Value Chain Analysis of Maruti Suzuki Value Chain A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value.
The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities so that the company can charge a premium price for the product hereby resulting in a profit margin. The primary value chain activities which are used in MUL are: Inbound Logistics i. e the receiving and warehousing of raw materials, and their distribution to manufacturing.MUL’s inputs primarily comprise raw materials and purchased components. In order to improve quality and generate economies of scale, MUL has reduced the number of vendors of components in India from 370 as of March 31, 2000 to about 100 as in 2005. By lowering the time and cost involved in dealing with more vendors, they have increased their supply chain efficiencies In case of repair and replacements, costs of defective components supplied are borne by the vendor oQuality aspect – Periodic vendor quality system audits are conduct in order to ensure that quality standards are sustained.
Vendor Quality Control Quality management system such as ISO 9000/ QS 9000 forms the basis for producing a quality product. To assist small and medium vendors in achieving ISO 9000 certification, in 1995 MUL adopted a cluster approach wherein vendors are grouped together, are trained in quality management and are assisted in obtaining ISO 9000 certification. This cluster approach was extended to helping vendors attain QS 9000 certification. oInformation systems – Vendors are linked to...
the MUL through the Internet-based information network, which maintains online information regarding order status and delivery instructions.These has helped in reducing both inventory levels and lead times required for the supply of various components and sub-assemblies, and enable the vendors to more efficiently plan and dispatch their products.
oMaterial handling and storage- the company reduced its inventory holding period, from 30 days in 2002-03 to 19 days in 2004. In some of the major vendors MUL has implemented the “Maruti Production System” which focuses on the eliminating the wasteful activities in their manufacturing processes such as improving their productivity, reducing the number of their components that are rejected, educing materials handling, improving their yield from materials, and reducing their inventories. This helps in reducing the costs of production, which also reduces the costs of the components being required by MUL. oTransportation Only a small amount of raw material and components consumed are imported and a much larger portion is purchased from the sources within India. The raw materials used in the manufacturing process primarily comprise steel coils and paints.In recent years, MUL is increasingly trying to localize the purchases of steel coils with a view to reduce cost.
Operations/Production : This is the processes of transforming inputs into finished products and services. Maruti is one of the largest passenger car manufacturing facilities of Suzuki outside Japan. It’s manufacturing facilities are located at two facilities Gurgaon and Manesar south of New Delhi. Maruti’s Gurgaon facility has an installed capacity o
350,000 units per annum.The Manesar facilities, launched in February 2007 comprise a vehicle assembly plant with a capacity of 100,000 units per year and a Diesel Engine plant with an annual capacity of 100,000 engines and transmissions. Manesar and Gurgaon facilities have a combined capability to produce over 700,000 units annually.
oImproving Productivity Improving productivity is an ongoing effort at Maruti. They focus on elimination of wasteful activities taking place during manufacturing processes through the Maruti production system, or MPS, which is derived from the Suzuki production system.In addition to MPS activities, in-house automation, increasing utilization of production lines, outsourcing of low value-addition jobs and reduction in materials handling have contributed to improvements in the productivity of their employees and the overall efficiency of their operations. oImproving Operational Efficiency – In 2002, Maruti started a program “Challenge 50 initiative” to improve productivity by 50 % and reduce cost by 30 % by 2004-05.
Maruti involved various component suppliers in Challenge 50. Key vendors in collaboration undertook productivity improvement programs with experts from Suzuki.Maruti started implementing new manufacturing techniques and various value analysis and value engineering initiatives. Outbound Logistics: This involves all the process in warehousing and distribution of finished goods. To reach the customers, Maruti has built a strong sales network of 600 outlets spread over 393 towns and cities.
They provide maintenance support to customers through 2628 workshops spread over 1200 towns and cities. Here is a snapshot of their distribution centers Marketing & Sales: This involves identification of customer needs and the generation of sales.Maruti’s marketing objective is to continually offer the customer new products and services that: a) reduce the customer’s cost of ownership of cars; b) Anticipate and address the customer’s needs and preferences in all aspects and stages of car ownership, to provide what MUL refer to as the “360 degree customer experience. ” Maruti came up with novel marketing solutions which increased the sales. It is also finding ways to increase dealer profits without impacting Maruti (getting into auto insurance was one such way).
Here are few of maruti’s marketing strategy oPromotional Offers Maruti has targeted two-wheeler owners with promotional offers. In 2005 Maruti, in association with SBI, offered cash discounts of Rs 4,000 on the M800, the Alto, the Zen, the WagonR and the Omni, and Rs 15,000 on the Esteem, the Baleno and the Versa. Besides, it had come out with an exchange bonus of Rs 5,000 on these vehicles. o‘2599’ offer – In 2004, MUL introduced the ‘2599’ offer under which a consumer could buy an M-800 by paying an EMI of Rs 2,599 only, for a period of seven years.The down payment was fixed at Rs 40,000.
o`Do ka Chaar’ offer for existing two-wheeler owners who can use their motorcycle as the down payment to take home a Maruti 800. oTeacher Plus The company has launched a scheme, `Teacher Plus,’ with State Bank of India. They offered a lower rate of interest for teachers under the scheme. Teachers got a car loan at 8.
5 per cent across all maturities. oTV Commercials – Maruti has come up with many TV commercials