Maruti starts vendor audit to consolidate leadership position

New Delhi: Maruti Suzuki India Ltd has started its maiden performance audit of vendors and also introduced a so-called ‘purple band’ for the most efficient suppliers as it seeks to ensure its goal of retaining the leadership of the domestic market by producing up to five million vehicles by 2030, said three people directly aware of the development.

The company expects the exercise spanning its entire vendor base including Tier 2 and Tier 3 suppliers to help improve product quality and sustainability of its vendors, said the people, who did not wish to be named.

The initiative has been taken to boost the synergy between the vendors and the company as the management feels the vendors are crucial partners and will act as a catalyst to growth in the future, according to the people mentioned above.

“Maruti already has an established mechanism for judging its vendors and this purple band was introduced as it wants to encourage its vendors to invest more in line with the company’s expectations,” said one of the three persons mentioned above. “There are almost 11 parameters and companies that are able to meet 85% to 90% of the parameters will be put in the purple band,” the person said.

The exercise is also being undertaken to urge vendors especially Tier 1 to invest more in research & development, which will enable Maruti to develop and design more vehicles in India, they said.

The Suzuki Motor Corp. unit will judge the suppliers on certain parameters, including spending on research and development, stable balance sheet, attrition rate, product quality and product rejection rate.

Maruti will be the first auto maker from India to carry out such an exercise. Globally, companies such as Honda Motor Co. and Toyota Motor Co. are known to have undertaken such initiatives to improve vendor sustainability.

“Vendors are one of the most important parts of an automobile manufacturing company and if Suzuki is to achieve its target of selling five million vehicles it will have to encourage vendors to invest more,” said Puneet Gupta, associate director at IHS Markit.

“It is also important for a company like Maruti to conduct checks of its vendor base to know the strengths and weakness of a particular supplier,” he said.

Maruti currently groups its vendors in three bands—green, yellow and red. If a supplier manages to meet 70% of the parameters, it is accorded the green band, while the worst-performing ones are placed on red.

A spokesman for Maruti did not comment on the vendor audit, but said the company recognizes enhancing the “Quality of Business” across the value chain is critical to retaining market leadership.

“With customer expectations moving up and the company making efforts to reach out to new categories of customers in higher segments, it is imperative to enhance quality of products besides ensuring high levels of customer experience,” the spokesman said in an emailed response to queries. “Strengthening the capability of suppliers is an integral part of achieving ‘Quality of Business,” the spokesman said.

Vendor appetite to invest more has been a worry for Maruti as only a fourth of its vendors have set up their own facilities in Gujarat where Suzuki has built a new facility.

“The senior management of the company has understood that the suppliers need to invest in expanding their operations, R&D and design for Maruti to successfully design and develop more vehicles like Vitara Brezza in India. This activity will not only assess the financial health of the suppliers but will go much beyond that,” said the second person mentioned above.

India, which is Suzuki’s single-largest market, saw its importance magnify after the Japanese auto maker shut operations in China.

Maruti in FY2016-17 carried out a so-called “Comprehensive Excellence” programme to study and improve any weakness among its vendors and achieve higher quality standards.

“The assessment helped us to study and identify weak areas of the suppliers. Based on the assessment, suppliers agree on improvement plans to reach minimum acceptable standards,” the spokesman said.