Maruti culls vendors for efficiency

In a bid to increase its supply chain efficiency, Maruti Udyog Ltd (MUL) has slashed its number of vendors to 220 at the end of fiscal year 2003-04 from 350 two years back.

"By lowering the time and cost involved in dealing with more vendors, we have increased our supply chain efficiencies," said an MUL official.

"Going forward, we plan to have technically and financially capable set of vendors who can match up to MUL's standards," the official said. This is a priority area for MUL as the average supplier standards have improved significantly in the last two years, but there is still a high variability.

Besides rationalisation of the vendor base, he said that workshop level cost reduction, lean management systems and strict maintenance of delivery schedules has improved overall efficiency or total man-hours spent per car by nearly 54 per cent in the last three years.

In addition, MUL claimed, that there has been a considerable drop in inventory holding period, which reduced from 30 days in 2002-03 to 19 days in the last fiscal.

In its three fully integrated production facilities with a combined capacity of 500,000 cars, production went up by 31.4 per cent in 2003-04 to 472,908 units from 359,960 units in the previous fiscal. The production in A1 category grew by 20.4 per cent, A2 by 47.7 per cent and A3 by 33.8 per cent.

Faced with stiff competition from the Korean car makers, MUL had initiated a programme called Challenge 50. The objective is to raise productivity by 50 per cent through Kaizen and continuos performance benchmarking. "We are on track to achieve the target by the end of 2004-05 when the programme comes to a close," he said.

Greater utilisation of production capacities has considerably reduced per unit production cost, helping improve profit margins. It has also allowed MUL to go in for aggressive price cuts on some of its products. Last week, the company slashed the price of its entry level sedan Esteem by nearly Rs 40,000.

"In the short-term, we can meet incremental demand by further cost reduction and by operating an additional shift. But in the long term, capacity expansion is imperative for the company to maintain its leadership position," the MUL official said.