When queried about
the company's policy of having two sources for one component, instead of just one which
would give the benefit of economies of scale to the vendor, Halasyam responds, "What
you should remember is our production. This year, we will roll out 4.10 lakh vehicles and
next year it will be about 4.70 lakh. If I divide my orders equally amongst my two
vendors, there will still be economies of scale for them." For new car players whose
current production hovers around 50,000 vehicles per annum, a single component source will
work fine, he adds.
Of the 400 Maruti Udyog's vendors, there are about 13 joint ventures in which the car
maker holds equity stakes. And except for glasses, which the company sources from Aashi
India, Maruti Udyog has developed two sources for all other components. "Recently,
Delphi has started supplying air-conditioner systems to us, in addition to Subros,"
While Maruti Udyog will be pruning its vendor list, no such thing is being planned in
respect of its dealerships. Agreeing that non-performing dealers will have to be weeded
out, Halasyam says that there is a strong case for MUL to increase its dealerships.
"Currently, we have about 150 dealers, each selling nearly 3,000 vehicles. This
itself calls for dealership increase."
Cost control measures
With the company's bottomline getting affected owing to
cost increases beyond its control, Halasyam says the focus now is on cost control.
"The challenge is to control material costs, which account for 70-75 per cent of our
total cost. And that could be done only if one starts from the basics, say from
development of vendors, setting up his plant, automating the process and finally by doing
value engineering." Some more elaboration here: "First, it was decided that we
leverage the combined strengths of MUL and its vendors in sourcing common materials such
as steel and aluminium." After consolidating the steel and aluminium requirements, a
global tender was issued for sourcing the two metals. "Today, Nalco supplies directly
to us and our vendors. In this manner, we saved around Rs 25 crore," Halasyam
This pooling technique didn't end with sourcing of materials but also got extended to
transporting of the materials. Finding the capacity utilisation of the trucks entering its
factory at 60 per cent levels, the company introduced the "milk run system".
Under this, MUL decided to pool the materials from different vendors so that a truck's
carrying capacity is fully utilised.
An additional initiative on cost cutting includes the
company's encouragement to those vendors who are located in far away places to build a
warehouse near Gurgaon, where its car plant is located. "While we won't invest in
building the warehouse, we will compensate our vendors for actual and justifiable expenses
incurred in maintaining the warehouse," says Halasyam.
The next focus has been to reduce the inventory levels by
practicing time-tested concepts like just-in-time. "Our inventory levels are just 2.9
days, down from 22 days in 1995-96 and 13 days last fiscal," says Halasyam proudly.
Interestingly, MUL pays its vendors within seven days of receipt of materials at its
In order to reduce the time consuming paperwork, the car maker is moving fast towards web-enabled systems. It also hopes
to connect all its vendors via Intranet soon.