How Maruti Innovated Work Practices To Advantage

THEME/BEST PRACTICES

The author is managing director of Maruti Udyog Ltd

I want to share with you the Maruti manufacturing experience over the past one year or so. The results achieved on the Maruti shopfloor have reinforced my confidence that Indian manufacturing is still in with a chance. Let me begin with something that is rather well known to this audience: the status of Indian manufacturing today.

Manufacturing currently accounts for about 17 per cent of GDP as compared to 20 per cent in 1991. There are tiny enclaves of global competitiveness in Indian manufacturing. But the overall picture is dismal. Issues of scale, infrastructure and labour inflexibility keep productivity low. Labour productivity is only 8 per cent of the US level.

Peter Drucker, writing in The Economist magazine recently, says that as with agriculture in the developed world, in manufacturing too, a fewer number of people will be able to produce a much higher output than they do at present. This transition, he says, has largely happened in the US. It has begun in the UK.

To see what we are up against, let me share with you some expert projections about how manufacturing will evolve in the developed world over the next two decades or so. Output in the developed world is expected to double by 2020, but jobs will shrink to 10-12 per cent of the total workforce. This productivity will be driven by new practices.

This is further confirmation that the labour cost advantage we are supposed to enjoy over the developed world will diminish in importance. Rather, our entire package of cost, quality and productivity has to be globally competitive.

Another insight from Drucker is that this productivity growth in manufacturing is being driven less by automation and information. Instead, new concepts and practices in manufacturing are driving growth in productivity. This is also where future growth will come from.

Let us now look at the Maruti experience. Maruti's contribution in the growth of Indian industry may be widely acknowledged. It remains to be seen whether we can build on that and lead the challenge in global markets. We recently announced our unaudited results for 2001-02.

You will notice only a marginal growth in topline. Of course, it helped that we could retain volumes in a tough market. But clearly, the turnaround has been helped by operations. Operating profit, which was Rs 147 crore in 2000-01, has gone up to Rs 511.4 crore in 2001-02. An improvement of almost 250 per cent over the year.

Expenses are sharply lower. But this is only a part of the story. There have been equally dramatic improvements in quality parameters and productivity.

The big lesson of the past year is really that the three desirable objectives of lower cost, better quality and improved productivity are not contradictory. It is possible to align then. More important, it is possible to use one to reinforce the others.

RAISING PRODUCTIVITY

Let me illustrate this point, first, with the change in productivity. HPV, or hours per vehicle, is a parameter used by the car industry globally to assess productivity. At Maruti, we have reduced the hours taken to manufacture a vehicle by 31 per cent between April 2001 and February 2002. Even after this improvement, there is some way to go.

Against about 20 hours per vehicle at Maruti, Suzuki's Kosai I Plant is at about 11.02. This comparison, of course, has to be moderated by the fact that automation levels are widely different at these two locations. Nevertheless, we have drawn up a blueprint to match these levels.

To share another indicator of how productivity has improved, today we have as many employees in production as we did in September 1994. The number of cars we produce now is two-and-a-half times the number in September 1994.

Now, let us see how the quality bar has changed. The percentage of direct pass vehicles has seen a sharp improvement over the last one year. From an average of 19.5 per cent in 2000-0l, to 80.3 per cent in March 2002. This parameter represents the quality of the car when it is first inspected at the end of the production line. If it is defect-free at that stage, it is treated as a direct pass.

Up to last year, to achieve a certain level of quality index in our cars, we had to work very hard between the time when the cars came out of the production line and the time they left the plant. This was because the production line was not sending them defect-free. Now supervisors on the line are directly responsible for product quality.

By doing it right the first time on the production line, we have a much higher direct pass rate. And we can achieve the same or higher final quality of cars without having to work on them. Earlier, if 20 people were deployed in the repair area, now there are only two. Clearly, better quality has meant lower costs.

The reduction in the in-house warranty cost per vehicle by 83 per cent (March 2002 over previous year) contributes straight to the bottomline. A warranty reduction of Rs 22 per car adds up to over Rs 7.7 crore. Just another indicator of how improved quality translates into lower cost and better competitiveness.

Let me now share another interesting instance. This is about the "shower leakage" quality test. Towards the end of the production cycle, all cars routinely undergo this check so that if there are any problems of fitment or tiny crevices on the car body, these can be detected.

We are doing away with this test. By improving quality at various stages of the production process, we are confident that we need not put our vehicles through this. Result, a saving of the 30 people engaged in this test. Not to mention the time saved and the consequent improvement in productivity.

WORKER INCENTIVES

I will now share a few practices that we adopted last year. Let me start with the new system of worker incentives. In 2000-01, we introduced a new incentive scheme for workers. You may recall that it led to an IR problem for about three months. In the end, fortunately, we were able to implement it. The earlier incentive schemes in Maruti were focused only on raising production per employee.

But the new scheme gives weightage to quality parameters, cost control and the company's market performance. At the same time, we have retained the productivity element of previous schemes. As for parameters that go into calculating the worker incentive, we have tried to align our people with the manufacturing objectives of the company.

Under the scheme, a worker's incentive is also linked to attendance. Unplanned absence by an individual, in particular, brings down his incentive. As a result of this, our attendance rate, which was round 91 per cent until last year, went up to 97 per cent in 2001-02. That, in effect, means we have 300 more people available with us. Eventually, it amounts to a saving of roughly Rs 10 crore (per annum).

Together with implementing the revised incentive scheme, we closely scrutinised our work practices to eliminate slack and wasteful activity.

NEW PRACTICE - THE MARUTI PRODUCTION SYSTEM

The Maruti Production System (MPS) was introduced in 2000-01. It is on the lines of the Suzuki Production System. Under this system, our people choose specific work areas one by one. They then closely scrutinise the operations in that area to identify ways in which man and material movement can be reduced. This way, we have discovered chunks of wasteful effort, either in the form of unnecessary man movement or material transportation. The MPS has been implemented in collaboration with workers. Often, the best suggestions to reduce slack have come from workers themselves.

The MPS has enabled us to reduce workforce requirement on the shop floor by 618 people, or over 15 per cent, over the past two years. More important, it has been achieved without any increase in workload for the existing people. Overall production levels, of course, have been maintained. Similarly, we have gone in for new systems to reduce inventory across the supply chain.

NEW PRACTICE - THE DI SYSTEM

This is a new supply chain practice to reduce inventory levels. Under this delivery instruction (DI) system, we are able to give the vendor our requirement of components over a period of, say, 15 days. At the same time, we have also streamlined the delivery and unloading schedules to reduce wasteful movement. We have used our extranet infrastructure to implement this system. At the start of the year, nearly 250 out of our 350 vendors were connected online to the company extranet.

Of course, the DI system requires a close alignment of market demand, production schedules and inventory levels. But it has worked and brought good results so far. It has reduced inventory at Maruti and brought down stoppages on the production line that occurred because of non-availability of material.

Besides, here's feedback from our vendors. At JK Industries, the new DI system has helped reduce tyre inventory from 30,000 to 10,000. Local transport costs have fallen by 39 per cent. Denso's finished goods inventory has fallen from seven to four days.

PRODUCTIVITY DRIVERS

After our experiences over the past year, I find Drucker's observations even more interesting. He said: "What has changed manufacturing and sharply pushed up productivity are new concepts. Information and automation are less important than new theories of manufacturing." Automation and information, no doubt, play a major role. But new practices promise huge potential.

What next? Well, these are just a few things we will need to do to be among the top 50 manufacturing plants in the world. By 2005, our goals include:

* Raising direct pass vehicles from 75 per cent to 93 per cent

* Halving rejection cost

* Reducing to one-third the in-house warranty cost

* Zero accidents

* A 70 per cent reduction in average defects

I do feel confident that at the end of it we would have contributed our bit to making Indian manufacturing globally competitive. In fact, results in the past year have enabled us to reorganise our production process for 2002-03. We have found that so far, we had been utilising our entire production facility, but using it sub-optimally. We have now decided to discontinue operations in certain shops while raising utilisation of the other facilities to optimal levels. Through this, we expect substantial improvements in quality and productivity while reducing overhead costs.

(This article was first published in the May 2002 issue of Indian Management)