Maruti's CEO Jagdish Khattar (L) and the man from Kosai, Shinichi Takeuchi: Taking on the competition Suzuki style

Less than three months after Shinichi Takeuchi showed up at Maruti Udyog's Gurgaon facility in October 2001, he began packing off production shop heads of the car company in groups of four and five to Suzuki's Kosai facility. The idea was simple. As a 30-year Suzuki veteran and a man entrusted with the task of raising one of Suzuki's most profitable subsidiaries to the parent's stiff benchmarks, Takeuchi wanted the shopfloor honchos to see the change they were being asked to bring about. "Once the objective is clear," says Takeuchi, former Head of the six-lakh-cars-a-year Kosai facility and now Director (Production) at Gurgaon, "improvement is fast."

Takeuchi's aphorism, however, hides the enormity of the task that he and Maruti's CEO Jagdish Khattar have embarked upon, beginning May last year. Innocuously titled Challenge 50, their brief is to increase productivity by 50 per cent and slash costs by almost a third. And lest these targets turn into some arcane balance sheet exercise, Suzuki's Chairman Osamu Suzuki himself has spelt out what it really means: A 30 per cent reduction in the cost price of cars. Considering that Maruti last fiscal spent Rs 5,386 crore on raw materials alone, a 5 per cent reduction alone would add Rs 269 crore to the bottomline. "(With that) we will be more competitive," says Khattar disarmingly. In plain English, it means Maruti will use pricing as a weapon with which to fight competition.

Any other vehicle manufacturer would have been laughed out of the vendor factory for setting such cost targets. For, in a profit-starved industry, prices tend to go only one way: up. But this is Maruti. In the first nine months of 2002-03, it sold 230,000 vehicles in the domestic market-more than double its nearest competitor, Hyundai Motor India did. Its huge volumes give it tremendous leverage with its 360 vendors, who supply seven out of 10 components that go into a Maruti car. And lowering production costs will give Maruti not just more profits, but an advantage over competition. For instance, in July last year, when the company shaved 8 per cent off the 800's sticker price, sales jumped an impressive 51 per cent in the following month. That for a model everybody else thinks should be laid to rest. "Everyone is looking to cut costs, but the pressure on Maruti to make profits is increasing now that it is in Suzuki's control," says a Mumbai-based automotive analyst.

Slash And Burn

Indeed. Last year, Suzuki bought an additional 4.2 per cent stake from its joint venture partner, the Government of India, giving it a controlling stake of 54.2 per cent in Maruti. So, the Indian subsidiary's performance more than ever impacts Suzuki. Not surprising, then, that the productivity campaign (christened Challenge 30 elsewhere) is common to all of Suzuki's manufacturing locations worldwide, and is being championed by Chairman Suzuki himself. Says Takeuchi: "If Maruti is to survive among the global automobile manufacturers, it is necessary to increase its plant-level efficiency."

That's easier said than done, though. Maruti's benchmark, the passenger car manufacturing Kosai plant, is way ahead of the Gurgaon unit on almost every parameter (See Benchmark Suzuki). Besides, Khattar has agreed to reach that target by 2004-05-a tall order by any measure. It also doesn't help that, unlike in Japan, most of Maruti's vendors are small and typically first-generation entrepreneur-owned. Most of them are only now beginning to introduce quality systems at their shopfloors.

To ensure that Maruti doesn't fall short of its ambitious goal, Khattar has brought almost every part of the company under the cost scanner. Even tabletop lights at the workstations in Gurgaon are not beyond Khattar's scalpel. On his part, Takeuchi has redefined the concept of cost. Earlier, cost targets were based on the previous benchmarks and on what the management thought was do-able. Now, benchmarking mantra spells not only 'global', but deliberately 'higher' because of the wide gap between Gurgaon and Kosai (that explains why Maruti's programme is called Challenge 50 and not 30).

Over the last one year, the Suzuki Manufacturing System has been adopted as the Maruti Production System, and every department-be it production, engineering or sales and marketing-has been given targets that fit in with the overall objective. The core focus is kaizen, which aims for continuous improvement in all areas of the business. A plan-do-check-act (PDCA) cycle enables Maruti to identify areas of improvement, stabilise the gains, and then aim for greater improvement. Understandably, this is a cycle that never ends.

Takeuchi has pulled from under the carpet all kinds of wastage-or muda, as the Japanese call it-in the plant. The first obvious wastage spotted was on the assembly line, where the number of steps a worker has to walk to fetch parts and tools from their racks has been (in certain cases) brought down to five from 10-15 earlier. How? By introducing "synchro-trolleys" that move along the conveyor lines, and relocating racks closer to the line operator. With about 200 workers manning one assembly line, the savings have led not just to increase in productivity but safety.

Next on Takeuchi's list is line stoppages. Currently, the Gurgaon facility runs two shifts of eight hours each and an average of 8 per cent of the time (or 77 minutes) is lost either due to set-up changes or non-availability of components. That's now being tackled through quicker set-up techniques (called single-minute exchange of dies or SMED) and vendor development, which will minimise quality problems and delays in shipment.

Simultaneously, Maruti is consolidating its vendors base. About 160 vendors who don't meet strict parameters of quality, cost, productivity and delivery will be dropped, giving the remaining 200 or so better economies of scale and support from Maruti. Already, the vendors are being offered greater transparency into production schedules. They are told 15 days in advance what to supply, how much and when. That in turn will help them meet Maruti's cost targets without sacrificing their own profit margins. Says Sona Group CEO Surinder Kapur: "We are all working towards reducing costs and increasing efficiency. Maruti operates in a competitive environment. It, therefore, needs competitive suppliers."

Apart from working with Maruti on development, some of the vendors are also part of a "cluster" put together by automotive ancillary association, ACMA, with technical help from CII. But quality is hardly a vendor issue alone. Maruti's own assembly quality and efficiency has as much an impact on its competitiveness. Take the installation of door rubber beadings as an example. There is a specific sequence to be followed for making the fitment. If that's not done, it may result in warranty claims at the customer end. Even if it is caught in quality check, costly rework is required. The car needs to be taken off the assembly line to a rework station where extra man-hours will be spent fixing the problem.

The solution? Ensuring that the worker follows the installation sequence to the T, so that there is no scope for rework. Here, Takeuchi has been particularly successful. When he first came, a staggering 14 per cent of the cars would fail the shower test (to check for leakages). Today, the figure stands at less than 1 per cent. Still, he's not happy because that's nine cars too many in every shift. As the next step, Takeuchi wants to do away with the shower test, and put only the 50th vehicle rolling out of the assembly line under it.

That'll save 12 minutes in two shifts. If that seems insignificant, consider that the Gurgaon plant rolls out one car every 50 seconds-which means 24 more cars can be produced every day on the same fixed costs. That's an additional Rs 48 lakh in revenue every day, and Rs 144 crore a year (assuming an average price of Rs 2 lakh and 300 days of production).

Raising quality and efficiency levels across the board, however, has meant more automation. Until five years ago, the Gurgaon plant employed only half-a-dozen robots. Today, it has more than 120. But Khattar clarifies that these are low-cost automation, mostly developed in-house. The aim is not so much to cut manpower as to increase speed and quality.

What happens when Maruti meets the Kosai benchmarks? "There will be new targets to chase," quips Khattar. Indeed.