 "Kuldip Singh Sangwan")
As much as 80 per cent of an average Maruti Suzuki vehicle is made of vendor supplied parts. While the number of quality checks per quarter varies from vendor to vendor depending on the maturity level of the said vendor's systems and processes, the company has regular monthly interactions with its 300-odd vendors. This is over and above the annual vendor conference organised by the company. Easy to understand why the country's largest car maker has a 500 employee-strong department to manage relationships with its suppliers including looking at functions such as supply chain management, engineering, quality control, human resource etc.
What if the company were able to extend control backwards and manage the assembly lines of its vendors? The company surmises that it would improve its cash flow, cut down the number of rejects substantially and reduce its time to market. That is precisely what the country's largest automaker has been doing over the past few years. The process of revaluating the supply chain was kicked off five years back and the results have started trickling in. Despite a fluctuating rupee, the company was able to save Rs 80 crore in raw material costs in FY 2011-12 and over Rs 200 crore in the last fiscal. "It is no rocket science. The entire supply chain needs to be monitored to get the best quality," says IV Rao, director, Maruti Center for Excellence (MACE).
Of course, the task isn't easy and the five years could have been better spent. So why would Maruti want to interfere so fundamentally with the systems and processes at the dealer end?
The answer has to do with the company's experience in its early years.
When Maruti began its operations in the country more than three decades ago, it was hamstrung by issues related to the quality of components with challenges related to localisation. With the primary objective of upgrading operations at the component suppliers' end, Maruti Suzuki established MACE in 2004 with the company and 21 vendors pooling funds for seed money.
As things stand, Maruti classifies its vendors as Tier-I and Tier-II. While around 300 Tier-I vendors supply components directly to the company, a handful of Tier-II vendors supply assembly parts of various components to the Tier-I vendors. Let us understand this with help of an example. Lumax supplies lighting systems to Maruti and works with a Tier-II vendor, Superfine, a company manufacturing small fasteners and turn components used in the lighting system. The Tier-II vendors are not always at the fag end of this chain. At times, this set further outsources certain child parts from Tier-III vendors.
Even after following the best quality check systems, it is impossible for the manufacturer to check each and every component going to the assembly line. Random checks are done at Maruti for every fresh batch of components. In this scenario, the importance of monitoring the manufacturing facilities of vendors increases. Apart from churning out 90,000 vehicles every month, Maruti's factories at its Gurgaon and Manesar facilities also turn into a testing laboratory where no stone is left unturned in the pursuit of time and cost efficiency. The key learnings from these facilities are taken to the suppliers' facilities.
Two-step process
So how does the whole chain work?
For convenience's sake, let us look at the assembly line in two parts-one at Maruti's own shop floor and the other at the vendors' end.
First, let's look at Maruti's own shop floor. Maruti's production system in the country draws on the best practices of parent company Suzuki Motor Corporation. In essence, Suzuki Production System's lean manufacturing system stands on the four pillars of Man, Machine, Materials and Methods or 4Ms. The idea is to eliminate employee inconveniences at the shop floor, all forms of wastages and inconsistencies in quality from the system so that cost, quality, productivity and safety are under control. The belief is, if managed well, this will together improve yield.
With the objective of yield improvement, Maruti has made two changes here. First altering its stamping technique, steel sheets are now cut in a manner that results in reduced scrap. Next to maximise steel sheet utilisation, this scrap is now sent directly to small vendors who manufacture child parts. Says S Maitra, managing executive officer of supply chain at Maruti, "In 2012-13, 31,000 tonnes of steel scrap was sent to the suppliers which translated into savings of Rs 10 crore."
As mentioned above, for Maruti it is not only about monitoring its own assembly line but that of the vendors' as well. In last five years, MACE has channelised all its efforts in upgrading Tier-II vendors. Says Rao, "While we were upgrading Tier-I vendors, it was noticed that they were not taking up similar initiatives with Tier-II suppliers. We stepped in to fill this gap."
Today MACE counsellors visit vendors on a monthly basis to provide suggestions on manufacturing process upgradation. These counsellors have worked with vendors in component development during the initial days of their careers. Interestingly, knowledge sharing happens in clusters. Now let us assume that one Tier-I vendor works with 20 Tier-II vendors, one of whom is struggling to bring down the wasteful movements made by its operators on the assembly line. Before sending its counsellor to the site, MACE gives a shout to other Tier-II vendors attached with various Tier-I vendors, inviting them to join the knowledge session. "The cluster approach has been very effective. Since we do it on rotation, all the vendors are covered from time to time," adds Rao. Once the solution is implemented, MACE counsellors visit the vendor's facility again to take a stock of the situation.
It's a win-win really. With this mentoring process in place, Maruti's relationship with its vendors has evolved over the years, which in turn has cut rejection rates.
Look at Motherson Sumi Systems, which began its association with the company from Day 1 of its operations by supplying the wiring harness, an assembly of cables or wires that transmits signals or electrical power in a vehicle. Today Motherson Sumi Systems is supplying a range of components to Maruti including grills, door handles, mirrors, lighting systems and cutting tools used in the machine shop. The component manufacturer has also taken many steps to ensure quality output in its factories. It is important to understand that component rejection can either happen internally or at the customer's end.
Says Pankaj Mittal, chief operating officer and director, Motherson Sumi Systems, "One of the ways of delivering quality component is by conducting high-volume production trials." Picture this. If Maruti were to bring a new hatchback in the car market within the next few months. To assess its manufacturing capability of delivering a large number of units, Maruti will run its assembly line on full capacity. Making more cars will also result in increased demand for components. Only when both Tier-I vendors and Tier-II vendors run their factories for high-volume production trials, that problems arising on each assembly line can be identified. "Because everybody in the chain works closely, all of us are well-prepared to meet deadlines. Now we set targets for next three to five years," adds Mittal.
The Tier-II vendors participate in such programmes because of the benefits they entail. Superfine Components, a Tier-II manufacturer that supplies small fasteners and turn components to tier 1 vendor Lumax, has gained immensely from the expertise provided by MACE. Rajat Khattar, director of the company, observes that support of manufacturers and tier 1 suppliers are indispensable to the existence of tier 2 suppliers. "MACE's monthly visits have resolved many quality issues and improved our productivity," he points out.
Seven years back when Superfine started working with MACE, its annual rejection rate was 4 per cent at the customer end. This translated in parts-per million (PPM) of 0.0004. To put it simply, PPM means one defect in a million units. The company kick-started its '0 PPM' drive by implementing Maruti's Quality Circle (QC) in its factory. As part of QC, around eight workers in the factory directed all their attention to resolving one problem on the assembly line at a given time. Since a large number of Tier-II suppliers are small and face intermittent cash flow issues, the need for controlling manpower and raw material cost is even more pressing. If the supplier is not in a condition to implement a capital-intensive solution suggested by MACE, the focus then shifts to using low-cost automation. This happens by seeking suggestions from employees on cost savings. For instance, earlier at Superfine's factory, the motor to drill machine ratio was 1:1. Now the company runs two drill machines on one motor. This initiative resulted in a 50 per cent cut in the factory's electricity consumption.
Over the last three years, Superfine has been able to maintain a '0 PPM' rejection rate vis-à-vis its supplies to Lumax. Another Tier-II supplier Interface has maintained a '0 PPM' rejection rate vis-à-vis its supplies to tier 1 vendor Subros. "Today close to 22 Tier-II suppliers maintain '0 PPM' rejection," says Rao.
So if you are seeking ways to improve your vendor quality control without having to dive headlong into a new way of doing business, take heart. There is an option that relies on the basics of upholding quality and establishing relationships. This sounds like a no-brainer - it's not. Because you may be dealing with hundreds of vendors, who in turn deal with several hundreds more. But while implementing a vendor quality control programme - and enforcing it consistently - is not easy, the potential benefits make the effort worthwhile. They can keep your overall costs in line, improving your bottom line while enhancing long-term customer satisfaction and the lifetime value of your customers.
Love thy vendor
Maruti is not alone in professing vendor quality management. It is the demand of the times and many others are putting in similar efforts
Since early 1990s, the automotive industry has been under pressure to respond to the fast-changing customer requirement. Some companies, particularly the Japanese and the Korean ones, grew in the last two decades because they were able to respond to the market requirements quickly at a lower cost. Unlike in the era before the eighties, when the auto assembly lines were based on the mass production concept, today, the assembly lines are more flexible to be able to respond to the dynamic nature of market demand.
Today, for a majority of auto makers, the supply chain extends to Tier-III vendors. Any change in market demand causes a ripple effect among these vendors leading to higher costs and delays in delivery. Under these circumstances, it becomes imperative to improve the performance of these vendors for cost reduction and on-time delivery.
Usually, such vendors are small and medium enterprises (SMEs). These SMEs neither have the knowledge of best practices nor the resources to proactively implement these best practices. Little wonder, the big auto makers have taken the burden of improving the supply chain on themselves.
Big automakers are training vendors in lean management. They are also providing human resources in the early stages to implement lean tools and techniques. That apart, a large number of product recalls in recent times from many prominent auto makers have threatened to dent the image of these companies. Therefore, 'zero defect' is another concept which is rigorously targeted at the vendor's end. This practice also reduces cost and improves delivery performance. They are painstakingly doing root cause analyses for the vendors and suggesting kaizens (Japanese term for 'improvement' of processes in manufacturing) at their locations to reduce defects.
Kuldip Singh Sangwan
Head, department of mechanical engineering, BITS Pilani
