Bajaj pushes for new global levels

The announcement of an enterprise–wide total productive maintenance (TPM) drive, the creation of a dedicated Bajaj Auto Vendor Association, a commitment to zero-defect quality, new initiatives in e-commerce and servicing, innovative financing schemes for rural consumers and the intention to convert Bajaj Auto into the No.1 company by choice among consumers were the highlights of a day-long vendor conference held in Pune recently.

The idea of the Bajaj Auto Vendor Association or BAVA was mooted by TPM guru, Prof Soue Yamaguchi about a year ago. It is intended to complement chairman, Rahul Bajaj’s vision of his company emerging as a global entity by 2010. This would mean that many of its present vendors would have to become global suppliers.

Bajaj Auto has three plants, 200-and-odd vendors and 400-plus dealers. All three entities have to be aligned in terms of skill, quality, price, delivery and flexibility if they are to become competitive globally. Most of its vendors are at that stage of development where they have achieved stability in terms of production and have initiated improvements in tooling and development.

Bajaj Auto wants its vendors to be in the third stage of development which involves getting into breakthrough mode. In this stage, suppliers are free of any support from their manufacturer for design or development. Today, only 45 percent of vendors meet this criterion. The objective of BAVA is alignment of all suppliers, and the key words are collaborative network and collective capability improvement. Such an association has never been attempted by anyone anywhere in the auto industry so far, and some of the benefits Bajaj Auto foresees include overcoming constraints of individuality, collective innovation and standardisation of plant activities.

BAVA could also be used as a forum to redress issues on quality, cost and delivery (QCD). Articulating some of these concerns and expectations, B Ramesh, GM (vendor and component development), said that Bajaj Auto’s expectation on quality was zero customer complaints; on cost it was conversion cost reductions; on delivery it was flexible production and handing different product mixes, and speed in implementing new products. He said that the company wanted its vendors to move up from being mere component supply to sub-system supply while maintaining quality, cost and delivery.

CONCERN FOR QUALITY

Bajaj Auto’s concern in quality is inconsistency and variability in supplied items. One specific area of concern was forgings, where there has been a reduction in customer complaints over the last three years, but was not zero yet. The company has initiated a plan to address some of these concerns including conducting eight kaizen schools for its vendors with help from Prof Yamaguchi. It has led to upgrading vendor technology is select areas like alloy wheels, catalytic converters and carburettors. It has also set up a TPM Tech Centre where knowledge and skill topics are taught.

In the area of sub-system supplies, Bajaj Auto’s concerns centre around Tier II vendor management and understanding sub-system issues. “For example, the chassis supplier may have to supply sub-assemblies with air-filter and chain incorporated into them. This would warrant a dust-free environment in their factories.

##### “Similarly, the shock-absorber supplier may have to upgrade technology to include not only aesthetics but also other electrical and electronics sensors. The sub-systems have to be designed in such a way that they are isolated from vibration, impact and heat. These are technically demanding,” Ramesh said.

While rationalising its vendor base from 800 to 180, the company looked at those vendors with subsystem and multi-product capability besides good financial strength. Another area of concern was the vendor’s ability to crunch development lead time and optimise resources.

Bajaj Auto has created a dedicated development team whose members include experts in manufacturing and engineering. They are tasked with developing process-oriented parts. Other members include domain specialists in plastics and castings who help in development and scale up efficiency on the vendor side. Stressing the need to deliver the right product mix, Ramesh said that the company was concerned about batch production at the vendor side, high set-up change time and high work-in-place inventory.

The company has adopted single-piece process flow in most areas of its plant. This has eliminated multiple handle and work-in-process inventory. The Chakan plant follows the heijunka concept of balanced, streamlined flow in production for mixed model requirements. Earlier, it produced mixed models in batches. This has resulted in high inventory and waiting time for man, material and transport.

Through the heijunka concept, Bajaj Auto has achieved a model mix of 32 vehicles per cycle and flexibility to the extent of 25 cycles of mixed model production per shift. “This is unique in this industry,” Ramesh said. This focus on quality, cost and delivery on the production side will be complemented by a slew of innovative marketing solutions on the sales side. By 2010, the company wants to achieve sales of four million motorcycles a year.

SALES OUTLOOK

However, S Sridhar, vice-president (marketing and sales) said that sales of 4.5 to 5 million units are possible in the domestic market alone, and exports will boost this number by another million at least, provided some conditions are met. The company’s marketing and sales team has chalked out an action plan to achieve this goal. There are two aspects to this: It is working towards reducing the interest burden by 20 percent and this could be as much as 50 percent by 2010.

“If a customer gets a loan of Rs 40,000, he has to pay Rs 11,000 to Rs 12,000 as interest charges today. By 2010, we want him to pay only Rs 5,500 to Rs 6,000 as interest charge,” explained Sridhar. The e-commerce deal will be transparent and the customer will have access to all the information he needs in the convenience of his home or office.

In the urban market, the company expects almost 20 percent of sales to happen through e-commerce. This translates to a sales volume of 35,000 units a month through this route alone. The second initiative has a rural twist, where 50 percent of Bajaj Auto’s customers are involved. The plan is to initiate an industry-first financing plan for this sector where repayments can be made on a daily, quarterly and half-yearly basis besides the monthly option.

“This is important because cash flows for farmers happen on a quarterly, half-yearly or annual basis. This is unlike the urban customer who gets paid on a monthly basis. By keeping just a monthly repayment option, we are restricting access to our schemes. Our penetration is the least in the farming community and this scheme will correct that,” Sridhar said.

##### Trial implementations of the scheme are already on and the company expects to sell 10,000 units a month. Sridhar believes this will go up three-fold when it is rolled out widely. “This will become our main sales driver in rural India,” he predicted. In the after-sales and service front, the process of making Bajaj Auto “distinctly ahead” is to roll out service for all two-wheelers and not just Bajaj vehicles. “This is a true industry-first, anywhere in the world and not just India,” he said. The company plans to have 10 such outlets in operation by 2010. More importantly, the idea is to deliver the service at half the cost of other outlets.

The rationale for this is that penetration in the top five cities is approaching saturation levels. This means that every household will have at least a two-wheeler and a further purchase decision will depend on product and service experience. By bringing the competition’s customer to its way of service, there is a better chance of converting non-Bajaj customers into Bajaj buyers.

In line with this, about 10,000 service outlets will become operational well before the 2010 deadline announced in 2005 in a vendor’s meet in Dubai. The company currently has about 6,650 service outlets versus 2,250 of Hero Honda. The effect of this increase will be felt most in rural areas where the aim is to have a Bajaj service centre in every five kilometres. In urban areas this is two kilometres. Customers currently pay between Rs 120 and Rs 150 for a regular maintenance service. The goal, as already stated, is to halve this.

This will be done through better efficiency at the service centres. The number of vehicles that are serviced per bay is nine a day at present. This has gone up to 24 per bay per day for the top 30 dealerships. By the end of this financial year, Bajaj expects 100 dealerships to reach this figure. This has been achieved through an initiative that was started 18 months ago and the results are beginning to show now.

The other way that servicing cost can be halved is through a reduction in the price of spare parts. The company wants to bring down dealer inventories to a week while cutting this down to zero to one day for all its metro and mini-metro dealerships. The current inventory levels stand at four months.

“When we spoke to the dealers, they expected inventory levels to be cut to one month. The industry-best is 28 days, and this has been achieved by Toyota. So we want to become the best in the world,” Sridhar said. To bring down inventory to the levels intended, Bajaj Auto will have to create 15 secondary warehouses all over India. This is a cost it is willing to bear in order to forge long term relationships with its dealers.

THRUST ON MARKETING

The thrust on marketing will be supported by an action plan to drive home Bajaj’s brand image as being “distinctly ahead” too. A company survey shows that only 15 percent of customers say that they will buy only Bajaj while 18 percent prefer Honda/Hero Honda. A significant 65 percent of people say that they do not care if it is Bajaj or Honda. “The challenge for our marketing team is to move a significant percentage of these people into Bajaj loyalists,” Sridhar said.

According to him, there are two levers to achieve this: the product and brand lever. The product lever has two components: customer satisfaction and reliability. A good product must deliver everything in terms of flawless performance and technology. While a large number of customers agree that Bajaj’s vehicles deliver these things, a significant number are also troubled by quality issues. They say that quality is not at par with Toyota or Honda. “This is a challenge for us, and vendors can help by delivering quality consistently. Our dream and aspiration is to create a monopoly; one that is created by the customers out of choice and not by governmental regulations,” Shridhar said.

##### RAJIV'S VIEWS

In his concluding address, Rajiv Bajaj, managing director, dwelt on three aspects of quality and why they were so important for his company. These were quality in the context of zero defects, quality as continuous improvement and quality as an element of future strategy.

He felt that the search for the “root cause” in defects is an exercise in hindsight. “This is because there is a lack of traceability when a defect occurs on the production line. Traceability, rather than root cause, is a good way to eliminate defects. An intelligent combination of IT with PM and QM, worked very well in eliminating defects in the production process,” he said.

Describing a process as nothing but a chain of measurable but interdependent parameters, Bajaj said that his experience in the company was that very few people were able to simply describe the process in terms of measurable and interdependent systems. Once this is done, then one of these parameters was, more often than not, the root cause for defects. “I think that the emphasis must shift from quickly coming to the root cause to detailing the process parameters and identifying the defect,” he said.

On quality as continuous improvement, Bajaj said that he was yet to see, at least in his company, a problem that had been solved the very first time. He attributed this to lack of adequate experimentation before arriving at a solution. Another problem, he pointed out , was that the hypothesis of defining the problem was not broad enough. “We often start out with a very narrow hypothesis and end up with a very broad solution but it should ideally be the other way around. We should start with a broad hypothesis and end up with a sharp, focused solution,” he said.

A good hypothesis, Bajaj felt, should include three general aspects. One, the hypothesis must be fairly holistic. It would otherwise be like looking at pieces of a jigsaw puzzle without seeing the entire picture. Two, it must individualise things to pinpoint the problem. Three, senior management must address the immaterial side as much as they did the material. “Machines, fixtures, and processes do not fail. Often failure happens because the energy of the individual or the spirit of the organisation is either compromised with, indifferent or disconnected,” he said.

On quality as an aspect of future strategy, Bajaj chose to interpret quality as consistency, and it is the pursuit of consistency that has helped turn the company around. Citing examples, he said it would be a good exercise to pick up a first production job from one day and compare it with the last job from another day. “If there is a variation in these jobs, you can well imagine what similar variations in an entire supply chain can do to a product,” he said.

In a sense, this consistency is also reflected in better performance. Ten years ago the standard 100cc engine delivered between 6 and 7.5 bhp. Today it consistently delivers between 8.1 and 8.2 bhp. Fuel efficiency has gone up from 85 kmpl in standard conditions to 108 kmpl. And emissions are down by 50 percent. Rajiv Bajaj’s poser: is technology enabling all this or is it quality? Quality, he said, was the differentiator between two similar products; it was also the identity of an organisation. “Quality is essential not just for performance and consistency, it is vital to the future of our company,” he said.

At the last vendor meeting in Dubai, Bajaj had articulated some dreams; two of which were product-related. One was a “screaming superbike” and the other a “five-star three-wheeler”. Work had started on both projects. The other dream was to do with the market. This was to have a “better than Japanese image in Indonesia” and “more price competitive position than the Chinese” in Nigeria. “We have made a beginning on both fronts and in the next few months we will have some news to share on that,” he said.

On the domestic market, he said his company’s dream was to get rid of 100cc bikes from this country. “We publicly say that we want to do this in three years but would like to do it in two which means that internally we will do it in a year. That’s our goal,” he concluded.