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V. K. Varadarajan

Maruti Udyog car plant at Gurgaon... The new supply chain has helped it achieve substantial cost reduction, from production to distribution

LOGISTICS goes beyond mere distribution management. It is improving the quality of the supply chain itself to achieve a cost-effective distribution mechanism. Driven by this philosophy, Maruti Udyog Ltd (MUL), the country's biggest passenger car manufacturer, has created a new supply chain paradigm that has helped it achieve substantial cost reduction, from production to distribution.. Dependent on over 300 suppliers for some 7,000 components that go into nine major models and their 200 variants, the company realised the need to keep control over costs at every stage to remain competitive. For this, it realised, supply chain management was critical.

"Cost management is crucial for the supply chain management," says Mr P. Agrawal, Deputy General Manager (Materials), MUL, adding that this was achieved only through close coordination with the vendors. This not only helped in cost rationalisation of the materials used by MUL, but also in passing the benefits of cost control and quality products to the vendors.

The exercise was begun by implementing innovative materials handling solutions in-house, resulting in cost savings by reducing wastage. MUL also gained considerably by collaborating with its vendors in localising components supply with great impact on productivity and removing uncertainties in supply.

According to Mr Agrawal, by rationalising the inventory holding process by precise planning of schedules for indenting components, the company not only saved on holding costs but also reduced wastage. The delivery instruction was revised from monthly schedules to daily and and made location wise to indent only components to meet the assembly line requirement. The strategy was adopted to tackle the fluctuating market demand, accentuated by the intense competition in the automobile business now.

Mr Agrawal said the streamlining of the supply chain management was done after a homework of value analysis and engineering that helped it improve operator and machine productivity and reducing and recycling waste. While these practices helped MUL reduce its logistics cost considerably, its IT efforts added to efficiencies and savings.

Firm schedules issued every fortnight were further finetuned by an online system for replenishment of inventory on an electronic card system. This avoided inventory build up or unanticipated deliveries by vendors as supplies were made only after receipt of the indent card from MUL. This brought inventory management down to the doorsteps of the vendors, who would produce only what was indented. MUL plans to extend the electronic card system for another 16 suppliers and for 250 components, following the successful implementation with 10 vendors delivering 66 voluminous and high-value parts.

The percolation of its cost control effort has benefited major suppliers like JK Industries, which reported a reduction of tyre inventory to just 10,000 from its earlier 30,000. The botomline: Savings in transportation cost and detention charges of Rs 50,000 per month. Similarly, Lucas TVS, a major supplier of components reported savings on finished goods inventory cost from Rs 3 crore to Rs 90 lakh, said Mr Agrawal, adding that similar feedback had been received from other major component suppliers like Kalyani Brakes.

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