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 o
Quality 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. o
Information 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. o
Material 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, reducing 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. o
Transportation 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 of 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. o
Improving 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...
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