value chain analysis of maruthi suzuki

Value Chain Analysis of Maruthi Suzuki

Assignment-1

On

Submitted To: Submitted By:

Dr. A. Shivakanth Shetty Venu Gopal.T

Section-a

Roll No-59

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.

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 LogisticsInbound Logistics i.e. the receiving and warehousing of raw materials, and their distribution to manufacturing.

Maruti Suzuki’s 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

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 company’s 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

operations in many countries. This joint venture will ensure supply of high quality ESCs

to the Company at lower cost.

II.) OperationsTransform inputs into final product form through machining, packaging, assembly, equipment maintenance, testing, printing and facility operations.

Production process at Maruti Suzuki:

Maruti Suzuki’s 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.

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 LogisticsAre 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 SalesProvide 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.

Maruti’s marketing objective is to continually offer the customer new products and services that:

1. Reduce the customer’s cost of ownership of our cars; and

2. Anticipate and address the customer’s 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 dealer’s 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.

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.) ServiceAims 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

“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

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.)ProcurementThe function of purchasing raw materials and other inputs used in the firm’s 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

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 DevelopmentTechnology 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

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

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 InfrastructureFirm infrastructure consists of general management, planning, finance, accounting, legal,

government affairs and quality management

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 TS-

16949 certification. In addition, it had made the following improvements in terms of

producing defect-free products:


• DFC OK: Maruti Suzuki’s 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 Suzuki’s 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 Suzuki’s 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.

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.

value chain analysis of maruthi suzuki

Documents

fully integrated plants

maruti mobile support

maruthi suzuki

joint venture

balanced scorecard

extended warranty

cost reduction

maruti suzuki