A SUMMER INTERNSHIP

REPORT ON
SUPPLY CHAIN MANAGEMENT IN MARUTI SUZUKI
UDYOG LIMITED

SUBMITTED IN THE PARTIAL

FULFILLMENT OF THE
TRADE

MASTER OF FOREIGN
(2014-2016)
SUBMITTED BY:AVINASH SINGH
1

MFT 2 ND SEMESTER
ENROLLEMENT No-364011

PREFACE
In the partial fulfillment of Master of Foreign Trade from Banaras
Hindu University, Varanasi. I completed my Summer Internship report
based on my dissertation topic
SUPPLY CHAIN MANAGEMENT IN MARUTI SUZUKI UDYOG
LIMITED.

Work was a bit tough and challenging but, the display to

understand about Supply chain management.

My best to collect analyze and present all the informations as per

respondents Feed back in spite of some limitations.

My work was to attempt to study the Supply Chain

Management. Which I hope can be beneficial for the master of foreign
trade students.

ACKNOWLEDGEMENT
A project is a field of study that cant be completed in a free
space, Rather it is a job that has to be accomplished with a
judicious blend of Cooperation and relentless self labour.
Really it was a tough task for me but I got back up from my all
well wishers. So I want to avail this opportunity to express my
sense of gratitude to all those persons who have helped with
their suggestions and guidance in successful completion of this
period.

I express my deep sense of indebtness to Produt managaer ,

my Internship supervisor, who at every mile stone stretched his
hands to help to me. He supported and guided me at every level
of my project work.
Lastly I would like to thank my colleagues for their supportive
role and unforgettable interest less help to me.

Avinash
Singh

CONTENTS

Page no.

Chapter

1.

Introduction

1-7

1.1

2-7

1.2

Supply Chain Management: A

Conceptual Framework
Objectives of The Study

1.3

Importance of The Study

9-10

1.4

10-12

2.1

Research Methodology: Sources of

data Collection
Automobile Industry: Company
overview
History

2.2

Trends in the Industry

16-17

2.3

Market share of automobile

companies in India
Supply Chain Management in
Maruti Suzuki
Overview of Maruti Suzuki Supply
Chain Management
Supply Chain Management in
Flexible Automotive Products
Problems of Supply Chain
Management in Maruti Suzuki
Summary of Findings and
Suggestions
Bibliography

18-21

3.
3.1
3.2

4.

5.

7-8

13-14
15

22-27
51-52
53-55
56-79
80-82

CHAPTER-1
1- Introduction
Supply chain management (SCM) is the management of the flow of
goods. It includes the movement and storage of raw materials, work-inprocess inventory, and finished goods from point of origin to point of
consumption. Interconnected or interlinked networks, channels and
node businesses are
involved
in
the
provision
of products and services required by end customers in a supply chain. Supply
chain management has been defined 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.
SCM
draws
heavily
from
the
areas
of operations
management, logistics, procurement, and information
technology, and
strives for an integrated approach.

1.1-Supply Chain Management: A Conceptual Framework

Origin of the term and definitions:
The term "supply chain management" entered the public domain when Keith
Oliver, a consultant at Booz Allen Hamilton (now Booz & Company), used it in
an interview for the Financial Times in 1982. The term was slow to take hold.
It gained currency in the mid-1990s, when a flurry of articles and books came
out on the subject. In the late 1990s it rose to prominence as a management
buzzword, and operations managers began to use it in their titles with
increasing regularity.
Commonly accepted definitions of supply chain management include:

The management of upstream and downstream value-added flows of

materials, final goods, and related information among suppliers,
company, resellers, and final consumers

The systematic, strategic coordination of traditional business functions

and tactics across all business functions within a particular company and
6

across businesses within the supply chain, for the purposes of improving
the long-term performance of the individual companies and the supply
chain as a whole

A customer-focused definition is given by Hines (2004:p76): "Supply

chain strategies require a total systems view of the links in the chain that
work together efficiently to create customer satisfaction at the end point
of delivery to the consumer. As a consequence, costs must be lowered
throughout the chain by driving out unnecessary expenses, movements,
and handling. The main focus is turned to efficiency and added value, or
the end-user's perception of value. Efficiency must be increased, and
bottlenecks removed. The measurement of performance focuses on total
system efficiency and the equitable monetary reward distribution to those
within the supply chain. The supply chain system must be responsive to
customer requirements.

The integration of key business processes across the supply chain for
the purpose of creating value for customers and stakeholders (Lambert,
2008)

According
to
the Council
of
Supply
Chain
Management
Professionals (CSCMP), supply chain management encompasses the
planning
and
management
of
all
activities
involved
in sourcing, procurement, conversion, and logistics management. It also
includes coordination and collaboration with channel partners, which may
be suppliers, intermediaries, third-party service providers, or customers.
Supply chain management integrates supply and demand management
within and across companies. More recently, the loosely coupled, selforganizing network of businesses that cooperate to provide product and
service offerings has been called the Extended Enterprise.

A supply chain, as opposed to supply chain management, is a set of

organizations directly linked by one or more upstream and downstream flows
of products, services, finances, or information from a source to a customer.
Supply chain management is the management of such a chain.[8]
Supply chain management software includes tools or modules used to
execute supply chain transactions, manage supplier relationships, and
control associated business processes.

Supply chain event management (SCEM) considers all possible events and
factors that can disrupt a supply chain. With SCEM, possible scenarios can be
created and solutions devised.
In many cases the supply chain includes the collection of goods after
consumer use for recycling. Including third-party logistics or other gathering
agencies as part of the RM re-partitions process is a way of illustrating the
new endgame strategy.

From the Council of Supply Chain Management Professionals

(2010)the material and informational interchanges in the logistical
process, stretching from acquisition of raw materials to delivery of
finished products to the end user. All vendors, service providers, and
customers are links in the supply chain.

From Christopher Martin L. (1992)the network of organizations

that are involved, through upstream and downstream linkages, in the
different processes and activities that produce value in the form of
products and services delivered to the ultimate consumer.

From Coyle, Langley, Novak, and Gibson (2013)A series of

integrated enterprises that must share information and coordinate
physical execution to ensure a smooth, integrated flow of goods,
services, information, and cash through the pipeline.
One important feature of these definitions is the concept of an integrated
network or system. A simplistic depiction of a supply chain, as featured
in Figure 1-1, suggests that a supply chain is linear with organizations
linked only to their immediate upstream suppliers and downstream
customers. It also focuses on only one-way material flow, which fails to
consider vital information, and financial flows, as well as reverse material
flows. Such misconceptions oversimplify reality and fail to reveal the
dynamic nature of a supply chain network.

F
igure 1-1 Linear representation of a supply line
In truth, supply chains require a multiplicity of relationships and numerous
paths through which products and information travel. This is better reflected
by the conceptual diagram of a supply chain in Figure 1-2, in which the
supply chain is a web or network of participants and resources. To gain
maximum benefit from the supply chain, a company must dynamically draw
upon its available internal capabilities and the external resources of its
supply chain network to fulfill customer requirements. This network of
organizations, their facilities, and transportation linkages facilitate the
procurement of materials, transformation of materials into desired products,
and distribution of the products to customers.

Figure 1-2 Network representation of a supply chain

Simple representations aside, it is critical to understand that no two supply

chains are exactly alike. An organizations supply chain structure and
relationships will be influenced by its industry, geographic scope of activity,
supply base, product variety, fulfillment methods, and demand patterns.
Consider, for example, a multinational manufacturer and a local farm-totable restaurant. Both organizations would benefit from strong and stable
supply chains. However, the manufacturers network is at greater risk of
disruption and must integrate geographically diverse suppliers with multiple
selling channels.

10

Related Terms and Concepts:

Supply chain management encompasses a number of business processes,
activities, and goals that are discussed throughout this project. Before
moving forward, it is valuable to clarify their meanings and relevance to
supply chain management.

Logistics Management
Logistics is a fundamental set of supply chain processes that facilitates
fulfillment of demand. The goal is to supply the right product or service, at
the right place, at the right time. The Council of Supply Chain Management
defines logistics management as that part of supply chain management
that plans, implements, and controls the efficient, effective forward and
reverses flow and storage of goods, services and related information
between the point of origin and the point of consumption in order to meet
customers requirements. Whether provided internally, by a supplier, by the
customer, or by an external logistics services provider, these capabilities are
essential for achieving supply chain success.

Supply Management
Supply management focuses on the identification, acquisition, access,
positioning, management of resources, and related capabilities the
organization needs or potentially needs in the attainment of its strategic
objectives (Institute for Supply Management, 2010). For most organizations,
logistics controls the distribution of products; whereas supply management
controls the strategic sourcing of direct materials, finished goods, services,
capital equipment, and indirect materials. Both are needed to ensure optimal
performance of the supply chain.

Value Chain
The concept of a value chain was developed as a tool for competitive
analysis and strategy. It is composed of primary activities (inbound logistics,
operations, outbound logistics, marketing and sales, and service) and
support activities (infrastructure, human resource management, technology
development, and procurement) that work together to provide value to
11

customers and generate profits for the organization (Porter, 1985). A value
chain and a supply chain are complementary views of an extended
enterprise, with integrated supply chain processes enabling the flows of
products and services in one direction, and the value chain generating
demand and cash flows from customers (Ramsey, 2005).

Distribution Channel
Distribution channels support the flow of goods and services from the
manufacturer to the final user or consumer (Council of Supply Chain
Management Professionals, 2010). An organization can establish direct
channels to consumers or rely upon traditional intermediaries such as
wholesalers and retailers to facilitate transactions with final users. The rapid
expansion of the Internet as a key selling platform is forcing manufacturers
and retailers to develop innovative and flexible omni channel capabilities in
their supply chains to fulfill customer demand from stores, distribution
centers, and production locations.

1.2-The Main Objective of this Study is:

Supply Chain Management is consists of all parties (Including Manufacturer,
Marketer, Suppliers, transporters, Warehouses, Retailers and even
customers) directly or indirectly involved in fulfillment of a customer. The
main objectives of Supply chain management are to improve the overall
organization performance and customer satisfaction by improving product or
service delivery to consumer.
Supply Chain Management involves Movement and Storage of all materials
including Raw Material, WIP (Work in Progress) and Finished Goods.

1. To maximize overall value generated:

The higher the supply chain profitability or surplus, the more successful is
the supply chain. The supply chain profitability is the difference between the
amount paid by consumer to purchase the product and the cost incurred by
organization to produce and supply the product to the customer at right
time.
2. To look for Sources of Revenue and Cost:

12

There is only one source of Revenue i.e. customer.

Appropriate management of the flow of information, product or funds is a key
to supply chain success.
3. Replenishment of the Material or Product whenever required
4. Cost Quality Improvement
5. Shortening time to Order
6. Faster Speed to Market
7. Efficient supply chain
8. To achieve world class performance
9. More awareness of supply chain dynamics and efficiency
10. Reduce transportation cost.

Functions:Supply chain management is a cross-functional approach that includes

managing the movement of raw materials into an organization, certain
aspects of the internal processing of materials into finished goods, and the
movement of finished goods out of the organization and toward the end
consumer. As organizations strive to focus on core competencies and
becoming more flexible, they reduce their ownership of raw materials
sources and distribution channels. These functions are increasingly being
outsourced to other firms that can perform the activities better or more cost
effectively. The effect is to increase the number of organizations involved in
satisfying customer demand, while reducing managerial control of daily
logistics operations. Less control and more supply chain partners led to the
creation of the concept of supply chain management. The purpose of supply
chain management is to improve trust and collaboration among supply chain
partners, thus improving inventory visibility and the velocity of inventory
movement.

The main functions and components of SCM include:

13

Defining business boundaries and relationships

Managing demand and supply

Logistics

Purchasing

Selling system interface

Manufacturing system interface

Product design interface

. Defining business boundaries and relationships is at the core of all SCM
initiatives. The most important of these business boundaries relates to the
decisions on outsourcing. In addition to general concept of what to
manufacture and process in-house, these boundaries also refer to the roles
played by supplier and buyers in each others business decision and
operational activities.
Demand management is managing the demand for goods and services along
the supply chain. The basic demand is the demand for the ultimate product
or service from the end user. To meet this demand of end user, different links
in the supply chain need to supply some goods or service to the following
link in the chain. In turn to meet their supply commitment they need inputs
from the previous link.
Logistics refers to all the processes involved in storing, moving, transporting
or in any other way handling material. Role of logistics in activities before
start of material and after completion of manufacture up to transportation to
the immediate customer has been well recognized in the past also. But the
logistics cost and effectiveness is also affected by, and in turn affects all
other activities along the supply chain.
Purchasing has the closest links with the supply side of the supply chain. It
plays a key role in the total SCM functions. At strategic level, purchasing
plays a decisive role in decisions on and implementation of business
boundaries. It acts as a link between the vendors and the company to get

14

involvement and help of vendors in matters like purchased material

specification, matching of lot sizes and transportation packing.
Selling is the closest link with the demand side of the supply chain. It is
directly responsible to help customer know, select, buy, pay for, and take
away companys product. These products may be sold to the customers
directly or through a distribution network. Sales play an important part in
decision on design of the distribution and are directly involved in its day-today operations.
Manufacturing represents the core of internal operations of a company. No
SCM policies can operate in isolation from the manufacturing activities.
Manufacturing supports SCM in many ways like, reducing manufacturing lead
times and supplying material closely matched to customer lot size and time
requirements.
Product design has significant impact on efficiency and effectiveness of both
supply and demand side of supply chain. In addition the basic quality of the
finished product sold to the end user can be improved substantially by better
collaboration among channel partners.

1.3-Importance:Organizations increasingly find that they must rely on effective supply

chains, or networks, to compete in the global market and networked
economy.[11] In Peter Duckers (1998) new management paradigms, this
concept of business relationships extends beyond traditional enterprise
boundaries and seeks to organize entire business processes throughout a
value chain of multiple companies.
In
recent
decades,
globalization,
outsourcing,
and information
technology have enabled many organizations, such as Dell and Hewlett
Packard, to successfully operate collaborative supply networks in which each
specialized business partner focuses on only a few key strategic activities
(Scott, 1993). This inter-organizational supply network can be acknowledged
as a new form of organization. However, with the complicated interactions
among the players, the network structure fits neither "market" nor
15

"hierarchy" categories (Powell, 1990). It is not clear what kind of

performance impacts different supply network structures could have on
firms, and little is known about the coordination conditions and trade-offs
that may exist among the players. From a systems perspective, a complex
network structure can be decomposed into individual component firms
(Zhang and Dilts, 2004). Traditionally, companies in a supply network
concentrate on the inputs and outputs of the processes, with little concern
for the internal management working of other individual players. Therefore,
the choice of an internal management control structure is known to impact
local firm performance (Mintzberg, 1979).
In the 21st century, changes in the business environment have contributed
to the development of supply chain networks. First, as an outcome of
globalization and the proliferation of multinational companies, joint ventures,
strategic alliances, and business partnerships, significant success factors
were
identified,
complementing
the
earlier
"just-in-time", lean
manufacturing, and agile manufacturing practices. Second, technological
changes, particularly the dramatic fall in communication costs (a significant
component of transaction costs), have led to changes in coordination among
the members of the supply chain network (Coase, 1998).
Many researchers have recognized supply network structures as a new
organizational form, using terms such as "Keiretsu", "Extended Enterprise",
"Virtual Corporation", "Global Production Network", and "Next Generation
Manufacturing System". In general, such a structure can be defined as "a
group of semi-independent organizations, each with their capabilities, which
collaborate in ever-changing constellations to serve one or more markets in
order to achieve some business goal specific to that collaboration"
(Akkermans, 2001).
The security management system for supply chains is described in ISO/IEC
28000 and ISO/IEC 28001 and related standards published jointly by
the ISO and the IEC.Supply Chain Management draws heavily from the areas
of operations management, logistics, procurement, and information
technology, and strives for an integrated approach.
Other benefits and Importance of Supply Chain Management:

Reduces inventory costs

Provides better medium for information sharing between partners
16

Improve customers satisfaction as well as services

Maintains better trust between partners
Provides efficient manufacturing strategy
Improve process Integration
Improves bottom line ( by decreasing the use of fixed assets in the
supply chain )
Increase cash flow
Improve quality and gives higher profit margin.

Sources of Data Collection:

In order to achieve the desired objectives of the study, mainly secondary
data has been used. Various books, journals, internet, reports and other form
of literatures have been referred to gather the required information. The
information collection has been done by using a verity of sources as
mentioned and some other data has been collected by the help of research
scholars and students. The data collected had been tabulated and analyzed
with the help of suitable books.

CHAPTER-2
2. Automobile Industry
The automotive industry in India is one of the larger markets in the world.
It had previously been one of the fastest growing markets globally, but is
currently experiencing flat or negative growth rates. India's passenger car
and commercial vehicle manufacturing industry is the sixth largest in the
17

world, with an annual production of more than 3.9 million units in 2011.
According to recent reports, India overtook Brazil and became the
sixth largest passenger vehicle producer in the world (beating such old and
new auto makers as Belgium, United Kingdom, Italy, Canada, Mexico, Russia,
Spain, France, and Brazil), grew 16 to 18 percent to sell around three million
units in the course of 2011 and 2012. In 2009, India emerged as Asia's fourth
largest exporter of passenger cars, behind Japan, South Korea, and Thailand.
In 2010, India beat Thailand to become Asia's third largest exporter of
passenger cars.
As of 2010, India is home to 40 million passenger vehicles. More than 3.7
million automotive vehicles were produced in India in 2010 (an increase of
33.9%), making the country the second (after China) fastest growing
automobile market in the world in that year. According to the Society of
Indian Automobile Manufacturers, annual vehicle sales are projected to
increase to 4 million by 2015, no longer 5 million as previously projected.[1]
The majority of India's car manufacturing industry is based around three
clusters in the south, west and north. The southern cluster consisting
of Chennai is the biggest with 35% of the revenue share. The western hub
near Mumbai and Pune contributes to 33% of the market and the northern
cluster around the National Capital Region contributes 32%. Chennai, houses
the
India
operations
of Ford,
Hyundai, Renault, Mitsubishi, Nissan, BMW, Hindustan
Motors, Daimler, Caparo, Mini, and Datsun. Chennai accounts for 60% of the
country's automotive exports. Gurgaon and Manesar in Haryana form the
northern cluster where the country's largest car manufacturer, Maruti, is
based. The Chakan corridor near Pune, Maharashtra is the western cluster
with
companies
like Motors,
Volkswagen, Skoda, Mahindra
and
Mahindra, Tata
Motors, Mercedes
Benz, Land
Rover, Jaguar
[11][12]
Cars, Fiat and Force
Motors
having
assembly
plants
in
the
area. Nashik has a major base of Mahindra and Mahindra with a SUV
assembly
unit
and
an
Engine
assembly
unit.
Aurangabad with Audi, Skoda and Volkswagen also forms part of the western
cluster. Another emerging cluster is in the state of Gujaratwith
manufacturing facility of General Motors in Halol and further planned for Tata
Nano at their plant in Sanand. Ford, Maruti Suzuki and Peugeot-Citroen plants
are
also
set
to
come
up
in
Gujarat. Kolkata with Hindustan
Motors, Noida with Honda and Bangalore with Toyota are some of the other
automotive manufacturing regions around the country.
18

In 2011, there were 3,695 factories producing automotive parts in all of

India. The average firm made US$6 million in annual revenue with profits
close to US$400 thousand.

19

Company Overview

If you have travelled in India, taken a route to anywhere around this

great nation, chances are youve driven with us. For over three
decades now, Maruti Suzuki cars have been going places.
Maruti started out in 1982 in Gurgaon, Haryana. Little did the then quiet
suburb of New Delhi know that it was going to become the epicenter of the
automobile revolution in India. The year marked the birth of the Maruti
Suzuki factory. India turned out 40,000 cars every year. The new Maruti
Suzuki 800 hit the streets to begin a whole new chapter in the Indian
automobile industry.
We set out with an obsession for customer delight, one that was unheard in
the corridors of automobile manufacturers then. It was about a commitment
to create value through innovation, quality, creativity, partnerships,
openness and learning. It created a road that was going to lead the world in
to a whole new direction, laid out by Maruti Suzuki.
Today, Maruti Suzuki alone makes 1.5 million Maruti Suzuki family cars every
year. Thats one car every 12 seconds. We drove up head and shoulders
above every major global auto company. Yet our story was not just about
making a mark. It was about revolutionary cars that delivered great
performance, efficiency and environment friendliness with low cost of
ownership. Thats what we call true value. We built our story with a belief in
small cars for a big future. Our story encouraged millions of Indians to make
driving a way of life. India stepped up with our vision to take on the fast lane.
A comradeship had begun. Something incredible had begun.
So, what drives us? Millions of Indians whove put their faith in us. A team of
over 9000 dedicated and passionate professionals that turned out 14 cars
with over 150 variants. The drive is backed up by a nationwide service
network spanning over 1422 cities and towns and a sales network that
spreads across 980 cities, 2 state of the art factories. A diesel engine plant
with a capacity upped to turn out 7 lakh diesel cars a year. And a
commitment to road safety to make Indian roads safer.
20

Finally, our inspiration comes from one place Indias hopes, dreams and
aspirations. The Maruti Suzuki journey has been nothing less than
spectacular. But to be honest, weve only just begun.

Vision & Core Values

We have chosen a road and that drives us extra miles to achieve every
endeavour. Here is what we at Maruti Suzuki believe in:

Customer Obsession

Fast, Flexible & First Mover

Innovation & Creativity

Networking & Partnership

Openness & Learning

OUR STRENGTH
Technology
21

Better thinking. Better processes. Better technologies. More

sensitivity. It's what helps us create better cars and of course, a
better way of life.
Big ideas that make a difference to your life. They're what power the Maruti
Suzuki philosophy of cars for a Big Future. It's the cornerstone of all that we
do, be it a more aerodynamic shell for a concept car, or a better way to
recycle wastewater at our plants. It's what drives the R&D efforts of our team
of over 1000 engineers and service quality across all Maruti Suzuki dealers
and service centers in India. Today, working shoulder to shoulder with Team
Suzuki, our R&D team has added many achievements to its portfolio:

36 new and refreshed Maruti Suzuki models launched in India in the last
six years

Created a superior Maruti Suzuki Swift, already one of India's most loved
cars. The new avatar of Maruti Suzuki Swift was mounted on a new platform
with new features and offering superior fuel efficiency.

Some of the most fuel efficient petrol cars in India come with the Maruti
Suzuki badge. Even better, their efficiency seems to further improve with a
face-lift every few years

Breathtaking concepts like the Concept A-Star, Concept r III and the latest,
Concept XA Alpha and many more upcoming Maruti Suzuki models

Launch of factory-fitted CNG variants for five models. These Maruti Suzuki
cars use the state-of-the-art i-GPi technology.

Almost all of Maruti Suzukis small cars, sedans, and hatchback comply
with ELV norms of Europe, which means they are free from any hazardous
material, and can be fully recycled.
But all this is already done. We're looking at the road ahead. With a view to
enhance our capabilities, we are setting up a state-of-the-art R&D centre in
Rohtak, Haryana at an investment of Rs. 2000 crore. Spread over an area of
600 acres, this R&D center will be equipped to churn out not just high
mileage petrol cars, but test tracks and labs among many other advanced
facilities that will be operational by 2015.

22

Cost of Ownership
Buy it, run it or sell it, a Maruti Suzuki car gives you an unmatched
value.
The price of high mileage petrol cars in India is just a third of what you will
pay for over its lifetime. The balance two-thirds include, maintenance, cost of
spares and service, and resale. Together, they make up what is called the
cost of ownership. It's where nothing can beat a Maruti Suzuki car.
India, we know, is driven by a deep value consciousness. Every year on an
average, our manufacturing units churn out around 1.2 million petrol cars
and diesel cars. Economies of scale help us in keeping our manufacturing
cost low. The continued VA-VE initiatives (Value Analysis & Value Engineering)
pursued aggressively in partnership with vendors also helps reduce the cost
of making Maruti Suzuki cars without compromising on quality
Maruti Suzuki models are designed with superior specifications to last longer.
This gives you a high resale value and demands less service over its lifetime.
At the heart of Maruti Suzuki cars are the advanced K-series petrol and DDiS
engines, built on the Suzuki belief of delivering 'more for less'. You get more
power and more driving, for lesser fuel consumption and lower CO 2 emission.
This is how we make the most fuel efficient petrol car in India and get a
mileage-obsessed nation to ask, "Kitna deti hai?"
Service and spares are other critical components of the cost of ownership
story. The widest network of Maruti Suzuki service centres, known for an
unmatched 'first-time right' score, also ensures maintenance costs are the
lowest. Add to this readily available spares, with a high degree of
indigenization. It's what has won us the No.1 in Customer Satisfaction in the J
D Power Asia Pacific Survey for 14 years in a row.
That's why you don't just buy a Maruti Suzuki. You invest in it.

Range of Cars
India comes home in a Maruti Suzuki and we're not surprised! It's
been our mission to provide a car for every individual, family, need,
budget and way of life.

23

That's why we offer 14 brands and over 150 variants ranging from Alto 800
to the latest Life Utility Vehicle, Ertiga. Our portfolio includes the Alto 800,
Alto K10, WagonR, Celerio, StingRay, Ritz, Swift, Swift DZire, SX4, Ertiga,
Omni, Eeco, Gypsy and Grand Vitara.

Widest Network
Yes, you can get lost in India, but chances are, that there will be a
Maruti Suzuki Dealer or a Maruti Suzuki Service Station close at
hand. Wherever you go, across the length and breadth of this vast
nation, our service network follows.
It's the widest service network. It's the deepest service network. And, when
you service 40,000 diesel and petrol cars a day with an unmatched 'first-time
right' score, we can say that you won't find a better, more committed service
network anywhere in the world.

24

We've even got an award for it. Maruti Suzuki Service has been No.1 in the J
D Power Customer Satisfaction Award for 14 years in a row. It's a survey that
rates the after-sales service experience, one that no other global car market
leader has won even once.
How do we pull this feat off? That's because across our over 3047 nationwide
service outlets, the only thing our 33000 strong trained service professional
have on their mind is your delight. Complete with vehicle finance, believe us
when we say that Maruti Suzukis wide range of cars is a one-stopinvestment to happiness!

Marutians
Innovation. Dedication. Responsibility. Ownership.

These are the virtues that connect a Marutian to the organization. Maruti
Suzuki offers a unique opportunity for professional and personal growth as
part of a multi-faceted organization where all work as one. To most
Marutians, their colleagues have been part of an extended family.
With a cross cultural and trans- national mix of generations working together
as one team, we maintain and provide the perfect balance of energy,
experience and exposure. At Maruti Suzuki, while excellence is an integral
part of our work culture, we are steadfast in an ethical approach across
dimensions.
Marutians across the country are all united by a common bond. It's not a
workforce, but people power at work, an empowered team that is quite
unlike any other.
Accolades
Maruti Suzuki is the leading car and car-products manufacturer in India. So
it's no surprise that the company has been showered with awards ever since
its inception! It would be impossible to list all the awards won by the
company. So a few have been picked and shown below.

25

Company of the year 2010-11

2.1-History
The first car ran on India's roads in 1897. Until the 1930s, cars were imported
directly, but in very small numbers.
An
embryonic
automotive
industry
emerged
in
India
in
the
1940s. Hindustan was launched in 1942, long time competitor Premier in
1944.
They
built GM and Fiat products
respectively. Mahindra
&
Mahindra was established by two brothers in 1945, and began assembly
of Jeep CJ-3A utility vehicles. Following the independence, in 1947, the
Government of India and the private sector launched efforts to create an
automotive component manufacturing industry to supply to the automobile
industry. In 1953 an import substitution program was launched, and the
import of fully built-up cars began to be impeded.
However, the growth was relatively slow in the 1950s and 1960s due to
nationalization and the license raj which hampered the Indian private sector.
Total restrictions for import of vehicles were set and after 1970 the
automotive industry started to grow, but the growth was mainly driven by
tractors, commercial vehicles and scooters. Cars were still a major luxury
item. In the 1970s price controls were finally lifted, inserting a competitive
element into the automobile market. By the 1980s, the automobile market
was still dominated by Hindustan and Premier, who sold superannuated
products in fairly limited numbers. During the eighties, a few competitors
began to arrive on the scene.
To promote the auto industry the government started the Delhi Auto
Expo which was had its debut showcasing in 1986. The Auto Expo of 1986
26

was a window for technology transfers showing how the Indian Automotive
Industry was absorbing new technologies and promoting indigenous research
and development for adapting these technologies for the rugged Indian
conditions. The 9 day show was marked by then Prime Minister Rajiv Gandhi.

Maruti Suzuki:Maruti Suzuki India Limited (/marutti suzuki/), commonly referred to

as Maruti and formerly known as Maruti Udyog Limited, is an automobile
manufacturer in India. It is a subsidiary of Japanese automobile and
motorcycle manufacturer Suzuki. As of November 2012, it had a market
share of 37% of the Indian passenger car market. Maruti Suzuki
manufactures and sells a complete range of cars from the entry level Alto, to
the
hatchback Ritz
,A-Star, Swift, Wagon
R, Zen and
sedans DZire, Kizashi and SX4, in the 'C' segment Eeco, Omni, Multi Purpose
vehicle Suzuki Ertiga and Sports Utility vehicle Grand Vitara.
The company's headquarters are at No 1, Nelson Mandela Road, New Delhi.
[2]
In February 2012, the company sold its ten millionth vehicles in India.
Originally, 18.28% of the company was owned by the Indian government,
and 54.2% by Suzuki of Japan. The BJP-led government held an initial public
offering of 25% of the company in June 2003. As of May 2007, the
government of India sold its complete share to Indian financial institutions
and no longer has any stake in Maruti Udyog.
Maruti Udyog Limited (MUL) was established in February 1981, though
the actual production commenced in 1983 with the Maruti 800, based on
the Suzuki Alto kei car which at the time was the only modern car available
in India, its only competitors - the Hindustan Ambassador and Premier
Padmini - were both around 25 years out of date at that point. Through 2004,
Maruti Suzuki has produced over 5 Million vehicles. Maruti Suzukis are sold in
India and various several other countries, depending upon export orders.
Models similar to those made by Maruti in India, albeit not assembled or fully
manufactured in India or Japan are sold by Pak Suzuki Motors in Pakistan.
The company exports more than 50,000 cars annually and has domestic
sales of 730,000 cars annually. Its manufacturing facilities are located at two
facilities Gurgaon and Manesar in Haryana, south of Delhi. Maruti Suzukis
Gurgaon facility has an installed capacity of 900,000 units per annum. The
Manesar facilities, launched in February 2007 comprise a vehicle assembly
27

plant with a capacity of 550,000 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 14, 50,000
units annually.
About 35% of name="market share" all cars sold in India are made by
Maruti.
The
company
is
currently
56.21%
owned
by
the
Japanese multinational Suzuki Motor Corporation per cent of Maruti Suzuki.
The rest is owned by public and financial institutions. It is listed on
the Bombay Stock Exchange and National Stock Exchange of India.
During 2007 and 2008, Maruti Suzuki sold 764,842 cars, of which 53,024
were exported. In all, over six million Maruti Suzuki cars are on Indian roads
since the first car was rolled out on 14 December 1983.
The Suzuki Motor Corporation, Maruti's main stakeholder, has been a global
leader in mini and compact cars for three decades. Suzukis strategy is to
utilize light-weight, compact engines with stronger power, fuel-efficiency and
performance capabilities. Nearly 75,000 people are employed directly by
Maruti Suzuki and its partners. It has been rated first in customer satisfaction
among all car makers in India from 1999 to 2009 by J D Power Asia
Pacific. Maruti Suzuki will be introducing new 800 cc model by Diwali in
2012.The model is supposed to be fuel efficient, and therefore more
expensive. With increasing market competition in the small car segment, a
new model along with the upcoming WagonR Stingray will be the key fresh
products for Maruti Suzuki India (MSI) to defend its market share amid the
ever increasing competition.

Beginnings
Maruti's history begins in 1970, when a private limited company named
'Maruti technical services private limited' (MTSPL) is launched on November
16, 1970. The stated purpose of this company was to provide technical
know-how for the design, manufacture and assembly of "a wholly indigenous
motor car". In June 1971, a company called 'Maruti limited' was incorporated
under the Companies Act and Sanjay Gandhi became its first managing
director.[16] After a series of scandals, "Maruti Limited" goes into liquidation in
1977. This is followed by a commission of inquiry headed by Justice A. C.
Gupta, which submits its report in 1978. On 23 June 1980 Sanjay Gandhi dies
when a private test plane he was flying crashes. A year after his death, and
28

at the behest of Indira Gandhi, the Indian Central government salvages

Maruti Limited and starts looking for an active collaborator for a new
company: Maruti Udyog Ltd being incorporated in the same year.

Suzuki Enters
In 1982, a license and Joint Venture Agreement (JVA) is signed between
Maruti Udyog Ltd. and Suzuki of Japan. At first, Maruti Suzuki was mainly an
importer of cars. In India's closed market, Maruti received the right to import
40,000 fully built-up Suzukis in the first two years, and even after that the
early goal was to use only 33% indigenous parts. This upset the local
manufacturers considerably. There were also some concerns that the Indian
market was too small to absorb the comparatively large production planned
by Maruti Suzuki, with the government even considering adjusting the petrol
tax and lowering the excise duty in order to boost sales. Finally, in 1983,
the Maruti 800 is released. This 796 cc hatchback is based on the SS80
Suzuki Alto and is Indias first affordable car. Initial product plan is 40%
saloons, and 60% Maruti Van.[18] Local production commences in December
1983. In 1984 the Maruti Van, with the same three-cylinder engine as the
800, is released. Installed capacity of the plant in Gurgaon, reaches 40,000
units.
In 1985 the Suzuki SJ410-based Gypsy, a 970 cc 4WD off-road vehicle, is
launched. In 1986 the original 800 is replaced by an all-new model of the
796 cc hatchback Suzuki Alto/Fronte. This is also when the 100,000th vehicle
is produced by the company. In 1987 follows the company's first export to
the West, when a lot of 500 cars were sent to Hungary. Maruti products had
been exported to certain neighboring countries already. By 1988, the
capacity of the Gurgaon plant is increased to 100,000 units per annum.

29

2.2-Trends in the Industry:

Traditionally, domestic manufacturers have dominated the

market in the United States.

The top three domestic manufacturers include:

General Motors
Ford
DaimlerChrysler

Top domestic manufacturers have concentrated on the market for sport

utility vehicles and light trucks. This narrow concentration has allowed
foreign manufacturers, primarily Japanese manufacturers, to steal some of
the market share for cars

30

The Market Today:

In the past few years, General Motors, Ford, and DaimlerChryslers

market share for cars has been cut in half.

While domestic manufacturers still dominate their foreign competitors,

the Japanese market share of cars is growing.

Consumers are choosing Japanese cars over domestic because of their

competitive price, and high quality reputations.

These advantages are results of a very organized and innovative way

of doing business.

Honda:

Hondas Operational practices show a great example of the innovations

the Japanese automobile manufacturers perform.

31

2.3-Market share of automobile companies in India:-

Indian automotive industry is one of the largest auto markets in the world. It
has grown up very fast in last one decade due to rising family income,
changing lifestyle, low vehicle penetration, easy finance availability, rapid
urbanization and poor public transport system. But current year auto market
growth is in flat to negative due to slowdown in economy growth. However
market is expected to recover from next financial year 2014-15.
Indias passenger car and commercial vehicle manufacturing
industry is 6th largest in the world after China, US, Japan, Brazil and
Germany.

32

The long term demand seems to be very strong due to growing demand,
policy support and increasing investment.
According to IHS Automotive, India will become the 3rd largest automotive
market in the world by 2016.
Now, this article will present the information about top players in automotive
industry in each segment.
Indian automobile industry is clearly dominated by 2 to 3 players in every
vehicle category. Given below is the market share of automobile companies
in India 2013. The market share is mainly for top players in each segment
based on vehicle production for the period Apr13 to Nov13.

Cars & Utility Vehicles

Cars & Utility Vehicles: Company Wise Market Share In India

33

India has produced more than 3.2 Million Cars & Utility vehicles in FY 12-13.
Maruti Suzuki, Hyundai, Mahindra & Mahindra, Tata Motors and Toyota
companies stands in top 5 In terms of market share, followed by Nissan,
Ford, Honda, General Motors, Volkswagen, Renault, Skoda, Fiat, etc.

LCV, M&HCV

LCV, M&HCV: Company Wise Market Share In India

34

India has produced more than 8.3 Lakh LCV, M&HCV vehicles in FY 12-13.
Tata, Mahindra & Mahindra, Ashok Leyland, Eicher and Force companies
stands in top 5 In terms of market share, followed by Swaraj Mazda, Piaggio,
and AMW etc.

3 Wheelers

3 Wheelers: Company Wise Market Share In India

India has produced around 8.4 Lakh Three wheeler vehicles in FY 12-13. Bajaj
Auto, Piaggio, TVS, Mahindra & Mahindra and Atul Auto companies stands in
top 5 In terms of market share, followed by Scooters India, Force.

Tractors

35

Tractors: Company Wise Market Share In India

India has produced around 5.8 Lakh tractors in FY 12-13. Mahindra &
Mahindra, TAFE, Escorts, International Tractors and John Deere companies
stands in top 5 In terms of market share, followed by New Holland, VST,
Same Deutz, Force, HMT and Punjab Tractors.
Analysis Source: The analysis of the article is based on the SIAM, ACMA,
CRISIL and sales announcements by respective companies
Graphs Source: Graphs for data analysis is prepared by Ravi Kishore.
Copyright @ www.currentweek.com

Maruti Suzuki Financial Performance:-

36

NET SALES AND PAT:-

37

SALES VOLUME:-

38

Director Report:-

The directors have pleasure in presenting the 32nd annual report together
with the audited accounts for the year ended 31st March 2013.

FINANCIAL RESULTS

The Companys financial performance during the year 2012-13 as compared

to the previous year 2011-12 is summarized below:

(Rs. in millions)

Years

2012-13

2011-12

Total revenue

444,003

364,139

Profit before tax

29,910

21,462

Tax expense

5,989

5,110
39

Profit after tax

23,921

16,352

Balance brought forward

130,777

118,578

Addition on amalgamation

3,565

Profit available for appropriation

158,263

134,930

Appropriations:

General reserve

2,392

1,635

Proposed dividend

2,417

2,167

Corporate dividend tax

411

Balance carried forward to balance sheet-153,043

351

130,777

40

FINANCIAL HIGHLIGHTS

The total revenue (net of excise) was Rs. 444,003 million as against Rs
364,139 million in the previous year showing an increase of 22 percent. Sale
of vehicles in the domestic market was 1,051,046 units as compared to
1,006,316 units in the previous year showing an increase of
4 per cent. Total number of vehicles exported was 120,388 units as
compared to 127, 379 units in the previous year.
Profit before tax (PBT) was Rs. 29,910 million against Rs. 21,462million
showing an increase of 39 per cent and profit after tax (PAT) stood at Rs.
23,921 million against Rs. 16,352 million in the previous year showing an
increase of 46 per cent.

DIVIDEND

The board recommends a dividend of Rs. 8 (eight) per equity share of Rs. 5
each for the year ended 31st March 2013 amounting to Rs. 2,417million.

OPERATIONAL HIGHLIGHTS

The operations are exhaustively discussed in the report on ''Management

Discussion and Analysis'' which forms part of this annual report.

41

CRISIL RATINGS

The Company was awarded the highest financial credit rating of AAA/stable
(long term) and A1 (short term) on its bank facilities by CRISIL. The rating
underscores the financial strength of the Company in terms of the highest
safety with regard to timely fulfillment of its financial obligations.

QUALITY

The Company was again awarded

ISO:27001 certification by STOC Directorate (Standardization, Testing and

Quality Certificate), Ministry of Communications and Information Technology,
Government of India after re-assessment. The Company has established and
is maintaining an Information Security Management System.
During the year, ISO 14001 Surveillance audit was carried out by M/s AVI,
Belgium and the auditors recommended continuation of the ISO 14001.
The quality management system of the Company is certified against
ISO9001:2008 Standard. Re-assessment of the quality systems is done at
regular intervals and re-certification assessments are done at every 3years
by an accredited third party agency. Also, the Company has an internal
assessment mechanism to verify and ensure adherence of defined quality
systems across the Company.

AWARDS/RECOGNITION/ RANKINGS

42

J. D. Power Asia Pacific 2012 Customer Satisfaction Index (CSI) Study ranked
the Company highest for the 13th time in a row.
Golden Peacock Award - 2012 for occupational health and safety in
automobile sector.

Golden Peacock Award - 2012 for sustainability.

Some of the awards given to Ertiga were:

MUV of the year by Car India Awards

- MPV of the year by ET Zig wheels, Auto car India and BS Motoring 2013

Compact SUV for the year by CNBC Overdrive

- Top Gear family car of the year

Some of the awards given to Alto 800 were:

43

- Entry Hatchback Car of the Year 2012 by NDTV CNBC Awards 2013
Entry-level Hatchback Car of the Year by ET Zig wheels Awards 2012

- Best Value for Money Car of the year by Auto car Awards2013

Compact Car of the year by CNBC Overdrive

- Viewers Choice by CNBC Overdrive

Some of the awards given to Swift DZire were:

Compact Sedan of the year 2013

Compact Sedan of the year by Car India
Midsized Car of the year by CNBC Overdrive
The Company ranked third in the list of 100 most successful and
influential companies in India listed by TLG Partners, London.
Mr. R. C. Bhargava, Chairman was awarded the Automobile Person of
the
Year 2013 by NDTV Profit.

SUBSIDIARY COMPANIES AND THEIR ACCOUNTS

The Companys subsidiaries which were engaged in the business of

insurance distribution in the past generated an investment income of Rs.
44

141.75 million including a dividend income of Rs. 8.93 million and long term
capital gain of Rs. 132.82 million through mutual funds. The
Company''ssubsidiary ''True Value Solutions Limited'' has contributed
towards smooth operations of business processes and supported the
dealerships in enhancing the sale of pre-owned cars under the brand Maruti
True Value. It has contributed significantly to the efforts of customer
retention by facilitating sale and re-purchase of new cars through exchange
and has made significant contribution towards enhancing dealers''
profitability.

In terms of the general circular dated 8th February 2011 issued by the
Government of India, Ministry of Corporate Affairs, the balance sheets, profit
& loss accounts, reports of the board of directors and auditors of the
subsidiary companies have not been attached with the balance sheet of the
Company. Annual accounts of the subsidiary companies and the related
detailed information shall be made available to shareholders of the Company
and subsidiary companies seeking such information at any point of time. The
annual accounts of the subsidiary companies shall also be available for
inspection by any shareholder at the head office of the Company and of the
subsidiary companies. Hardcopy of details of accounts of subsidiaries shall
be furnished to any shareholder on demand. Further, pursuant to Accounting
Standard - 21issued by the Institute of Chartered Accountants of India,
consolidated financial statements presented by the Company include the
financial information of its subsidiaries.

AMALGAMATION
During the year under review, Suzuki Power train India Limited (SPIL)was
amalgamated with and into the Company vide the order of the Hon''ble High
Court of Delhi dated 29th January 2013. The order was filed with the
Registrar of Companies, Ministry of Corporate Affairs on17th March 2013.
The appointed date of amalgamation was 1st April 2012.Pursuant to the
scheme of amalgamation, 1,3170,000 equity shares of Rs.5/- each were
allotted to Suzuki Motor Corporation on 29th March 2013and the paid up
equity capital stands increased to Rs. 1,510 million.

45

HUMAN RESOURCE DEVELOPMENT

To have a sustainable competitive advantage in the new knowledge
economy, learning is a key catalyst for an organizations survival and
success. The Company, therefore, provided tremendous learning and
development opportunities to its employees, starting from induction and
orientation program for all the new joiners to regular training programs to
develop and enhance the skill levels (functional and behavioral) for all the
employees. The training programs varied and were tailored according to the
business requirements, employee needs at various levels and are designed
with the help of a thorough and well structured process of need identification
connected to the business demands. The Companys annual training
calendar encompassed training programs for all categories of employees i.e.
associates, supervisors and junior, middle, senior and top management level.
To ensure a well-rounded development of all the employees, the training
calendar comprised of behavioral, functional, safety and environment
trainings.
In 2012 -13, a total of 48,300 man-days of training were conducted for the
employees across all the levels. This translates to an average of5.15 days of
training per employee. The functional and technical trainings formed an
important part of the Companys annual training calendar as they are
directly linked with the employees'' role and on the job performance. These
trainings were imparted by in-house subject matter experts as well as by
identified external trainers. Some of the functional trainings imparted
internally are 3G,3K,5S,Design Failure Mode Effects Analysis (DFMEA),
environment, product training and Quality Control (OC) tools. Examples of
few functional trainings which are done by external trainers are finance for
non-finance, six sigma, project management, inventory and warehouse
management, world class manufacturing practices, auto cad, MS excel,etc.

46

The behavioral trainings also formed a considerable portion of the training

calendar and included trainings on subjects like negotiation skills, problem
solving and decision making skills, presentation and communications skills,
conflict management and resolution, assertiveness and self confidence, time
management and multi tasking skills, leading effectively, inter personal
relationships, personal
effectiveness, work life
interviewing skills, etc.

balance,

team

working,

competency

based

Workshops were designed specifically for the women employees to help

them understand challenges at work woman, managing perceptions,
expectations and disappointments, self-esteem, balancing work and home
and managing stress.

The Company also provided higher education schemes for its employees. It
helped not only to groom and retain the high potential young managers but
also enabled employees to fulfill their career enhancement aspirations, while
still working in the organization. The scheme included programs like executive MBA (full time and part time) at select campuses. The scheme
was available for employees at levels of assistant managers to managers.

DIRECTORS
Mr. Amal Ganguli, Mr. Keiichi Asai and Mr. D. S. Brar, Directors of the
Company, retire by rotation at the ensuing annual general meeting and
being eligible, offer themselves for re-appointment. Mr. M. S.
Banga,
Independent Director resigned from the board of the Company with effect
from close of business hours of 26th October 2012. Mr. R. P. Singh was
appointed as an Independent Director in the casual vacancy caused by the
resignation of Mr. M.S. Banga. Mr. Shinzo Nakanishi retired from the post of
MD & CEO of the Company with effect from close of business hours of 31st
March 2013. Mr. Kenichi Ayukawa was appointed as the MD& CEO of the
Company with effect from 1st April 2013.
47

DIRECTORS'' RESPONSIBILITY STATEMENT

As required under section 217(2AA) of the Companies Act, 1956, your
directors confirm:

a) that there were no material departures in the applicable accounting

standards followed while preparing the annual accounts;

b) having selected such accounting policies and applied them consistently

and made judgments and estimates that are reasonable and prudent so as to
give a true and fair view of the state of affairs of
the Company at the end of the financial year and of the profit of the
Company for that period;

c) having taken proper and sufficient care for the maintenance of adequate
accounting records in accordance with the provisions of the Companies Act,
1956, for safeguarding the assets of the Company and for preventing and
detecting fraud and other irregularities; and

d) Having prepared the annual accounts on a going concern basis.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN
EXCHANGE EARNINGS AND OUTGO

A statement giving details of conservation of energy, technology absorption,

foreign exchange earnings and outgo in accordance with the Companies
(Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 is
annexed as Annexure A.
48

PERSONNEL
As required by the provisions of section 217(2A) of the Companies Act,1956,
read with the Companies (Particulars of Employees) Rules, 1975,as amended,
the names and other particulars of the employees are set out in Annexure B
to the Directors'' Report. However, as per the provisions of section 219(l)(b)
(iv) of the Companies Act, 1956, the Annual Report is being sent to all the
shareholders of the Company excluding the aforesaid information. Any
shareholder
interested
in obtaining such particulars may write to the
Company Secretary at the registered office of the Company.

CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the Accounting Standard - 21 on Consolidated Financial

Statements read with Accounting Standard - 23 on Accounting for
Investments in Associates and Accounting Standard - 27 on Financial
Reporting for Interest in Joint Ventures, the audited consolidated financial
statements are provided in the Annual Report

CORPORATE GOVERNANCE

The Company has complied with the corporate governance requirements, as

stipulated under clause 49 of the listing agreement and the stipulated
certificate of compliance is contained in this Annual Report.

AUDITORS
The auditors, M/s Price Waterhouse, Firm Registration NumberFRN301112E,
Chartered Accountants, hold office until the conclusion of the ensuing annual
general meeting and are recommended for re-appointment. A certificate
from the auditors has been received to the effect that their re-appointment,
if made, would be in accordance with section 224 (IB) of the Companies Act,
1956.
49

COST AUDITORS
In conformity with the directives of the Central Government, the Company
has appointed M/s R. J. Goel & Co., cost accountants, as the cost auditors
under section 233B of the Companies Act, 1956 for the audit of the cost
accounts for the motor vehicles business for the year ending on 31st March
2014. The extended due date of filing the cost audit report for the financial
year 2011-12 in ''Extended Business Reporting Language'' (XBRL) format
with the Ministry of Corporate Affairs was 28th February 2013. This report
was filed within the stipulated time on 18th January 2013.

ACKNOWLEDGMENT

The board of directors would like to express its sincere thanks for thecaoperation and advice received from the Government of India and the
Haryana Government. Your directors also take this opportunity to place on
record their gratitude for timely and valuable assistance and support
received from Suzuki Motor Corporation, Japan. The board also places on
record its appreciation for the enthusiastic co-operation, hard work and
dedication of all the employees of the Company including the Japanese staff,
dealers, vendors, customers, business associates, auto finance companies,
state government authorities and all concerned without which it would not
have been possible to achieve all round progress and growth of the
Company. The directors are thankful to the shareholders for their continued
patronage.

For and on behalf of the board of directors

KENICHI AYUKAWA

R.C. BHARGAVA

50

Managing Director

Chairman

& CEO

New Delhi
26th April 2013

CHAPTER-3
Supply Chain Management in Maruti Suzuki:Maruti Suzuki on raising the Indian supply chain

51

Sudam Maitra has worked to develop the Indian supply base for
much of his career. Maruti Suzuki and its top supply chain executive
are spreading expertise and efficiency across the sub-tier chain.
Competition can do wonders for a business. When rivals outdo a company, it
is often forced to explore possibilities that were previously unknown to it.
This is something Sudam Maitra, senior managing executive officer for
supply chain at Maruti Suzuki, realized early in a purchasing career that has
spanned three decades. Had there been no competition, the soft spoken,
meticulous mechanical engineer would have possibly moved slowly on
creating new paradigms in procurement and supply chain at Indias largest
carmaker. Instead, he has been at the centre of a transformation that has not
only allowed Maruti to prosper by working with efficient, reliable material
suppliers and logistics providers, but his work has also contributed to the
development of the entire countrys automotive supply base.

From monopoly to competitive supply chains

Until Suzuki entered India in the early 1980s then in partnership with the
Indian government as Maruti Udyog the motor industrys supply base in
India was extremely limited, serving only Hindustan Motors and Premier
Automobiles. Maitra recalls how the carmaker had to learn many lessons to
arrive at the generally well functioning, lean and thriving supply chain we
find today in India.
During its first decade, Maruti faced limited competition and hence paid less
attention to the vendor base it had created to cater to its needs, or to rising
costs. Vendors used to come to us at the end of the year and seek price
hikes for their supplies, citing increases in input cost, Maitra says. We
invariably bowed to their demands because we enjoyed a monopoly situation
and managed to hike our prices consequently."Once we arrived at the
vehicles market price, we fixed material costs. Vendors were shocked
initially. We told them, enough of this upward price revision every year"
Sudam Maitra, Maruti Suzuki

52

That situation changed dramatically once competition increased and more

carmakers entered the market. Quality products had to hit the dealers at
prices lower than those of the competition, and achieving this cost began in
purchasing, says Maitra. Maruti switched its procurement approach to target
costing.
It is sort of a reverse calculation, says Maitra. Once we arrived at the
vehicles market price, we fixed material costs. Vendors were shocked
initially. We told them, enough of this upward price revision every year. Now
you need to look at downward price revision every year.

Suppliers met this change with stiff

resistance, including walkouts. Sensing the
challenge, Maruti Suzukis executives
eventually realized that to achieve deep
cost reduction year on year, the company
would need to work together more with
suppliers. Unless this is carried out, we
cannot bargain with them to reduce the
cost when their final product is ready for
delivery, Maitra says. It was then that we
in purchasing truly realized that it is a chain. So we also changed the name
from purchasing and vendor development to supply chain.
While early in its history Maruti Suzuki could operate as a
monopoly, its purchasing focus has shifted strongly towards
collaboration with suppliers.

Global expertise for global products

This shift would become even more important as Maruti Suzuki built more
global vehicles, the production and launch of which coincided with those in
other markets. Supply chain complexity and coordination became even more
complex. Before 2005, [managers] would go to Japan where all Suzuki
models would be lined up and they would identify one or two models that
may suit Indian conditions and then bring them here, he says. Since Suzuki
had taken a majority control in Maruti Suzuki around that time, it was
decided that henceforth all launches from its stable would be global ones.

53

For instance, Swift was launched simultaneously in Japan, Hungary, China

and India.
That shift has had huge implications for the supply chain. Earlier, we used
to bring designs from Japan and pass them on to vendors to copycat them,
Maitra explains. Since 2005, things have changed due to this simultaneous
global launch phenomena. Here, the challenge was to ensure Indian
suppliers input on design should also be incorporated in the final design.
This led to the concept of concurrent engineering. In a way, we were
moving towards collaborative modules with our suppliers, which again was a
paradigm change. Many vendors were unable to rise up to that level.
It was around this time that supplier development started to become even
more important for the supply chain team at Maruti, both in establishing
global suppliers in India, as well as nurturing smaller, local suppliers.
Generally, Maruti Suzuki defines three categories of suppliers: fully owned,
global suppliers (such as Visteon and Delphi, as well as logistics providers
like NYK/Yusen); the second is large Indian companies that went in for joint
ventures with foreign companies (such as Sona Koyo, Krishna Maruti, etc.);
the third lot is small Indian suppliers, such as for sheet metal or plastic
components, that operate with no foreign equity or technological
collaboration.
When Maruti switched to global launches, it was the third category that was
largely unable to participate in the concurrent engineering route, according
to Maitra. He says that they were good at reading drawings and
manufacturing them, but many lacked design skills.
To remedy this situation, Maruti set up a separate division within Mantras
supply chain wing to identify foreign technology firms and match them with
Indian suppliers. Maruti advised the third category of suppliers to get into
tool design with these companies, which is generally considered easier than
product design. This matchmaking exercise began in 2006 and has so far led
to 18 collaborations.
Not all of them have lasted. Some foreign partners, having tasted the Indian
automotive market through collaboration with local companies, wanted to
then set up wholly owned subsidiaries. There is some amount of heartburn
from the Indian companies but the positive factor is that they have already
54

imbibed

or

learned

design

capabilities,

says

Maitra.

Maitra encouraged Indian suppliers to develop partnerships with

global suppliers to help improve their design and engineering
capabilities
Today, the supply base in India has blossomed. Maitra works with more than
400 vendors, including global, Indian and joint venture suppliers. He says
that such a variety of choice is important because of uncertainties in
logistics, labour and infrastructure in India. For example, Maruti Suzuki will
often have three suppliers for some parts. We just cannot afford to depend
on one or two, he says. In India you are not sure of many things: work
stoppages at factories, highway and transportation challenges or port
challenges, for example. The availability or access to more suppliers is a
blessing.Maitra and his team remain
highly
focused
on
supplier
development today, including helping
vendors
to
improve
lean
manufacturing
and
just-in-time
logistics. Our aim is to help them to
achieve manufacturing at absolutely
minimum cost. Productivity at its
highest and the best quality.Suppliers
are grouped into clusters and taught
pull and just-in-time manufacturing in classrooms for a fortnight. Following
this, projects at vendor locations are taken up for identifying where there is
maximum pain: high inventory, low productivity and high manpower, for
example. Maruti experts then work with suppliers for six months to help
them improve further. The company has even set up a special unit to work
closely with suppliers. The Maruti Centre for Excellence (MACE) is made up of
a group of engineers that focus on supplier quality, including periodic audits
and
consulting
on
project
implementation.

The path to localization

Mantras mantra for purchasing is simple: localize and keep the cost as low
as possible. Do anything and everything legally possible to achieve that goal.
As well as dealing directly with suppliers, Maitra has also done hedging in
55

foreign currency for Maruti, as well as for commodities such as copper,

aluminium, platinum and palladium a first in the Indian automotive
industry.
Localization of suppliers and components has been an important part of
Maruti Suzukis supply chain development over the past decade or more, not
least to avoid exposure to currency shifts and higher logistics costs. This
process started with a redefinition of what local meant. In the past, the
carmaker followed criteria for supplier localization from Indias Directorate
General of Trade and Development (DGTD). These rules state that if a part is
invoiced on Indian soil, it is considered local, even if most production
happened abroad and the product was sequenced and packaged in an Indian
warehouse. This was the case with much of Maruti Suzukis own production,
as well as those of the suppliers that came over from Japan and other
locations.

"Even if a child part comes from overseas, it will not be considered

as local. As per our present definition, localization is around 8085%" - Sudam Maitra, Maruti Suzuki.
The result was a distorted picture for localization of the Indian supply base.
According to the DGTD definition, Maruti Suzuki already had a localization
rate of 99% in 1996. However, the invoicing loophole could not hide risks
from foreign currency exposure and other supply chain costs, which were
taking their toll on the carmakers global procurement bill.
Our understanding was that if there were any foreign exchange variations,
Maruti Suzuki would compensate for them, says Maitra. But as the
Japanese yen got stronger, leading to higher outgoings for imports, it caused
a big dent in our profitability.
Maruti has since changed its definition for local suppliers. Even if a child
part comes from overseas, it will not be considered as local. As per our
present definition, localization is around 80-85%.

56

For operations and design, Maitra and his team

have also targeted reductions in weight. We have
a strategy called 1-1-1 on the raw material side,
which is the brainchild of our chairman, Osamu
Suzuki, he says. The goal is to reduce the
weight of every component by one gram. Costing
is based on weight, so every single gram of
weight reduction is a positive. According to
Maitra this has led to Rs120m ($1.9m) in savings each year.

Components used to be considered.

Partnering with suppliers

A relentless focus on cost masks Maitras commitment to partnership in the
supply chain. While he wants to keep costs low, he is not looking to beat up
on suppliers. If we keep squeezing suppliers in protecting our interest only,
then in the long run we cannot sustain, he says.
Maitra has implemented measures designed to help suppliers. Recently,
Indias central bank gave Maruti permission to hedge currency on behalf of
Indian suppliers. The carmaker also buys raw material for suppliers in bulk to
help companies get a better price; it arranges low-cost funding for suppliers.
For a small fee, payments are also fast-tracked, with just a nine-day cycle
from the date of invoice submission.
Maitra admits that suppliers unable to meet cost targets will struggle.
However, he recognises that it cannot be all pain and no gain. Maruti has
introduced shared savings programmes with suppliers, called value analysis
value engineering. If suppliers are going for localisation of child parts
instead of importing, for example, we will share the savings, says Maitra.
Maitra is proud of Marutis vendor relationships, something his tier suppliers
have backed up. Anand Swaroop, president and group chief financial officer
of Indian tier supplier JBM Group Limited, which has a joint venture with
Maruti Suzuki, says that it is not a buyer-seller relationship, but a
partnership. (See box below.)

57

Swaroop points to areas such as help with raw material procurement and
assitance with bank financing as important support mechanisms from
Maruti. Having learnt this proactive approach, we try to replicate this with
our vendors too, he says.

Improving inventory through the tiers

Logistics has played a particularly important role in keeping overall supply
chain costs as low as possible, particularly in reducing inventory, says Maitra.
He recounts how by tightening its material quota, Maruti was able to lower
inventory across the supply chain.
We used to give suppliers a months schedule of our material requirement,
he says. Because of our nine-day payment cycle, they would finish their
quota in 21 days. As a materials person, I would invariably enter the plant via
the materials gate. When I wouldnt see any trucks at the gate towards the
month end, I used to get panicky, wondering if I would soon be getting calls
from the lines saying some materials had not arrived. However, we realised
that suppliers produce more and our inventory levels were going up, too.
In response, Maruti Suzuki lowered its material quota from a month to 15
days. Inventory levels inside the plant fell by a whopping 70%. Now we are
advising our tier one suppliers to implement a similar system with their own
suppliers so that the chain becomes lean at that level too, Maitra says. He
adds that he would also like to implement more JIT processes among tier two
and three suppliers.
Maitra says that his team is constantly pursuing logistics improvements,
including studying new routes and trade options. Currently, about 80% of
imported material arrives through the congested Jawaharlal Nehru Port Trust
(JNPT) in Mumbai. The rest, including steel coils imported from Japan and
South Korea, arrive via Kandla and Mundra in Gujarat. Maitra says that Maruti
Suzuki is exploring the port of Pipavav on the Gujarat coast, which could
eventually tie up with the proposed Maruti Suzuki plant in the state.
But because of poor relations between the two nations, the Suzuki Pakistan
consignment was unloaded in Singapore for transshipment directly to
Pakistan. This delayed the India consignment for at least four days since it
had to go to Indonesia to get the ship loaded to its full capacity.
58

We told Suzuki that the relationship between Suzuki Pakistan and Suzuki
India is excellent and there is no need for segregation at Singapore. Now the
practice has been stopped and we saved at least four days in voyage time,
he says. The ship from Japan stops at JNPT and then goes to Karachi One
important improvement came when Maitra convinced Suzuki in Japan and its
shipping lines to dock at Indian ports once a week instead of monthly. Earlier,
the same ship carried materials for Suzuki in India and in Pakistan..
"Toyota has gone in for the total 3PL route. We decided to get into
these modern concepts too" Sudam Maitra, Maruti Suzuki
The company is also tackling waste reduction. Steel coils arrive in trucks
from the port, which had always returned empty. Similarly, containers carry
cars by rail to Mundra for export and return empty. Now, Maitra and his team
have arranged that the containers carrying cars can bring back coils to the
plant. Its such a successful change that Maruti workers have rechristened
the containers as coil-trainers.

Trying a pint or two of Milkruns

Maruti Suzuki spends about 2.5% of net sales on inbound logistics, as it relies
mainly on vendor-managed inventory. Maitra admits that milkrun processes
had previously been indigestible for him. However, the company has moved
more towards using 3PLs to manage parts of inbound logistics. Toyota has
gone in for the total 3PL route. We decided to get into these modern
concepts too, he says. But our experience has been that when the vendor
manages his supply, the cost is lowest when compared to the 3PL route.
The carmaker has experimented with milkruns from Faridabad, close to
Gurgaon, with Ceva. Maitra says all suppliers can track supplier movement
on a handset. Now he is deliberating whether to introduce milkruns another
locations, including Bawal, Rohtak and Manesar.

59

We want to keep a mix of VMI

and 3PL-managed inbound
operations, he adds. If we do
not do it at all, how will we know
which is the best?

3.1- OVERVIEW
MANAGEMENT

OF

MARUTI

SUZUKI

SUPPLY

CHAIN

Maruti Suzuki supply chain standard structure

A supply chain includes all activities, functions and facilities (directly or
indirectly) in the flow and transformation of goods and services from the raw
materials stage to the finished products and deliver them to end user customer towards the market (1). The term supply chain means related
managing business activities within organizations and encompasses the web
of interconnected relationships between the sales channel, distribution,
warehousing, manufacturing, transportation, and suppliers (see Figure 1).

Supply Chain

PROCUREME
NT
-suppliers

PROCUREMEN
T

DISTRIBUTION

Transportatio
ASSEMBLY
n
CUSTOMERS

AFTER SALES
Spare Parts

60

Value-added services (engineering,

Fig. 1 - The key areas of supply chain

Business activities that results from key supply and logistics processes are:
procurement, customer service, distribution, transportation, inventory control
with information systems, sales, planning, order entry, receiving, shipping,
inspection, purchasing, production scheduling, master scheduling,
warehouse management, and supplier management. The point is in assuring
the collaboration between suppliers
A typical supply chain in automotive may include components or modules
suppliers (Tier 1 - 3), OEMs (car manufacturers), distributors, dealers
(retailers) and customers. The model of automotive supply chain is
presented at Figure 2.

First tier suppliers - mainly global world players - with own production
or assembly capacities establish near to OEM (operating processes in
condition of JIT delivery specifications) - are incorporated into the
production development projects and innovation process; this means
that they make their own engineering and designing decisions with
establishing local engineering or development centre.
Tier 1 suppliers have their own 2nd tier suppliers who procured parts
for these modules (assembly units) they are the companies with own
production or assembly plants establish Tier 3 suppliers are local home
companies (manufacturing capacities for small simple
Tier suppliers near to 1-Tier suppliers (global or regional players).
Tier 3 suppliers are local home companies (manufacturing capacities
for small simple automotive parts, components - e.g. plastic parts,
metal parts, aluminium parts, raw material suppliers), which fulfill
mainly quality and volume conditions of 2-Tier suppliers, some supplies
for 1-Tier suppliers.

61

3.2- SUPPLY CHAIN MANAGEMENT IN FLEXIBLE

AUTOMOTIVE PRODUCTION:Ericsson (6) define flexibility in supply chains as: the possibility to respond to
short term changes in demand or supply situations of other external
disruptions together with the adjustment to strategic and structural shifts in
the environment of the supply chain. Flexibility thus combines agility and
adaptability. In the automotive industry are five categorical dimensions of
flexibility regarded as critical for OEMs and suppliers, as show in table 1.
Tab. 1 - Flexibility indicated in automotive production
Flexibility pattern
Production
flexibility

Explanatory
Ability to manufacture a product in different valuecreation systems on
Reconfigurable production base.

62

Product flexibility

Variant flexibility
Volume flexibility

Location
flexibility/mobility

Ability to make more than one product in the same

system (e.g.
Different models of car on one assembly line).
Ability to produce multiple variants (is similar to
product flexibility).
Ability to manufacture different quantities of a
product, without
Substantially changing the unit costs.
Ability to produce and deliver quickly from other
locations in terms of
Globalization.
Source: Authors adaptation according to

(6)
In this context can be refer to example R&D project, funded in part by the
European Commission, My Car - Flexible assembly processes for the car of
the third millennium. The overall objective of the project is to increase the
competitiveness of European vehicle manufacturers by improving flexibility
in assembly plants. The goal is also to network assembly plant through
enhanced supply chain communication flows to enable real time decisions.
Solutions inclusive (5):

Simulation tool to test the feasibility of changing the specification of

vehicles within the lock in period;
Low cost, universal RFID (radio frequency identification systems)
technology to enable the real time, IT-independent visibility of
components in the supply chain and the automatic population of data
in the simulation tool;
2-way IT communication flows within the supply chain to nth tier to
increase the level of supply chain information available to support
decision making via the simulation tool;
Use of buyer behavior modeling to assist with decision-making.
The basic idea to improve flexibility in supply chain is to hold inventory
in some generic or modular form and only complete the final assembly
or configuration when the precise customer order is received from
OEMs

3.3-Supply chain flexibility support techniques:63

Logistics planning, in a flexible environment, requires an integrated and

dynamic planning tool to dynamically control the supply network. Best in
class automotive companies used support information technologies tools e.g.
my SAP Automotive to monitor production status in real time. This software
(6) helps to reduce order-to delivery time, strengthens supply chain activities
in the areas of demand planning and tracking and tracing of material
deliveries, and improves inventory accuracy across plant enabling
significant reduction time-to-customer. It also receives custom-configured
manufacturing orders from OEM's planning system and those include all the
parts required to build each car. OEM sends the long-horizon forecasts and
short-horizon JIT delivery schedules to its suppliers and e.g. larger 1-tier
suppliers receive the information via electronic data interchange (so-called
EDI order). Other suppliers access the my SAP automotive supplier portal,
where OEM posts the requirements to provide up-to-date information on
delivery needs. Using only an Internet.
Browser, suppliers can view all information in real time, including release
schedules, purchasing documents, invoices, and engineering documents.
When they ship parts, the suppliers send OEM advance shipping notifications
(ASNs) to provide the car manufacturer with exact information on parts
counts and delivery dates. Parts arriving at the OEM dock are then received
and transferred directly to the assembly line. OEM do not hold inventory
because cars are made in sequence as the orders are placed using advanced
technology network which communicates demand planning across the actors
of the supply chain. Production sequencing is especially important for car
manufacturing companies where multiple products are being built from the
same base platform. In these operations, production schedules can dictate
the sequential build of different car models to meet specific customer orders
and demand trends. For the flexible and efficient design of OEM production
and logistics processes they applied e.g. special solutions on the basis of
innovative radio frequency identification systems (RFID) in combination with
Industrial Wireless Communication (IWLAN). This technology helping to
collect accurate and reliable data and therefore enables the producers to
have a supply chain with higher transparency. Additional benefits in the
automotive supply chain are e.g.: local supply chain process control, asset
management, reduced counterfeits, reduced delivery time of spare parts,
improved vehicle end-of-life management and after sales and service.
Supplier delivery excellence begins with having up-to-the-minute customer
64

demand visible to the all areas of the organization for planning and execution
of downstream operational activities, including manufacturing planning,
vendor scheduling, production, shipping, and warehousing. The build-toorder system has made automotive business more profitable by giving to
OEMs the flexibility and agility to produce and ship components in the right
quality at the right time and in the right sequence from a distant low cost
location.

CHAPTER-4
Problems of Supply Chain Management in Maruti Suzuki:The automobile industry is a major contributor to Indias economy. The Indian
automobile manufacturers face stiff international competition in the wake of
65

all major US and European car manufacturers entering the Indian market. In
the contemporary scenario, supply chain management practices can be
adopted to improve operational efficiency and profits. This paper presents
the current status of Indian automotive supply chains. For this, data was
collected by conducting a nationwide survey. The paper highlights some
major problems plaguing the Indian automotive supply chains and finally,
presents some recommendations that are potentially useful to bring Indian
automotive supply chains at par with global industry leaders.
Indian automobile industry has in recent years, flourished and displayed
extra-ordinary growth capabilities. This has become possible mainly because
of improvement in living standards of Indian middle class and increase in
their disposable income. The liberalization steps initiated by the Government
of India, such as reduction of tariffs on imports, and refining the banking
policies, have played an equally important role in bringing the Indian
Automotive industry to greater heights. According to Automotive
Components Manufacturers Association (ACMA), today, India is forth largest
and fastest growing passenger car market in Asia, second largest twowheeler market and the largest three-wheeler market in the world.
The export boom in automobile sector has largely been possible due to
improved performance of auto components segment. In the component
industry, the top rung manufacturers made desperate attempt to overcome
depressed domestic market of late 90s by tapping the export market and
making efforts to improve quality and competitive potential. Exports also
earned them higher margins. ACMA reports that the component exports
crossed US 1.8 billion dollar mark in 2005. It is expected to touch US 6 billion
dollar mark by 2010 and 25 billion by 2015. Some companies are also
vigorously trying to build global supplier capabilities through acquisitions as
shown in Table 1. Such acquisitions protect the companies from fluctuations
in the demand in various geographical regions.
Implications on Supply Chain Management
Recent emphasis on global climate change is increasing pressure on
automotive executives
to make the right decisions in many areas, including R&D and
manufacturing. In fact, emission-level targets, currently in question, threaten
to alter the entire structure of the auto industry.
66

These challenges hit an industry already plagued with high costs, low profit
margins, and accelerating competition. New entrants from China (such as
Chery Automobile)and India (such as Tata Motors) are working aggressively
to capture their share of the global market, following the path taken by the
Japanese in the 1980s and the Koreans in the 1990sboth of whom went
beyond their domestic markets by focusing on the United States first, and on
Europe later.
Only a handful of established players are consistently delivering satisfactory
profits, such as Toyota, Honda, Porsche, and BMW; leading tier-1 suppliers
such as Bosch and
Denso; and some specialized tier-2 and tier-3 companies such as
ElringKlinger and
Borg Warner. Meanwhile, many others are undergoing some form of
restructuring.
General macroeconomic and financial circumstances are not necessarily
favorable,
either. The cost of energy and raw materials continues to increase due to
rising global
demand. Strong fluctuations in exchange and interest rates pose another
challenge
and are difficult and costly against which to hedge.
In this dynamic business environment, a superior supply chain is one critical
element
to helping automakers differentiate themselves from the competition. In fact,
many of
trends in the auto industry are reinforcing the need to redefine supply chain
strategies,
layouts, and operations. This paper summarizes the current challenges in the
automotive world and analyzes their implications on supply chains.

67

The most complex challenges Maruti Suzuki face are

summarized in Figure 1.

Figure 1. Global Challenges in the Maruti

Suzuki
68

External

Customers

Legislation (environment,

Stagnating demand

safety, others)

and price pressure in

Raw material and

Established markets

Maruti Suzuki &

Challenges

Competitions

Industry

Quickly entering every

Global overcapacity

segment

Complex alliances,

Moving targetseveryone

partnerships, M&As

Source: Cisco IBSG, 2008

Based on these challenges, the Cisco Internet Business Solutions Group
identified
eight major trends affecting the Maruti Suzuki supply chain. Figure 2 shows
these

supply- and demand-side trends.

69

Figure 2. Trends that Have Implications on the

Supply Chain

Demand- side trends

Supply side trends

Source: Cisco IBSG, 2008

Trends in Demand
Uneven Growth

The demand for cars is growing, stemming in large part from China, India,
and Eastern
Europe. Established automotive markets in the United States, Western
Europe, andJapan, however, are flat to declining. This uneven growth raises
implications for the supply chain. For one, OEMs and theirtier-1 suppliers
must establish a local presence to benefit from these new growth
opportunities in emerging economies. They must also tap into the local

70

supply base to take advantage of cost levels and to fulfill local content
requirements. At the same time,
they must integrate local operations into their global supply chain
management systems
and programs. For example, sourcing processes from local suppliers must be
aligned with global quality-assurance guidelines and procedures

Fragmentation
Traditional car segments such as sedans, vans, hatchbacks, and pick-up
trucks are fragmenting more and more into niches. Derivative car segments,
on the other handsuch as coupes, roadsters, minivans, and two-seaters, as
well as cross-over vehicles such as four-door coupes, SUV coupes, soft1
SUVs, and sport vansare growing. A combination of customer demand for
personalizationthe right product for their specific use at the right time
and manufacturers conquering new customer segments is causing
automakers to grow their product offerings. The environmental or green
movement is encouraging fragmentation even further, by shifting demand
away from large and/or high-consumption vehicles to smaller and/or more
fuel-efficient cars, giving birth to even newer segments, such as city or
microcars2, and new propulsion technologies, such as hybrids, clean diesels,
and diesel hybrids. Despite measures to control incremental costs resulting
from fragmentationsuch as platform, module, and component sharing
across models and brandssegmentation results in a more complex supply
chain that needs to be managed. Hence, the supply
chain requires integrated capabilities and flexible tools based on real-time
information to address this increasing complexity. For example, using an
identical gearbox in two different car models does not prevent the
manufacturer and its supplier from having to manage the supply chain
process on a transparent basis to ensure on-time delivery of the specific
gearbox to the specific assembly line in the specific location.

Accelerated Volatility
71

In the past, forecasting new product demand was easy. Today, new cars that
initially sell well may lose ground within as little as two years. Shifts in
customer demandfrom product to product, from brand to brand, and from
segment to segmentare accelerating. Customers have more choices than
before, want more personalization, and, in general, enter the showroom
better informed. As a consequence, customer loyalty is decreasingacross
all segments and across all manufacturers. The supply chain, therefore, must
cater to these shifts through quicker responsiveness and overall flexibility.
Yesterday, it was enough merely to set up the supply chain when launching
new product and then make a few changes to it over the products lifecycle.
Today, a higher degree of flexibility and responsiveness must be built in up
front so that
Suppliers can react quickly when overall product volumes are not in line with
plan, or when the mix within the product differs from original forecasts.

Aftermarket

The aftermarket business is often a somewhat neglected area, even though it

typically generates the largest share of OEM and dealer profits. Managing
this business depends on processes and IT systems that let manufacturers
track product in the
Following areas:
Saleswhich product is selling, and at which price?
Channelsthrough which channels is product being sold?
Replenishmentwhat are the products replenishment cycles?
Customerswhich kinds of customers are buying which kinds of products?

72

Creating transparency in the aftermarket business both in sales and in

operations of
the business and value chain is an important way for automakers to defend
this source of revenue and profit against independent parts and service
suppliers.

Trends in Supply

Differentiated Outsourcing

Outsourcing in the automotive industry will continue. Differences in labor

costs And disadvantages in scale and scope are influencing this trend.
Outsourcing will create opportunities for both automotive suppliers and
supply chain management providers (such as logistics companies and IT
firms) to expand their businesses into adjacent areasfor example,
preassembly or management and quality control. To benefit from continued
outsourcing, supply chain management providers must offer flexible,
modular solutions because not every manufacturer will concentrate on the
same core capabilities and functions.

Low-Cost-Country Sourcing
The auto industry will continue to source from low-cost countries as
manufacturers and suppliers continue to complement their commodities with
more complex products and services. The lowest price, however, isnt
everythingautomakers and suppliers must look at the total cost of
sourcing, including logistics, quality of work, and management. This
approach is referred to as best-cost-country sourcing, and for supply chain
management providers represents another opportunity to encourage,
enable, manage, and optimize sourcing.

73

Risk Management

Most manufacturers agree that their supply chain risk has increased in recent
years. Natural disasters, terrorism, workforce issues, and level of
dependence on partners and suppliers are just some areas that require
strong capabilities in risk management. Manufacturers and their suppliers
must account for supply chain alternatives in their overall supply chain
strategy. Increased transparency based on real-time information (see
Transparency and Accountability section) allows them to identify risks early
on and, ultimately, to manage them. This represents an opportunity for
supply chain management providers to expand their value-added services.
They have the opportunity to become risk-mitigation agents by ensuring the
required transparency and by offering, for example, fall-back solutions or
performance guarantees.

Transparency and Accountability

Business operations are becoming more complex and global. Supply chains
are turning into complex supply networks. As a consequence, auto
manufacturers and suppliers need transparency and accountability across
the entire supply network. For example, near-real-time information flow
based on a sensor-driven supply chain across the extended enterprise is in
high demand. Information should, ideally, flow in two directions to help
ensure better and faster interactions within enterprises and among OEMs,
suppliers, and supply chain management providers. At the same time, there
is a focus on security across these complex information networks, led by the
need to manage risks. The supply network has become very complex
globally and is optimized to the penny. Because of this, automakers and
suppliers cannot afford to go after breakdowns in the supply chain. Providers
must deliver performance and output in a transparent mannerthey are now
held accountable much more stringently than in the past, and are at risk
when it comes to paying high penalties in case of nonperformance

74

The Supply Chain of Tomorrow

In a highly competitive environment, an effective and efficient global supply

chain is a must for automotive manufacturers and their suppliers. The
industry landscape is exposed to a set of critical challenges and trends that
are leading, if not accelerating, the need to fine-tune supply chain strategies
and operations even further. The increasing requirement for real-time
information and effective communication across the supply network is critical
for managing and optimizing the supply chain on a flexible basis, while
keeping costs under control.
While most global car manufacturers and tier-1 suppliers are in the process
of addressing these requirements, smaller tier-2 and tier-3 auto suppliers
have a logway to go. In this context, information technology plays an
increasingly important role, effectively turning IT from an operational
delivery function into a strategic, differentiating asset. The underlying IT
network plays a critical role by enabling the integration of various endpoints
(for example, RFID sensors, bar-code readers, handhelds, and laptops),
communication technologies (fixed-line, wireless), IT assets (servers,
databases),and applications in a secure and scalable manner. For specialized
supply chain management providers, these trends represent significant
opportunities to grow
Their businesses and expand their value-added offerings. In regard to the
green challenge, the focus on the environment might reshape this supply
chain scenario even more radically. Rising energy costs, regulation concerns,
and the demands of conscientious customers require automakers and their
suppliers to reduce the carbon footprint of their entire operationsincluding
supply networks.

In particular, for the past several years, there have been six significant
challenges in the competitive world market that have affected supply chain
design for many multinational corporations (MNCs). These changes include:
1. globalization that produces longer and longer lead times in production;
75

2. reduction of costs for products and transportation that leads

organizations to take the advantage of economics of scales by shipping
large quantities of products from overseas that in turn, leads to
increase in logistics costs and large inventory;
3. long and geographically diverse supply chain that exposes to
numerous threats of disruption and risks;
4. significant increase of labor costs in developing countries (e.g. 20
percent increase in China vs. 3 percent increase in the USA) that
shrinks labor cost savings in these emerging entities overtime;
5. change in regulations requires companies to consider the amount of
carbon emission the supply chain produces that leads organizations to
focus on green supply chain and long-term sustainability; and
6. Volatility of commodity prices (e.g. coal, gold, oil, steel) that causes
changes in procurement of commodity (long-term vs. short-term
commitment) in the markets.
Most executives can deal with each one of these changes and challenges
individually. However, it is the combination of these six challenges that
makes the issue of supply chain design much more complex and difficult to
respond than before. In short, the supply chain addresses issues of logistics
and the flow of materials, the flow of information, and the flow of money.
Evidence suggests that supply chain management has mostly been focused
on cost reduction, and that's one of the most critical mistakes a company
can make, according to Simchi-Levi (Hopkins, 2010, p. 19, emphasis added).
In addition, Charles H. Fine focused on the issue of the value chain, which is
an important supplement to supply chain. He stated that the value chain is
concerned with who gets the value in the chain, who creates value, who
captures value, where is the value created and how do you think about that
in a coherent manner. There are three types of value chain design:
1. zero-sum (modular architecture);
2. win-win (integral architecture); and
3. Open innovation.

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In a mature industry, major players in the value chain may work together in a
collaborative fashion with long-term objectives and engage in the win-win strategy
(integral architecture). On the other hand, in an immature industry, the processes
and product technologies are not very well established, such as Silicon Valley, the
biotech for energy (e.g. algae, corn, ethanol, wood) or other renewable energy (e.g.
sun, wave, water, and wind). It will be difficult to establish long-term trust-based
relationships; therefore, most major players compete in the race following the zerosum mentality (modular architecture). Moreover, besides these two, the open
innovation approach uses the world as the lab and tries to create mechanisms to
find innovations, ideas, and new products anywhere and then, tries to use
marketing and the product development channels to distribute that product in the
millions, or billions of units to the world. Using this approach, major players may use
supply chains and different models of supply chain design to create value
collectively in the value chain. It is important to know that agility and absorption
allow organizations to weather through dangerous threats, seize opportunities, and
thrive in turbulent markets.

It is clear that the auto industry fits the mature industry overall because its
products, process architectures, and standards are stable, relatively
speaking. However, due to global warming, the energy for the auto industry
(in terms of type, form, source as well as storage and supply of green and
renewable energy) becomes the center stage and a dominant challenge in
the near future. Green energy is in the immature stage of the life cycle.
Therefore, the auto industry straddles both mature and immature industries
and requires a new, innovative, and creative design for the supply chain
management.
There are several major lessons here. First, executives need to identify the
most appropriate situation to use integral, modular, or open innovation
strategies. Second, the key issue is that innovation, technology, demands,
and markets do change quickly, therefore, all advantage is temporary.
Whatever is good right now for the supply chain may not be good years later.
In other words, besides our understanding of what, how, and why, we must
consider who, where, and when. Therefore, executives must evaluate these
strategies periodically.
The key ingredients for success in this race are speed and flexibility. In the
management literature, most scholars and executives agree that the win-win
strategy is better than the zero-sum strategy. However, the winners of
the immature stage are the guys who are the fastest, but they
often can't transition to become the winners in the mature stage.
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The bullwhip effect, a well-observed supply chain phenomenon, suggests

that a long pipeline, or uncertain demand, or both, in a supply chain will
accumulate huge waste at the end of the channel The best supply chains are
not only fast and cost effective but also agile and adaptable to ensure that
all companies' interests stay aligned. The logic of both transaction-cost
approach and knowledge-spillover consideration points toward the increasing
spatial concentration of high value-added activities instead of long
outsourcing pipelines (Kim and McCann, 2008). Coexisting suppliers share
the market based on their efficient market niche multiple logistics providers
or outsourcing to low-cost country is not a cost saver. Supplier selection
needs to mitigate the overall supply risk by considering a total cost. Instead,
balanced outsourcing may raise costs slightly, but may create more bang
for the buck from innovation spending; whereas proportionately too much
outsourcing will result in dramatically higher total costs.
Furthermore, not all suppliers are created equal. According to Emil E. Hassan
(Chairman of Auto Services Americas, retired Senior Vice President of
Manufacturing, Purchasing, Quality and Logistics for Nissan North America),
executives must identify all major players of the auto industry supply chain
using the following five criteria: quality, cost, delivery, development, and
management to ensure success. Close collaboration with suppliers, following
the QCDDM criteria, helps the auto industry meet the challenges in the
competitive market.
In addition to the above findings, recently, many researchers have studied
supply chain management from a much broader perspective than before.
Ethical issues such as supply chain governance, environmental issues, and
social responsibilities have attracted a lot of attentions. Carter and Jennings
(2002) examined the potential impact that pursuing social responsibility
(PSR) might have on supply chain relationships. They suggested that PSR has
a direct and positive impact on supplier performance as well as an indirect,
mediated effect on performance through improved trust and cooperation.
Research shows that trust is important among people at the individual level
and is also important in supply chain success among business
entities. Swenson and Wood (2003)examined business ethics dynamics with
cases from the auto industry and provided a conceptual discussion of the
dynamics of business ethics in society as well as in the marketplace. Roberts
(2003) examined the relationship between corporate social responsibility,
reputation, and supply network conditions. Beamon (2005) highlighted issues
associated with ethical decision-making in supply chain management and
78

stated that management has ethical responsibilities to consider the

immediate and eventual environmental and social impacts of their products
and processes. Swenson and Baath (2008) described a conceptual
framework of supply chain management ethics, explored the common
grounds, and provided initial insights into the complex and multifaceted field
of
supply
chain
management
ethics. Lindgreen
and
Swaen
(2010) and Lindgreen et al. (2009) investigated actual corporate social
responsibility (CSR) practices related to different stakeholder groups and
developed an instrument to measure those CSR practices.
In summary, although outsourcing to low-cost countries with a long pipeline
may save some purchasing costs in the short-run, it may cost more in total
cost due to the bullwhip effect in today's economic uncertainty. As Pfeffer
(1998) pointed out that labor rates and labor costs are not the same. Further,
labor costs are a function of labor rates and productivity. Sometimes,
lowering labor rates increases labor costs. Outsourcing also cannot rise to
the responsibility of the society. Automakers with a strong focus on low-cost
purchasing may lose the opportunity in technology development as well as
the opportunity to thrive in the future. So far, we have discussed the supply
chain management in general. For the rest of the paper, we specifically focus
on the supply chain management for the auto industry and propose an
ethical triple-C (cease-control-combine) strategy that may lead to the
sustainable development of the industry. In the next section, we provide a
detailed discussion regarding the challenges of the auto industry in our
model (Figure 1).

Challenges:The North American auto industry faces tremendous challenges from four
different perspectives. These challenges are:
1. volatile economy;
2. uncertain gasoline prices;
3. green energy; and
4. Social and ethical responsibility.
We briefly discuss these four major issues below.

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1- Volatile economy
In volatile markets, organizations need to focus on agility and absorption so
that they can be flexible in making changes and meeting the needs and
demands of the customers quickly. The deep US economic downturn in 2008
has remarkably influenced consumers' purchasing power as well as their
purchasing confidence. In fact, in December 2008, five of the Big Six
automakers, General Motors, Ford, Toyota, Nissan, and Honda, saw a 30
percent sales slide from November; while Chrysler plummeted 53 percent.
For the full year of 2008, all of the Big Six automakers reported sales
declines. In total, the industry sold 13.2 million vehicles, an 18 percent drop
from 2007s 16.1 million, closing the books on the industry's worst year since
1992 (Edmund Auto Observer, 2009). The new car market across North
America suffered the full force of recession in 2009, with some worrying
trends revealed in the latest figures supplied by world's leading provider of
automotive data and intelligence, JATO Dynamics. The North America vehicle
sales were down by 0.20.6 percent in 2009, with 3,271,321 fewer new cars
bought than in 2008, even with US government's cash for clunkers
incentives that boosted sales sharply in July and August of 2009 (JATO,
2010). A True Car analyst expected 2009s US auto sales to be the worst since
1970, or 1950 on a population-adjusted basis. Sales to corporate fleets or car
rental companies remained a wild card and could push the total higher.
Although many people anticipate real improvement in the underlying
demand for US autos, which bodes well for 2010, the industry expects
another few years of hard time. We posit that organizations with agility,
absorption, and quick action will survive in the volital environment (Mishra et
al., 2009; Sull, 2009).

2- Uncertain gasoline prices

The industry has to cope with the uncertain gasoline prices, which have been
very volatile for the last two years. Research shows that there is an inverse
relationship between rising oil prices and auto manufacturers' performance.
This reduction in performance is concentrated in those manufacturers of
SUVs (Camerona and Schnusenberg, 2009). Due to the rapid changes in gas
prices, the market demand of automobile becomes much more uncertain,
which increases the bullwhip effect in the auto supply chain and causes a
tremendous amount of waste in purchasing and inventory. The situation is
getting much worse as many automakers choose to purchase from low-cost
countries. The transportation time for parts from some of these countries to
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the US is more than five weeks. The automakers have no time to react to the
market. As mentioned, agility and absorption allow organizations to weather
through dangerous threats, seize opportunities, and thrive in turbulent
markets (Mishraet al., 2009; Sull, 2009). However, the supply chain loses its
agility due to the long outsourcing pipeline and becomes much more
vulnerable to gasoline price changes and other risks.

3- Green energy
Due to recent oil spills in the Gulf of Mexico, one of the worst ones in the
history, the demand for green energy fuels the energy-hungry fire. With the
rising market demand for green energy, a vast amount of investment in
research and development is unavoidable. Alternative energy could revive
the auto industry. However, many technology hurdles need to be conquered
before new technologies can be industrialized. Furthermore, whether the new
dominant energy resources will be solar, electric, ethanol, or diesel for the
auto industry in the future is still not clear at this point. Therefore, the auto
industry has to invest its research and development (R&D) in different
directions. According to Clayton M. Christensen, 93 percent of all innovations
that have ultimately become successful started off in the wrong direction
(Mangelsdorf, 2009). Not investing in all valuable research directions or
constantly switching among research directions can cost an automaker the
opportunities to thrive in the future. Many people believe that one of the
biggest mistakes that GM made was switching the direction of research on
power among different technologies (Taylor, 2008). It is inevitable to focus on
the big picture and the overall structural changes of the automobile
transportation system and new renewable energy resources. Executives in
the auto industries also have ethical responsibilities to the development of
green technologies around the world (Conley and McLaren, 2009).

3- Ethical responsibility
Finally, the auto industry employs about 10 percent of total workforce in the
USA, directly and indirectly. The struggle of the industry has caused a vast
amount of job losses in many states and impacted community stability and
family lives of many Americans. The industry has received extremely strong
support from our nation's federal government. As of November 2009,
American public had already spent $400 billion in bailing out the industry.
The number is still growing (Kiel, 2009). To boost auto sales, the US
Government conducted a national-wide Cash for Clunkers program. The
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North American auto industry is not only just an industry, but also a symbol
of the nation. The industry holds the ultimate responsibility to the American
society. American society has invested tremendously in this industry at this
critical time and most people in the USA have very high expectations for the
auto industry to keep jobs in local communities and to generate a quick
turnaround in profits (Roth, 2008). The population anticipates rapid financial
and moral paybacks as well.

4. Current strategy and the problems

In supply chain management, most automakers react to the market by
lowering purchase costs and outsourcing to low-cost countries to digest
some of the losses. Chrysler alone is looking for a 25 percent cost reduction
from suppliers. Many automakers force replenishment cost reduction to their
purchasing teams. Nissan, the most efficient auto assembly plant in the USA
(Davenport and Tang, 1996; Laws and Tang, 1999; Rhody and Tang, 1995),
expects to reduce cost (5 percent) from its purchasing department annually.
The strategy leaves the auto industry no choice but to outsource to low-cost
countries (Holliday). Several top executives and managers in the automobile
industry's supply chain management admitted in our interviews that the
application of the low-cost purchasing/outsourcing strategy existed and that
they expected the trend to go further and deeper. However, we assert that
low-cost purchasing/outsourcing strategy is indeed not a remedy for North
American auto industry (Tang et al., 2000). It will cause more harm than good
in the long run and may not even generate enough benefit in the short run
as expected.

4.1 Long supply chain pipeline and huge waste in

inventory
Outsourcing requires a long pipeline. According to Beth Lee, the Department
Manager in Supply Chain Management of Nissan North America, automakers
such as Nissan can adjust orders with a D6 system (six days) to domestic
suppliers when demand changes. However, due to the amount of time
required in communication and transportation, a 30-days or more advanced
notice is needed for their outsourced counterparts. For example, it takes
eight weeks to ship materials by boats from China to the west cost of the
USA and another week or so by trucks to haul from the west cost to Nissan in
Tennessee. Furthermore, transportation costs can be very high and
transportation capacity along with events such as natural disasters and wars
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can severely hurt the stability of the supply chain (Hopkins, 2010). This adds
onto the uncertainty of the demand, causes severe bullwhip effect in the
supply chain channel, and therefore wastes a huge amount of financial
resources in inventory management. Many opportunities to adjust product
preference changes in the market and production schedules are lost due the
long supply chain pipeline.
According to Jim Rose, Section Manager, Domestic Logistics for Nissan North
Americas, the just-in-time production strategy is an important link in the
supply chain management. However, the just-in-time part of the supply chain
management only applies to the last mile of whole supply chain pipeline. In
fact, automakers need to have all the parts stored in these huge near-by
warehouses within one mile of the auto assembly plant so that trucks can
deliver parts from the warehouse to the plant. As mentioned, in order to cut
prices and save money for parts, automakers apply the economics of scales
by ordering and shipping large quantities of produces from suppliers and
store parts in huge warehouses (Hopkins, 2010). The huge amount of
inventory may reduce the costs for products, but cost more for storage and
reduce flexibility. These facts may illustrate the dangerous myth about
outsourcing and just-in-time production related to the auto industry supply
chain management (Xia and Tang, 2008). The loss of time, flexibility, and
market is directly related to the loss of money. The wastes are much larger
than the savings in purchasing cost (Stanko et al., 2009). In some special
occasions, products had to be delivered from Asia, for example, using Boeing
747 cargo airplanes rather than boats to save time, which costs large
amounts of money.

4.2 Lose control of quality and increase quality cost

Outsourcing also places challenges in quality control, supplier
communication, and technology development that are essential to the core
competence of automakers. A certain series of Honda Civic 2007 (considered
as having good quality) have already gone through three manufacturer
recalls; the labor cost per car for each recall was about $100. The warrantee
cost and recall cost are just something that automakers should try to avoid in
the tough market today. Quality management theories have taught us that
we would rather spend in prevention cost (choosing high quality suppliers,
training them well, and supporting their quality control programs) than in
failure cost after the damage is already done.

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4.3 Lack of supplier support in R&D

Furthermore, research and development (R&D) requires close cooperation
with suppliers. One major concern is suppliers' capability in product
development. If there are specific design changes of products due to
changes of demand and preference in the market, then, the major suppliers'
product development functions play an important and critical role here,
according to Emil E. Hassan's QCDDM criteria. Take the once Fortune 500
company, Lucent Technology, as an example. Its weaker competitor, Alcatel,
acquired Lucent in 2006. The major reason for the bankruptcy was that
Lucent outsourced for a lower price and hoped to focus more on its core
businessmarketing and research. Ironically, Lucent failed to support its R&D
effort and marketing strategy without comparable manufacturing capacity
(Yue et al., 2009). Due to the lack of close cooperation from its suppliers,
Lucent also failed to deliver new products to the market and to conduct core
technology tests. With changing demands and independent suppliers, Lucent
was unable to adjust quickly according to the rapid market demand changes,
not to mention control and bid for the short delivery time (Hoyt, 2001). This
tragedy in the telecommunication device industry is a valuable lesson for
executives in the auto industry, especially in today's volatile market.

4.4 Loss of jobs and employment in the USA and distortion

of corporate image
By purchasing from and outsourcing to low-cost countries, automakers
continue to shrink their operation size in North America. The loss of jobs is an
unavoidable consequence. Furthermore, automakers continue to cut loose
their business relationships with their local suppliers and partners. This can
put many suppliers out of business, hurting the entire local economy.
Because of frustration, anger, and lack of patience, people start to voice
against the continuous bailout of the industry. The corporations' images have
been severely distorted.
In conclusion, the bullwhip effect in a long pipeline causes vast amount of
waste in inventory and purchasing, as the automakers adjust to rapid change
of the market demand. At the time of economic downturn and unstable gas
prices, choosing the low-cost purchasing/outsourcing strategy to resolve the
financial problems is no different from drinking snake venom when thirsty: It
may help you in the short run, but will kill you in the long run. It will hurt the
industry in transforming technology into products, as the cooperation and
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support through the supply channel suffer. Even worse, the strategy will
consequently cause more job losses in North America. In a situation like this,
it holds no moral stand if the auto industry continues to cut the labor force
and to hurt the people in the communities, especially right after billions of
dollars in bankruptcy bailout paid by American people and the national-wide
Cash for Clunkers programs.

5. Our suggested remedy and the expected results

The current low-cost purchasing/outsourcing strategy comes from the voice
to focus on here and now and on survival. However, as our aforementioned
analyses pointed out, it may cause more harm than good and does not solve
our problems. The main reason for taking the risks in outsourcing is that
executives want to be more competitive in pricing and hope to gain a bigger
market share than before. However, price is not, and has never been, the
sole decision criterion in auto market share; not to mention the very risky
outsourcing strategy costs the supply chain more than the savings in tag
price. In the total quality management literature, research suggests that
customers focus more on performance, features, reliability, conformance,
durability, serviceability, and aesthetics in choosing high quality products
(e.g. automobiles) than on price alone (Garvin, 1987). The recent Toyota
automobile's braking system problem and the massive recall event have
dramatically hurt the auto giant, not only in market share but also in lawsuit
cost and damage of reputation. In January 2010 alone, Toyota's US market
share fell from 17.9 percent to 14.1 percent, while Ford grabbed 16.7 percent
of the market, up from 14.2 percent the previous year (Welch et al., 2010).
No one could have predicted that Toyota famous in making reliable
automobiles would flame out over quality. However, the company had
expanded too soon and focuses too much on lowing cost in its mass
production system and supply chain management in recent years. Toyota
may be able to recover some of its sheen, but the consumer will never again
look at the world's largest automaker the same way.
Among the Big Three domestic automakers, Ford is currently doing well and
is the best, staying out of bankruptcy court and bailout money. Consumers
have shown a willingness to pay up for Ford vehicles, for its new models,
including refreshed versions of the Fusion, Taurus, new F-150 pickup, and
Lincoln MKS sedan. Many of these vehicles are winning kudos for style and
fuel economy and rank right up there in the quality stakes with Toyota and
Honda (Business Week). Ford sets an example for success that other
85

automakers can follow. The whole idea is to focus on style, quality, fuel
efficiency, and new technology, in other words, strengthening and focusing
on R&D.

6. The case-control-combine strategy

In this section, we propose a triple-C (cease-control-combine) strategy and
explain why this remedy is better than the low-cost purchasing/outsourcing
strategy and how it resolves the issues (Figure 1). We believe that the
survival of the North American auto industry lies in the supply chain strategy
in dealing with the unstable demand and that the future of the auto industry
lies in R&D. Both require coordination and cooperation of all the major
players in supply chain management. Our strategy includes three parts:
1. Combine;
2. Cease; and
3. Control.
First, cease low-cost purchasing/outsourcing, shorten supply chain, and
reduce production on the traditional and old models that do not sell well.
Work with suppliers that are: flexible to market changes; controllable in
product quality; and reliable local players in order to reduce long and
geographically diverse supply chain (cf. Hopkins, 2010). Second, control the
supply channel by building up core supplier group, assure members of this
group for their business, share research costs, work closely, collaboratively
supporting major R&D, and prepare them for technology innovation. Third,
combine research power. Instead of having independent research teams,
automakers should work together, share the cost, enjoy the benefit, and
most importantly speed up the technology innovation. Although cease,
control, and combine seem to be in the right order, it is also possible that all
these three components may be started simultaneously in the process.
In summary, in today's challenging economy, we believe that the auto
industry should stop low-cost outsourcing, extending the production pipeline,
and trying to solve the problem from outside (cease outsourcing). On the
contrary, the automakers should stay close to each other, stay close with
their core suppliers (control the supply chain), identify their own potential,
and rely on collaboration instead of competition in order to survive and
enhance future development (combine research power).
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7. Why the triple-C strategy works

There is a strong voice to get rid of R&D right now. R&D needs a large
investment up front and does not provide a quick return of this investment.
In addition, this huge amount of capital is also at risk, especially when no
clear direction for R&D is identified. Recent lessons suggest that switching
between fuel-cell and plug-in electric car had cost GM a fortune and ruined
its chance to lead in the industry so far (Taylor, 2008). According to Emil E.
Hassan, Nissan hybrid uses Toyota's engine to save research cost. Therefore,
the focus for here and now should be on R&D. New sources of energy have
to replace the traditional fossil fuel that will not last forever. Whether it is
ethanol, electric, solar energy, or something else, the auto industry must find
a way out, the earlier the better. Hybrid, due to the two power sources it
uses, can only be a transition.
The truth is that whoever leads the way in technology innovation and
whoever follows quickly in efficiently mass production of these new vehicles
will be the survivors and winners in the industry. With no clear direction,
executives do not have the luxury to waste their time anymore (Taylor,
2008). Getting rid of R&D right now may kill the future of the auto industry.
Research suggests that supply chain management has mostly been focused
on cost reduction, and that is one of the most critical mistakes a company
can make (Hopkins, 2010). Regarding value chain design, major players in a
mature industry engage in the win-win strategy or integral architecture;
whereas those in an immature industry compete in the race following the
zero-sum, or modular architecture mentality. The critical point is that winners
in the immature industry often cannot transit to winners in the mature
stages. The implications are clear: Winners in a 100-meter dash will not last
long and will not become winners of a marathon (42.195kilometersor 26
milesand 385yards). Most organizations would like to be successful for a
long time and have a long life cycle in the society, i.e. a marathon, and not
for just a few short years. The auto industry straddles both mature (auto
production) and immature (green energy) industries and as a result, requires
a new, innovative, and creative design for the supply chain management. It
calls for a major collaboration between the auto industry and the energy
industry in order to succeed. One will not survive without the other.

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7.1 Save big in R&D investment

We suggest that automakers must collaborate and combine R&D power to
save cash, speed up the introduction of new technology, seize strong control,
and develop partnership with their suppliers to survive the uncertain time.
We must speed up R&D to save the auto industry, as the new technology is
the key to save the industry (Conley and McLaren, 2009).
According to Emil E. Hassan, Nissan and Renault have formed an alliance,
mainly in sharing research costs. They alone have employed a research team
of 8,000 engineers and scientists. When different groups of R&D people work
together, they become more productive than working alone. Therefore,
cooperation creates synergy, accelerate the innovation process, save cash,
and reduce shared risks. There is no need to get everyone involved in reinventing the green energy wheel (in the early stage of an immature and
new industry) at the same time. The whole auto and energy industries can
learn from their experiences. If the Big Two can ask for bail out together, why
cannot they combine their strong research resources to save big money and
work out the puzzle of the auto industry quickly?
Innovation suffers during downsizing because work environment stimulants
to creativity decrease and work environment obstacles increase (Amabile
and Conti, 1999). As mentioned, most executives only think negatively,
worrying about the dangerous threat during economic downtime and want
to cut R&D to save money. On the other side of the same coin,
opportunities do exist in a crisis. It is the buyers' market to snatch talent,
expand their R&D at a bargain price, and calmly navigate through the stormy
sea (Mishra et al., 2009; Sull, 2009; Tang, 2010). Therefore, executives need
to reverse their thinking and do exactly the opposite. That is, they must
invest in employees (Laws and Tang, 1999; Mishra et al., 2009; Sull,
2009; Tang et al., 2000) and boost morale and creativity during economic
down time. The future is now.

7.2 Build agile supply chain and save inventory cost

With the current economy, financial difficulties in auto loans, and higher
customer requirements, we have seen monthly drop of sales in the range of
20 percent to 37 percent. In the near future, the demand is expected to be
continuously unstable. Due to the instability of market, the auto supply chain
must stay very agile and react quickly. As Lee (2004) concluded, the best
88

supply chains are not just fast and cost-effective. They are also agile and
adaptable. They ensure that all their companies' interests stay aligned. To
achieve this goal, the automakers need to seize strong control over their
suppliers (Yue et al., 2010). Automobile assembly needs hundreds or even
thousands of parts, depending on how we define parts. Automakers cannot
afford to spending time shopping around with many suppliers for cost saving.
Instead, they should build up a core supplier group to lower management
cost and achieve suppliers' loyalty, cooperation, and support. They need to
assure members of this group their business and build long-term partnership.
By doing that, they can cooperate with the suppliers well in response to the
changing market, keep quality level high, and gather efforts and supports in
technology innovation and development.

7.3 Gather strong support from suppliers and speed up

new technology development
In supply chain management, front loading collaborative research with part
suppliers has been proven to be a very efficient way to share the research
burden with the supply chain and help the suppliers develop and prepare for
possible technology changes (Wagner and Hoegl, 2006; Peterson et al.,
2003). Trust and co-operative learning have emerged as critical factors that
affect the success of strategic alliances (Mellat-Parast and Digman, 2007).
Only by working closely with suppliers, viewing them as partners instead of
contractors, automakers can integrate the suppliers earlier into the R&D
process; build a framework that will support them in leading the industry
innovations and/or spontaneously responding to the technological advances.
Cost savings realized using our cease-control-combine remedy may, in fact,
support further R&D activities and innovations and ultimately secure the
future (Batson, 2008; Binder et al., 2008).

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7.4 Gather continuous

corporate image

public

support

and

restore

Most importantly, the survival or development of auto supply chain relies on

the support of the society. After the bailout money and national policy to
support the industry, the industry holds the responsibility to pay back to the
US society. Our proposed triple-C cease-control-combine strategy will
enhance the technology research in gas efficiency and speed up the
development of green energy resources in transportation system. It
contributes not only to the automakers, but also to the sustainable
development of the society. By ceasing outsourcing and building a core
supplier group domestically, the strategy will also keep many jobs in North
America, create many high-tech employment opportunities, and boost
automaker's corporate social image. Table II lists our tentative and plausible
solutions.

8. The future of auto industry supply chain management

As we discussed above, the future
management lies in four elements:

of

auto

industry

supply

chain

1. sustainable development;
2. less dependence on gas;
3. green energy reform; and
4. high moral standard.
The successful development of the 100 percent electric Nissan Leaf shows
how a Combine-Cease-Control supply chain management strategy supports
the above elements. The Nissan Leaf is the first 100 percent electric, no gas,
no tailpipe vehicle. It uses technology called an inverter, which works similar
to a fuel pump and pumps electricity stored in a battery to power the
vehicle. The vehicle runs 60 miles for every recharge. The manufacturer
suggested retail price (MSRP) for the Leaf SV and the Leaf SL start at
$32,780 and $33,720, respectively, which is more than 65 percent higher
than the traditional Nissan Altima Sedan (MSRP=$19,900). Nissan started the
drive electric tour on October 1, 2010, and by October 15, 20,000 people
have already reserved a Nissan Leaf. This high number of reservations has
exceeded everyone's expectations (Nissan, 2010).The Nissan Leaf is the
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result of the Renault-Nissan Alliance that dates back to 2002 (Yshino and
Fagan, 2003). The two companies combined their research resources, which
facilitated the development of the high technology in the Leaf. The alliance
lowered their purchasing costs by joint purchasing, ceased some long logistic
pipelines by combining their supply networks and closely coordinating with
their suppliers. Furthermore, the Renault-Nissan Alliance ceased their
research, development and production of hybrid engines. Instead, they
installed Toyota engines in Nissan's Hybrid vehicles. With the saved
resources and the leaner supply system, Renault-Nissan was able to hold
strong control of their supply chain, maintain high quality production and
gather sturdy support in developing and producing the innovative Leaf. The
Leaf electric car shows a module of sustainable development in auto supply
chain management. Furthermore, its success clearly exhibits customers'
demand for less dependence on gas and green energy. The introduction of
the first 100 percent electric car also boosts the company's image and
demonstrates a high moral standard, as stated in Nissan's motto, Nissan,
shift the way you move.

9. Conclusion
In this article, we investigate the supply chain management strategy of
Maruti Suzuki India ltd, identify some of the biggest challenges of the
industry, analyze the issues of the current strategy, and propose a new,
cease-control-combine remedy. The proposed triple-C strategy will save the
auto industry big money in R&D investment, reduce quality cost and
inventory waste, help the industry go through the volatile economy, and
achieve sustainable development. Furthermore, with a close relationship and
strong support from the suppliers, the industry can speedup technology
development, introduce new gas efficiency models quicker and become less
dependent on gas price than before. R&D's innovations in green energy will
be incorporated into transportation system to meet market demand. The
industry will continue to lead in green energy reform. Finally, the triple-C
strategy will help the industry keep jobs and generate new jobs in the USA.
These activities lead to public support and restored corporate image.
Executives' ethical responsibility to the industry and the society signals a
higher moral standard than before.
In conclusion, the new triple-C cease-control-combine strategy is sustainable,
strategic, and ethical. The auto industry must satisfy all stakeholders in the
society: customers, local community, suppliers, employees, different interest
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groups, trade associations, local and federal government, universities,

creditors, investors, natural resources, and environment. It is important to
take a proactive stance and act quickly before it is too late. In order to
achieve sustainable innovation in the auto industry, we must think long-term
and identify the WIN strategy in this game[1]. We believe that although the
North American auto industry is in a very cold winter time, when the spring
comes, trees will bud and flowers will bloom. The industry still has a very
bright future ahead as long as we make the correct choice right now.

Figure

1Auto

industry

supply

chain

management:

triple-C

strategy

Figure 1Auto industry supply chain management: triple-C strategy

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Table I Challenges of the auto industry and the current strategy's problems

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CHAPTER-5
Summary of Findings and Suggestions:New Delhi, August 22, 2012: All India Management Association organized
the second day of its most sought after annual Global Summit on Supply
Chain & Logistics Management here in the capital today. The theme of this
years summit is Developing Supply Chain Competitiveness - Agenda for the
Future.
With the evolving world economy, organizations are faced with challenges in
the new world. These very challenges offer opportunities for companies to
strengthen their position by creating greater value for customers as
compared to competition. Effective management of supply chains can result
in significant value creation. Developing global SCM competitiveness requires
understanding the enabling role of infrastructure; investing in developing the
right pool of skilled manpower; leveraging the advantages of superior
technology; and effective management of supply chain change. AIMAs SCM
Summit emphasized this year on these critical issues for achieving global
competitiveness
through
supply
chain
management.
Day two of the Summit witnessed a panel of esteemed experts and Supply
Chain heads of various Corporate discuss on topics ranging from Industrys
best practices to the key agenda for Supply Chain in the future.
The opening session on Managing Supply Chain Change Industy Best
practices was chaired by Dr. Nallan C Suresh, Head (Supply Chain),
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State University of New York, Buffalo. The panelists included Mr.

Deepak Thukral, General Manager (Supply Chain- Body & Interior)
Maruti Suzuki India Ltd. and Mr. John Benedict, Associate Vice
President (Supply Chain) DS Group.
Mr. Deepak Thukral, General Manager (Supply Chain- Body &
Interior) Maruti Suzuki India Ltd. shared his thoughts saying,
Significant changes in the economy have been witnessed in the last few
decades which has impacted all spheres of life. As the consumer is evolving
and his demands are increasing, we need to work towards exciting the
customer, which is a challenge. Supply chain is not a Sprint; its more like a
Marathon. To manage the changes and challenges we need to evolve
continuously. The working style has become more strategic rather than
tactical now
Mr. John Benedict, Associate Vice President (Supply Chain) DS
Group added, Management of a Supply Chain can be a real challenge. For
todays organizations, it is essential to focus on the major drivers of SCM
which are Production, Inventory, Location, and Transportation. Logistics has
now been recognized as a significant contributor to GDP as well.
The next session saw panelists deliberate on Building Competencies for
Supply
Chain
Excellence.
The
session
chaired
by Dr.
Reena
Ramachandran, Former Chairman & Managing Director, Hindustan
Organic Chemicals, included panelists from top Corporate Mr. Vikas
Singhal, Vice President (Mfg. & SCM Whirlpool; Mr. Sukhwinder
Singh, Vice President (North), Blue Dart Express Ltd.; Mr. Jayanty V
Sastry,
Director
(Logistics)

ACC
Ltd.
Mr. Vikas Singhal, Vice President (Mfg. & SCM Whirlpool,
emphasized on the need for incorporating Supply Chain Management in the
Organizational Strategy. He said, It is extremely essential that Supply Chain
is an integral part of the Corporate strategy and business model. Supply
Chain Management Group should be one of the key stakeholders and part of
decision making and business plan. It is also important to deal with external
environment be in vendors, consumers or regulators. Also, SCM, sales,
Finance functions should actively collaborate in the planning cycle.
The last session of Day two saw a power packed panel debate and deliberate
the Supply Chain Agenda for the future and the key issues related to the
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same. The panelists included Mr. Winnie P John, Planning & Logistics
Director (Indian Sub Continent) GlaxoSmithKline Consumer Health
Care Ltd.; Mr. Jayant K Ambast, Director, Supply Chain South Asia,
Perfetti Van Melle India Pvt. Ltd; Mr. Kalpesh Pathak, Asst Vice
President (Corporate SCM), Fiat India Automobiles Ltd and Mr. Ajay
Rao, President (Business Development and Strategy, Warehousing
and 3PL), Allcargo Logistics Ltd. The Session was chaired by Mr. S
Sandilya,
Chairman,
Eicher
Group.
Mr. Winnie P John, Planning & Logistics Director (Indian Sub
Continent) GlaxoSmithKline Consumer Health Care Ltd. focussed on
the need to create a demand driven supply chain and working with the sales
team to create a standard process. The need to be agile and responsive and
collaborate within the organization with sales and other functions was also
emphasized
upon.
Dr. G Raghuram, Vice Chancellor, Indian Maritime University &
Summit Director summed up the proceedings of the summit giving the key
takeaways.
The unique feature of AIMA Summit is to provide a platform in an experiencesharing interactive mode, thereby encouraging high level of active
participation by delegates. Over 150 professionals across India are
participating in the two-day summit.

CONCLUSION
Supply chains in the automotive industry become increasingly complex. The
modern automotive manufacturing methods aim to pull components
through production based on demand requirements. OEMs typically rates
suppliers according to price, quality, delivery reliability, and operational
performance. The goal for best-in-class suppliers is to produce the right
parts in the right quantity at the right price, delivered to the right place at
the right time. Effective management of relationships between OEMs and
supply chain companies becomes more and more important. Suppliers must
either pre-build the parts and keep the inventory on their shelves, or move to
flexible and sequenced manufacturing so they can produce and deliver the
production parts as they are needed. The automotive manufacturers - OEMs
and Tier 1 suppliers have adopting many of new manufacturing practices,
e.g. lean production, Just-In-Time (JIT) inventory. These practices are being
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driven down to Tier 2 and 3 suppliers and address important manufacturing

goals of shorter lead times, improved production flow and faster cycle times.

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