Vendor and dealer initiatives

When queried about the company's policy of having two sources for one component, instead of just one which would give the benefit of economies of scale to the vendor, Halasyam responds, "What you should remember is our production. This year, we will roll out 4.10 lakh vehicles and next year it will be about 4.70 lakh. If I divide my orders equally amongst my two vendors, there will still be economies of scale for them." For new car players whose current production hovers around 50,000 vehicles per annum, a single component source will work fine, he adds.

Of the 400 Maruti Udyog's vendors, there are about 13 joint ventures in which the car maker holds equity stakes. And except for glasses, which the company sources from Aashi India, Maruti Udyog has developed two sources for all other components. "Recently, Delphi has started supplying air-conditioner systems to us, in addition to Subros," says Halasyam.

While Maruti Udyog will be pruning its vendor list, no such thing is being planned in respect of its dealerships. Agreeing that non-performing dealers will have to be weeded out, Halasyam says that there is a strong case for MUL to increase its dealerships. "Currently, we have about 150 dealers, each selling nearly 3,000 vehicles. This itself calls for dealership increase."

Cost control measures

With the company's bottomline getting affected owing to cost increases beyond its control, Halasyam says the focus now is on cost control. "The challenge is to control material costs, which account for 70-75 per cent of our total cost. And that could be done only if one starts from the basics, say from development of vendors, setting up his plant, automating the process and finally by doing value engineering." Some more elaboration here: "First, it was decided that we leverage the combined strengths of MUL and its vendors in sourcing common materials such as steel and aluminium." After consolidating the steel and aluminium requirements, a global tender was issued for sourcing the two metals. "Today, Nalco supplies directly to us and our vendors. In this manner, we saved around Rs 25 crore," Halasyam discloses.

This pooling technique didn't end with sourcing of materials but also got extended to transporting of the materials. Finding the capacity utilisation of the trucks entering its factory at 60 per cent levels, the company introduced the "milk run system". Under this, MUL decided to pool the materials from different vendors so that a truck's carrying capacity is fully utilised.

An additional initiative on cost cutting includes the company's encouragement to those vendors who are located in far away places to build a warehouse near Gurgaon, where its car plant is located. "While we won't invest in building the warehouse, we will compensate our vendors for actual and justifiable expenses incurred in maintaining the warehouse," says Halasyam.

Inventory reduction

The next focus has been to reduce the inventory levels by practicing time-tested concepts like just-in-time. "Our inventory levels are just 2.9 days, down from 22 days in 1995-96 and 13 days last fiscal," says Halasyam proudly. Interestingly, MUL pays its vendors within seven days of receipt of materials at its factory.

In order to reduce the time consuming paperwork, the car maker is moving fast towards web-enabled systems. It also hopes to connect all its vendors via Intranet soon.