As the biggest passenger carmaker in India, Maruti Suzuki has almost single-handedly transformed the country’s vehicle transport network. Ramesh Kumar looks at the achievements, legacy and aspirations of the manufacturer’s logistics operations.
You may have the best products, competitive prices and the most talked about marketing campaign, but if the product is not available in the showroom when potential customers walk in, it is all a waste of time. The delivery mechanism of providing finished product to the marketplace is the culmination of any successful business strategy and arguably the most important element.The pressure intensifies when you are the market leader and your competition is gunning for a larger share of sales. Nobody understands this pressure and the importance of logistics better than Maruti Suzuki’s Randhir Singh Kalsi, executive officer sales and dispatch (SND), spare parts (SPD) and logistics.
Kalsi, a 30-year automotive industry veteran, shows great confidence while overseeing the handling of more than 1.2m vehicles per year in domestic sales and exports, as well as managing more than 80 transporters covering the flow of vehicles from Maruti’s Gurgaon and Manesar plants on the outskirts of New Delhi.
An Indo-Japanese joint venture, Maruti Suzuki has dominated the Indian passenger car market for the past three decades since it introduced the concept of the ‘affordable people’s car’ in India. Its domestic sales of more than 1.1m vehicles mean it is the only carmaker with the critical mass to shape India’s distribution network. In the financial year 2010- 2011 (April to March), Maruti exported over 138,000 vehicles. Kalsi has been part of Maruti’s evolution as it transformed both the Indian car market and the country’s vehicle logistics industry. Hardly 200 metres from his office at the Gurgaon plant, car carriers line up to “gobble up” eight Alto passenger cars each. Today, this operation is nothing special, but before Maruti Suzuki’s arrival the carmakers in India–namely Ambassador and Fiat–dispatched sold vehicles by road with a driver at the wheel. “When Maruti Suzuki India started operations in 1983-84, we were surprised to see cars being driven for delivery to customers across the length and breadth of the country from OEM locations. We were committed to offering factory-fresh vehicles to the customers. How can you call vehicles factory-fresh if they have been driven 1,000– 1,500km on the road before being delivered?” asks Kalsi.
Today, Maruti Suzuki’s 80-plus vehicle carriers operate a combined fleet of around 9,000 trucks or trailors. But it would not be an exaggeration to say Maruti laid the foundation for the Indian car carrier industry nearly on its own. Ajay Singhal, chairman and managing director of Om Logistics, puts it simply: “No Maruti, no Om Logistics.” Singhal built his transport empire, which boasts an annual turnover today of more than Rs.850 crore (1.3 billion rupees or $28m), through his association with Maruti Suzuki (see box on p16, ‘Maruti, the fortune-changer’).
Depending on external resources for a critical element of your operation is a tricky game. Firstly, Maruti has to compensate fleet owners in such a way that they view car carrying as a long term and viable proposition. “At a gross level, I would say logistics cost as a percentage of car prices has gone up,” reveals Kalsi. He says freight costs have increased from 1.5% of the total car price in 2001 to 2.5% in 2010. Maruti Suzuki deploys a “fairly detailed formula” to compensate fleet owners, he says, factoring in variables such as cost of chassis, manufacturing cost of trailer, fuel, tyres, salary of drivers and staff, backhaul load availability, type of terrain, toll costs etc. But this equation is difficult given the ever-changing sums involved. “When it comes to providing factory-fresh vehicles to customers, quality takes precedence over cost,” admits Kalsi. “Having said that, a direct linear relation between inflation-adjusted costs cannot be drawn because there are additional factors that come in, such as that in the past there were no tollgates and today there are as many as 36 tolls between Gurgaon and Bangalore–with many more being added as we speak. This brings a cost of 8,900 rupees per carrier.” Kalsi also admits that managing more than 80 transporters is cumbersome and he is keen to reduce the number. “Over time we have added new transporters because of increased requirements. Some consolidation of old transporters has also taken place,” adds Kalsi’s second in command, Ram Suresh Akella, general manager of SND and logistics.
The company is not averse to using a third party logistics provider (3PL) in the outbound segment provided that it brings in higher efficiency, better productivity and quality while driving down costs. Unfortunately, it is yet to identify a professional third party player operating in India that is willing to accept the challenge on the domestic landscape, according to Kalsi.
Improving IT systems
Given the complexity of the business, Maruti Suzuki has built up its vehicle logistics operations around robust data tracking. Finished vehicles are first sent from the plants to stockyards located in Gurgaon, which can store 6,000 vehicles at a time, and Manesar, which can accommodate up to 25,000 vehicles. At this time, the sales and dispatch department takes charge of the entire process: barcoding each vehicle for easier and quicker identification, slot allotment on a variety of parameters, pre-transport inspection, transporter management at the delivery yard for bay allotment–which operates nearly 24/7–invoicing, paper preparation for on-road movement and monitoring the movement of outbound from dispatch to dealer. According to Kalsi, the Maruti Suzuki vehicle logistics team is a group of highly committed, motivated and yet dynamic people who handle all challenges related to seasonality in demand and expansion plans.
Technology has played a critical role in binding the logistics functions seamlessly. The carmaker has in place a state-of-the-art ‘extranet’ for transporters, which helps track carriers’ individual performance. It also has in place a robust, in-house-developed IT system that integrates all outbound processes. Given the multitude of model and colour combinations, it used to be a Herculean task to manually pick and choose each batch of cars to be loaded onto trucks waiting in the dispatch yard. Thanks to technology, the vehicle logistics managers are able to locate each model/colour within the several acres of stockyard by clicking a button on their console.
Taking forward the technology solutions to steamline the process further, Maruti Suzuki is quickly implementing GPS for all its carriers and integrating it with its transporters and dealers. The first phase of the project is near completion. The system, according to Kalsi, enhances transparency of the fleet on the roads and helps gather real-time information to enhance efficiency, productivity, route planning and safety. The first phase, admits Kalsi, was delayed following the vendor’s inability to meet Maruti Suzuki’s rigorous demands, wasting almost two years of progress. Subsequently, other vendors were brought in and succeeded in doing a pilot covering almost 33% of Maurti Suzuki’s car carrier fleet. By March 2012, Kalsi is hopeful of a full-GPS rollout across its vehicle logistics carriers.
Currently Maruti Suzuki deploys a barcode mechanism in stockyards for identifying each vehicle, but Kalsi is considering the use of RFID in the yards. “What we are looking for is an active RFID type, but what is offered is the ‘passive’ variety,” he says. However, he adds that the bar code technology adopted for stockyard management is working fine as of now.
Rolling out hub-and-spoke distribution
Kalsi believes that the next breakthrough for Maruti’s dealer and logistics network will be a hub and spoke distribution model. “Our vehicle distribution until now has been classically point-to-point, i.e. dispatches from factory to dealer premises,” says Kalsi. “The hub and spoke concept of distribution was rarely used, except loosely in rail and coastal shipping mode where vehicles were sent in bulk to a major city and then distributed to secondary destinations. Hub-and-spoke distribution is not common but we are seriously looking at this option,” explains Kalsi.
The carmaker is keen to adopt this model once the proposed Goods and Services Tax (GST) regime is rolled out, which is intended to eliminate much of the complex web of inter-state customs and taxes paid today. Maruti is hopeful that once the GST bill is approved by the Indian Parliament, its benefits will simplify logistics for the whole industry. For Kalsi, the most vital component in the delivery cycle is the physical transit time from the plants in the north to the rest of the country. Shorter transit times automatically mean greater productivity and efficiency for the carmaker, transporter and dealer. Strikingly, even with improved road infrastructure, the transit times have not been reduced. Kalsi suggests that this may be because of increased traffic and congestion on roads. “We have to evolve some mechansim that enhances efficiency and reduces transit times,” he says. According to Maruti Suzuki’s vehicle logistics team, minor transit damages for road transport have also decreased over the years. However, improved asphalting on highways has led to a higher number of accidents. To combat this menace, Maruti designed special training modules for drivers and instituted incentives for safer trips. It also added the use of wheel lashings, perforated carrier floors, cushioning of sidewalls, training of carrier drivers and the introduction of a unique Japanese concept called KYT (Kiken-Yochi Training). KYT is a hazard forecasting methodology that aims to improve awareness and encourage transporters to do root cause analysis of damages or accidents. “The incentive for better transit quality is higher business,” quips Akella. Despite these positive changes, Kalsi is not happy with the pace of change for transit time, and wants to see faster infrastructural and regulatory developments. “Infrastructure developments have to walk in tandem with the scorching growth witnessed by the auto industry,” he says. “This mismatch in speed has perhaps led to congestion on roads.
The net gain is practically zero. The quality of commercial vehicles has improved but we have not been able to leverage the advancement in technology due to a poor road network.” Another sore point is the absence of seamless and paperless borders across India to ensure faster transits. Though the government is aware of the pitfalls of interstate borders and the hassles facing commercial vehicles–including significant red tape and corruption stemming from the multiplicity of authorities managing national highways– the pace of modernisation for road management has been dissappointingly slow. For instance, it is not unusual for car carriers to be held up at privately managed tollgates and interstate borders for more than 30 minutes each, adding many hours to travel times. Considering that in the average long haul there are more than half a dozen states to cross and 30-40 tollgates to handle, the scope to truly improve transit times remains limited.
The need for multimodal transport
Contrary to matured economies, road transport continues to be the preferred mode for the movement of finished vehicles in India, with the share of rail and water transport negligible. Akella says that 85% of movement happens through the road network, although that is probably a lower percentage than any other carmaker in India as Maruti is among the first to explore rail and water transport. Kalsi is keen to see the development of multimodal transport in India.
“Considering the congestion on roads, we have to think of alternate ways of transportation,” he says. “In other countries, like the US or Europe, a large number of cars, nearly 60-75%, are transported by rail. The railway is the obvious alternative.” Kalsi feels that India’s state railway offers a great opportunity but is moving too slowly. “I think, in the long run, the railways should be able to able to take 30% of the load and both road and rail will co-exist,” Kalsi predicts. “Waterways are another untapped area and we are the first ones who have started using coastal shipping for our domestic sales.”
Some prospective rail providers have expressed concern that Maruti wants to pay the same price for rail transport as it does with truck, although Kalsi and Akella are clear that they do not mind paying over and above the road tariff. They claim that the rate paid for multimodal transport is slightly more than what car carriers on road are paid. But the total cost of using multimodal transport over longer distances should be cheaper than on road, as is the case in other markets. So far, Maruti’s pioneering attempts in multimodal transport, while growing substanitally, have been limited by its high costs.
Logistics for the road ahead
While the recent history of logistics for Maruti Suzuki and indeed the Indian automotive industry has been focused on how to keep up with fast growth, a cooling in the market and increased competition mean that Maruti will be relying on logistics to maintain quality and retain market share. Sales in the early months of the 2011-2012 financial year have seen Maruti sales and exports slow down, with domestic sales down around 7.5% in the April-August period–including falls of 26% and 17% in July and August–as the wider Indian market slipped following higher inflation and interest rates. Exports are also off around 15% in the period following the end of incentive programmes in Europe that had increased demand for smaller, cheap cars. The total Indian market for light vehicles was up around 7% in the five-month period. The Society of Indian Automobile Manufacturers still predicts sales growth of around 10-12% this year compared to early predictions of 16-18%, significantly moderated from 2010- 2011, when car sales grew 30% to around 2.4m vehicles. While Maruti and the wider market may have hit a temporary roadblock, the future continues to look bright despite the challenges. The Indian automotive industry’s contribution to GDP has grown from 6.9% in 1992-93 to 7.6% in 2009-10 and is likely to increase to 9.9% by 2014-15, according to Frost & Sullivan.
Maruti Suzuki is also being aggressive in its attempt to maintain a 45% market share, with 25 new models expected to be rolled out of Maruti Suzuki assembly lines over the next 2-3 years. If this were to turn into a reality, it would add to the monumental challenges facing Kalsi and his team. But he is not deterred. “Our aim is to move closer to the customer and fulfill his requirements at a faster pace” he says.