As India seeks to strengthen its position in global manufacturing, there is increasing focus on the role of supplier relationships in shaping long-term industrial performance.

On a local television channel, R. C. Bhargava, Chairman of Maruti Suzuki, outlined how the company's supplier approach influenced India's manufacturing landscape.

Every manufacturer aims to reduce costs, improve reliability, and scale exports, yet many fall short by treating suppliers as external entities.

In the automotive sector, where more than 70% of a product's value comes from bought-out components, an organisation is dependent on the effectiveness of its supplier base.

Bhargava stated that Maruti's decision to develop, rather than source, its supplier base contributed to India's shift from importing parts to building a US$ 70-billion component industry, indicating that collaboration, rather than competition, affected industrial outcomes.

When arm's length becomes roadblock

In many companies, supplier relationships follow an arm's length approach, based on the Western model of competition. Each purchase order is treated as a new negotiation; suppliers are compared against each other, and price becomes the primary measure of selection.

When Maruti began operations in the early 1980s, India's component industry lacked modern technology, process discipline, and quality systems. Many vendors were too small to hire consultants or obtain ISO certification. Applying Western-style supplier competition to this environment would likely have limited the company's progress.

Maruti adopted an alternative approach based on partnership and capability development. This became one of the earliest key decisions in the company's operations.

The cascading impact of old system

The traditional buy the most affordable approach had implications beyond procurement:

- Suppliers underinvested in technology and capacity due to uncertainty.
- Quality issues affected customer experiences.
- Higher inspection requirements increased operational costs.
- Productivity declined nationwide, as organisations worked in isolation rather than sharing knowledge.

Bhargava noted that, in the pre-Maruti period, many car owners had to visit workshops immediately after purchasing a vehicle and replace parts before regular use, indicating weaknesses in the supplier system.

The underlying issue was not labour or infrastructure, but lack of trust and a short-term approach. Bhargava explained that if a vendor invested in new capacity but anticipated a shift to another supplier offering a marginally lower price, such investment would not be viable. This lack of assurance limited innovation and resulted in inefficient supplier networks. According to Bhargava, improvement required changes in management practices, focusing on long-term efficiency through stronger systems and vendor capability rather than short-term price reduction.

Criteria for suitable approach

With these challenges identified, Maruti's leadership defined four principles to guide supplier relationships:

1. Partnership over policing - Treat suppliers as part of the organisation rather than as external contractors.
2. Capability building - Support vendors in improving processes, adopting technology, and learning structured practices.
3. Shared outcomes - Allow both parties to retain gains from productivity improvements and cost reductions.
4. Financial clarity - Ensure timely payments to reduce working-capital pressure and enable reinvestment.

These principles created a structured supplier framework aimed at reducing adversarial relationships.

Building India's first developmental supply chain

Maruti chose to develop its suppliers rather than limit the relationship to procurement. With support from Suzuki, it created a vendor development cell to assist local manufacturers in improving processes, quality, and productivity while adopting Japanese practices. As suppliers progressed, both sides retained the benefits, with cost reductions arising from efficiency improvements rather than price pressure.

Maruti also introduced a 15-day payment cycle, replacing the industry's typical two- to three-month delays, which supported cash flow among small vendors.

This approach led to changes across the supply network. Vendors moved from low-technology operations to supplying to a wider market; inspection costs and inventories reduced as suppliers adopted self-certification; and production became more consistent, enabling foreign OEMs in the 2000s to utilise this supplier network.

Beyond automobiles

Bhargava and Mohanty stated that this approach could be applied beyond the automotive sector. In textiles, for example, India has a strong fabric industry but a comparatively weaker garment sector, which Bhargava linked to limited collaboration between large and small players. Even within corporate groups, fabric manufacturers often treat garment units as external clients, negotiating independently. This approach restricts knowledge flow and operational efficiency across the value chain.

The conclusion presented was that lack of support within industry segments reduces overall sector performance. Competitiveness, they suggested, depends on strengthening supplier networks rather than reducing margins.

From cost-cutting to capability-building

Bhargava stated that the objective should not solely be to find the lowest-priced option, but to make products cost-effective through improved systems.

India's manufacturing performance, according to Bhargava, will depend on building vendor capability, reducing inefficiencies, and implementing shared-gain models. Adoption of such practices across industries, he added, could help shift the approach from short-term pricing to system-based development.