Indian Automobile Industry

Accounting for approximately 4 % of GDP, Automobile Industry is the significant contributor to the growth of Indian economy. The last few years have seen greater integration of the Indian players with their global counterparts. What is interesting about this is its almost democratic nature, in that a large part of the industry has seen significant changes. While the changes have been more visible in the auto component part of the industry, with key players having a significant export contribution today, Original Equipment Manufacturers (OEMs) too have been undergoing their own set of changes.

The change process started with overseas OEMs wanting to enter the country. A natural fall-out of this was the large suppliers who entered the country as part of the ‘follow source’ doctrine. The last couple of years have seen significant interest from Indian players who are actively looking at exciting markets to enter as well as attractive targets to acquire.

Going forward, OEMs as well as auto component players will evolve further as they become more and more ‘global’ in nature. For OEMs, this would mean rising competition in the domestic market, and hence the need to diversify out of India. For auto component players, this would mean the need to achieve global manufacturing standards and emerge as supplier of choice for global companies. These changes would have a significant impact on the automotive supply chain. Clearly the need of the hour is for various players to identify key challenges facing the industry and develop strategies to help mitigate these.

The objective of this report is to analyze the key advancements in automotive supply chain and the unique practices followed by major players in India. Finally balanced scorecard framework would be used to build the strategic map for Automobile players.

Global automobile manufacturers are consistently streamlining their business process by outsourcing their non-core activities to low-cost countries like India. Global automobile manufacturers are under tremendous pressures to innovate their manufacturing process and at the same time, to reduce costs. In view of the present

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global competitiveness, they must not only develop new features to strengthen their customer requirements but also follow the environmental and safety standards. In addition, the base price of a car is expected to remain same over the next decade. As a result, companies are forced to source more components from low-cost countries like India.

Domestic Sales

Passenger Vehicles segment during April-January 2010 grew at 25.21 percent over same period last year. Passenger Cars grew by 24.75 percent, Utility Vehicles grew by 21.95 percent and Multi Purpose Vehicles grew by 37.05 percent in this period.

The overall Commercial Vehicles segment registered positive growth at 30.39 percent during April-January 2010 as compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) registered growth at 20.58 percent; Light Commercial Vehicles grew at 39.66 percent.

Three Wheelers sales recorded a growth rate of 25.77 percent in April-January 2010. While Passenger Carriers grew by 32.54 percent during April-January 2010, Goods Carriers grew at 4.20 percent.

Two Wheelers registered a growth of 23.74 percent during April-January 2010. Mopeds, Scooters and Motorcycles grew by 31.73 percent, 20.56 percent and 24.32 percent respectively.

Exports

During April-January 2010, overall automobile exports registered a growth rate of 13.24 percent.

Passenger Vehicles segment, Three Wheelers and Two Wheelers segments grew by 33.92 percent, 4.60 percent and 8.84 percent respectively in this period. Commercial Vehicles recorded growth of (-) 7.52 percent.

Auto Components Industry

Surge in automobile industry since the nineties has led to robust growth of the auto component sector in the country. In tandem with the industry trends, the Indian

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component sector has shown great advances in recent years in terms of growth, spread, absorption of new technologies and flexibility. Indian auto component industry has seen major growth with the arrival of world vehicle manufacturers from Japan, Korea, US and Europe. Today, India is emerging as one of the key auto components centre in Asia and is expected to play a significant role in the global automotive supply chain in the near future. The auto component industry is also expected to drive the growth of the engineering sector in view of its strong downstream and upstream linkages with many other segments of the engineering sector like raw materials, capital goods, intermediate products etc. Auto component industry supports industries like automobiles, machine tools, steel, aluminum, rubber, plastics, electrical, electronics, forgings and machining. India has also emerged as an outsourcing hub for auto parts for international companies such as Ford, General Motors, Daimler Chrysler, Fiat, Volkswagen, and Toyota.

During the year 2008-09, the turnover and export for auto component industry was recorded at US $ 15.85 billion and US $ 3.11 billion respectively.

INTRODUCTION:

Maruti Udyog Limited (MUL) was established in Feb 1981 through an Act of Parliament, to meet the growing demand of a personal mode of transport caused by the lack of an efficient public transport system. It was established with the objectives of - modernizing the Indian automobile industry, producing fuel efficient vehicles to conserve scarce resources and producing indigenous utility cars for the growing needs of the Indian population. A license and a Joint Venture agreement were signed with the Suzuki Motor Company of Japan in Oct 1983, by which Suzuki acquired 26% of the equity and agreed to provide the latest technology as well as Japanese management practices. Suzuki was preferred for the joint venture because of its track record in manufacturing and selling small cars all over the world. There was an option in the agreement to raise Suzuki’s equity to 40%, which it exercised in 1987. Five years later, in 1992, Suzuki further increased its equity to 50% turning Maruti into a non-government organization managed on the lines of Japanese management practices.

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Maruti created history by going into production in a record 13 months. Maruti is the highest volume car manufacturer in Asia, outside Japan and Korea, having produced over 5 million vehicles by May 2005. Maruti is one of the most successful automobile joint ventures, and has made profits every year since inception till 2000-01. In 2000-01, although Maruti generated operating profits on an income of Rs 92.5 billion, high depreciation on new model launches resulted in a book loss.

COMPANY HISTORY AND BACKGROUND

The Evolution

Maruti’s history of evolution can be examined in four phases: two phases during pre-liberalization period (1983-86, 1986-1992) and two phases during post-liberalization period (1992-97, 1997-2002), followed by the full privatization of Maruti in June 2003 with the launch of an initial public offering (IPO).The first phase started when Maruti rolled out its first car in December 1983. During the initial years Maruti had 883 employees, a capital of Rs. 607 mn and profit of Rs. 17 mn without any tax obligation. From such a modest start the company in just about a decade (beginning of second phase in 1992) had turned itself into an automobile giant capturing about 80% of the market share in India. Employees grew to 2000 (end of first phase 1986), 3900 (end of second phase 1992) and 5700 in 1999. The profit after tax increased from Rs 18.67 mn in 1984 to Rs. 6854.54 mn in 1998 but started declining during 1997-2001.

During the pre-liberalization period (1983-1992) a major source of Maruti’s strength was the wholehearted willingness of the Government of India to subscribe to Suzuki’s technology and the principles and practices of Japanese management. Large number of Indian managers, supervisors and workers were regularly sent to the Suzuki plants in Japan for training. Batches of Japanese personnel came over to Maruti to train, supervise and manage. Maruti’s style of management was essentially to follow Japanese management practices.

The Path to Success for Maruti was as follows:

(a) Teamwork and recognition that each employee’s future growth and prosperity is totally dependent on the company’s growth and prosperity (b) Strict work discipline for individuals and the organization

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(c) Constant efforts to increase the productivity of labor and capital (d) Steady improvements in quality and reduction in costs (e) Customer orientation (f) Long-term objectives and policies with the confidence to realize the goals (g) Respect of law, ethics and human beings. The “path to success” translated into practices that Maruti’s culture approximated from the Japanese management practices.

Maruti adopted the norm of wearing a uniform of the same color and quality of the fabric for all its employees thus giving an identity. All the employees ate in the same canteen. They commuted in the same buses without any discrimination in seating arrangements. Employees reported early in shifts so that there were no time loss in-between shifts. Attendance approximated around 94-95%. The plant had an open office system and practiced on-the-job training, quality circles, kaizen activities, teamwork and job- rotation. Near-total transparency was introduced in the decision making process. There were laid-down norms, principles and procedures for group decision making. These practices were unheard of in other Indian organizations but they worked well in Maruti. During the pre- liberalization period the focus was solely on production. Employees were handsomely rewarded with increasing bonus as Maruti produced more and sold more in a seller’s market commanding an almost monopoly situation.

APPROACHES TO PROCESS IMPROVEMENT

Kaizen 

Japanese for "improvement" or "change for the better", refers to philosophy or practices that focus upon continuous improvement of processes in manufacturing, engineering, supporting business processes, and management. It has been applied in healthcare, psychotherapy, life-coaching, government, banking, and many other industries. When used in the business sense and applied to the workplace, kaizen refers to activities that continually improve all functions, and involves all employees from the CEO to the assembly line workers. It also applies to processes, such as purchasing and logistics, that cross organizational boundaries into the supply chain. By improving standardized activities and processes, kaizen aims to eliminate waste (see lean manufacturing). Kaizen was first implemented in several Japanese businesses after the Second World War, influenced in part by American

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business and quality management teachers who visited the country. It has since spread throughout the world and is now being implemented in many other venues besides just business and productivity.

Total Quality Management (TQM):

Total Quality Management is a process (or, perhaps, a mindset) rather than a thing.  Total Quality Management (TQM) means consistently and predictably producing what the customer wants.  TQM is not just an outcome, but a never ending process of continually improving the delivery of what the customer wants.

Six Sigma and Statistical Process Control (SPC) are the part of TQM that focuses on creating a process that delivers quality components and products. A process that can deliver parts capable of meeting quality requirements 99.9999% of the time is a capable, six sigma process.  Quality cannot be “inspected into” parts.  Parts need to be inspected, for the purpose of qualifying the process producing the part.  Inspection is for answering the question, “Is the process that produces this part capable of consistently producing parts that meet the quality standard 99.9999% of the time?”   The Statistical Process Control System collects and analyzes the data to answer that question.

Implementing TQM means that companies must make their suppliers part of their process.  If a company wants to meet the Six Sigma standard, its suppliers must implement TQM also.  Vendors need to become part of the TQM process, so that all of the parts are working together to deliver a quality product. You just cannot build a quality product out of sub-standard parts.

Business Process Reengineering is the analysis and design of workflows and processes within an organization. A business process is a set of logically related tasks performed to achieve a defined business outcome. Re-engineering is the basis for many recent developments in management. The cross-functional team, for example, has become popular because of the desire to re-engineer separate functional tasks into complete cross-functional processes. Also, many recent management information systems developments aim to integrate a wide number of business functions. Enterprise resource planning, supply chain management, knowledge management systems, groupware and collaborative systems, Human Resource Management Systems and customer relationship management.

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Business Process Reengineering is also known as Business Process Redesign, Business Transformation, or Business Process Change Management.

MARUTI ADOPTS KAIZEN APPROACH TO PROCESS IMPROVEMENT

In its bid to meet limited capacity challenges at its existing plants, Maruti Suzuki has said that it will be adopting 'Kaizen' methodologies in its production processes that would help it to rationalize its assembly lines.It is to be mentioned that the term kaizen (Japanese for "improvement") is a Japanese word adopted into English referring to a philosophy or practices focusing on continuous improvement in manufacturing activities, business activities in general, and even life in general, depending on interpretation and usage. When used in the business sense and applied to the workplace, kaizen typically refers to activities that continually improve all functions of a business, from manufacturing to management and from the CEO to the assembly line workers. By improving standardized activities and processes, kaizen aims to eliminate waste (see lean manufacturing). Kaizen was first implemented in several Japanese businesses during the country's recovery after World War II and has since spread to businesses throughout the world.I. V. Rao, managing executive officer, Engineering, Maruti Suzuki India Ltd (MSIL), said, "This will be a major milestone for the company and also brings new challenges as we could face some capacity constraints. By using the Japanese

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Kaizen production methodologies, we are working to bring about incremental gains in production at Gurgaon and Manesar plants." He added, "The Manesar plant is faced with serious capacity constraint. Therefore, we are in the process of further streamlining operations. However, we have no plans to add a third shift. We are actively considering expansion and a decision is likely by next fiscal. The company accounts for 54 per cent market share and we will continue to bring in new products to retain our hare," he said.

Meanwhile, the country's largest passenger car manufacturer is also planning to roll out brand centres across key metros in the country that will enable it to enahnce its brand salience. The company is looking to set up these centres (which are expected to occupy at least 44,000-45,000 square feet space) over the next 18-24 months. Financial Chronicle says that the company is on course to buying nearly 44,000 square feet space in Rajarhat, one of India's latest and fastest-growing planned new cities near Kolkata. "This concept is in an early stage and lot of changes may eventually happen. The brand centres are likely to showcase the best products from Maruti and Suzuki's stables. For instance, you could hope to see Hayabusa bikes in the brand centre besides the Maruti Eeco," a senior official was quoted as saying to FC, without disclosing any investment outlay for such centres.

In a separate media report, Maruti Suzuki has also revealed that it is looking to enhance its export base by entering into markets in the Middle East, South America, West Asia and Australia. "We are currently exporting our cars to the European countries but now we will start exploring new markets such as Africa, South America, the Middle East and Australia to boost our exports," a senior official told reporters in Chandigarh recently. The company has targeted to export 1.30 lakh cars by this fiscal end against 70,000 cars exported in 2008-09.

Talking about sales in the northern region, Maruti Suzuki said the company recorded 30 per cent growth in cars sales in Punjab, Himachal Pradesh, Haryana (excluding NCR), Jammu and Kashmir, Chandigarh during the first nine months till December 2009 against the national growth of 22.5 per cent. The company has sold 72,000 cars in the region [comprising Haryana (excluding NCR region), Punjab, Chandigarh, Himachal Pradesh and Jammu & Kashmir] during the period April-December 2009 as compared with 55,000 units it sold during the

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corresponding period of the previous year. "We are on an average selling 8,000 cars per month in these markets, which have grown by 30 per cent in April till December 2009," a senior Maruti official was quoted as saying to reporters.

PROBLEMS IN MARUTI

Maruti Udyog, India's largest carmaker has been making key investments in several human resource initiatives. The company is currently working on a five-year people-oriented strategy, apart from initiatives that are being taken to make young recruits understand the philosophy, culture and best practices within the company. Special emphasis has also been placed on training. The company believes it is worthwhile being in a position, where people are in fact, envious of the corporate world outside and its employees in high demand, 

For Maruti, there are two to three key areas. One of the biggest is to bring about a change, where we are acceptable to a dynamic global business scenario. The second big challenge is to bring in the best HR practices, policies and systems from the global perspectives, while being attuned to local requirements. At Maruti, are very clear that we need to have a proper balance of global and local bestpractices. 

The third big challenge is about the young people, on whom our future is going to depend. They are very strong in terms of career aspirations. Understanding their aspirations and blending that with the company's aspirations, where talent management and retention comes in, constitutes this challenge. 

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DATABASE MANAGEMENT SYTEM (DBMS)

A Database Management System (DBMS) is a set of computer programs that

controls the creation, maintenance, and the use of a database. It allows

organizations to place control of database development in the hands of database

administrators (DBAs) and other specialists. A DBMS is a system software

package that helps the use of integrated collection of data records and files known

as databases. It allows different user application programs to easily access the same

database. DBMSs may use any of a variety of database models, such as

the network model or relational model. In large systems, a DBMS allows users and

other software to store and retrieve data in a structured way. Instead of having to

write computer programs to extract information, user can ask simple questions in

a query language. Thus, many DBMS packages provide Fourth-generation

programming language (4GLs) and other application development features. It

helps to specify the logical organization for a database and access and use the

information within a database. It provides facilities for controlling data access,

enforcing data integrity, managing concurrency, and restoring the database from

backups. A DBMS also provides the ability to logically present database

information to users.

For example:-

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Features and capabilities

The DBMS of today roll together frequently needed services or features of

attribute management. By externalizing such functionality to the DBMS,

applications effectively share code with each other and are relieved of much

internal complexity. Features commonly offered by database management systems

include:

Query ability: Querying is the process of requesting attribute information from

various perspectives and combinations of factors. Example: "How many 2-door

cars in Texas are green?" A database query language and report writer allow users

to interactively interrogate the database, analyze its data and update it according to

the users privileges on data.

Backup and replication: Copies of attributes need to be made regularly in case

primary disks or other equipment fails. A periodic copy of attributes may also be

created for a distant organization that cannot readily access the original. DBMS

usually provide utilities to facilitate the process of extracting and disseminating

attribute sets. When data is replicated between database servers, so that the

information remains consistent throughout the database system and users cannot

tell or even know which server in the DBMS they are using, the system is said to

exhibit replication transparency.

Rule enforcement: Often one wants to apply rules to attributes so that the

attributes are clean and reliable. For example, we may have a rule that says each

car can have only one engine associated with it (identified by Engine Number). If

somebody tries to associate a second engine with a given car, we want the DBMS

to deny such a request and display an error message. However, with changes in the

model specification such as, in this example, hybrid gas-electric cars, rules may

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need to change. Ideally such rules should be able to be added and removed as

needed without significant data layout redesign.

Security: For security reasons, it is desirable to limit who can see or change

specific attributes or groups of attributes. This may be managed directly on an

individual basis, or by the assignment of individuals and privileges to groups, or

(in the most elaborate models) through the assignment of individuals and groups to

roles which are then granted entitlements.

Computation: Common computations requested on attributes are counting,

summing, averaging, sorting, grouping, cross-referencing, and so on. Rather than

have each computer application implement these from scratch, they can rely on the

DBMS to supply such calculations.

Change and access logging: This describes who accessed which attributes, what

was changed, and when it was changed. Logging services allow this by keeping a

record of access occurrences and changes.

Automated optimization: For frequently occurring usage patterns or requests,

some DBMS can adjust themselves to improve the speed of those interactions. In

some cases the DBMS will merely provide tools to monitor performance, allowing

a human expert to make the necessary adjustments after reviewing the statistics

collected.

Database Management in Maruti Suzuki

When leading Indian automaker Maruti Suzuki says, “Count on Us,” it’s more than

a marketing slogan to customers. It’s also the message that the company’s IT

department is sending loud and clear to its internal customers, a team that is

manufacturing and selling a highly engineered and customizable consumer product

accompanied by an array of related products and services. When the company

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added leasing, finance, insurance, and preowned car sales to existing lines of

business in 2002, it used the expansion as the impetus to replace a collection of

mismatched IT applications with a series of high-speed Oracle applications. The

result is a single, standardized environment that retrofits the complex, multichannel

company for rapid acceleration.

Powering Goals with Real-Time Data

Currently commanding more than 54 percent of India’s huge automobile market,

with 2008 sales of US$3.5 billion and four relatively new business lines, the

company plans to double annual production from 500,000 vehicles today to 1

million by the end of 2010. Add a huge network of dealerships, and you get

revved-up demand throughout the organization for access to consistent real-time

data.

When Rajesh Uppal, Maruti Suzuki’s chief general manager of IT, set Maruti

Suzuki on a course of standardization in 2002, the company already had Oracle

Database, Oracle Application Server, and some of the enterprise resource planning

modules of Oracle E-Business Suite in place. But IT sprawl became a growing

challenge. Various lines of business were using homegrown systems, and

integration between them was poor. Staff had to enter data multiple times and

couldn’t generate useful management reports without manually consolidating

information.

The addition of four new business lines only added to the complexity, requiring

even more human intervention and creating additional integration issues. Plus,

plans to build on its expanded footprint and increase vehicle production made it

critical for Maruti Suzuki to create an IT environment that could scale easily to

accommodate more products and services, more customers, and a lot more data.

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Uppal’s goals were to avoid a future filled with integration challenges and other

forms of IT catch-up as well as to provide real-time, end-to-end visibility

throughout the company. With Oracle technology now underlying every aspect of

Maruti Suzuki’s business, from the back office to online sales to its dealer network,

the IT operation is able to deliver greater efficiency and flexibility in a scalable

solution with lower IT costs, streamlined support, and a tightly integrated

environment that yields consistent data and simplifies the addition of new

technologies.

“Our long-term perspective has been that a single-vendor stack and road map

makes good business sense,” Uppal says, adding that upgrades have been

significantly simplified because each generation of Oracle products ties neatly into

the existing Oracle stack. The single-vendor model enables the company to

complete upgrades without getting stalled in time-consuming integration projects.

It’s a model that other companies would be well advised to follow, says Howard

Rubin, a leader in IT benchmarking and senior advisor at Gartner. “[Maruti Suzuki

is] in the business of making cars, not the business of handling software

disharmony,” he notes. “In an industry where margin is being squeezed, you want

to get the best leverage you can, and a single-source solution is an obvious and

brilliant thing to do.”

Market Demands

For Maruti Suzuki, standardizing on Oracle answered a need for continual

technology improvement. “In this country, technology is one area where you have

to constantly innovate. You can’t sit still,” says Uppal. “You know that you’ll be

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ahead of the curve only for a short time and that your competitors will catch up

shortly, so the lifecycle of innovation isn’t very long.”

In that spirit, Uppal complemented Oracle Database and Oracle Application Server

with a growing array of Oracle E-Business Suite modules that run its financial,

purchasing, and human resources systems, among others. The open architecture of

these components has simplified integration with Maruti Suzuki’s legacy

procurement, dispatch, time card, production planning, and business intelligence

systems, which was accomplished without any interruption to the business. That’s

critical to a company generating more than 2,000 invoices each day.

One of the key operational benefits that Maruti Suzuki has achieved has been a

level of integration that enables the company to work more effectively with its

nationwide network of 850 dealers. The company’s proprietary dealer management

system was built using Oracle Forms and has run on a centralized Oracle Database

since prior to Maruti Suzuki’s decision to standardize. But because of the disparate

nature of the company’s legacy applications, an inquiry through the dealer

management system couldn’t reveal updates entered manually by back-office staff.

This meant that one dealership might not be able to see that another had ordered

the last of a certain part, resulting in erroneous information being passed on to the

dealership and its customers.

Today, however, the system links to various modules of the company’s Oracle E-

Business Suite deployment, ensuring that the entire dealer network is being fed the

same data. Such integration also means that dealership input arrives on the

production floor in real time, enabling faster response to requests for parts or rush

delivery of vehicles.

Improved end-to-end visibility has also allowed Maruti Suzuki to take online sales

to a new level. The company’s evolving e-commerce capabilities now allow

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customers to do everything from choosing a vehicle to obtaining financing and

insurance, all with the click of a mouse. When a customer who has decided on, a

particular vehicle logs on to Maruti Suzuki’s Web site to contact a dealer, options

for financing and insurance are presented. If the customer expresses interest, the

system collects the pertinent information and automatically routes it to the nearest

dealership, which can arrange financing options with a local bank or work with the

company’s in-house financing unit before contacting the customer directly to

continue the process.

End-to-End Support

Underlying these IT improvements is a fundamental comfort with Oracle

technology, and that would not have been achieved without assistance from Oracle

Consulting during Maruti Suzuki’s 2002 Oracle E-Business Suite deployment, says

Uppal. Oracle consultants brought with them a combination of deep knowledge of

the technology and best practices to draw upon in mapping each module to the

company’s business processes. They not only assisted Maruti Suzuki’s IT team

with the installation but also helped them develop user manuals, designed a

program for training trainers, and provided additional training for superusers. In

fact, Uppal credits Oracle’s team with helping to overcome resistance among

employees who weren’t sure they wanted to embrace new technologies.

As users have grown increasingly comfortable with Oracle software, Uppal reports

that there are fewer errors, translating to more-reliable data throughout the

company’s wide-ranging application portfolio. “Standardization with one vendor

and one partner has driven knowledge skill sets,” says Subhomoy Sengupta, senior

director of applications for Oracle India Pvt Ltd.

What’s more, as an end-to-end Oracle stack customer, Maruti Suzuki is availing

itself of Oracle’s wide-ranging resources, working closely with Oracle Support to

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resolve issues. It has also been teaming up with Oracle’s development

organization, not only to help identify requirements for planned applications—

including a recently released demand forecasting application—but also to make

sure that Maruti Suzuki is identifying the right applications to add to its stack.

“Oracle’s technology team helps us to define the parameters, and then we say,

‘OK, if we put in a technology over there, what kind of improvement does that

yield?’” says Uppal. “We keep finding opportunities for process improvement, and

thankfully, Oracle has a huge application and technology stack that supports it.”

Gartner’s Rubin says that maintaining ties to an established partner for technology

upgrades should pay huge dividends for Maruti Suzuki, whereas using niche

solutions for specific processes would only lead to headaches. “The cross-vendor

approach is deadly,” he says. “By working with Oracle, Maruti Suzuki is working

with one of the true powers in the industry. If they follow the rules and match the

Oracle blueprint to their processes, they will have a lot of power and a lot of

leverage.”

Oracle executives consider Maruti Suzuki to be a bellwether customer in its use of

Oracle’s standards-based and custom technologies. “Other customers should look

at the way Maruti Suzuki has balanced the two aspects—the unique parts of the

solutions and the standard parts of the solutions,” says Sengupta. “Reliance on the

entire Oracle stack has had a huge impact on the company’s operations and

customers and has enabled it to cut down on IT costs and increase operating

efficiencies.”

For his part, Uppal intends to keep Maruti Suzuki tuned up by adopting Oracle

applications wherever they match the needs of his business. He knows that doing

so will enable the company to scale its IT operations to match its market growth,

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seamlessly absorb technology upgrades without breaking the bank, and keep its

place in the fast lane ahead of the competition.

SUPPLY CHAIN MANAGEMENT (SCM)

SCM is the management of a network of interconnected businesses involved in the

ultimate provision of product and service packages required by end customers

(Harland, 1996). Supply chain management spans all movement and storage of raw

materials, work-in-process inventory, and finished goods from point of origin to

point of consumption (supply chain).

Another definition is provided by the APICS Dictionary when it defines SCM as

the "design, planning, execution, control, and monitoring of supply chain activities

with the objective of creating net value, building a competitive infrastructure,

leveraging worldwide logistics, synchronizing supply with demand and measuring

performance globally."

Role of SCM in Automotive Industry

According to the Council of Logistics Management Supply Chain Management,

“the process of planning, implementing and controlling efficient and cost effective

flow of materials, in-process inventory, finished goods and related information

from point-of-order to point-of-consumption, for the purpose of conforming to

customer requirements as efficiently as possible”.

The automobile industry has undergone significant structural and other changes in

the last decade or so. In view of the present globalisation, implementation of lean

production and the development of modularisation have changed the relationships

between automobile assemblers (OEMs) and their suppliers, especially those in the

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first tier. Stiff competition among manufacturers will result in more mergers or

acquisitions. The challenges automobile manufacturers and suppliers face include

improving quality, meeting cost reduction targets and developing time to market.

All this is driving the organizations towards greater product differentiation using

cutting edge R&D, innovative sales and marketing approaches, and increasing

focus on boosting efficiencies in manufacturing and supply chain. Hence, in the

age of e-business and global outsourcing, supply chain management (SCM) plays a

crucial role in many of these areas.

SCM is a best-in-class, high-performance solution which can be utilized by the

world's leading automobile manufacturer, logistics and distribution companies, and

retailers to blend the demand chain with the supply chain. SCM helps in demand

forecasting; taking an order; giving an accurate promise date; sourcing and

manufacturing the right goods; position inventory properly; pick, pack, and

efficient transhipment; most importantly, SCM makes a world of difference to the

manufacturers by maintaining a minimal finished goods inventory.

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Supply chain management flow is divided into:

a) Product flow

b) Information flow

c) Finance flow

The product flow is nothing but movement of goods from supplier to customers

and also in case of any customer returns or service requirements. The information

flow covers updating the status of the delivery as well as sharing information

between suppliers and manufacturers. The finance flow encompasses credit terms,

payment schedules and consignment and title ownership arrangements.

Supply chain management has two types of software—planning application and

execution applications. While planning application is utilised to determine the best

way to fill the order, execution software determines the physical status of goods,

the management of materials and financial information of all parties involved.

Rapid surge in global sourcing of auto components has also become a challenge for

manufacturers and suppliers although sourcing has reduced the cost of production

substantially. Auto component manufacturers and all tiers of the supply chain have

immense opportunities to enhance their entire supply chain process with the

successful implementation of SCM solution.

Benefits of IT in SCM

Quicker response – improved professional service

Timely product supplies

Accurate pricing/discounts

Reduction in billing errors – cleaner SOA

Simplified and faster payments process

Reduction in administration costs for customers/vendors

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Online information (purchases, sales, inventory, financials)

Elimination of reconciliation of accounts/error processing

Reduction in accounting cycle times

Less duplication of job – utilisation of human-power in value adding roles

Reduction in paper flow, data processing, printing, mailing

Better warehousing and transportation management

Timely and correct asset capitalisation

Credit management (customers)

Better plant maintenance

Easy access to data /information

Key issues / challenges

Indian automotive players today face several key challenges in managing their

supply chains. While addressing these is critical for success, players were asked to

rank the challenges in order of priority.

Based on a survey conducted by KPMG:

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The most significant challenge identified by automotive players in India is

‘integrating the entire supply chain’ and managing it as a single integrated entity.

While past efforts of OEMs have been focused on streamlining and improving

different areas of the supply chain independently, through efforts in dealer

management, operations planning, vendor rationalization, IT package

implementation etc, it is expected that the linking up of these activities is expected

to provide significant benefits to players, as this would involve aligning the entire

chain to meet market requirements in the most efficient way.

The key challenge in achieving this would be two-fold – to align the different

stakeholders along the chain – vendors, transporters, distributors and dealers –

along common goals and processes, and also to integrate and link disparate IT

systems used by different stakeholders.

‘Managing inbound logistics’ remains a key concern for OEMs as well as auto

component players, driven more by challenges related to reliability of data, lead

time and absence of quality logistics players on the upstream side. However, all

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respondents felt that this was a key area of focus, given the criticality of supply for

future growth.

‘Managing product and part proliferation’ is one of the second significant

challenges players face. Increasing competition in the Indian automotive industry

has led to significant shrinkage in product lifecycles and the need for regular and

frequent product up gradation and new product introductions. While this has led to

issues of managing a wide product portfolio, a related key issue is the proliferation

of parts/components, driven by the need for providing spare parts for current as

well as discontinued models. Respondents across both OEMs as well as auto-

components indicated that increasingly the need for common platforms, and hence

common parts becoming critical pre-requisite. A key role played by product

development teams today is the identification and adoption of common parts and

components across models. However all respondents agreed that there was

significant scope for improvement in that area.

Costs, quality and timely delivery continue to be key concerns for players, driven

by increasing competition and pressure on margins. Many OEMs have

implemented ‘Just in Time (JIT) supplies in their inbound logistics’. However, in

cases where this is not accompanied by increased visibility across the supply chain

and improved planning, it has only resulted in the burden of inventory getting

shifted from OEMs to their Tier-I vendors.

Balanced Scorecard in Automotive SCM

The balance scorecard allows managers to look at the business from four important

perspectives (see above). While giving senior managers information from these

four different perspectives, the balance scorecard minimises information overload

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by limiting the number of measures used. It forces managers to focus on the

handful of measures that are most critical.

1. Financial: How do we look to our Shareholders?

2. Customer: How do our Customers See Us?

3. Internal Business Process: What must we excel at?

4. Employee and Organization Innovation and Learning: Can we continue

to Improve and Add Value?

Category Measure Weightage

EVA 25%Financial (50%)

Unit Profit 15%

Market Growth 10%Customer (20%)

Customer satisfaction with automobile performance (TNS Automotives total customer satisfaction survey, JD Power Automotive performance survey)

10%

Satisfaction with after sales service 5%Lead Time 5%

Internal Processes (20%)

Above average rank on industry quality survey 10%

Decrease in dealer delivery cycle time 10%Innovation and Learning (10%)

Suggestions per employee 5%

Emp. satisfaction survey 5%

SCM in Maruti Suzuki India Limited

The company works jointly with its suppliers to develop new products, achieve

high localization levels, and reduce cost. It has a strong base of 246 suppliers (as

on 31st March, 2009) including 16 JV companies where the company has strategic

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equity stake. 76% of the company's suppliers are located in the 100 kms of radius

from its manufacturing facilities. Most of the JVs are situated in the Suppliers' Park

adjacent to the company facilities.

With a large number of variants under the 14 running models, the supply chain

management is especially challenging. Company’s A-Star model alone has around

750 variations, some of them would be cosmetic and a few others deep rooted so as

to conform to different emission norms in different countries. The supply chain

solution enables the concerned product reach in time, be it the type of fabric used,

the audio system, the tyres or the specific engine and transmission systems. The

entire inventory management has also been fully automated and integrated with its

vendors.

Key Challenges

When it comes to its operation and supply chain, Maruti Suzuki’s key challenges

include:

Achieving a lean supply chain

Managing effectively the variations in the components for various models

Managing continuous supply-demand matching and optimization

Achieving efficient use of materials and other resources

Managing demand and customer expectations

Enabling MSIL, suppliers and dealers to constantly adapt their strategies,

processes and systems to meet dynamic market needs.

Key SCM Initiatives

Due to stiff competition and cost leadership of Maruti, lean manufacturing and

zero inventory are its goals. Maruti’s Supply Chain management represents one of

the best examples of lean manufacturing in the country. The manufacturing plants

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have been almost fully linked to IT systems and all inventory and processes are

networked. Every component-set has a bar coded tag which helps to monitor the

movement of materials right from suppliers to the Trim line. This helps to know

exactly how much inventory is present on the assembly lines (using the P-BOM

(Production Bill of Materials)).

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CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

In these competitive times the challenge is to keep inventing newer ways of doing

things to keep the customers in your fold.

Over the last few years, the company strengthened the existing practices and

experimented with many new initiatives by way of kaizens (continuous

improvements) to delight its customers.

These initiatives ranged from product design and quality to network expansion,

and included new service programs to meet unsaid needs of customers.

The company has retained its competitive edge by offering high quality products.

In the field, the products are supported by rapidly expanding networks. The

company has diverse networks for new cars, spares, service, pre owned cars and so

on, and all of them were in expansion mode last year to enable the company get

closer to the customer.

Servicing customers 24X7..... 365 days....

The company takes great pride in sharing that customers have rated Maruti Suzuki

first once again in Customer Satisfaction Survey conducted by independent body,

J.D.Power Asia Pacific. It is 9th time in a row.

The company was first Car Company in India to launch a Call Centre in the year

2000.

The award mirrors the company's commitment towards "Customer Obsession”.

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Key Initiatives

Car pickup & delivery facility for women car owners.

Quote Unquote: "The study finds that vehicle pickup and delivery before and

after service has a strong impact on customer satisfaction. In particular,

customers who say that their vehicle was picked up from their doorstep before

service and delivered to the same point after service are notably more delighted

with their after-sales service experience, compared with customers who do not

receive this service...."

Maruti also launched mission to promote safe driving habits jointly with

Institute of Driving Training and Research.

It also launched ‘Dil Se’- a special program for Indians living abroad or NRIs,

to facilitate them to gift Maruti cars online to friends and relatives at home.

Online club ‘Swift Life’ is made for all Swift owners.

Setting up "Express Service Bays" & "2 - Technician Bays"

As the name suggests the company set out to delight its customers by offering them faster car service by introducing new concepts such as Express Service Bays & 2- Technicians Bays.

These are done for customers who are hard pressed for time.

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Both the initiatives undertaken in this direction have helped improve customer interface and also helped increase the productivity and capacity of existing workshops.

Mega Camps

The company aggressively conducts 'Mega Camps' throughout the country round the year.

Activities undertaken during a mega camp include complimentary car wash, AC & Pollution check up, oil and fuel top ups, wheel alignments etc.

Apart from mega camps workshop camps like A/C checkup camps, PUC and general check-up camps, Locality camps , Pre monsoon camps etc are also regularly conducted as part of customer connect initiatives.

Service at Door Step through Maruti Mobile Support

Another unique initiative is the door step service facility through Maruti Mobile Support.

Maruti Mobile Support is a first of its kind initiative and is expected not only to help the company reach out customers in metro cities but also as a mean to reach semi urban /rural areas where setting up of new workshop may not be viable

Car Safety device: Immobilizer

The company used technology to meet customer needs and even delight them. Following feedback that the company's cars were more prone to theft owing to their resale value, the

company worked on an anti-theft immobilizer or "I-Cats;" system for all its new cars.

Complete car needs

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The company's effort of providing all car-related needs -- from learning to drive a car at Maruti Driving Schools to car insurance, extended warranty and eventually exchanging the existing car for a new one -- under one roof at dealerships also enhances customer satisfaction.

The organization needed greater visibility into customer preference, their economical strata, behavior, and needs. "Our marketing managers wanted to target potential buyers and sell them products that customers perceived as a 'best value' proposition and sell it at the right time," says Rajesh Uppal, Executive Officer IT & CIO, Maruti Suzuki India Limited.

In order to achieve a 'single view of customers' and a platform for 'marketing for one', Maruti Suzuki embarked on an analytical CRM (aCRM) project. The aCRM project has improved customer segmentation and targeting. Today, it helps marketers assess which prospects are most likely to transact and also identifies those who are bogged down in a sales process and need assistance. Empowered by aCRM, the car-maker can find and acquire potential customers, nurture and retain those the company already has, entice former customers back into the fold, and trim marketing and client servicing costs.

CUSTOMER RELATIONSHIP MANAGEMENT (CRM)

• Includes the methodologies, technology and capabilities that help an enterprise manage customer relationships. The general purpose of CRM is to enable organizations to better manage their customers through the introduction of reliable systems, processes and procedures.

• Customer Relationship Management is a corporate level strategy which focuses on creating and maintaining lasting relationships with its customers. Although there are several commercial CRM software packages on the market which support CRM strategy, it is not a technology itself. Rather, a holistic change in an organization’s philosophy which places emphasis on the customer.

• Management at MARUTI believes that a successful CRM strategy cannot be implemented by simply installing and integrating a software package and will

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not happen overnight. Changes must occur at all levels including policies and processes, front of house customer service, employee training, marketing, systems and information management; all aspects of the business must be reshaped to be customer driven. To be effective, the CRM process has been integrated with end-to-end across marketing, sales, and customer service. The objectives of CRM at MARUTI:-

• To Identify customer success factors

• To Create a customer-based culture

• To Adopt customer-based measures

• To Develop an end-to-end process to serve customers

• To Recommend what questions to ask to help a customer solve a problem

• To Recommend what to tell a customer with a complaint about a purchase

• To Track all aspects of selling to customers and prospects as well as customer support.

Before implementing the CRM segment the management at MARUTI did a survey to identify what profile aspects it feels are relevant to its business, such as what information it needs to serve its customers, the customer's past financial history, the effects of the CRM segment and what information is not useful. Being able to eliminate unwanted information is a large aspect of implementing CRM systems.

ARCHITECTURE OF CRM AT MARUTI

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There are three parts of application architecture of CRM at Maruti:

• Operational CRM- automation to the basic business processes (marketing, sales, service)

• Analytical CRM - support to analyze customer behavior, implements business intelligence alike technology

• Collaborative CRM- ensures the contact with customers (phone, email, fax, web,

sms, and post)

OPERATIONAL CRM

Operational CRM at Maruti includes customer contact (sales, marketing and service). Tasks resulting from these processes are forwarded to employees responsible for them, as well as the information necessary for carrying out the tasks and interfaces to back-end applications are being provided and activities with customers are being documented for further reference. Operational CRM provides the following benefits:• Delivers personalized and efficient marketing, sales, and service through multi-channel collaboration

• Enables a 360-degree view of the customer while you are interacting with them

• Sales people and service engineers can access complete history of all customer interaction with the company, regardless of the touch point . The operational part of CRM typically involves three general areas of business at Maruti:

Sales force automation (SFA)

SFA automates the critical sales and sales force management functions of Maruti, i.e., lead/account management, contact management, quote management, forecasting, sales administration, keeping track of customer preferences, buying habits, and demographics, as well as performance management. SFA tools are designed to improve field sales productivity.

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Key infrastructure requirements of SFA are mobile synchronization and integrated product configuration.

Customer service and support (CSS)

CSS at Maruti automates the service requests, complaints, product returns, and information requests. The internal help desk and inbound call-center support for customer inquiries have been evolved into the "customer interaction center" (CIC), using multiple channels (Web, phone/fax, face-to-face, kiosk, etc). Key infrastructure requirements of CSS include computer telephony integration (CTI) which provides high volume processing capability, and reliability.

Enterprise marketing automation (EMA)

EMA of the company provides information about the business environment, including competitors of Maruti, industry trends, and macro environmental variables. It is the execution side of campaign and lead management. The intent of EMA applications is to improve marketing campaign efficiencies. Functions include demographic analysis, variable segmentation, and predictive modeling occur on the analytical (Business Intelligence) side.

Integrated CRM software is often also known as "front office solutions." Of Maruti, This is because they deal directly with the customer of the company.Maruti uses CRM software to store all of their customer's details. When a customer calls at Maruti, the system is used to retrieve and store information relevant to the customer. By serving the customer quickly and efficiently, and also keeping all information on a customer in one place, the management at Maruti aims to make cost savings, and also encourage new customers.

ANALYTICAL CRM

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In analytical CRM, data gathered within operational CRM and/or other sources are analyzed to segment customers or to identify potential to enhance client relationship. Customer analysis typically leads to targeted campaigns to increase share of customer's wallet. Examples of Campaigns directed towards customers are:• Acquisition: Cross-sell, up-sell

• Retention: Retaining customers who leave due to maturity or attrition.

• Information: Providing timely and regular information to customers about Maruti.

• Modification: Altering details of the transactional nature of the customers' relationship. Analysis typically covers but is not limited to:

• Decision support: Dashboards, reporting, metrics, performance etc.

• Predictive modeling of customer attributes

• Strategy and research.

Analysis of Customer data relates to the following analysis:

• Campaign management and analysis

• Contact channel optimization

• Contact Optimization

• Customer Acquisition / Reactivation / Retention

• Customer Segmentation

• Customer Satisfaction Measurement / Increase

• Sales Coverage Optimization

• Fraud Detection and analysis

• Financial Forecasts

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• Pricing Optimization

• Product Development

• Program Evaluation

• Risk Assessment and Management

COLLABORATIVE CRM

Collaborative CRM facilitates interactions with customers through all channels

(personal, letter, fax, phone, web, e-mail) and supports co- ordination of

employee teams and channels. It is a solution that brings people, processes and

data together so company can better serve and retain their customers. Collaborative

CRM provides the following benefits:

• Enables efficient productive customer interactions across all communications channels

• Enables web collaboration to reduce customer service costs

• Integrates call centers enabling multi-channel personal customer interaction

• Integrates view of the customer while interaction at the transaction level

CRM PROCESS:

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Future Plans:

• Provide product information, product use information, and technical assistance on web sites that are accessible 24 hours a day, 7 days a week.

• Identify how each individual customer defines quality, and then design a service strategy for each customer based on these individual requirements and expectations.

• Provide a fast mechanism for managing and scheduling follow-up sales calls to assess post-purchase cognitive dissonance, repurchase probabilities, repurchase times, and repurchase frequencies.

• Provide a mechanism to track all points of contact between customer and the company, and do it in an integrated way so that all sources and types of contact are included, and all users of the system see the same view of the customer (reduces confusion).

• Help to identify potential problems quickly, before they occur.

• Provide a user-friendly mechanism for registering customer complaints (complaints that are not registered with the company cannot be resolved, and are a major source of customer dissatisfaction).

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• Provide a fast mechanism for handling problems and complaints (complaints that are resolved quickly can increase customer satisfaction).

• Use internet cookies to track customer interests and personalize product offerings accordingly.

• Use the Internet to engage in collaborative customization or real-time customization.

• Provide a fast mechanism for managing and scheduling maintenance, repair, and on-going support (improve efficiency and effectiveness).

• The CRM can be integrated into other cross-functional systems and thereby provide accounting and production information to customers when they want it.

ENTERPRISE RESOURCE PLANNING (ERP)

ERP is an enterprise-wide information system designed to coordinate all the

resources, information, and activities needed to complete business processes such

as order fulfillment or billing. The system supports most of the business system

that maintains in a single database the data needed for a variety of business

functions such as Manufacturing, Supply Chain Management, Financials, Projects,

Human Resources and Customer Relationship Management.

Maruti Supports Business Growth with Scalable, High-Performing ERP

System:

“The open interfaces of Oracle E-Business Suite offered the best integration with

our legacy systems. Standardizing on Oracle technology and applications would

also lower support costs and ensure easy upgrades in the future.” – Rajesh Uppal,

Chief General Manager, Information Technology, Maruti Suzuki India Limited

Maruti Suzuki India Limited has led India’s car market for more than a quarter of a

century. First established in 1981, the company is now a fully-fledged subsidiary

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of the Suzuki Motor Corporation. Its principal activities include the manufacture

and sale of motor vehicles and spare parts via a 300-strong dealer network

scattered across India.

The year 2002 saw Maruti add finance, leasing, insurance, and pre-owned car

businesses to its portfolio, increasing the scale of its operations and prompting a

review of its processes and systems.

Oracle Consulting was engaged to install a number of Oracle E-Business Suite

modules and integrate them with Maruti’s existing systems. The eight-month

project involved managing up to 50 people, including Maruti staff, Oracle

consultants, and employees of third-party organizations. Oracle also assisted

Maruti with change management, a critical part of the process to ensure quick user

acceptance.

Thorough project management by Oracle Consulting enabled Maruti to go live on

the Oracle applications without any interruptions to its business. By standardizing

on a single Oracle platform, the company achieved better control of its finance,

procurement, and human resources functions. It also gained a more manageable

and scalable platform to support its rapidly expanding business.

The Need to Strengthen Management Control

Prior to employing Oracle, Maruti used a number of home-grown systems to

manage its various lines of business. Many of these disparate systems could not

talk to each other, requiring staff to enter data multiple times and consolidate

information to generate management reports.

The addition of four new business sectors in 2002 created further pressures,

requiring constant monitoring and human intervention to keep the system operating

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across the hundreds of locations Maruti serves within India. To support this growth

and improve efficiency, the company decided to revamp its information technology

systems to provide end-to-end visibility into the organization.

“We were looking for a flexible, expandable system that was easy to manage,” said

Rajesh Uppal, chief general manager, information technology, Maruti Suzuki

India. “This would reduce the complexity of the IT environment and our reliance

on certain people to maintain the systems. And because our business is undergoing

a period of rapid expansion, it was important to have a system that could scale

easily.”

To minimize the impact of the system change on its business, Maruti decided on a

phased migration to Oracle E-Business Suite. As a first step, the company decided

to replace its financial, purchasing, and human resources systems with Oracle

Financials, Oracle Procurement, and a range of Oracle Human Resources

applications.

Oracle Consulting was selected to supervise the implementation, including

determining Maruti’s requirements and developing a project plan, designing the

system, deploying the software, managing the various parties involved, and

providing post-implementation support.

Standardization Improves Financial Insight

The problem with using multiple systems to manage finances was the lack of

control over processes and information quality. Each office followed different

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workflows, which often meant one division lagged behind another in delivering

information. Differing data formats required tedious consolidation, preventing real-

time access to critical statistics.

With Oracle Financials, Maruti was able to standardize on a single financial

management platform. According to Uppal, the company achieved tight control

over accounts payable and accounts receivable, and gained a comprehensive

general ledger that assists in the management of all financial information.

“The Oracle application can be used by accounting and finance staff, as well as

senior managers,” he said. “We established standardized data formats and

processes for staff, resulting in greater efficiency and less confusion. Financial

management is more disciplined as a result.”

Month-end closing is completed within two days, without the fuss that usually

accompanies the task. Uppal added that auditing is also in better shape.

“We completed our year-end close on time in March this year, which was fantastic

as we had initially been worried that the system would not be able to handle the

load,” he said. “With Oracle Consulting on site to provide support, the whole

procedure was completed without a hitch.

“As our business continues to expand, it is also reassuring to know that the Oracle

system can scale to meet our needs, and can be easily integrated with other

applications in the suite.”

Drilling Down to Details with Hyperion

Maruti has used Hyperion business performance management software for the past

two years to analyze budgets, consolidate accounts across nine subsidiaries, and

conduct financial reporting in compliance with generally accepted accounting

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principles (GAAP) in India. The system is integrated with Oracle Financials and is

currently used by around 10 budgeting staff in Maruti’s finance department.

“We use Hyperion to complete scenario- and project-based analytics,” said Uppal.

“The system supports all types of reporting and analysis, giving staff and senior

management deeper insight into our performance as and when they need it. It alerts

us to possible problems before they impact our operations and has helped improve

the accuracy of our forecasts. We are able to respond faster to changing market

conditions, which boosts our competitiveness.”

Oracle’s acquisition of Hyperion in April 2007 is good news for Maruti.

“When we implemented Oracle Financials, we found that the application integrated

easily with the Hyperion system, so there were no interruptions to the business

when we cut over to Oracle from our legacy financial system,” Uppal said. “Now

that Hyperion is an Oracle company, we are further assured of a seamless upgrade

path in the future.”

Streamlined Procurement Lowers Costs

Maruti implemented Oracle Purchasing to manage procurement of capital goods,

services, and indirect consumables. Prior to implementing Oracle Purchasing,

some subsidiaries had a rudimentary system, while others relied on basic

spreadsheets to manage the process. This made it difficult for the organization as a

whole to have control over capital and services purchasing, leading to escalating

costs and excess inventory.

With Oracle, Maruti now has a standardized platform to oversee procurement. The

company has set up a list of preferred suppliers to cut down on the number of

vendors it deals with and ensure it has control over costs. An automated workflow

sends purchase orders along the approvals chain and keeps staff in the accounts

payable department aware of all procurement activity.

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Tight Project Management Ensures Swift Deployment

As with all Oracle Consulting-led deployments, consultants sat down with Maruti

managers and key business users to scope out their requirements. A steering

committee was set up to guide the implementation and ensure consultants had

recourse to senior executives for advice.

The project plan delineated the responsibilities of each party and incorporated

monthly milestones and testing deadlines. Oracle Consulting ensured a fast,

problem-free installation by employing Oracle’s Business Flow Accelerators—an

implementation approach that leverages predefined business flow templates to

reduce the time and cost associated with application deployments.

A key project challenge was interfacing the Oracle modules with Maruti’s legacy

systems, including direct item procurement, dispatch systems, the time card system

for attendance, and the Hyperion business intelligence platform. The integration

had to be completed without any impact on the company’s business, which

frequently deals in large volumes. For example, Maruti generates more than 2,000

invoices each day and any lengthy interruptions could have disastrous impacts on

cash flow further down the line.

The open, modular structure of Oracle E-Business Suite ensured the technical side

of the integration was relatively painless. Process-wise, Oracle Consulting helped

ensure tight integration for real-time performance, enabling budget and credit

checks to be completed online in the legacy system.

Ensuring a Smooth Transition

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While Oracle Consulting was not actively involved in change management, the

team contributed indirectly to Maruti’s efforts to transition users to the new

modules. The Oracle team advised Maruti on process changes and contributed to

training programs.

Key Benefits:

Strengthened management by consolidating on a single financial platform

Gained deep insight into financial performance by using Hyperion to analyze

budgets and consolidated accounts

Lowered procurement costs by streamlining purchasing process

Provided HR staff with greater control over recruitment, payroll, compensation

management, leave management, competency assessments, and staff

development

Ensured a smooth rollout by engaging Oracle Consulting to supervise the

design and deployment of the solution, and manage the implementation team

Achieved seamless integration with legacy systems, ensuring senior managers

have visibility into business performance

Promoted user acceptance by developing extensive training programs to help

staff transition to the new system

Future Plans

After the success of the financials, procurement, and human resources deployment,

Maruti is considering expanding its Oracle footprint. The company is evaluating

Oracle Advanced Supply Chain Management and Oracle Enterprise Asset

Management.

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“We would like to further automate supply chain management and integrate more

processes with the Oracle ERP system,” said Uppal. “We are also looking at

integrating more systems with Oracle, so we can access real-time information

across all our businesses. I expect Oracle Consulting to play a role in future

projects.”

SUPPLY CHAIN MANAGEMENT (SCM)

SCM is the management of a network of interconnected businesses involved in the

ultimate provision of product and service packages required by end customers

(Harland, 1996). Supply chain management spans all movement and storage of raw

materials, work-in-process inventory, and finished goods from point of origin to

point of consumption (supply chain).

Another definition is provided by the APICS Dictionary when it defines SCM as

the "design, planning, execution, control, and monitoring of supply chain activities

with the objective of creating net value, building a competitive infrastructure,

leveraging worldwide logistics, synchronizing supply with demand and measuring

performance globally."

Role of SCM in Automotive Industry

According to the Council of Logistics Management Supply Chain Management,

“the process of planning, implementing and controlling efficient and cost effective

flow of materials, in-process inventory, finished goods and related information

from point-of-order to point-of-consumption, for the purpose of conforming to

customer requirements as efficiently as possible”.

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The automobile industry has undergone significant structural and other changes in

the last decade or so. In view of the present globalisation, implementation of lean

production and the development of modularisation have changed the relationships

between automobile assemblers (OEMs) and their suppliers, especially those in the

first tier. Stiff competition among manufacturers will result in more mergers or

acquisitions. The challenges automobile manufacturers and suppliers face include

improving quality, meeting cost reduction targets and developing time to market.

All this is driving the organizations towards greater product differentiation using

cutting edge R&D, innovative sales and marketing approaches, and increasing

focus on boosting efficiencies in manufacturing and supply chain. Hence, in the

age of e-business and global outsourcing, supply chain management (SCM) plays a

crucial role in many of these areas.

SCM is a best-in-class, high-performance solution which can be utilized by the

world's leading automobile manufacturer, logistics and distribution companies, and

retailers to blend the demand chain with the supply chain. SCM helps in demand

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forecasting; taking an order; giving an accurate promise date; sourcing and

manufacturing the right goods; position inventory properly; pick, pack, and

efficient transhipment; most importantly, SCM makes a world of difference to the

manufacturers by maintaining a minimal finished goods inventory.

Supply chain management flow is divided into:

d) Product flow

e) Information flow

f) Finance flow

The product flow is nothing but movement of goods from supplier to customers

and also in case of any customer returns or service requirements. The information

flow covers updating the status of the delivery as well as sharing information

between suppliers and manufacturers. The finance flow encompasses credit terms,

payment schedules and consignment and title ownership arrangements.

Supply chain management has two types of software—planning application and

execution applications. While planning application is utilised to determine the best

way to fill the order, execution software determines the physical status of goods,

the management of materials and financial information of all parties involved.

Rapid surge in global sourcing of auto components has also become a challenge for

manufacturers and suppliers although sourcing has reduced the cost of production

substantially. Auto component manufacturers and all tiers of the supply chain have

immense opportunities to enhance their entire supply chain process with the

successful implementation of SCM solution.

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Benefits of IT in SCM

Quicker response – improved professional service

Timely product supplies

Accurate pricing/discounts

Reduction in billing errors – cleaner SOA

Simplified and faster payments process

Reduction in administration costs for customers/vendors

Online information (purchases, sales, inventory, financials)

Elimination of reconciliation of accounts/error processing

Reduction in accounting cycle times

Less duplication of job – utilisation of human-power in value adding roles

Reduction in paper flow, data processing, printing, mailing

Better warehousing and transportation management

Timely and correct asset capitalisation

Credit management (customers)

Better plant maintenance

Easy access to data /information

Key issues / challenges

Indian automotive players today face several key challenges in managing their

supply chains. While addressing these is critical for success, players were asked to

rank the challenges in order of priority.

Based on a survey conducted by KPMG:

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The most significant challenge identified by automotive players in India is

‘integrating the entire supply chain’ and managing it as a single integrated entity.

While past efforts of OEMs have been focused on streamlining and improving

different areas of the supply chain independently, through efforts in dealer

management, operations planning, vendor rationalization, IT package

implementation etc, it is expected that the linking up of these activities is expected

to provide significant benefits to players, as this would involve aligning the entire

chain to meet market requirements in the most efficient way.

The key challenge in achieving this would be two-fold – to align the different

stakeholders along the chain – vendors, transporters, distributors and dealers –

along common goals and processes, and also to integrate and link disparate IT

systems used by different stakeholders.

‘Managing inbound logistics’ remains a key concern for OEMs as well as auto

component players, driven more by challenges related to reliability of data, lead

time and absence of quality logistics players on the upstream side. However, all

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respondents felt that this was a key area of focus, given the criticality of supply for

future growth.

‘Managing product and part proliferation’ is one of the second significant

challenges players face. Increasing competition in the Indian automotive industry

has led to significant shrinkage in product lifecycles and the need for regular and

frequent product up gradation and new product introductions. While this has led to

issues of managing a wide product portfolio, a related key issue is the proliferation

of parts/components, driven by the need for providing spare parts for current as

well as discontinued models. Respondents across both OEMs as well as auto-

components indicated that increasingly the need for common platforms, and hence

common parts becoming critical pre-requisite. A key role played by product

development teams today is the identification and adoption of common parts and

components across models. However all respondents agreed that there was

significant scope for improvement in that area.

Costs, quality and timely delivery continue to be key concerns for players, driven

by increasing competition and pressure on margins. Many OEMs have

implemented ‘Just in Time (JIT) supplies in their inbound logistics’. However, in

cases where this is not accompanied by increased visibility across the supply chain

and improved planning, it has only resulted in the burden of inventory getting

shifted from OEMs to their Tier-I vendors.

Balanced Scorecard in Automotive SCM

The balance scorecard allows managers to look at the business from four important

perspectives (see above). While giving senior managers information from these

four different perspectives, the balance scorecard minimises information overload

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by limiting the number of measures used. It forces managers to focus on the

handful of measures that are most critical.

5. Financial: How do we look to our Shareholders?

6. Customer: How do our Customers See Us?

7. Internal Business Process: What must we excel at?

8. Employee and Organization Innovation and Learning: Can we continue

to Improve and Add Value?

Category Measure Weightage

EVA 25%Financial (50%)

Unit Profit 15%

Market Growth 10%Customer (20%)

Customer satisfaction with automobile performance (TNS Automotives total customer satisfaction survey, JD Power Automotive performance survey)

10%

Satisfaction with after sales service 5%Lead Time 5%

Internal Processes (20%)

Above average rank on industry quality survey 10%

Decrease in dealer delivery cycle time 10%Innovation and Learning (10%)

Suggestions per employee 5%

Emp. satisfaction survey 5%

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SCM in Maruti Suzuki India Limited

The company works jointly with its suppliers to develop new products, achieve

high localization levels, and reduce cost. It has a strong base of 246 suppliers (as

on 31st March, 2009) including 16 JV companies where the company has strategic

equity stake. 76% of the company's suppliers are located in the 100 kms of radius

from its manufacturing facilities. Most of the JVs are situated in the Suppliers' Park

adjacent to the company facilities.

With a large number of variants under the 14 running models, the supply chain

management is especially challenging. Company’s A-Star model alone has around

750 variations, some of them would be cosmetic and a few others deep rooted so as

to conform to different emission norms in different countries. The supply chain

solution enables the concerned product reach in time, be it the type of fabric used,

the audio system, the tyres or the specific engine and transmission systems. The

entire inventory management has also been fully automated and integrated with its

vendors.

Key Challenges

When it comes to its operation and supply chain, Maruti Suzuki’s key challenges

include:

Achieving a lean supply chain

Managing effectively the variations in the components for various models

Managing continuous supply-demand matching and optimization

Achieving efficient use of materials and other resources

Managing demand and customer expectations

Enabling MSIL, suppliers and dealers to constantly adapt their strategies,

processes and systems to meet dynamic market needs.

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Key SCM Initiatives

Due to stiff competition and cost leadership of Maruti, lean manufacturing and

zero inventory are its goals. Maruti’s Supply Chain management represents one of

the best examples of lean manufacturing in the country. The manufacturing plants

have been almost fully linked to IT systems and all inventory and processes are

networked. Every component-set has a bar coded tag which helps to monitor the

movement of materials right from suppliers to the Trim line. This helps to know

exactly how much inventory is present on the assembly lines (using the P-BOM

(Production Bill of Materials))

Supply Chain Schematic – IT-empowerment

Vendor Management – e-Nagare system

Vendor management became an important area as Maruti attempted to improve

operational efficiency. The company's top 10 vendors account for about 34 % of its

aggregate purchases of components from vendors in India. In-process inventory

reduction is most important to reduce carrying costs. Over 76% of the company’s

246 suppliers are located within 100 kms of radius. Suppliers of bulky components

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e-Nagare SystemDealer

Mgmt. System

Product Lifecycle Mgmt.

Oracle based ERP

such as instrument panels, fuel tanks, bumpers, seats, etc. are adjacent to the

company’s manufacturing facilities so as to save on the logistics cost.

The company’s JIT system has evolved over the last 25 years from monthly

scheduling to daily scheduling of parts orders and finally to hourly schedule

releases. The company today boasts of less than two hours of inventory of

components within the plant for several key components.

With a view for IT-empowerment in Supply chain Management the company

implemented the e-Nagare system in 2003. Nagare is Japanese for "flow"

This is how it works –

Every trim body is bar coded, its stage of completion is known as it passes

the assembly line

Thus it is exactly possible to say how much inventory may be left on the line

(because of the integration of P-BOM with the system)

A screen in the Supply Chain office is always updated automatically with

the depletion or receipt of inventory

As soon as the inventory goes below a point for a particular component,

reordering is triggered

In case inventory goes down dangerously low, manual intervention to

facilitate quick procurement from vendors may be required

With this model MSIL has been able to maintain lean inventory and safety stock is

not required or maintained especially for bulky items thus inventory carrying costs

are reduced. Also, Cross docking is made possible thus tremendously reducing

storage space requirement. This has helped Maruti increase capacity at the plant at

Gurgaon from installed capacity of 3.5 lakh to 7 lakhs without substantial capital

investments.

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In-House Management – Oracle based ERP

When Maruti decided to automate its operations in the early 1990s, there was no

ERP vendor support available in the country. A team of 45 engineers, using a

combination of software from Oracle and Computer Associates, developed an in-

house ERP system. A variety of applications including inventory management,

receipts, excise, production, sales, invoicing, exports, financial accounting,

payrolls etc. were developed. The applications have been developed and upgraded

on a regular basis.

The company’s Oracle based system helps sort out all employee related issues like

payrolls, leave application, approval systems for tours and expenses etc. Also,

Finance, excise and taxation are also done through this system. The attendance

system on the plant is fully automated biometric scanning system, linked to the

ERP. Every Finished Car is monitored viz. its location in the parking lot till it

remains in the plant. This helps in implementing FIFO and managing the Bill Of

Materials.

Outbound Management – Dealer Management System

MSIL has 750 retail sites through 227 cities. Maruti’s Sales and Service network is

its major competitive advantage. Through its DMS, the company aims at providing

a world class standardized and streamlined process at dealerships in order to

provide a uniform and enriching experience to end customers. Though e-CRM is

not a very important concept for the automobile industry in India, yet DMS acts as

a proxy e-CRM maintaining a data base of customers. Customer follow-ups are

done at the dealer’s end, though MSIL gets a report on it through the DMS system.

DMS implementation was started in Sept 2004. The application supports all the

dealer processes including presales, planning, sales, inventory management and

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financial management. The dealers’ invoices are shared with MSIL in real time

through the extranet. The requirements of dealers are met on FIFO basis and Proof

of Delivery (POD) is sent to MUL via DMS. Value added services like Maruti

Finance; Maruti Insurance etc. are also integrated to the DMS.

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