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MARUTI SUZUKI
The recipe for winning India’s car market: Japanese innovation with a touch of Indian IT
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Gurugram, India

Thirty years ago, Rajiv Gandhi would often drive a small truck to the New Delhi railway station at the crack of dawn. There, mingling with porters, the young engineer would wait for the arrival of long-distance trains bearing a precious commodity: components for the iconic Maruti 800, the boxy car that forever changed how Indians traveled.

“We used to be standing there for the train to reach, early morning 6 o’clock, get it unloaded, cleared, and bring it to the (production) line,” he remembered. If there were any persistent delays, the entire production schedule could be stalled.

That factory still stands in Gurugram, a dusty city on the outskirts of Delhi, where Maruti Suzuki built itself up from an audacious experiment to the unassailable champion of the world’s fourth largest car market. Today, this facility, and another at nearby Manesar, roll out over 1.5 million cars every year—at a remarkable rate of one vehicle every 10 seconds. This puts the Indian carmaker in control of around 50% of the country’s passenger car market. It’s nearest rival has a little over 15% share.

To feed this voracious manufacturing beast, some 4,000 trucks drive into the two facilities every day. They carry 39,000 consignments of metal, plastics, rubber, and glass that eventually come together as Maruti Suzuki cars, under the watchful gaze of Gandhi, now the company’s executive director responsible for production. The risks still persist—but in a country with lousy infrastructure, modest manufacturing prowess, and a tradition for tardiness, Maruti Suzuki has fashioned an extraordinary supply chain. It is, some would say, the secret to the carmaker’s runaway success.

Going local

Born out of the Indian government’s desire to build a people’s car, Maruti Suzuki (then known as Maruti Udyog) was established in 1982 as a joint venture with Japan’s Suzuki Motors. The existing competition included Hindustan Motors, which made the famous bulbous Ambassador, and a version of the Fiat 1100 built by Premier Automobiles, under license from the Italian carmaker. Maruti Suzuki wanted to upend the market. So, it came up with a better, smaller, and cheaper car for India’s burgeoning middle-class—the hatchback Maruti 800.

It also wanted to build lots of them. The company’s target was to manufacture more than double the 40,000 cars that were sold across India every year. Such volumes would help keep the Maruti 800’s price tag within reach, but most components that went into the car had to be made in India to ensure its affordability. The problem was that India’s automotive vendor base back then just couldn’t deliver the required quality, or the quantity.

 Maruti mirrors the Japanese practice of keiretsu—a set of firms with shared businesses and shareholdings anchored by a mothership company. 

“We then decided to establish a vendor base that could serve Maruti,” said Deepak Kumar Sethi, Maruti Suzuki’s executive director in charge of supply chain. That meant scouting the manufacturing sector for companies that had the financial and technical wherewithal; convincing some of Suzuki’s vendors to partner with them; and then waiting to see if the components were good enough. “We also created, initially, a number of joint ventures where we put in our money as a token of our commitment,” added Sethi. This mirrored the Japanese corporate practice of keiretsu, a set of firms with shared businesses and shareholdings anchored by a mothership company.

There was another reason for Maruti’s fevered push for localization: In the grips of a foreign exchange scarcity in the 1980s, the Indian government would only allow the company to import goods worth a certain amount. “[The government] said, ‘Alright, you agree to this localization. This is the volume you’ll produce. So, these many units of foreign exchange we allocate to you,'” explained Sethi. “If you fail to localize, don’t come back to us. You’ll not get more foreign exchange, so then you produce fewer cars.” (The government exited the joint venture in 2007, four years after Maruti Udyog listed on the bourses.)

Since the 1980s, Maruti Suzuki has invested in 18 joint ventures for component manufacturing, built a vendor base of 400 domestic and 70 international suppliers, with over 95% localization in its cars today. In the process, it took companies like Motherson, once a small-time, New Delhi wiring manufacturer, and helped turn it into an automotive component maker with revenue of $9 billion through a partnership with Japan’s Sumitomo Wiring Systems.

It did the same for Sona Group, which formed a joint venture with Koyo Seiko that grew to become the country’s largest steering system manufacturer. “Maruti Suzuki had a big role to play in the initial stages of our business when they brought us into the supply chain. I would say this is true for most Indian auto component players,” said Sunjay Kapur, CEO of the Sona Group, which exited the partnership in 2017. After all, there was no other Indian car company with similar volumes to offer.

 85% of Maruti Suzuki’s components, by value, now come from within a 100-km radius of its two factories. 

Such a fundamental role in building the component ecosystem has had more than one benefit. “We could move a large number of our vendors who were differently located because we had the volume and scale,” said Sethi. As a result, 85% of Maruti Suzuki’s components, by value, now come from within a 100-km radius of its two factories. It is invaluable insurance against India’s middling transportation network, where trucks annually cover less than one-sixth (pdf) of the distance compared to those in the US.

The other advantage of long-term relationships and massive volumes is that Maruti Suzuki can procure these components at the best possible prices. This is essential to the company’s finances since for every dollar that the carmaker earns, it spends more than half on material costs. “With this kind of cost being sourced from our vendors, it’s very important that we buy all these things at the right price. Or, the best prices in India,” explained Sethi. “And obviously, this benefit travels to our customer.”

Lean, mean, supply machine

Gandhi, who joined Maruti Suzuki’s vendor development division (later renamed supply chain) fresh out of engineering school, remembers a time when he’d have to manually track components coming from different parts of the country. “We were required to monitor everyday’s supplies with them (vendors),” he said, “Have you dispatched or not? What time have you dispatched it? By what truck number? When is it expected?”

In the late 1980s to 1990s, the company operated on a monthly schedule that was passed on to vendors. But the system had two major drawbacks. First, vendors often didn’t evenly distribute their deliveries, which meant that truck loads of components would turn up toward the end of the month, though they might have been required weeks earlier. To avoid this mess, Maruti Suzuki would place large orders that led to the second problem: massive inventories. “The inventory was so large that many times you would struggle to find things,” said Sethi. “Even though a component was available, you may not be able to trace it.”

 Suzuki abhors high inventory levels because they tie up cash, take up space in factories, and reduce manufacturing efficiency. 

Like some other Japanese companies, Suzuki abhors high inventory levels because they tie up cash that can be used elsewhere, take up space in factories, make it more difficult to spot defects and reduce manufacturing efficiency overall. But Maruti Suzuki continued with its monthly schedules until the 1990s, before moving to a daily schedule system where vendors were told exactly what to deliver everyday.

The real revolution came at the turn of the century, when the company rolled out e-Nagare, an online platform that connected Maruti Suzuki’s production facility directly with its vendor base. It was an online adaptation of the Suzuki’s manual nagare (Japanese for “flow”) system, where each component is assigned a card (a Kanban) that circulates between the assembly line and the vendor. “We had a good IT base in the country,” said Gandhi. “That was one area where we were far ahead of where Japan was. So, we thought we’d take advantage of that, and a special team started working on this project.” Launched in 2004, e-Nagare took the company’s entire supply chain onto an intranet, which provided detailed instructions to vendors on every order.

“It was the need of the hour to develop this kind of a system,” said Gandhi. “Otherwise, we would’ve all gone crazy, managing the complexities in the supply chain.” That’s not entirely an exaggeration. From only four car models with a handful of variants, Maruti Suzuki was quickly expanding its product portfolio to keep up with changing consumer demand. And as it added more cars and more variants, the company was also ordering more components, which were different. For a red sedan, for instance, it needed red bumpers and red mirrors. The carmaker now produces 17 models and 1,480 variants. If you include color variations, that number exceeds 10,000 variants. And each car typically contains more than 30,000 individual parts.

 “What the customer wants and what we make has to match perfectly.” 

To add to the chaos, Maruti Suzuki manufactures multiple car models on a single production line, a common practice that means workers could be assembling a hatchback, followed by a sedan, followed by a sports utility vehicle. The underlying logic is that it allows the company to cut down on inventory and supply cars according to market demand. If it were to produce certain models and variants in batches, either there’d be too many units of a certain vehicle waiting to be sold. Or, customers would have to deal with long waiting periods while the cars were manufactured. “What the customer wants and what we make has to match perfectly,” explained Gandhi.

Such precision takes great planning. The process begins around January every year when Maruti Suzuki’s entire vendor base is provided with an annual forecast. It outlines the expected output, and helps suppliers align their own production capacity and resources with the mothership. Then, every three months, the supply chain is given an updated production schedule, which is followed by a fortnightly schedule. The latter, decided in a meeting attended by Maruti Suzuki’s production, supply chain, and marketing teams, is unalterable. Twenty four hours before any production day, Maruti Suzuki sends out a daily delivery schedule on the e-Nagare platform. These contain the names and numbers of the components needed, the required quality, and the truck bay and time with which they have to be delivered.

A select batch of suppliers—around 5% of Maruti Suzuki’s vendor base, by volume—work on tighter schedules, where they send parts into the factory on a few hours notice. These vendors, usually located in close proximity to the factory, receive their broad order volumes through the daily schedule but the actual sequence in which they have to send the parts is updated live. And the order in which they send the parts must match what’s on the e-Nagare, since a red sedan could follow a blue hatchback on Maruti Suzuki’s production line. “If the component is incorrect, then the line stops,” said Gandhi.

 Ultimate evidence of Maruti Suzuki’s supply chain mastery is in its overwhelming dominance of India’s passenger car market. 

It may seem like a precarious situation to the outside eye, but analysts believe that Maruti Suzuki’s dexterity with managing the volume, quality and efficiency of its supply chain is, in large part, because of e-Nagare. “Within India, I think it is miles ahead of anything else really,” said Deepesh Rathore, co-founder of Emerging Markets Automotive Advisors, an automotive consultancy. Outside India, too, the indigenously developed e-Nagare has become something of a benchmark for the Suzuki Motor Corporation, with the carmaker’s facilities in Southeast Asia now implementing the system.

But the ultimate evidence of Maruti Suzuki’s mastery of its supply chain is in its overwhelming dominance of India’s passenger car market. It’s not easy to build 1.5 million cars a year that price conscious Indians will buy. Just ask the competition.

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