Page 191 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 10: Strategy Implementation

Notes
GM Style Supplier Management
Sanjiv Bajaj is heading an effort to introduce US-style supply chain management, using
General Motors as a model. It is a task for which he is well suited. A trained engineer, he
went into the finance department because his elder brother, Rajiv, had already been groomed
to take over the core manufacturing responsibilities. Engineering expertise helps him to
understand where costs can be trimmed. Bajaj, which produces 1.3 million vehicles a year,
has about 900 direct tier-1 suppliers. According to the GM model, it should have 80. Many
of them are small, low-technology, family-run businesses with poor productivity and
slack quality control.
‘We need to identify who the good vendors are, reduce the number of vendors and give
them a bigger share of the pie,’ says Sanjiv Bajaj. Then, he adds, the company will try to
negotiate lower prices for higher volumes. As in the case of GM, Bajaj hopes to work with
its suppliers to improve ‘quality and reliability’. The company aims to help its chosen
suppliers invest in new equipment and improve productivity over the long term, bearing
in mind ‘our future requirements’.

Bajaj has followed GM principles by dividing its suppliers into different categories: those
that own specialist knowledge and provide it in the form of proprietary items such as
headlamps; those that provide model design parts on the basis of knowledge passed on by
Bajaj; those that provide basic nuts and bolts hardware; and non-core product suppliers. It
has also set out four issues to be looked at with its suppliers: the ‘make-or-buy’ decisions
that determine which products a customer buys; issues pertinent to each component sector;
a vendor rating system; a vendor integration programme to introduce quality control
systems used by Bajaj to its suppliers.

Difficulties with Applying US-style Strategy
But this is where the similarity with GM ends. “You can’t use textbook theories,” says
Sanjiv Bajaj. ‘In India you have to consider questions like labour and power supply.’
Unlike GM, Bajaj cannot afford to rely on only one supplier for a particular part because its
operations would be paralysed if that supplier’s workers went on strike – a common
occurrence in India’s highly unionised manufacturing industry. Similarly, having just one
supplier would be risky because its output could be disrupted by power shortages, another
regular occurrence. It makes sense to have suppliers in different areas, since simultaneous
power failures are less likely.
Bajaj also has to wrestle with problems such as India’s poor road system, which affects
distribution and makes location important. Few Indian suppliers could shoulder the
responsibilities GM puts on its US suppliers. There are also issues that relate specifically to
components. “Two of our three suppliers of shock absorbers are subsidiaries of
competitors,” says Sanjiv Bajaj. “Long term this is questionable.” The company may opt to
build up a third supplier in a relationship of ‘interdependence’.
Rationalising the supply chain will take several years. When it is completed, Bajaj will
still have far more suppliers than the GM model suggests it should. Sanjiv Bajaj talks of
‘200, 300 or 400’, though he says the company will decide the final figure ‘from the bottom
up’.
Bajaj hopes this will produce cost savings and quality improvements that will help compete
against world-class products in an increasingly discerning market. It remains to be seen
whether this will be enough. Bajaj will also have to match Honda and its other rivals in
design, engine technology and marketing. But better management of its suppliers, while
not guaranteeing success, is likely to be a necessary requirement for it.
Contd...

LOVELY PROFESSIONAL UNIVERSITY 185