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Case for Discussion

How different were the decades of the 1960s and the 1970s! Those were the days of shortages, waiting, queues, control, licenses and monopoly! Contrastingly, today we are spoilt for choice if we want to purchase any consumer product. Let us take the example of a car. Prior to the 1980s, there were only two brands—the Ambassador and the Fiat. They had limited capacity and were easily able to satisfy the limited market that existed and sell whatever they produced. There was no incentive to reduce costs or improve efficiency, competition being non-existent.
The entry of Maruti in the mid-1980s was a game changer in more ways than one. The way business was carried out became friendly and professional. Dealers as well as suppliers were treated as partners in the business rather than adversaries. The customer became the focus for the industry.
The way a car is manufactured is different from other products. A car has hundreds of components, each of which may be supplied by a different supplier.
Maruti assembles these components to manufacture the car. In addition, Maruti designs the car and the specific features of each component, undertakes quality control, and assumes responsibility for marketing and various other tasks that go along with it.
The role of the component manufacturers is critical. Maruti, therefore, ensures that the component suppliers have an equal stake in the success of the venture. Most of the component manufacturers are located close to its factory in Gurgaon, linked to it through its enterprise resource planning (ERP) network, aware of the production schedule of Maruti on any given day and the number of components it must supply. Maruti, therefore, stocks a limited inventory of components (its raw material) which are supplied daily by the component manufacturers. In addition, no time is lost and no costs are incurred in ordering and transportation, benefitting both Maruti and the component manufacturers.
Currently, Maruti has 246 suppliers, 76 per cent of whom, mainly suppliers of bulky components such as instrumentation panels, fuel tanks, bumpers and seats, are located within 100 kilometres of the Maruti factory. Maruti also has joint a venture with 14 of them.

1. In what way did the entry of Maruti change the way business is conducted in the automotive sector in India?

2. What was the impact of these changes on working-capital management?

3. Is there any other sector that you can think of where similar changes will significantly improve the fortunes of the industry? How?