CASE STUDY “JIT IN THE AUTO INDUSTRY”

PANKAJ BATHIJA (83) HIMANSHU RANJAN (69)

SHRAVAN BHUMKAR (100) ASHWIN SARODAY (64)

LSCM– Prof. Manoj DasBatch-XIII, ITM, EMBA, Kharghar, Navi-Mumbai.

PRESENTATION FLOW

Automobile sector in India Current scenario Geographic locations

What is JIT & SCM ? What case study says … Discussion

Question#1 Question#2

INDIAN AUTOMOTIVE INDUSTRY TODAY

3rd largest small car manufacturer in the World 2nd Largest Two – Wheeler manufacturer in the World World’s largest Motorcycle manufacturer is in India 2nd Largest Tractor manufacturer in the World 7th Largest Commercial vehicle manufacturer in the World 6th Largest Car manufacturer in the World

Passenger Vehicles 15.86

Commercial Vehicles 4.32

Three Wheelers 3.58

Two Wheelers 76.23

Domestic Market Share for 2009-10

AUTOMOBILE DOMESTIC SALES TRENDS

Category 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10Passenger Vehicles 902096 1061572 1143076 1379979 1549882 1552703 1949776Commercial Vehicles 260114 318430 351041 467765 490494 384194 531395Three Wheelers 284078 307862 359920 403910 364781 349727 440368Two Wheelers 5364249 6209765 7052391 7872334 7249278 7437619 9371231Grand Total 6810537 7897629 8906428 10123988 9654435 9724243 12292770

DOMESTIC AUTOMOTIVE SPACE

JUST-IN-TIME (JIT)

“It is a manufacturing philosophy that attempts to produce with the shortest possible lead time, the lowest possible level of inventory and lowest possible waste.”

JIT refers to zero inventory (means not zero days but two days inventory) operation. It is continuous process it seeks eliminating raw material stock and finished goods stock.

JUST IN TIME IN INDIAN COMPANIES

The Indian automotive component industry has shown tremendous growth over the last decade. Today it has 480 companies, employees more than 2,50,000 people and has an estimated turnover of approximately Rs. 50,000 crore (US$ 10 billion). Just-in-Time has been widely adopted in the Indian companies specially in Indian automobile and manufacturing industry.

List of Indian companies using Just in Time: Lucas-TVS Tata Motors Volkswagen India Maruti Hero Honda Bajaj Auto Kirloskar – Toyota General Motors

SUPPLY CHAIN MANAGEMENT

“Supply chain is defined as the network of organizations that are involved, through upstream and downstream linkages, in the different process and activities that produce value in the form of products and services delivered to the ultimate consumer”.

“Supply chain management is defined as management of a network of retailers, distributers, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product”.

There are four major decision areas in supply chain management:

1) Location,

2) Production,

3) Inventory, and

4) Transportation (distribution)

and there are both strategic and operational elements in each of these decision areas.

WHAT CASE STUDY SAYS…

Delivery schedule hampered In the year 2004, Hyundai Motor Company production affected by 10-15 % due to

heavy rainfall and transporter strike. In the year 2005, General Motors production affected by 15-20 % due heavy rains

in Maharashtra and Gujarat. In the year 2006, Hero Honda Motor production affected due labour strike for five

days. Maruti Suzuki`s production affected in the year 2005 because of heavy rainfall

Auto manufacturers are looking for complementary techniques and processes (Comprehensive SCM) that can enable JIT to work more efficient manner. Using Information technology RFID (Radio Frequency Identification) / EDI (Electronic Data Interchange)

ISSUE

ICMR Case CollectionICFAI Center for Management Research

QUESTION#1

In their zeal to implement new concepts like TQM and JIT, auto companies in India have overlooked the importance of viewing the supply chain as a whole. Most of the auto manufacturers focused on implementing JIT from an interfirm production perspective. What do you understand by JIT interfirm production? What are the inevitable limitations of this approach to production?

Answer : Yes. Indian automobile manufacturer's using JIT & TQM technique from last few years.

JIT interfirm productionExample : Bajaj Auto & Maruti Suzuki

Limitations of interfirm production

INTER-FIRM PRODUCTION

A formal or informal agreement between organizations to collaborate in achieving common or new goals more efficiently or effectively. Interfirm cooperation usually takes the form of a joint venture, strategic alliance, or strategic partnering arrangement.

Example : Bajaj Auto Plant : Waluj Plant, Auranagabad. Capacity : 18,60,000 Suppliers :

JBM - Frames MRF & Dunlop – tires Minda - locks & ignition system Reinder – headlamps & lights Endurance – brakes, clutch & Cast wheel Varroc – Plastic parts & Digital Meter Max auto components – ignition system and switches Silco cable – wires and cables Makino industry – Brake shoes . Brake lining, clutch center

MANUFACTURING PROCESS

EXAMPLE : MARUTI SUZUKI

The Company has adopted the Japanese System, JIT to achieve higher operational efficiencies and reduce inventory carrying cost.

JIT improves the return on investment of a business by reducing in-process inventory and its associated carrying costs.

To achieve JIT material supplies, the company gives preference to locally based suppliers and encourages far distance suppliers to set up base close to Maruti Suzuki`s facilities.

Over 76% of the company's 246 suppliers are located within 100 kms of radius. have strategically located the suppliers of bulky components such as instrument panels, fuel tanks, bumpers, seats, etc. adjacent to the company's manufacturing facilities in the Suppliers' Park.

The JIT system has evolved over the last 25 years in the company from monthly scheduling to daily scheduling of parts orders and finally, in 2003, to e-nagare system i.e. the release of schedules on hourly systems, a practice that aids in maintaining less than two hours inventory of components within the company.

The e-nagare system is successfully running today at the company and helps in maintaining the right material inventory, at the right time, at the right place and in the exact amount without the safety net of excess inventory, thus reducing high inventory carrying cost.

Maruti Suzuki is governed by the manufacturing excellence principles of reducing wastages, inconvenience and inconsistency, which are imbibed from its parent company SMC, Japan.

Maruti Suzuki using best practices such as Just in Time (JIT), Kaizen (continuous improvements), Pika Pika and Poka Yoke (mistake proof operations). The best practices are replicated in the business process of business partners to make their operations lean and error free.

The company is efficiently interfaced with the dealers through Dealer Management System (DMS), annual dealer interactions and reviews which help the dealers in cost savings and customer convenience.

Optimum levels of inventory are maintained to reduce the burden of inventory carrying cost. Higher inventory levels are corrected whenever required to them financially viable. This results in multiplicity of efficiency across the value chain.

EXAMPLE : MARUTI SUZUKI

LIMITATIONS OF INTERFIRM PRODUCTION

Culture Differences: The organizational cultures vary from firm to firm. There are some cultures that tie to JIT in inter-firm success but it is difficult for an organization to change its cultures within a short time.

Time frame : Production is very reliant on suppliers and if stock is not delivered on time, the whole production schedule can be delayed.

Crunch on delivery : Today many tier1, tier2 and tier 3 suppliers are struggling financially to meet their customer demands for lower cost, higher quality and time deliverables.

Loss of team autonomy: This is the result of decreasing buffer inventories which lead to a lower flexibility of the workers to solve problem individually.

Loss of method autonomy: It means the workers must act some way when problems occur, this does not allow them to have their own method to solve a problem.

Responsive method : There is no spare finished product available to meet unexpected orders, because all product is made to meet actual orders – however, JIT is a very responsive method of production.

QUESTION#2

‘JIT is certainly one of the best practices in any production system but you need to have supply chains streamlined for it.' What in your view can be done to streamline the supply chain in order to achieve greater efficacy of JIT?

Answer : Yes. JIT and SCM need to implemented jointly by the automobile manufacturer`s.

JIT & Supply chain management Example : Ashok Leyland

TO STREMALINE …

Linkage of JIT with SCM is being enabled by computerized information systems and electronic data interchange (EDI) with suppliers, dealers, warehouses and customers alike.

The key role of a supply chain is to assist in the production, consumption, and distribution of goods and services. This means that goods must be produced and delivered to the market (or customer)

in the right quantity, of the required quality (i.e., without defect), and at a competitive price.

Integrated and seamless logistics systems can play an important role in facilitating global supply chain processes.

In a nutshell, change in supply chain management practices effects a wider, more than expected on spectrum of operations ranging from – layout engineering, operations flow planning and control, Material planning, Storage and delivery and also quality assurance till the finished goods are

transported to warehouses, distribution / retailing centers and finally customers.

SCM PERFORMANCE PARAMETERS

Sr.No.

Performance Measurement Categories

Key Parameters

1 Cost Costs related with procurement, manufacturing, transportation, inventory, warehousing, distribution etc.

2 Cost and Time Customer response time manufacturing lead time, available-to-promise (ATP) performance, order fulfillment cost.

3 Cost andCustomerResponsiveness

Making a trade-off between cost and customer responsiveness to optimize the return on investments.

4 CustomerResponsivess

High level of customer service judged by on-time deliveries, customer satisfaction, fill rate, stock-out probability, warranty costs and product returns etc.

5 Flexibility Volume and variety flexibility to meet customer demand.

SUCCESS STORY – ASHOK LEYLAND

Ashok Leyland, one of the largest private companies in the country, had sales over Rs. 6,000 crore in 2005-06. Ashok Leyland is a part of Hinduja Group. It is also one of the largest automobile and auto component companies in India.

The company offers a world-class range of trucks, buses, special application vehicles and engines, crossing millions more than 40 countries in the world. During 2005-06, the company produced total 65,085 vehicles out of which it has exported 4,879 units. In the domestic market, the company has sold total 56,776 units.

The SCM project ‘Oscars Inbound’ included supplier partnership, vendor base rationalisation, tiering of suppliers and cluster information, inventory optimisation through JIT and LCL, total cost management, logistics initiatives, e-sourcing and global sourcing. The gains from ‘Oscars Inbound’ are given below: Supplier partnership covers engineering and technical support, global market

leader, global availability of spares, testing capabilities, improved field performance, system supplier, JIT supplies and world-class technology.

Partnership gains include vendor consolidation under Tier-I, continuous technological upgradation of products without in-house investment, shorter development lead time, value engineering and cost reduction, improved field performance, inventory efficiency through JIT supplies and human power rationalisation.

Vendor base rationalisation

Status 2001-02 2002-03 2003-04 2004-05 2005-06

Vendor Base 1017 950 738 612 400

ISO/QS certified 245 281 364 382 400

Self certified vendors 210 240 260 290 350

JIT % of PO Value 69 72 74 77 82

SUCCESS STORY – ASHOK LEYLAND

Gains from source reduction includes pricing on volumes, improvement in quality and reliability, vendor improvement programe for continuous improvement, tiering for ease of fitment- system buying and reduction in paper work

Vendor tierisation included economies of scale, system buying, rationalization of supplier base, while cluster formation included 5S adherence-mistake proofing, process improvements leading to self certification

Inventory level has reduced from 23 days to 18 days. Total cost management included various cost management initiatives such as daily

management, process control, design, technology and capacity. Total savings was 3% on total operating cost.

Logistics initiative included transporter-based rationalisation, Kanban pull from satellite warehouses, enhancement of truck turn around, load, space and route optimisation benefiting entire logistics process, which has benefited the company by saving over Rs1.25 crore per annum.

SUCCESS STORY – ASHOK LEYLAND

REFERENCE

Society of Indian Automobile Manufacturers (SIAM), India B. Mahadevan, “Are Indian Companies Ready For Just in Time,” Management

Review, April-June, July-September, 1997 KPMG report on Indian Auto Industry "Benchmarking for SCM in Indian Auto Industry" - Sunil Sharma, Reader, Faculty of

Management Studies, University of Delhi, Background note on Supply Chain management In Automotive Industry - Auto SCM

India 2006, Chennai www.wikipedia.org ACMA, India

Thank you.