2002 intitative

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Or, how Maruti is deriving major gains from a new fitness regimen in productivity

andqualityIf you walk into Maruti Udyogs manufacturing complex in Gurgaon, its hard to

missthe large banners hung out on the factory floor.Challenge50, they say cryptically.In its full form,the term means achieving a 50 per cent improvement in productivity,a 50 per cent

improvement in quality and a 30 per cent reduction in costs over threeyears, starting

2002. To be sure, the intention may not be novel. Competition has forced a revolution inorganised

manufacturing in India and exhortations to efficiency and productivity canbe spotted on almost

all large factory floors across the country.Nowhere is this more true than in the automobile

industry, which has, in the course of 10 years, metamorphosed from asellersmarket to abuyers

one. Today, there are 12 car companies offering some 30 models in India and countingand inevitably,

there are pressures on prices, and therefore, cost. The small printon the Challenge 50 banner says it all:

Rebirth for SurvivalStriving fromBasics.The point aboutMarutisexercise is that, one year into

Challenge 50, ManagingDirector Jagdish Khattar is proud to display myriad graphs and barcharts that go intoan internal review to show that the exercise has already made a visible

difference.Even competitors ungrudgingly admit that Marutis record on this front has

beengood.Some samplers: since May 2002, average defects per vehicle have dropped

to one-third, and the percentage of vehicles that go through the assembly line

withouthitches (thedirectpass rate is the technical term) has exactly doubled. The gains in

productivity as a result of fewer defects can be gauged from the factthat where, just a year ago,

Maruti needed to keep eight workers per shift to inspectthe final product, it now needs just

two people per shift.If you take a cost to company of roughly Rs 20,000 per worker, thats a

saving of almost Rs 1.2 lakh a day on this account alone, which goes straight to the bottom-

line.As crucially, this exercise has given Maruti the ability to react to the market. To putthings in

perspective from the consumer point of view, consider just one example. The Maruti 800,

the small car that accounts for roughly 35 per cent of production. Today, as a result of the

Challenge 50 exercise, Maruti is able to offer the 800 at aprice that is cheaper than it was in 2000.It is

no coincidence that sales of the 800 in the April-to-November period have grown30.8 per

cent over the year-ago period, marginally faster than the growth of the Alto,Wagon R and

Zen put together at 30.3 per cent in the same time frame. Three months ago, when sales of

the Alto started growing at 45 per cent or so Marutidecided to make the car cheaper by Rs

23,000.Significantly, this was not a distress price cut indeed, profit projections were

notchanged. Instead, Maruti was hoping to leverage accelerating sales to tap the hugebase

of small car buyers. This kind of flexibility to react to the market represents a

major organisational leapfrom the days when mere production numbers took precedence over

efficiency. It is avault that is far harder to implement than the numbers suggest.Indeed, many

corporations have found that the benefits that accrue from theirefficiency- and productivity-

enhancing exercises rarely match expectation. In thatsense,MarutisChallenge 50 exercise provides some

useful lessons. To start with, Maruti has benchmarked itself against the best-in-class in Suzuki theKosai

plant in Japan

When Challenge 50 was launched, Maruti was roughly 20 per cent behind Kosai interms of

productivity and efficiency. Today, the gap has narrowed enough for Khattarto claim that the company

is on track. The engine of this transformation lies principally on the shopfloor where

productionsystems and processes are constantly being tweaked and re-engineered thoughkaizen, theJapanese term for continuous improvement. The focus is to reducewastage and deliver


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more and better quality at lower cost. To accelerate the process, Maruti has earmarked an annual

budget of Rs 3.5 croretowards kaizen implementation.Although kaizen has been in vogue in

Maruti for years as, indeed, it has on manyIndian shopfloors two things have changed.

One, the earlier emphasis was onindigenisation, today it is geared as much towards value engineering.

Two, theexercise is more organised and focused.As S Maitra, chief general manager (engineering),

puts it, Earlier, people wereoffering random suggestions. Now, the exercise has become

more theme-based andaligned to company goals. The philosophical underpinning to the

exercise is basically that shopfloor activitiescan be divided into two types those for which

the customer pays and those forwhich he doesnt pay. Maruti wants to maximise the former and

minimise the latter.What does this mean? Simply that customers pay for the final product, but

they donot pay for, say, how many steps a worker may take to weld a metal part or

thenumber of defects. The spirit of change is best reflected in the change in the incentive

system for kaizen. Till 1999, incentives depended on how many cars were produced and was linked tothe

direct pass rate. Today, theyre linked to market performance as wellto suchissues as warranty costs

and so on.Overall, though, its a painstaking process, not least because ofthe sheer volume

of kaizen suggestions that pour in. Pre-Challenge 50, 55,000 to 60,000 suggestionswereconsidered par for the course. In 2002-03 alone, that number went up to72,000.All of

these have to be distilled into weekly and monthly reviews and synchronisedwith

departmental and shopfloor targets. Right now, this is as far as the exercise hasprogressed. The next level is

to merge all this with individual performance targets.But the crucial point about the current exercise

is that, although it involves someinvestment, the emphasis is on low-cost automation, not

rocket science.Many of the devices that have been designed have a pay-back period of one

to one-and-a-half years, explains N S Rane, general manager.Indeed, some of the modifications

may appear basic or obvious to more sophisticatedcar manufacturers, but in totality, they represent

the learning that has taken place onthe shopfloor.For instance, the kaizen workshop in one of the

weld shops has devised simple robotsto perform spot welding operations on door beams,replacing the need for two of thethree operators per shift for this function. This small

change alone has resulted in aproductivity jump of 30 per cent.Automation has not only

been geared towards lowering manpower requirements butalso towards extracting

productivity gains from improved design and layout to, say,reduce worker fatigue or the number

of steps a worker needs to take to perform atask. The dictum Maruti follows: Suzuki chairman

Osamu Suzukis succinct statement thatwe pay people to work, not walk.One example of this can

be seen on a Zen and Baleno assembly line, where hydraulicplatforms again designed in-house

move the car body up and down in a setsequence, thus eliminating the need for workers to

walk or bend from one car toanother to perform their tasks.

Devices such as these have all helped reduce the man-hours expended per

vehiclesubstantially. The index of man-hours per vehicle dropped to 76 in 2001-02 and to 59in 2002-03

(base 2000-01=100).Again, economy of worker movement and automated processes have

freed up space,allowing Maruti the flexibility to increase current capacity of 3.5 lakh

by almost 50per cent, should the market warrant it, in the same facility.Overall, such moves have

contributed to a stunning improvement in productivity peremployee. In 1995, Maruti had 4,800

employees and produced 730 cars per day. Today, the employee strength stands at 4,600, and the company

produces 1,700 carsaday.The objective of economy of space and movement has been extended

to reducing in-process inventory. On several assembly lines, parts are stacked in trays alongside

ortransported along conveyer belts so that, again, worker movement is minimised. These traysare now replenished at intervals by automated trolleys that have beendeveloped and produced for


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Maruti by a Bangalore-based firm at a cost of Rs 5,000 toRs 10,000 each.In this respect, Maruti

still has some way to go, but the impact is already significantin terms of the ratio of inventory-to-

sales. This index has dropped from a high of 93 in2000-01 to 59 in 2001-02 to 41 in 2002-03

(base: 1999-2000 = 100). The other crucial element for preventing inventory build-up is, of

course, getting theproduct right the first time. This alone, as Rane explains, eliminates the

need to keepextra sub-assemblies in reserve. The whole process is now on a pull system,

hesays.Achieving this also requires foolproofing the production process. Nowhere is thismore visible

than in Marutis engine-manufacturing facility, the heart of the factoryfloor (and indeed the

car). To name just one example, machining wrenches have been programmed to cut out if a part is

not fitted properly in the previous operation.Importantly, given that car manufacturing is essentially

an assembly job the exercisehas been extended to Marutis vendors (assembling a car involves

more than 200operations and, typically, 80 per cent of a car is outsourced). The company

hasinitiated 50 or 60 pilot projects with vendors to see where costs can be pared. The effort,

explains Maitra, who is in charge of the exercise, requires changing mind-sets as much as

manufacturing systems. Vendors have a tendency to work on acost-plus basis, he

says. The initial step in the process was to pick some big-value items and work onvalueengineering solutions and ideas with select vendors in an intensive two-weekexercise

that was overseen by an instructor from Suzuki.Later, the exercise was extended to what is known as junkai

kaizen or visitingvendors factories where more brainstorming took place. This included tearing down

components and benchmarking them against competitorsand seeing where savings can be made

through value engineering and localisation.Vendors were asked to generate ideas that would shave at least

15 per cent off thecost of components. The exercise yielded such gains as replacing the sophisticated and

expensive gearsystem that Suzuki uses to make car seats go back and forward to simpler and

morecost-effective levers.So far, this exercise has involved 80 vendors ofMarutis 245. The

gains from thisexercise have already allowed Maruti to cut the number of vendors who supply itfrom

300-odd. But the big bang gain from the exercise with vendors has come incosts. It hashelped Maruti get a cost reduction of 4 per cent per year for the pastfour years.Perhaps the

most crucial point about Challenge 50 is the recognition thatproductivity-enhancing

measures cannot stop in 2005. Khattar talks about integratingit more completely into

the companys planning process.

As he says, There is no other way, if you want to improve the bottom-line and

fightcompetition. We cant really predict how the market will behave, but cost is in ourhands.Given the

productivity mania that is currently sweeping the automobile industry,Challenge 50 could

be Marutis strongest weapon yet.

The productivity blue book

(How Maruti is maximising results from its productivity drive)

BENCHMARK:

Maruti has benchmarked itself against the best-in-class, the SuzukisKosai plant in Japan

SYNCHRONISE:

Where the earlier productivity exercises were random, the currentone has been synchronised with

the companys goals as set out in Challenge 50 toachieve a 50 per cent improvement in

productivity, a 50 per cent improvement inquality and a 30 per cent reduction in costs

FOCUS:

Maruti has distilled the exercise down to one maxim: there are two types of activities on the shopfloor;

one for which the customer pays and one for which hedoesnt. The focus of Challenge 50 is tomaximise the former and minimise the latter.


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INVEST:

Maruti has an annual budget of Rs 3 crore to implement kaizen suggestions. The emphasis is

on low-cost automation with a short pay-back period

2002 intitative

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