distinguishes between primary activities and support activities. Primary activities are directly concerned with the creation or delivery of a product or service. Each of these primary activities is linked to support activities which help to improve their effectiveness or efficiency.
Primary activities at Maruti Suzuki

I.)Inbound Logistics Inbound Logistics i.e. the receiving and warehousing of raw materials, and their distribution to manufacturing. Maruti Suzukis inputs primarily comprise raw materials and purchased components. Raw material includes rubber, glass, steel, plastic, aluminum. Tyre, windshields, and airbags are example of parts or components. The company has implemented tierization of suppliers and Just in Time supply logistics. Unique Features: In order to improve quality and generate economies of scale, MUL has reduced the number of vendors of components in India from 370 as of March 31, 2000 to about 100 as in 2005. By lowering the time and cost involved in dealing with more vendors, they have increased their supply chain efficiencies In case of repair and replacements, costs of defective components supplied are borne by the vendor. Information systems - Vendors are linked through the Internet-based information network, which maintains online information regarding order status and delivery
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instructions. These have helped in reducing both inventory levels and lead times required for the supply of various components. The Company worked hard along with its vendors on cost reduction initiatives. The key initiative was a raw material yield improvement program with a micro focus on each component on the lines of Suzuki philosophy. Called One Component One Gram, this program calls for weight reduction of one gram for every component. With this micro focus, the raw material yield improvement savings increased by a factor of three in 2009 as compared to 2008. The material cost to net sales reduced from 90% in 2000-01 to 79% in 2008-09, partly due to external factors but largely due to cost reduction efforts. The company has instituted sustainable practices in its relationship with vendors like communicating realistic volumes to avoid excess capacities and inventories and making quick payments to facilitate healthy cash flows and financial discipline. To reduce supply bottle necks, transport related uncertainties, high in-transit inventories (related to long distance transport) and ultimately its total inventory levels, Maruti-Suzuki creates incentives for far away suppliers to move near its plant. These incentives comprise: setting up a supplier park with excellent on-site infrastructure; offering subsidized, well located and industrially developed land; sales tax concessions; and reliable power supply generated by Maruti-Suzuki itself. Over 76% of the companys 246 suppliers are located within 100 kilometers of radius. This has facilitated cost reduction in supply chain. The JIT system has evolved over the last 25 years in the company from monthly scheduling to daily scheduling of parts order and finally in 2003 the release of schedules on hourly systems, a practice that aids in maintaining less than two hours inventory of components within the company. Maruti-Suzuki gets involved in establishing suppliers, supplier JVs with local suppliers and asks Japanese suppliers to do the same. For instance, Maruti Suzuki formed a joint venture with 'Futaba Industrial Co., Ltd.' (Futaba) for manufacture of Exhaust Systems Components (ESCs). Futaba is the largest manufacturer of ESCs in Japan and has
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operations in many countries. This joint venture will ensure supply of high quality ESCs to the Company at lower cost. II.) Operations Transform inputs into final product form through machining, packaging, assembly, equipment maintenance, testing, printing and facility operations. Production process at Maruti Suzuki: Maruti Suzukis manufacturing facility consists of fully integrated plants with flexible assembly lines located at Gurgaon. The scale and complexity of the Company's manufacturing operations have now moved to a different league. The Company reached a capacity of one million cars annual production in 2008 and was also able to operate at this average rate in the month of March, 2009.
Maruti Suzuki has implemented Production Management System, which is a strategy to achieve Manufacturing Excellence evolved through participative approach.PMS is A system which is people driven and ensures involvement of all levels ( Managers, Executives, Supervisors ) A system which ensures ownership A system which brings in standardization of systems & processes A system which ensures Sustainability Maruti Production System or MPS draws learning's from its parent company Suzuki Motor Corporation's concepts on `lean manufacturing' under Suzuki Production System i.e. SPS. Setting trends in new products and achieving customer delight starts with Manufacturing Excellence and Maruti's manufacturing excellence hinges around four important pillars-Cost, Quality, Safety and Productivity. Cost Every employee working on the line is 'Cost Sensitive' and functions in capacity of a Cost Manager. He is a key contributor in suggesting how to keep costs of production under control.
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Maruti Suzuki initiated a program called Challenge 50:30 whereby cost was reduced by 30% and productivity was improved by almost 50% during the 3 years ending March 2006. Quality A product of poor quality requires repeated inspections, entails wastage in terms of repairs and replacements. "Do it right first time", is the principle followed to avoid wastage.
iii.) Outbound Logistics Are the activities required to get the finished product to the customer, including collecting, storing, physically distributing, material handling, delivery vehicle operation, order processing and scheduling. The Company has jointly developed with the Indian Railways, special Auto Wagons, to support a high capacity, high speed and safe car transportation system. To support its export shipments, the Company commissioned a dedicated Roll-on Roll-off car terminal at Mundra sea port in partnership with MPSEZL (Mundra Port and Special Economic Zone Limited). Built with an initial investment of Rs 1 billion, of which the Company's share is 40%, the mega car terminal houses a state-of-the-art 'Washing and Waxing Inspection' centre, a car stockyard and a parking area. iv.) Marketing and Sales Provide means by which buyers can purchase the product and inducing them to do so, such as advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing. Marutis marketing objective is to continually offer the customer new products and services that:
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1. Reduce the customers cost of ownership of our cars; and 2. Anticipate and address the customers needs and preferences in all aspects and stages of car ownership (MARUTI SUZUKI refers to this as the 360 degree customer experience Maruti Suzuki has been aggressively cutting prices of its models. The rationale behind the price cuts is the focus on offering new upgraded vehicles at a low price. Maruti Suzuki offers a two-year warranty on all the vehicles at the time of sale. The dealers are required to address any claim made by a customer, in accordance with practices and procedures prescribed by MARUTI SUZUKI, under the provisions of the warranty in force at that time. MARUTI SUZUKI also offers an extended paid-warranty program marketed under the brand, Forever Yours for the third and fourth year after purchase. The extended warranty program is intended to maintain the dealers contact with the customer and increase the revenue generated from sale of spares, accessories and automobile-related services. An effort is made during the period of the extended warranty to encourage the customer to exchange his existing. Maruti car for a new Maruti car or upgrade to a new Maruti car. True Value Solutions Limited (TVSL), which was incorporated on January 14, 2002 as a wholly owned subsidiary of Maruti, provides value-added services to owners and users of motor vehicles on matters relating to manpower services with regard to recruitment, training and development. The company also intends to promote the business in the areas of pre-owned cars, lease and fleet management, finance and insurance.
Sales network MARUTI SUZUKI has the largest network of dealers amongst car manufacturers in India. Sales network is linked with the MARUTI SUZUKI through the secure extranet based information network. The sales of spares, accessories and Automobile related services such as insurance and finance serve as additional sources of revenue for the dealers. The availability of these related products and services at sales outlets also helps to attract customers to the outlets and promotes sales of the cars.
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MARUTI SUZUKI dealers provide services to customers such as pre delivery inspection of vehicles, sales of cars, after sales service, supply of spare parts and other services that promote sales of cars within the territory for which they are appointed. The performance of the dealers is followed and improvements are suggested frequently. In order to assist the dealers in enhancing their performance and capabilities, MARUTI SUZUKI has introduced a concept of Balanced Scorecard. Using this tool, the performance of a dealership in several areas of operations, including sales, service, spares and accessories, financial management and management systems is measured. Dealers who perform well on the Balanced Scorecard are reward with a cash payment at the end of the fiscal year. The Balanced Scorecard serves as an effective incentive for dealers to enhance their performance. Distribution network: Maruti Suzuki is one of the companies in India which has a huge distribution network. Today it has 802 dealerships across 555 towns and cities in India. To ensure proper after sales service Maruti Suzuki has 2,740 workshops (including dealer workshops and Maruti Authorized Service Stations) in 1,335 towns and cities. It has 30 Express Service Stations on 30 National Highways across 1,314 cities in India. v.) Service Aims to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment Over the last few years, the company strengthened the existing practices and experimented with many new initiatives by way of kaizens (continuous improvements) to delight its customers. These initiatives ranged from product design and quality to network expansion, and included new service programs to meet unsaid needs of customers. There are more than 400 Maruti dealer workshops and more than 1,500 Maruti Authorized Service Stations, covering more than 900 cities in India. In addition, 24-hour mobile service is also offered under the brand Maruti On road Service. As a benchmark for dealers with respect to service quality and infrastructure facilities, MARUTI SUZUKI has launched service stations under the brand Maruti Service Masters or MSMs. MARUTI SUZUKI also has service stations on highways in India under the brand
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Express Service Stations. To promote sales of spare parts and the availability of high quality, reliable spare parts for its products, spares are sold under the brand name Maruti Genuine Parts, or MGP. These are distributed through the dealer network and through the authorized sellers of the spare parts. Many of the Service Stations are at remote locations where MARUTI SUZUKI does not have dealers. Some of these Service Stations are integrated into the sales process in order to increase sales of the cars and related products and services such as spares and accessories, insurance and financing. In recent years, the Company has used IT to enhance interface with the customer. It has deployed a world class Dealer Management Solution across its vast network of dealers throughout the country. The solution has helped dealer managements to access a wide range of information about their operations, as also customer satisfaction and feedback.
Key Initiatives Car pickup & delivery facility for women car owners Setting up "Express Service Bays" & "2 - Technician Bays" As the name suggests the company set out to delight its customers by offering them faster car service by introducing new concepts such as Express Service Bays & 2- Technicians Bays. These are done for customers who are hard pressed for time. Mega Camps The company aggressively conducts 'Mega Camps' throughout the country round the year. Activities undertaken during a mega camp include complimentary car wash, AC & Pollution check up, oil and fuel top ups, wheel alignments etc. Service at your Door Step through Maruti Mobile Support Another unique initiative is the door step service facility through Maruti Mobile Support. Maruti Mobile Support is a first of its kind initiative and is expected not only to help the
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company reach out customers in metro cities but also as a mean to reach semi urban /rural areas where setting up of new workshop may not be viable. Car Safety device: Immobilizer The company used technology to meet customer needs and even delight them. Following feedback that the company's cars were more prone to theft owing to their resale value, the company worked on an anti-theft immobilizer or "I-Cats;" system for all its new cars. Complete car needs The company's effort of providing all car-related needs -- from learning to drive a car at Maruti Driving Schools to car insurance, extended warranty and eventually exchanging the existing car for a new one -- under one roof at dealerships also enhances customer satisfaction.
The Low Cost Maintenance Advantage A car may be affordable to buy, it may not necessarily be affordable to maintain, as some of its regularly used spare parts may be priced quite steeply. Not so in the case of a Maruti Suzuki. It is in the economy segment that the affordability of spares is most competitive, and it is here where Maruti Suzuki shines.
Secondary activities at Maruti Suzuki

I.)Procurement The function of purchasing raw materials and other inputs used in the firms value creating activities. About three fourth of the car, by value, is outsourced. Any improvement in the car in terms of technology and design, quality or cost has to essentially include the Company's vendors and their support. In the year 2007-08, the Company signed two joint venture agreements with global component manufacturers for cost reduction through localization
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of components for Maruti Suzuki cars. The Company is setting up a Suppliers Park in Manesar, close to its car plant on an area of 100 acres for Just-In-Time supplies. In the early eighties, the Company made significant efforts in trying to develop a component industry from ground zero. Over the next two decades, about 110 foreign technology collaborations were facilitated and Maruti Suzuki engineers worked closely with the vendors' engineers to enable to deliver cars which are both high quality and cost competitive. Now, the relationship has matured and most direct vendors or Tier 1 vendors are competent enough to work on their improvement, but there is major scope for modernization of some sections of Tier 2 vendors. The Company has identified this as an opportunity for further quality, up gradation and cost reduction. The second focus area for component cost reduction is raw material yield improvement across all manufacturing processes, like sheet metal, castings, forgings and machining. Every component is studied in detail and innovative ideas are tried, to reduce the input material weight for the same component output. The total cost of raw material as a percentage of net sales ranges from 15% to 20%. II.) Technology Development Technology development includes research and development, process automation, and other technology development used to support the value chain. Research & Development (R&D) During 2008, the Company took decisive steps towards building design and development capability, in-house. The number of engineers in R & D went up from 258, at the start of the year, to 398 engineers by the end of the year. In line with this, the number of engineers will be scaled up to 1000 by 2010. Specific areas in which R&D has been carried out by the company: Building Full Mode Change Capability Vehicle Design and Development
Technology absorption, adaptation and innovation

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Localization, development and testing of parts for existing and new models. Capabilities strengthened in component and vehicle evaluation, benchmarking and design optimization. Capabilities being further strengthened in area of alternative fuels like Diesel, CNG and LPG. Value Analysis/Value Engineering (VA VE) at the time of design and localization to maximize cost benefit. Acquiring design and cost knowledge through teardown and benchmarking and using it in future designs and cost reduction. Global sourcing and advanced sourcing to get the advanced technologies into India at lower costs. (Efforts made towards technology absorption, adaptation and innovation by either local vendors or helping world-leading component suppliers to set up shop in India). Design and development of electronic speedometers, keyless alarm controllers for enhancing comfort and convenience.
Benefits derived from above efforts Indigenization of various vehicle aggregates at lower costs. Improvement and up-gradation of existing models for improved comfort, style and better value for money. Continuous reduction in product cost through VA-VE. Compliance to new regulations. - Significant cost reduction of new model parts compared to existing models, ensuring that the new models are profitable from day one. Significant cost reduction obtained in existing models.
III.) Human Resource Management Activities associated with recruiting, training, development and compensation of employees. The Company's key strength is its human capital. The Company has, during 2007-08, spent about Rs.10 crores on training of its employees. The Company conducts programs
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such as "Bulandi" and "Chunauti" for the workmen and technicians to enhance pride in being an employee of the Company and also to create team synergy. At the middle management level, the focus of the programs is to inculcate leadership qualities while at the Director level, one or more retreats take place so that the Directors can unwind and take a detached view of self development and the organization. The Company goes further and trains its dealers' and vendors' workforce. 3200 programs have been conducted covering more than 13000 dealers' sales persons. The Company's "Maruti Centre of Excellence" (MACE) is a team dedicated to the development of vendors' employees. In programs like "Family Connect" and "Parivar Milan", family members of the employees are invited to interact with top management to get a feel of the workplace and environment. The idea is to develop better understanding and increase the support and co-operation for the employees from their families. The outbound training programs (OBT) encourage learning while having fun. The training encourages team work and teams come back fully motivated to face future challenges. The Company strengthened the concept of Stay Interviews (as opposed to exit interviews); to understand employee aspirations, delight factors and areas for improvement. The Suggestions Scheme, which is as old as the Company, continued to make a significant contribution to business performance. Employees implemented a record 108,885 suggestions during 2007-08, as against 85,428 suggestions received previous year. This has lead to net savings of worth Rs. 666 million in 2007-08 as against Rs. 509 million in 2006-07. Industrial Relations were cordial throughout the year and no man days were lost on account of strikes or disruptions.
IV.) Firm Infrastructure Firm infrastructure consists of general management, planning, finance, accounting, legal, government affairs and quality management
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The Company has again been awarded ISO: 27001 Certification by STQC Directorate (Standardization, Testing & Quality Certificate), Ministry of Communications and Information Technology, Government of India after re-assessment. The Company is thus certified to meet international standards for maintaining information security. Maruti Suzuki has two state-of-the-art manufacturing facilities in India. The first facility is at Gurgaon spread over 300 acres and the other facility is at Manesar, spread over 600 acres in North India. Maruti Suzuki's facility in Gurgaon houses three fully integrated plants. Together the three plants have an installed capacity of around 700,000 units. Maruti Suzuki was certified with ISO: 9001:2000 in 2001 and aim to achieve the TS16949 certification. In addition, it had made the following improvements in terms of producing defect-free products: DFC OK: Maruti Suzukis Direct Final Check OK, or DFC OK percentage, which signifies the percentage of vehicles that pass through the inspection stages as defect-free, improved from approximately 77% in March 2002 to approximately 90% in March2004. Reduction in rejection: Maruti Suzukis in-process rejection cost per vehicle, computed as the ratio of (1) the cost of components rejected due to defects arising during our production process, to (2) the number of vehicles sold, declined by approximately 65% from fiscal 2002 to fiscal 2004. In house warranty: Maruti Suzukis in-house warranty costs per vehicle, computed as the ratio of (1) the aggregate cost of components incurred by us to service warranty claims arising from operational defects in our manufacturing lines, to (2) the numbers of vehicles sold in the fiscal year, declined by approximately 85% between fiscal 2002 and fiscal 2004. Kaizen Maruti had adopted the Japanese management concept of Kaizen, or continuous improvement. The Kaizen activities had resulted in the improvement of the in-house capabilities. For example, they had manufactured 25 multi-axis robots and 16 multi-spot welders.
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Group discussions among employees in different departments are conducted on a monthly basis in order to discuss and resolve problems relating to their areas of operation, an activity referred as quality circle activity. Based on the belief that individuals contribute to improvement in growth, there has been a suggestion scheme in which they promote participation of all employees at all levels. The average number of suggestions made per employee has improved by approximately 35% in fiscal 2004, when suggestion received were more than 80,000, as compared to fiscal 2002. Some of the other improvements as a result of the Kaizen process have been increased automation through automated material transport system.
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Value Chain Analysis of Maruthi Suzuki