Case Maruti

Top drive! Or, how Maruti is deriving major gains from a new fitness regimen in productivity and quality If you walk into Maruti Udyog’s manufacturing complex in Gurgaon, it’s hard to miss the large banners hung out on the factory floor. “Challenge 50”, they say cryptically. In its full form, the term means achieving a 50 per cent improvement in productivity, a 50 per cent improvement in quality and a 30 per cent reduction in costs over three years, starting 2002. To be sure, the intention may not be novel. Competition has forced a revolution in organised manufacturing in India and exhortations to efficiency and productivity can be spotted on almost all large factory floors across the country. Nowhere is this more true than in the automobile industry, which has, in the course of 10 years, metamorphosed from a sellers’ market to a buyers’ one. Today, there are 12 car companies offering some 30 models in India — and counting — and inevitably, there are pressures on prices, and therefore, cost. The small print on the Challenge 50 banner says it all: “Rebirth for Survival — Striving from Basics”. The point about Maruti’s exercise is that, one year into Challenge 50, Managing Director Jagdish Khattar is proud to display myriad graphs and bar charts that go into an internal review to show that the exercise has already made a visible difference. Even competitors ungrudgingly admit that Maruti’s record on this front has been good. Some samplers: since May 2002, average defects per vehicle have dropped to onethird, and the percentage of vehicles that go through the assembly line without hitches (the “direct pass rate” is the technical term) has exactly doubled. The gains in productivity as a result of fewer defects can be gauged from the fact that where, just a year ago, Maruti needed to keep eight workers per shift to inspect the final product, it now needs just two people per shift. If you take a cost to company of roughly Rs 20,000 per worker, that’s a saving of almost Rs 1.2 lakh a day on this account alone, which goes straight to the bottomline. As crucially, this exercise has given Maruti the ability to react to the market. To put things in perspective from the consumer point of view, consider just one example. The Maruti 800, the small car that accounts for roughly 35 per cent of production. Today, as a result of the Challenge 50 exercise, Maruti is able to offer the 800 at a price that is cheaper than it was in 2000. It is no coincidence that sales of the 800 in the April-to-November period have grown 30.8 per cent over the year-ago period, marginally faster than the growth of the Alto, Wagon R and Zen put together at 30.3 per cent in the same time frame. Three months ago, when sales of the Alto started growing at 45 per cent or so Maruti decided to make the car cheaper by Rs 23,000. Significantly, this was not a distress price cut — indeed, profit projections were not changed. Instead, Maruti was hoping to leverage accelerating sales to tap the huge base of small car buyers. This kind of flexibility to react to the market represents a major organisational leap from the days when mere production numbers took precedence over efficiency. It is a vault that is far harder to implement than the numbers suggest. Indeed, many corporations have found that the benefits that accrue from their efficiency- and productivity-enhancing exercises rarely match expectation. In that sense, Maruti’s Challenge 50 exercise provides some useful lessons. To start with, Maruti has benchmarked itself against the best-in-class in Suzuki — the Kosai plant in Japan.

When Challenge 50 was launched, Maruti was roughly 20 per cent behind Kosai in terms of productivity and efficiency. Today, the gap has narrowed enough for Khattar to claim that the company is “on track”. The engine of this transformation lies principally on the shopfloor where production systems and processes are constantly being tweaked and re-engineered though kaizen, the Japanese term for continuous improvement. The focus is to reduce wastage and deliver more and better quality at lower cost. To accelerate the process, Maruti has earmarked an annual budget of Rs 3.5 crore towards kaizen implementation. Although kaizen has been in vogue in Maruti for years — as, indeed, it has on many Indian shopfloors — two things have changed. One, the earlier emphasis was on indigenisation, today it is geared as much towards value engineering. Two, the exercise is more organised and focused. As S Maitra, chief general manager (engineering), puts it, “Earlier, people were offering random suggestions. Now, the exercise has become more theme-based and aligned to company goals.” The philosophical underpinning to the exercise is basically that shopfloor activities can be divided into two types — those for which the customer pays and those for which he doesn’t pay. Maruti wants to maximise the former and minimise the latter. What does this mean? Simply that customers pay for the final product, but they do not pay for, say, how many steps a worker may take to weld a metal part or the number of defects. The spirit of change is best reflected in the change in the incentive system for kaizen. Till 1999, incentives depended on how many cars were produced and was linked to the direct pass rate. Today, they’re linked to market performance as well — to such issues as warranty costs and so on. Overall, though, it’s a painstaking process, not least because of the sheer volume of kaizen suggestions that pour in. Pre-Challenge 50, 55,000 to 60,000 suggestions were considered par for the course. In 2002-03 alone, that number went up to 72,000. All of these have to be distilled into weekly and monthly reviews and synchronised with departmental and shopfloor targets. Right now, this is as far as the exercise has progressed. The next level is to merge all this with individual performance targets. But the crucial point about the current exercise is that, although it involves some investment, the emphasis is on low-cost automation, not rocket science. “Many of the devices that have been designed have a pay-back period of one to oneand-a-half years,” explains N S Rane, general manager. Indeed, some of the modifications may appear basic or obvious to more sophisticated car manufacturers, but in totality, they represent the learning that has taken place on the shopfloor. For instance, the kaizen workshop in one of the weld shops has devised simple robots to perform spot welding operations on door beams, replacing the need for two of the three operators per shift for this function. This small change alone has resulted in a productivity jump of 30 per cent. Automation has not only been geared towards lowering manpower requirements but also towards extracting productivity gains from improved design and layout to, say, reduce worker fatigue or the number of steps a worker needs to take to perform a task. The dictum Maruti follows: Suzuki chairman Osamu Suzuki’s succinct statement that “we pay people to work, not walk”. One example of this can be seen on a Zen and Baleno assembly line, where hydraulic platforms — again designed in-house — move the car body up and down in a set sequence, thus eliminating the need for workers to walk or bend from one car to another to perform their tasks.

Devices such as these have all helped reduce the man-hours expended per vehicle substantially. The index of man-hours per vehicle dropped to 76 in 2001-02 and to 59 in 2002-03 (base 2000-01=100). Again, economy of worker movement and automated processes have freed up space, allowing Maruti the flexibility to increase current capacity of 3.5 lakh by almost 50 per cent, should the market warrant it, in the same facility. Overall, such moves have contributed to a stunning improvement in productivity per employee. In 1995, Maruti had 4,800 employees and produced 730 cars per day. Today, the employee strength stands at 4,600, and the company produces 1,700 cars a day. The objective of economy of space and movement has been extended to reducing inprocess inventory. On several assembly lines, parts are stacked in trays alongside or transported along conveyer belts so that, again, worker movement is minimised. These trays are now replenished at intervals by automated trolleys that have been developed and produced for Maruti by a Bangalore-based firm at a cost of Rs 5,000 to Rs 10,000 each. In this respect, Maruti still has some way to go, but the impact is already significant in terms of the ratio of inventory-to-sales. This index has dropped from a high of 93 in 2000-01 to 59 in 2001-02 to 41 in 2002-03 (base: 1999-2000 = 100). The other crucial element for preventing inventory build-up is, of course, getting the product right the first time. This alone, as Rane explains, eliminates the need to keep extra sub-assemblies in reserve. “The whole process is now on a pull system,” he says. Achieving this also requires “foolproofing” the production process. Nowhere is this more visible than in Maruti’s engine-manufacturing facility, the heart of the factory floor (and indeed the car). To name just one example, machining wrenches have been programmed to cut out if a part is not fitted properly in the previous operation. Importantly, given that car manufacturing is essentially an assembly job the exercise has been extended to Maruti’s vendors (assembling a car involves more than 200 operations and, typically, 80 per cent of a car is outsourced). The company has initiated 50 or 60 pilot projects with vendors to see where costs can be pared. The effort, explains Maitra, who is in charge of the exercise, requires changing mindsets as much as manufacturing systems. “Vendors have a tendency to work on a cost-plus basis,” he says. The initial step in the process was to pick some big-value items and work on value engineering solutions and ideas with select vendors in an intensive two-week exercise that was overseen by an instructor from Suzuki. Later, the exercise was extended to what is known as “junkai kaizen” or visiting vendors’ factories where more brainstorming took place. This included tearing down components and benchmarking them against competitors and seeing where savings can be made through value engineering and localisation. Vendors were asked to generate ideas that would shave at least 15 per cent off the cost of components. The exercise yielded such gains as replacing the sophisticated and expensive gear system that Suzuki uses to make car seats go back and forward to simpler and more cost-effective levers. So far, this exercise has involved 80 vendors of Maruti’s 245. The gains from this exercise have already allowed Maruti to cut the number of vendors who supply it from 300-odd. But the big bang gain from the exercise with vendors has come in costs. It has helped Maruti get a cost reduction of 4 per cent per year for the past four years. Perhaps the most crucial point about Challenge 50 is the recognition that productivity-enhancing measures cannot stop in 2005. Khattar talks about integrating it more completely into the company’s planning process.

As he says, “There is no other way, if you want to improve the bottom-line and fight competition. We can’t really predict how the market will behave, but cost is in our hands.” Given the productivity mania that is currently sweeping the automobile industry, Challenge 50 could be Maruti’s strongest weapon yet. The productivity blue book (How Maruti is maximising results from its productivity drive) BENCHMARK: Maruti has benchmarked itself against the best-in-class, the Suzuki’s Kosai plant in Japan SYNCHRONISE: Where the earlier productivity exercises were random, the current one has been synchronised with the company’s goals as set out in Challenge 50 — to achieve a 50 per cent improvement in productivity, a 50 per cent improvement in quality and a 30 per cent reduction in costs FOCUS: Maruti has distilled the exercise down to one maxim: there are two types of activities on the shopfloor; one for which the customer pays and one for which he doesn’t. The focus of Challenge 50 is to maximise the former and minimise the latter. INVEST: Maruti has an annual budget of Rs 3 crore to implement kaizen suggestions. The emphasis is on low-cost automation with a short pay-back period