Pak Suzuki Motor Corporation- A Case Study PDF

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Pak Suzuki Motor Corporation Limited It was a fine evening; the forecasted number for the next three months were with Mr. Omer Farooq, the procurement head for Pak Suzuki. This time again, he was not sure about the accuracy of these number. The company management was still unhappy due to the heavy costs incurred in the previous ordering cycle, due to the equipment had to be re-ordering as a result of under-forecasted sales of the vehicles. This not only increased operational costs but also delayed the vehicle deliveries. The problems of forecasting had been persistent, every three month the company either had an excessive amount of inventory, or they had to re-order more from Japan which came to Pakistan and was very costly for the company. The company was fighting on multiple fronts to keep itself afloat since governmental policies, forex rates, operational inefficiencies and planning difficulties were clearly not in their favor. While the company enjoyed a massive share of 53% in 2016, it had been reduced to 29% in 2019 with no room for improvement. Sales were constantly dropping for the entire industry but Suzuki was taking the heaviest hit. These desperate times called for desperate measures that had to be taken. The company had to revamp its system in order to turn the company around. There was a meeting scheduled to tomorrow with Mr. Iftikhar Ali Dasti, Functional Head Production, Mr. Ghulam Farooq, Functional Head Supply Chain, Mr. Shahid Ali Khan, Divisional Head Product Localization and Mr. Omer Farooq, in order to seek the best possible solutions in order to counter the situation at hand. Together they also needed to ensure that inventory becomes the least of the worries for the company by devising an effect inventory management and procurement plan which incorporated minimum re-ordering and left the least amount of excessive inventory at the end of the month.

Introduction Suzuki was founded in 1909 by Michio Suzuki, a time where textile manufacturing was one of Japan’s biggest industry. It was initially dealing with machinery related to weaving. After the

World War 2, the company changed its direction. The company had learnt the art of making vehicle equipment in the war, it decided to bring that expertise to use. New headquarter and plant was set up and the company started to design motor cars. By 1970s the company started to broaden its horizon, by starting to make its way outside Japan. And soon afterward it came to Pakistan. Suzuki Pakistan was formed as a joint venture of the Government of Pakistan and Suzuki Motor Japan in September 1982. Initially 25% of the stocks were held by Suzuki which have increased up-to 73% currently. Currently with a market share of 29% of the market share in Pakistan, Pak Suzuki is in the big three. Suzuki gained the market share by becoming a low-cost producer in the country. It follows a low-cost provider strategy and targets the lower middle class mostly for its cars. Suzuki also has a side business of dealing with Pak Suzuki Certified Used Cars, and also provides automobile related service.

Competition: Pakistani automobile industry has remained dominated by three companies for years. These are Pak Suzuki, Toyota IMC and Honda Atlas. Numerous other companies tried to enter the market but were forced out by the monopoly of the big three. Due to limited options available, people were forced to buy cars from these top three companies. As a result, these companies had the power to increase their prices without any restrictions. The models launched in Pakistan by these companies were poor in quality with limited options as compared to the global models, but the prices of local models were more as compared to their international models. Still, the companies were able to increase their sales and earn greater revenues because people didn't have any other option. Toyota IMC has a market share of 35% whereas Suzuki and Honda have a share of 29% and 27% respectively. Other car manufacturers have just a share of 11%. Toyota and Honda operate in the middle and large car categories, while Suzuki also targets the small car segment. Imported vehicles gave tough time to these companies through greater features and better build quality but soon rumors were spread against the imported vehicles which made people afraid that they might waste their money by buying an accidental vehicle. Hence people were again left with only three options in the new car segment. Recently, a few companies have signed agreements to launch their cars in Pakistan. Kia and Hyundai have started to establish their production plants

with Kia launching a couple of models targeting the middle and large car segments. Kia has launched its Kia Picanto as a small family vehicle. Kia Sportage is another SUV launched in the Pakistani market. Kia also plans to launch Kia Rio in Pakistan which is a mid-sized family car. These models have gained favorable response from the consumers and are performing quite well. Apart from these there are a few Chinese manufacturers also. FAW has been operating in Pakistan since 2007. FAW V2 is a mid-sized family car launched by FAW in Pakistan. Apart from these the company has also launched FAW Carrier+, a loading vehicle and FAW XPV, an 8seater passenger vehicle. Other than these FAW also produces heavy vehicles. Hyundai in collaboration with Nishat Group plans to launch four models in Pakistan. Hyundai Santa Fe is an SUV, Hyundai Ioniq is a mid-sized family car and Hyundai Grand Starex is a 12-seater passenger wagon. Hyundai Porter will be a small truck for loading etc. Toyota Corolla is the most famous car in Pakistan with a market share of 20% followed by Honda City and Honda Civic with a market share of 12% and 11% respectively. With the introduction of new manufacturers, the options available for the people will increase which will enable a healthy competition among different car manufacturers.

Operations and Systems: Suzuki’s operations are conducted in compliance with applicable environmental, occupational health & safety laws and regulations. Even where existing laws & regulations are not adequate, they undertake to operate in a responsible manner by assuring the HS&E integrity of their processes and facilities. They believe the interrelationship between energy and the environment and promote the efficient use of energy throughout our system. Ensuring safe disposal of waste generated from their facility and minimize the discharge of waste materials into the environment by utilizing responsible pollution control practices. Departments and Organogram: Suzuki holds a paid up capital of 823 Million and owns a total area of 862976.4 m 2 which includes land sub leased to vendors. The covered area of the plant is 95237.3 m 2 for Automobiles and 7014.6 m2. It has 109 vendors for automobiles and common and 12 vendors specific to motorcycles. The production capacity of the plant is 150000 units/year based on a 2-shift operation with extended working hours. The organogram of Suzuki is a combination of

divisional as well as functional hierarchies (exhibit 1 and 2). The crown jewel of the company, being an automotive OEM, is the production division. The division consists of 10 departments in total working in sync to assemble more than 600 vehicles in a single day. The departments are listed in Exhibit 1 as: 1. Press Shop 2. Welding Shop 3. Paint Shop 4. Plastic Shop 5. Engine and Transmission Shop 6. Vehicle Final Assembly 7. Material Handling Department 8. Maintenance Department 9. Production Control Department 10. Motorcycle Department

Shop floor Processes: Press Shop: The press shop consists of two separate lines for the pressing of vehicles namely the F Line and the K Line, each employing 5 presses ranging from 500 Ton to 1200 Ton. The shop also includes 2 Shearing and 4 small press machines. Weld Shop: The weld shop consists of two lines namely the Car Spot and the ST Sport lines each employing 5 white body lines and a single white body line respectively. The welding being done in the welding shop consists of Spot Welding, Arc Welding and CO2 welding. Engine and Transmission:

The engine and transmission division consists of 2 Cylinder Block Lines, 1 Main Assembly Line, 8 Firing Test Benches, 3 Engine Types (F-Type, G-Type and Type) and 2 Sealer Application robots. Paint Shop: The paint shop is divided into the pre-treatment facility, the DI water generation facility, the ED Paint facility and the paint supply system. Plastic Shop: The plastic shop is divided into the injection molding area, consisting 3 injection molding machines of 3000 ton, 2500 ton and 1050 ton respectively, the sub assembly area and the bumper paint facility. Vehicle Final Assembly: The vehicle final assembly consists of two types of lines namely the Car line and the ST (Small Truck) Lines each divided into its own portions. The Car Line has 51 stations and is divided into the Trim Line, the Overhead 1, Overhead 2 and the Final Line while the ST Line, with 22 stations, is divided into the Trim, Overhead and the Final Line. The VFA has an automated painted body storage and transfer system, conveyors on both line, a robotic windshield glazing process and the Poka Yoke System on the 7 car and the 2 ST Lines.

Material Handling Department: The Material Handling Department is responsible for the handling and storage of CKD as well as localized parts and ensures that all parts are available at the time of production.

Problems:

Pak Suzuki Motor Company Limited is engaged on multiple fronts in order to account for the shifts in demand and the resulting drop in sales. Demand changes due to multiple factors which includes forex rates, governmental policies and price hikes which is why the past two years have

been more of a slump for automobile sales all over the Industry. Maruti Suzuki in India, another subsidiary of Suzuki Motor Corporation Japan faces a similar dilemma the effects of which have reached Suzuki Motor Corporation Japan as well. In Pakistan however, Suzuki faces a 36% decrease in sales without any room for improvement. Furthermore, Suzuki has localized a lot of its parts in terms of volume but when it comes to weighing the number on the basis of costs, a majority of the inventory costs are still being incurred by CKD parts as opposed to local parts since most of the costly and critical parts are being ordered from Suzuki Motor Corporation Japan itself or from its wide network of global vendors. The prices for the parts are locked in the development phase after costing is done on the parts with no room for discounts in the future. Due to ever changing demand, Suzuki faces a few issues due to its current procurement practices as well. Material availability at the right time and right place is vital for swift and efficient running of a manufacturing facility. In order to do that manufacturers, use different types of procurement planning in order to achieve their costing, manufacturing and delivery targets successfully. Different techniques are used which vary according to industries as well as companies and according to the nature and demand of the business. Suppliers are paid every 15 days for the lot that reaches the off-loading hangar of Pak Suzuki Motor Company Suzuki has a centralized procurement system with a network of 115 local vendors and international vendors. The company uses the N+3 technique to procure its CKD raw material, sub-assemblies and assemblies. N+3 basically means that ordering for the raw materials of a vehicle will be done 3 months in advance. Although this may seem to be a reasonable approach in an economy where the demand is constant, and the requirement of raw material can be predicted easily but unfortunately, the case is different in Pakistan where economy is volatile. When demand shifts, the Marketing and Sales team revises the sales forecast for the vehicles abruptly when the parts have already been ordered 3 months in advance. Since the material that is already ordered is well under production, PSMC purchases the inventory despite the sales forecasts. Since inventory holding capacity is limited within the plant, Suzuki places its inventory in third party Bonded warehouses or in the warehouses of its dealers, after paying hefty amounts in inventory holding costs. On the other hand, if the sales and marketing team revises its forecast and the demand exceeds the amount of raw material available. A new bottle neck is then created where urgent ordering

needs to be done which in turn has its own lead time and chances of not meeting the demand are very high. In these cases, Suzuki Motor Corporation Japan or the global network of vendors require a minimum of 45 days to produce and air lift the parts to Pakistan. This fast logistics has its own costs which results in Pak Suzuki paying hefty amounts. Suzuki faces multiple issues in its production department as well. The current production policy of the company does not follow a batch production method. It employs flexible lines instead of dedicated lines where all its different models and their variants are being produced simultaneously. This way Suzuki loses out on its economy of scale, defects per unit and cannot reduce the number of stations. The production line has parts for all variants and models lined up along the line as per the dedicated station which increases the chances of misfits and defects per unit. These issues are then rectified again by the quality control department in the pre delivery inspection department. Furthermore, critical parts like chassis are still being welded by manual labor instead of the welding spots being done by robots for all models. Currently robots are being used only to spot welds on Swift and Alto for some regions while all the other models are still being welded manually which has a dire impact on the spot accuracy, tolerance levels and quality issues. Solution to these few but complicated problems require a solution that will not only be effective in terms of achieving the manufacturing targets but should also be cost efficient and reliable for the long-term sustenance of Suzuki.

Exhibits:

Figure 1: Company Organogram

Figure 2: Process Flow for Plant

Figure 3: Process Flow for Press Shop

Figure 4: Process Flow for Weld Shop

Figure 5: Process Flow for Engine Shop

Figure 6: Process Flow for Paint Shop

Figure 7: Process Flow for Plastic Shop

Figure 8: Process Flow for Vehicle Final Assembly

Figure 9: Process Flow for Material Handling Department

Figure 10: Market Share in 2016

Figure 11: Current Market Share

Figure 12: Models and Specifications

Figure 13:List of Models and their prices

Production Targets 4W Budgeted Current Production Days (4W) 2W Budgeted Current Production Days (2W) Last Year Sales Record Production Total Working Days

116445 132319 242 19085 19719 244 110000 134569 249

Figure 14: Production Targets

Vendors Network Automobile and Common Motorcycle

115 12 Figure 15: Vendor Network

Figure 16: Suzuki Dealer Network

Maximum Tact Times PT-ED Line (Paint Shop) Car Line (VFA) ST Line (VFA) Capacity Constraint

1.74 min/ vehicle 2.0 min/vehicle 5.0 min/ vehicle PT-ED Line (Paint Shop)

Figure 17: Maximum Tact Times

Figure 18: Automobile Sales

Figure 19: Sales Results (Model Wise)

Figure 20: Net Sales, Profits and Economic Contribution

Figure 21: Production Results...