Table of Contents

Page No

Chapter 1. Chapter 2.
2.1 2.2 2.# 2.% )2.*

Introduction Research Methodology

Primary Ob ecti!e "ypothesis Research $esign &cope of &tudy On Cost Reduction'(utomobile +imitations

Chapter #
#.1 #.2 #.# #.%

Critical re!ie, of literature

(utomobile Mar-et O!er!ie, (utomobile $omestic Performance ./ports of (utomobile from India Re!ie, of +iterature on Cost Reduction

Chapter %
%.1 %.2 %.# %.% %.* %.*.1 %.*.2 %.*.#

Industry Profile'(utomobile
The Pre 1001 (utomobile Mar-et The Protected Indian $omestic (utomobile &ector The (d!ent of the (uto Ma ors'India The (fter &ales &er!ice &cenario Mar-et Potential of Indian (utomobile &egment 2ehicle Prices Consumer 3inance Infrastructure 1

%.*.% %.4

Product (!ailability The 3uture'Indian (utomobile

Chapter *
*.1 *.2 *.#

Company Profile'Tata Motors

"istory 5 .!olution (rea Of 6usiness Tata Motors 7&uccessful Car Indica

Chapter 4

Cost Reduction techni8ues in Tata Motors9s Indica

4.1 4.2 4.# 4.% 4.* 4.4 4.1 4.1.1 4.1.2 4.1.# 4.1.%

Outsourcing &trategy 2endor $e!elopment &upply Chain +e!eraging The &upply Chain Cost Cutting :uality Management Cost Reduction In .nergy Consumption .nergy Conser!ation Commitment; Policy and &et <p .lectrical &a!ing 7 = Compressed (ir> Thermal sa!ing 5 "eat Reco!ery Pro ects Implemented $uring 2??%'2??*

4.1.*

.nergy Conser!ation Plans and Targets

Chapter 1

&@OT (nalysis of Cost Reduction Techni8ues in (utomobile

Chapter A
A.1 A.2

Recommendation
Main Indicators 3ocus on Mo!es to &trengthen Ties ,ith (utomobile Manufacturers

A.# A.%

In!estment Margin is Bey to &ur!i!al 3ocus on (de8uacy of .8uity Capital

Chapter 0 Chapter 1? Chapter 11

6ibliography References (nne/ures

Chapter 1.

Introduction

This research work related to customer research study, titled Effectiveness f Cost !eduction Techni"ues #n The $utomo%ile &ector', throws a %ucket of ice water in the face of some core %usiness mana(ement tenets ) plus a num%er of keystone principles of the marketin(, distri%ution channel, advertisin( and customer relationship mana(ement *C!+, industries. -reed from the editin( and selective hearin( %usinesses often invokes to avoid hearin( unpleasant truths, customers dish out an earful to companies a%out what they want, what they don.t want and what they i(nore ) and how they really make purchase decisions. /usinesses need to rethink their lo(ic and develop new operatin( models %ased on customer centric %ehaviors and valuations.

#ndia has %ecame manufacturin( 0u% for automo%ile and te1tile industries. 2here -3# 0as %een done in these sectors. &o its task for perational +ana(ers to optimi4e Cost with respect to

Capital employed . This may helped companies to (ain ma1imum 5rofit with minimum effort. &o Competitive 5ricin( can %e done %y companies to competitor with their competitors. This 5aper aims to study effective methods for 3irect Cost reduction techni"ues that currently %ein( implemented %y $utomo%ile .

The auto industry is another %eehive of innovation. why so many +7Cs were settin( up

car plants in Tamil 7adu. /ecause, the state produces an ine1hausti%le supply of en(ineers, may%e 288,888 per year9 +any come from private en(ineerin( colle(es of poor "uality. /ut even if half the (raduates are su%:standard, that still leaves 188,888 competent, innovative technicians. +ultinational car companies ori(inally came to #ndia for the potentially hu(e domestic market. To cut costs, they had to use local components, which initially were of low "uality. /ut soon, the interaction %etween component manufacturers and +7Cs led to not ;ust "uality improvement %ut innovations that no%ody had dreamed of earlier. Today, #ndian auto component companies are doin( computer:aided desi(n and computer:aided manufacturin(, constantly comin( up with new desi(ns that reduce cost and increase efficiency. This desi(n: savviness has made #ndia a (lo%al player, e1:portin( over <1 %illion worth of components last year. $nd car e1ports have shot up to over 188,888 in 2883:84. #n the %ad old days of the licence:permit ra;, companies had no incentive to do !=3. >ettin( a forei(n colla%oration approval ensured monopoly profits for years. /ut the new competition %rou(ht in %y economic li%eralisation in the 1??8s made !=3 is an essential tool to compete and survive. Tata@s #ndica car is a prime e1ample. /a;a; $uto once depended on technical know:how from Aawasaki, and TB& on &u4uki. Today, %oth two:wheeler companies rely overwhel:min(ly on in:house !=3C this alo:ne will ena%le them to withstand the new challen(e from 0onda. ther miracle $sian economies like Aorea and Taiwan used la%our:intensive manufacturin( as their launchin( pad, takin( advanta(e of their low wa(es. Dater, they moved up the value chain. #ndia missed the %us of la%our:intensive e1ports, %ut has now cau(ht the ;et plane of %rain:power e1ports. This %e(an in computer software. #t then spread to desi(n:intensive manufacturin(. $nd it is now sparkin( an !=3 revolution.

$fter %oomin( years of 2882 and 2883 the sales (rowth is slowin( down and the prices are fallin(. Competition is %ecomin( fiercer. 5ressure on profit mar(ins and fallin( market shares force many local producers to move towards e1ports to forei(n markets. Fp to 2818 #ndia is (oin( to %ecome the second %i((est automotive market in the world. -orecasters predict the country will %e the fourth:lar(est producer of vehicles in the world %y 288G, and may %e the third:lar(est producer %y 2818. #ndian consumers are demandin( hi(h "uality cars so prices must %e cut and costs minimi4ed. *source C Ernst = Houn(, #n 2886, #ndia produced nearly five times as many motor vehicles as in the early 1??8s. 2ith annual production nearin( si1 million vehicles, it is on pace to overtake >ermany as the third lar(est national vehicle producer, and would trail only the Fnited &tates and Iapan in total vehicle output.

$mon( the study.s key findin(s areC To &tudy Cost !eduction techni"ues practiced in +anufacturin( #ndustries*$utomo%ile,

*a,.

&tudy of Effective Cost !eduction techni"ues in &upply Channel of distri%ution

7etwork.

*%,.

&tudy of Effective Cost !eduction techni"ues in 5rocurement of !aw +aterials.

*c,.

&tudy of Effective Cost !eduction techni"ues in perational +ana(ement.

The presence of a (rowin( (ap %etween customer e1pectations and company %ehaviors, which creates opportunity for some companies and increasin( risk to others. $t a hi(h level, a company.s de(ree of customer focus was the most important purchase decision factor for customers, and %y a very wide mar(in. #n terms of specific company %ehaviors ) deliverin( customer:relevant "uality products, as e1pected, was the most desired factorK very closely and une1pectedly followed %y companies empowerin( their employees.

Chapter 2

R.&.(RC"

M.T"O$O+OCD

Chapter 2. Research Methodology C

C"(PT.R 2.1

Primary Ob ecti!eC

The founder of the Iapan:%ased .Aai4en #nstitute,. +asaaki #mai, defined Aai4en in his %ook, .Aai4en : The Aey to Iapan.s Competitive &uccess. as, LAai4en means continuous improvement in the personal life, home life, social life and workin( life.L $utomo%ile companies applied Aai4en for continuous improvement in their operations.

2hen Aai4en is applied to the workplace it means continuous improvement for : mana(ers and workers. Thus, Aai4en involves everyone in an or(ani4ation to make improvements .without lar(e capital investments.. #t can %e seen as a culture of continuous sustained improvement focusin( on eliminatin( waste in all systems and processes. The Aai4en strate(y %e(ins and ends with people. 2ith Aai4en, an involved leadership (uides people continuously to improve their a%ilities to meet hi(h "uality e1pectations, low cost and on:time delivery, which in turn helps the or(ani4ation (ain a competitive ed(e

The savings are tremendous in time and material. The engineering resources - both budget and people - freed up from the productivity gains are being reapplied to bring out more new models more quickly." ' Eay @etFel; 2ice President and Ceneral Manager; CM Technical Center; commenting on the benefits deri!ed from C($GC(MGC(. tools; in 2??

18

To &tudy perations of $utomo%ile Company.*Tata +otors, . *a, &tudy of Effective Cost !eduction techni"ues in &upply Channel of distri%ution

7etwork. *%,. *c,. &tudy of Effective Cost !eduction techni"ues in 5rocurement of !aw +aterials. &tudy of Effective Cost !eduction techni"ues in perational +ana(ement.

$ccordin( to the Council of Do(istics +ana(ement &upply Chain +ana(ement, the process of plannin(, implementin( and controllin( efficient and cost effective flow of materials, in:process inventory, finished (oods and related information from point:of:order to point:of:consumption, for the purpose of conformin( to customer re"uirements as efficiently as possi%le'. The automo%ile industry has under(one si(nificant structural and other chan(es in the last decade or so. #n view of the present (lo%alisation, implementation of lean production and the development of modularisation have chan(ed the relationships %etween automo%ile assem%lers * E+s, and their suppliers, especially those in the first tier.&tiff competition amon( manufacturers will result in more mer(ers or ac"uisitions. The challen(es automo%ile manufacturers and suppliers face include improvin( "uality, meetin( cost reduction tar(ets and developin( time to market.

C"(PT.R 2.2

"ypothesisH

#s $utomo%ile companies are followin( certain (uidelines for perations or notC

11

"ypo 1: Net,or- Planning M This is one of the most important issues for &C+. 3etermination of production re"uirements and inventory levels at the vendor@s facility for each product and development of transportation flows %etween these facilities to the warehouses in a %est possi%le way to reduce total production, inventory and ransportation costs with fulfilment of service level re"uirements. "ypo 2: IT and $ecision &upport &ystem7 This is another important challen(e for &C+. Today, &C+ is driven %y the scope and opportunities appearin( due to a%undance of data and the savin(s which can %e achieved throu(h efficient analysis of these data. 2hat data should %e transferred with its si(nificance and most importantly, what infrastructure is re"uired internally and %etween its partners is very important. "ypo #' &upply chain integration and strategic partnering 7 #n &C+, information sharin( and operational plannin( are crucial for successfully inte(rated supply chain.

C0$5TE! 2.3

!E&E$!C0 3E&#>7

The study was conducted on part of /usiness E1pansion plan of $utomo%ile industry to e1pand their e1istin( /usiness. n this part E1ploratory &urvey was conducted to know a%out peratational &trate(ies of automo%ile companies.

This +arket research is .IP+OR(TORD R.&.(RC" $.&ICN. $r(uments in favors of EN5D !$T !H !E&E$!C0 3E&#>7 is:

12

:#t tests the 0ypothesis, e1amines the relationship and comes to a conclusion. #t test 0ypothesis whether :

#s $utomo%ile Companies usin( Net,or- Planning O #s $utomo%ile Companies usin( IT and $ecision &upport system O #s $utomo%ile Companies Fsin( &upply Chain Integration (nd &trategic PartneringO

-indin(s and analysis are used for 3ecision makin( on account of &urveyed 3ata. #n This type of E1ploratory !esearch desi(n, involves Collection of #nformation from &econdary 3ata. #n this $utomo%ile &urvey, The whole study is &econdary data %ased oriented. a. &econdary 3ata from #nternet on +anufacturin( #ndustries %. Iournals on Cost reduction Techni"ues on manufacturin( #ndustries c. Scholarly articles for brief about indian manufacturing industries d. /ooks on perational mana(ement. e. !eview $rticles on &upply Chain:Fpstream and 3own stream f. &tudy for peartion !esearch Techni"ues: Transportation Techni"ues.

C"(PT.R 2.%

&cope of the &tudy

$mon( the study.s key findin(s areC

13

#ndian automo%ile and auto components industry is on a roll and there is an immense scope for mana(ement for enhancin( the supply chain of the sector. #ndia has %ecome a favoura%le destination for forei(n companies to esta%lish their facilities and form alliances with domestic companies. Dow cost of manufacturin( and conducive (overnment support have %een the ma;or drivers for forei(n companies investin( in #ndia. #ndia@s lar(e youn( population, hi(her >35 (rowth, and most importantly per capita passen(er car penetration is low at G.6 car per thousand population, which creates (reat opportunity for industry players to offer an afforda%le four:wheeler alternative to the two:wheeler customers. $ccordin( to 5lannin( Commission of #ndia, #ndian automo%ile industry is e1pected to (row at C$>! of 16P over the ne1t five years. The #ndian economy is now (ainin( momentum in the world of free trade and li%eral movements of (oods and services %etween countries. Therefore, efficiency in supply will %e critical for #ndia@s automo%ile success.

N..$ 3OR M(T.RI(+&'&D&T.M& (PPRO(C" #mproved materials and materials processin( can and must play a lar(e role in (eneratin( productive and effective responses to the forces that will drive the automotive industry in the future. 0owever, these forces often pull in diverse directions when specific technolo(ical

14

actions are considered. -or e1ample, aluminum alloys can %e used to reduce vehicle wei(ht, there%y reducin( emissions and improvin( fuel economy, %ut the added materials costs currently offset these advanta(es for many applications. $s a result, steel is still the ma;or material of choice for automo%ile construction today and will %e difficult to supplant for the foreseea%le future #ndia@s process:en(ineerin( potential can %e utilised for redesi(nin( of manufacturin( processes to make them more la%our intensive and less capital intensive, which will ena%le the +7C@s to reduce their overall costs su%stantially. -or instance, Lde:automatin(L of the production processes, which are applied in 2estern countries@ factories, can reduce the overall manufacturin( cost of some components %y up to 28P. #n case of product en(ineerin(, #ndia has emer(ed as a leadin( destination in the world. #ndia@s stren(th is in its desi(n, which helps in reducin( costs. -or instance, redesi(n of the +aruti $lto@s steerin( system has cut down its wei(ht %y 16P. #ndia, with its skilled en(ineers, can desi(n a product very fast, which in turn reduces its development cost and lead times. -or e1ample, an #ndian supplier took si1 months to desi(n a steerin( system for an automaker. #t took more than four years to develop similar system with suppliers in the other low:cost countries. &everal automo%ile manufacturers have already set up their auto component facilities in #ndia.

16

C"(PT.R 2.*

+imitationsH

-or $utomo%ile &tudy, 5rimary 3ata varies w.r.t &econdary 3ata on account of theoretical practices in field then practical theories. 2ith increasin( disposa%le incomes and ever:(rowin( %urden on the pu%lic modes of transport, the #ndian passen(er car industry is headin( for a %ri(ht future provided car manufacturers offer a world class cars that (ive value for money, use novel marketin( concepts to entice potential %uyers and offer (ood after:sales service. 3emand for passen(er cars in -H2882 is pro;ected at appro1imately ?J8,J66 units while production is e1pected to reach 1,218,888 units. The year is likely to witness a spurt in e1ports due to e1cess supply and li%erali4ation of e1port policy %y the (overnment. &ome of the future strate(ies that need to %e addressed while enterin( in to #ndian small car market include the redesi(n of the vehicle to suit the #ndian road conditions and to develop a((ressive marketin( strate(y to counter the cost advanta(e en;oyed %y dominant players like +aruti due to hi(h capacity utili4ation. 2ith (rowin( num%er of two wheeler owners optin( for used cars, vehicles with hi(her resale value and e1cellent service network are likely to account for a ma;or market share in the near future. +oreover, the introduction of Euro ### and Euro #B norms in the near future is likely to increase the scrappin( rates of cars. E1ports are likely to increase in the near future with the entry of international car (iants like 3aewoo, 0yundai, 0onda &iel, >+ and -ord that intend to use #ndia as a manufacturin( production %ase..

1E

Chapter #. CRITIC(+ R.2I.@ O3 +IT.R(T<R.

1J

C0$5TE! 3.

CRITIC(+ R.2I.@ O3 +IT.R(T<R.H

$ ;ust released customer research study, titled Customers &ay 2hat Companies 3on.t 2ant to 0ear, throws a %ucket of ice water in the face of some core %usiness mana(ement tenets ) plus a num%er of keystone principles of the marketin(, advertisin( and customer relationship mana(ement *C!+, industries. >reen%er( adds, LCustomers &ay 2hat Companies 3on.t 2ant To 0ear proves a mission: critical strate(ic point. /usinesses need to rethink their lo(ic and develop new operatin( models %ased on customer centric %ehaviors and valuations.L. Commentin( on the findin(s, 5aul >reen%er(, author of the industry %est:seller C!+ at the &peed of Di(htC Customer &trate(ies for the 21st Century, says, LDee and +an(en have verified and amplified with hard data the (rowin( perception that the new %reed of customer is here to stay and %usinesses need to react ) or risk their very e1istence.

If you introduce a new vehicle, for example, and the management cannot adequately determine what the market wants, the company is in trouble. Theoretically, the top managers of a company should take up the role of that ideal customer. They should be driving their competitors vehicles, they should be driving the best-of-breed vehicles, and they should be making cost comparisons. "!hile a top manager should be the ideal customer, he should also be the greatest critic of his company s products. If the "#$ compromises, or is only looking at the margins, then even if he is successful, the company s success will be short lived. 1G

' Ratan Tata; the Chairman; Tata Croup

Chapter #.1

(utomobile Mar-et O!er!ie,

The domestic automo%ile market has %een (rowin( at 14.2 per cent C$>! over the past 4 years *2888:81 to 2884:86,, while the auto components market has %een (rowin( at 1?.2 per cent C$>! *2888:81 to 2883:84,. The industry * E+s and suppliers to(ether, contri%uted nearly 4 per cent to the country@s >35 in 2883:84. The automotive sector also offers si(nificant employment opportunities. #t employs 8.46 million people directly and around 18 million people indirectly. The industry@s capa%ilities in desi(n, en(ineerin( and manufacturin( have %een reco(nised the world over, and most automotive ma;ors are lookin( to increasin(ly source auto components from #ndia. #ndia is emer(in( as one of the most attractive automotive markets in the world, and is poised to %ecome a key sourcin( %ase for auto components. The ta%le %elow captures the hi(hli(hts of the sector in #ndia that illustrates its (rowin( si(nificance.&ee (nne/ure (. 5 6

#ndian $utomo%ile #ndustry Dar(est three wheeler market in the world 2nd lar(est two wheeler market in the world 4th lar(est passen(er vehicle market in $sia

1?

4th lar(est tractor market in the world 6th lar(est commercial vehicle market in the world

28

Chapter #.2

(utomobiles ' $omestic Performance

The production and domestic sales of the automo%iles in #ndia have %een (rowin( stron(ly. 2hile production increased from 4.G million units in 2888:1 to G.6 million units in 2884:86 *a C$>! of over 16 per cent,, domestic sales durin( the same period have (one up from 4.E million to J.? million units *C$>! 14.2 per cent,. $ positive trend in the domestic market is that the (rowth has not %een driven %y one or two se(ments, %ut is consistent across all key se(ments. Two wheelers, which constitute the ma;ority of the industry volume, have %een (rowin( at a rate of 14.3 per cent, three wheelers at a rate of 14 per cent and passen(er vehicles at a rate of 11.3 per cent. Commercial vehicles have %een (rowin( at a hi(her rate of nearly 23.6 per cent, althou(h from a lower %ase. &ince nearly all macro:economic indicators M >35, infrastructure, population demo(raphics, interest rates, etc. M are showin( a favoura%le trend, the domestic market for automo%iles in #ndia is e1pected to continue on its (rowth tra;ectory.

Chapter #.#

./ports of automobiles from India

2hile the domestic sales of automo%iles have %een increasin( at a si(nificant rate, e1ports have taken a "uantum leap in recent years. The e1ports of automo%iles from #ndia have %een (rowin( at a C$>! of 3? per cent for the past four years. E1ports (rowth has %een spearheaded %y the passen(er vehicle se(ment, which has (rown at a rate of 6J.4 per cent. $s a result, the share of passen(er vehicles in overall vehicle e1ports has increased from 1G per cent in 1??G:?? to

21

2E per cent in 2884:86. Europe is the %i((est importer of cars from the country while predominantly $frican nations import %uses and trucks. The $ssociation of &outh East $sian 7ations *$&E$7, re(ion is the prime destination for #ndian two wheelers.

22

Chapter #.%

R.2I.@ O3 T".&I& $ON.H

This is easy to understand %ecause the per capita disposa%le income of the people has (one up remarka%ly. ver the last five years, per capita personal disposa%le income has (one up %y around GP, which has increased purchasin( capacity of the people in the country. ther factors have also contri%uted to this hi(h (rowth in #ndian automo%ile sector. These include lowerin( a(e of first car users, shorter replacement cycles, risin( duel income families, nw technolo(y, which is lowerin( cost of ownership, low car penetration in the country and most importantly (rowin( steel production in the country. #n addition, wide variety and easily availa%le financin( options are also some of the ma;or reasons for sur(e in demand for automo%iles in #ndia. >lo%al automo%ile manufacturers are consistently streamlinin( their %usiness process %y outsourcin( their non:core activities to low:cost countries like #ndia.>lo%al automo%ile manufacturers are under tremendous pressures to innovate their manufacturin( process and at the same time, to reduce costs. #n view of the present (lo%al competitiveness, they must not only develop new features to stren(then their customer re"uirements %ut also follow the environmental and safety standards. #n addition, the %ase price of a car is e1pected to remain same over the ne1t decade. $s a result, companies are forced to source more components from low:cost countries like #ndia $ccordin( to +ckinsey, (lo%al outsourcin( of automo%ile and auto components would reach F&<3J6 %illion %y 2816 from F&<E6 %illion in 2882. #ndia has plenty of scope to (arner this potential. $ccordin( to the mana(ement consultin( firm, #ndia has the potential to notch this

23

opportunity and reach up to F&<26 %illion to emer(e as ma;or sourcin( destinations alon( with China, +e1ico and Thailand. /esides low cost, #ndia.s auto components industry has the ma;or advanta(e of enormous skills in process, product, and capital en(ineerin()its e1cellent manufacturin( history and (ood education system. %uman beings think our way is the best, but at Toyota, we are told we have to always change. !e believe there is no perfect way, so we continue to search. The goal is to break the current condition through &ai'en." ' &hoichiro Toyoda; Chairman; Toyota Motor Corporation; in $ecember 2??? 2hen Aai4en is applied to the workplace it means continuous improvement for : mana(ers and workers. Thus, Aai4en involves everyone in an or(ani4ation to make improvements .without lar(e capital investments.. #t can %e seen as a culture of continuous sustained improvement focusin( on eliminatin( waste in all systems and processes. The Aai4en strate(y %e(ins and ends with people. 2ith Aai4en, an involved leadership (uides people continuously to improve their a%ilities to meet hi(h "uality e1pectations, low cost and on:time delivery, which in turn helps the or(ani4ation (ain a competitive ed(e. The production divisions council, which checked the plants o%;ectives occasionally modifyin( them, takin( into account the company.s profit tar(ets, replaced the production allowance councils. $fter approval, these o%;ectives %ecame the Aai4en norm of each plant in terms of production efficiency. The method of determinin( the production efficiency was altered to make it less constrained as the standard time was fi1ed %y measurin( the time really re"uired for worker.s operations whereas earlier standard time was fi1ed on the %asis of the %est standard time marked in the past

24

Chapter 4. #ndustry 5rofile

26

2E

C"(PT.R %.

Industry Profile

The Trans:nationals were also serious a%out developin( vendors in #ndia. #ndia is %ound to %ecome an important destination for the (lo%al auto industry. #t took the financial turmoil in &outh East $sia and the slowdown in the Chinese auto market to reinforce the tar(etin( to #ndian +arket. The new interest in the small car se(ment also reflects certain amount of %ullishness on the part of auto manufacturers a%out #ndia 9 3espite pro;ected over capacities::and current losses, carmakers continued to "ueue up their investments for small car se(ment. To day there are 18 (lo%al auto ma;ors)includin( the <13:%illion &u4uki +otor *Iapan,, the <E6:%illion 3aewoo *&outh Aorea,, the <14J:%illion -ord *F&,, the <4J:%illion -iat *#taly,, and the <1EG:%illion >eneral +otors *F&, operatin( in #ndian +arket.

Chapter %.1

The Pre 1001 (utomobile Mar-et

$s late as 1??J, the auto market in #ndia was clearly se(mented. $t the entry level were +FD.s G88:cc car::priced %etween !s 2.18:lakh and !s 2.46 lakh::and the mni, at !s 1.J6 lakh. $t the ne1t level were the ??3:cc Qen::priced at !s 3.J8 lakh::and the ???:cc -iat Fno *!s 3.E2 lakh,. Then came the 1,388:cc Esteem models::priced %etween !s 4.E? lakh and !s 6.?6 lakh::the 1,4?G:cc Cielo *!s E.28 lakh,, and the 1,6?G:cc pel $stra *!s J.62 lakh,, followed %y premium cars like +ercedes:/en4.s E:228 *!s 22 lakh,. Changing +anes Two events have upset the e"uations in the price:se(mented car market. 3aewoo has

2J

Chan(ed the lanes with the Cielo, which is now priced at !s 4.?8 lakh, and competes with the Qen.s top:end model *!s 4.48 lakh, and the Esteem.s lower:end version *!s 4.E? lakh,. Ceilo has created a new value se(ment, where the price is not proportionate to the si4e. 3aewoo.s strate(ic response has very clearly redefined differentiation, from price or si4e to value. 0yundai +otors #ndia, a su%sidiary of the <2J:%illion 0yundai of &outh Aorea launched its ???:cc &antro at the $uto E1po 1??G in 3elhi. The model comes in five variants, with the non:air:conditioned, manual transmission model priced at !s 2.G8 lakh, and the semiautomatic, air:conditioned >D& model priced %etween !s 3.16 lakh and !s 4 lakh. Clearly,0yundai.s strate(y is aimed at takin( on the market leader, +aruti Fdyo( Dimited /ut %y pricin( the delu1e model at !s 4 lakh, it is also %rid(in( the (ap %etween the small and the middle car se(ments. $t present Maruti9s .steem +I is priced !s J8,888 more than the &antro C+&, while the Cielo is priced !s ?8,888 more. The further entry of new players will only %lur the se(ments. 7ew entrants will %e involved in price war to find a foothold in the #ndian market. -ew of the e1amples includeC TEDC .s positionin( of its 1,488:cc #ndica car::launched in 7ovem%er, 1??G and priced close to +aruti@s G88:cc model as a small carKand "onda sneakin( its 1,388:cc City into the se(ment vacated %y the Cielo althou(h it is an accepted fact that pricin( or positionin( cannot %e done in isolation. #n a crowded market, that must depend on the availa%le strate(ic opportunities.L /y creatin( new se(ments, companies can %roaden their market %ase, increase

2G

capacity utili4ation levels, pre:empt competitors market entry moves and importantly lower costs. 2hile +aruti did that %y launchin( three versions of the Esteem, TEDC accomplished it %y usin( a common platform for the &umo, the Estate and the &ierra modelsK 0yundai is also plannin( to come to the market with five variants in near future. $t hi(h volumes, costs can %e lowered %y more than 28 per cent across variants due to e1perience curve effect. Confi(urin( the sticker price for a car in the market today is no more a functional decision. #t has %ecome a strate(ic decision as it identifies the key se(ment@s response elasticity to the market offer. The two key inhi%itin( factors for the poor response to the auto war fare in #ndian Car +arket are %asically the low per capita income at <368 *!s 14,888 at current prices, and the hi(h manufacturin( costs. $ lar(e part of the population e1pected to (raduate from two wheelers to four wheelers has not responded as they were supposed to durin( this period of time. The domestic auto (iant +aruti Fdyo( limited, still forces the new players to %enchmark themselves a(ainst its products which roll out from a depreciated, yet hi(h: volume plant. #t en;oys the fast mover as well as the cost advanta(e with the hi(her capacity utilisation that helps him to cut costs across as more cars you make, the cheaper they (et. 2ith the world@s second lar(est and fastest:(rowin( population, there is no dou%t that #ndia@s potential in %oth economic and population terms and the effect it will have on the auto industry in the ne1t years. 3urin( the last two years, e1port from this sector has (rown si(nificantly, owin( mainly to the e1port of cars and two:three:wheelers. The industry is characteri4ed %y a very hi(h percenta(e *J6P, of production in the 2R3 wheeler sector. #ndia ranks as the lar(est manufacturer of motorcycles and second lar(est in

2?

manufacturin( of scooters in the world. #ndia today is also the second lar(est manufacturer of tractors, as well. The industry has intense forward and %ackward inte(ration The #ndian automotive industry had e1perienced an e1traordinary (rowth due to the improvement in the livin( standards of the middle class and an increase in their disposa%le incomes. +oreover, the li%erali4ation steps, such as, rela1ation of the forei(n e1chan(e and e"uity re(ulations, reduction of tariffs on imports, and refinin( the %ankin( policies, initiated %y the >overnment of #ndia, have played an e"ually important role in %rin(in( the #ndian $utomotive industry to (reat hei(hts. #t is estimated that the sale of passen(er cars have tripled compared to their sale in the last five years. Thus, the sale of cars has reached a fi(ure of 1 million users and is e1pected to increase further. #t.s also to %e noted that the demand for lu1urious models, &FBs, and mini:cars for family owners, have shot up, lar(ely due to increase in the consumer.s %uyin( capacity.

The Indian automoti!e mar-et

India country fact file 5opulation 5er Capita >35 *555, >35 >rowth !ate Total automotive sales 2886 Total automotive production 2886 +arket (rowth 2886 vs 2884 /est sold model 5C se(ment 2884 /est sold model DCB se(ment 2884

2??* 1, 8G8, 2E4,3GG <3,488 J.1P 1, 43?,E84 *GG?,333,S 1, E43,4E8 *1, 888,6EJ,S J.8P *E.4P,S +aruti $lto *1E.GP, SS +aruti mni *21.3P, SS

*passen(er cars, K SS *market share in se(ment,

38

&ourceC httpCRRwww.se(menty.comR#ndia.htm

Chapter %.2 &ector

The Protected Indian $omestic (utomobile

+FD, which set up shop in 1?G4, had 18 lon( years of relative protection to emer(e as a formida%le competitor with hi(h volume and a stron( %rand ima(e in the mind of #ndian customers. 2hen the industry was dere(ulated in 1??3, the cost %arrier had %ecome so hi(h that new companies could not dare to look at the small car se(ment. #nstead, they settled for the mid: si4e se(ment, where %oth volumes and mar(ins were e1pected to %e hi(h. 0owever, a shakeout in the #ndian mid:si4e car se(ment, the slowdown in international auto sales pushed transnational auto ma;ors into #ndia which have now turned the tide a(ainst +FD..The present (eneration small cars launched recently are more contemporary in terms of %oth desi(n and technolo(y while +aruti.s small:car technolo(y is at least a decade old.

Aeepin( the future (rowth potential of #ndian market in mind, the auto ma;ors are prepared to %ear losses for the ne1t 18 years .This will help them to (ain a (ood market share the lon( run and provide %reathin( space to counter the strate(ic moves of the leader. 0ence, the narrowin( price differential %etween the old and the new small cars is the first call of the auto ma;ors a(ainst +aruti in #ndian +arket. #f +aruti has to try and match the features of new (eneration small cars, it would mean additional costs. n the contrary, if +aruti decides to

31

hold its price line and add new features, it could translate into losses or at least low profits. /ut +FD can still %ank on at least two &u4uki modelsC the proposed E6J:cc Cervo C and the current ??E:cc 2a(on ! to %attle its rivals in the future.

Chapter %.#

The (d!ent of the (uto Ma ors

/esides %racin( up for losses in the initial years, auto ma;ors like 0yundai and 3aewoo are %ankin( on e1ports too. $t the moment e1port may look unattractive %ecause of the &outh $sian meltdown %ut in the lon( run, low production costs and component:manufacturin( skills will make #ndia: made cars competitive at (lo%al market place. 0ence they are lookin( #ndia as a production %ase to cater to the (rowin( $sian market %y way of outsourcin( from #ndian manufacturin( %ase. 0owever many a hurdles they have to cross on the ;ourney to profita%ility.

The investments necessary for a lar(e plant are simply hu(e. 3aewoo has, so far, sunk !s 2,J88 crore in a 1.28:lakh:unit:a:year plant. Fnlike China, which has restricted the num%er of companies #ndia has followed an open door policy for car manufacturers, which has resulted in emer(ence of fra(mented markets with distri%uted capacity.

$n ri(inal E"uipment +anufacturer * E+, needs a minimum economic si4e of 1.68 lakh cars a year to attract vendor interest. 3aewoo was a%le to slash the Cielo.s price as it is cheaper to import components %ecause of the devaluation of the &outh $sian currencies. The auto ma;ors are lo%%yin( with the (overnment to ease the strict indi(enisation norms in the new automo%ile policy, so that they can import the components from other countries. This will help them to cut

32

the prices and to (o head on the market leader particularly in a price responsive market like that of small car se(ment. The other ar(ument is that with the (iven import duty of 183 per cent on Completely Anocked: 3own Aits *CA3s, , which is the same as that on Completely /uilt:up Fnits *C/Fs, and EG per cent on components the imports will %ecome costlier and compel companies to locali4e their manufacture. The e1posure to currency fluctuations, which crippled the four Iapanese li(ht commercial vehicle pro;ects in the late 1?G8s, is also minimal when a company locali4es component manufacture. /esides lean manufacturin( techni"ues like Iust:#n:Time *I#T, are possi%le only when the supplier is located close to the manufacturin( unit. #f +aruti is a success story, it is only %ecause it indi(enised G6 per cent of its components within five years of (oin( on:stream. Then, there.s the "uestion of servicin( the replacement market for spares. Customers, typically, e1pect components to %e availa%le locally, and at competitive prices. #mports cannot (uarantee that %ut it. is a tremendous ;o% to locali4e components at the ri(ht "uality and price (iven the supplier pro%lems in prevalent in #ndia. $n ri(inal E"uipment +anufacturer@s competitive advanta(e lies in its marketin( skills. 0avin( achieved price and technolo(y parity, it can easily woo the consumer with attractive financin( schemes and superior after:sales service. 7ud(ed %y the competition, most auto players have a clutch of schemes to offerC 3aewoo +otors #ndia provides interestfree car finance, -ord +otor and >eneral +otors have slashed interest rates. +FD.s ;oint venture finance company, +aruti Countrywide, is offerin( loans at 13.68 per cent when the prevailin( lendin( rate is 1J per cent and a%ove. 33

Chapter %.%

The (fter &ales &er!ice &cenario

$fter sales service for cars is as critical as showroom deals. +aruti services its 2 million customers throu(h an army of 1J4 dealers spread across the country. #t will %e impossi%le for a company to duplicate such infrastructure, particularly with investments in a metro:%ased showroom (oin( up to !s 4 crore. +ar(ins in retailin( are movin( from actual sales to after sales service.L The pro%lem of price war is evident with $uto ma;ors as much as with dealers. #n a %id to woo the customers, dealers, particularly in non:prime locations, are cuttin( their mar(ins. #t will not %e surprisin( if sin(le:%rand dealers eventually turn into multi:%rand sellers in future. 3oin( so will %enefit all the three constituents in the marketin( chainC the E+, the dealer, and the %uyer. The carmaker can e1pand his reach without e1pensive investmentK the dealer can increase his revenueK and the customer (ets a variety of models and %rands under one roof in future. The local partner will %e the loser in this fierce %attle. 2ithout the means to make either matchin( e"uity or technolo(ical investment, the #ndian colla%orator will %e driven off the road. #t has already happened to the !s 1EE:crore 3C+, which tied up with 3aewoo +otors, and can happen to %oth the !s 1,26G:crore 0industan +otors *5artnerCC >eneral +otors, and the !s 3,E8E.6J crore +ahindra = +ahindra *5artner C-ord +otor,. &o they are reconciled to adoptin( a minority role or %ecomin( auto component vendors. This list includes &iddharth &hriram.s !s 438:crore &iel *5artnerC 0onda,, the Airloskars *5artner CToyota, and the +un;als of the !s 2,888:crore 0ero >roup *5artner C/+2,. $nd the evidence

34

is compellin( e.(. 0industhan +otors has a passive role in its ;oint venture with >eneral +otors althou(h the pel $stra is manufactured at 0+.s 0alol plant in >u;arat. The same can %e forecasted a%out +ahindra and +ahindra@s ;oint venture with -ord +otor. 2hat can prolon( the life of the ;oint venture is distri%ution muscle, as it will take at least five years for a transnational auto ma;or to %uild a stron( distri%ution channel in this country. /y all accounts, the auto industry is headed for a (lut. 2ith an estimated demand for cars to touch ? lakhs in 2881:2882, the installed capacity will rise to 1E lakhs. &o the current (rowth rate in #ndian market is not sustaina%le. There will %e at least two years of sta(nant or declinin( demand %efore the resumption of the (rowth trend.There is a pro;ected demand of 1:lakh cars in the mid:se(ment alone %y 2881:2882. $nd the car num%ers will add up to around E lakh a year. That will en(ender a shakeout, which is already afoot in the other $sian markets. -or instance, poor off :take and a conse"uent %uild:up of car inventories has led to a fierce price:war in China.

Chapter %.* &egment

Mar-et Potential of Indian (utomobile

The demand for the small car will continue to drive (rowth for the ne1t five years. f the total sales of +aruti in 2888:2881around G6 per cent were small cars. The Esteem.s sales dropped in the same period, where as the small cars drove +FD.s sales. &o demand for small cars will leap only if certain conditions are fulfilledC !ise in the #ncome Devels #n the F&, auto demand rises %y 4 per cent for every 1 per cent increase in the real >ross 3omestic 5roduct %ut this is irrelevant for #ndia as only the top 1.68 per cent of the population 36

can afford a car. The demand can shoot up if the income levels of the top 6 per cent continue to rise in future. Devel f +otori4ation #t is sta(nant at 1.J8 cars per 1,888 people for decades. 0owever, in the post:li%erali4ation period, the motori4ation level has leaped to 3.J8 cars per 1,888. $lthou(h it is still lower than the levels in the developed markets, motori4ation is %ound to rise further in the comin( years.

Chapter %.*.1

2ehicle Prices.

-allin( imports and e1cise duties coupled with competition will continue to %oost demand and the prices are likely to fall further at least in the short run.

Chapter %.*.2

Consumer 3inance.

ver E8 per cent of customers opt for consumer finance. That fi(ure could (o up if interest rates continue to fall.

Chapter %.*.#

Infrastructure

Traffic con(estion and %ad roads could deter potential %uyers from (oin( for small cars particularly in small cities of #ndia. The future is not very heartenin( in this aspect.

Chapter %.*.%

Product (!ailability

$s manufacturers shift their attention to the small car, more and more people will %e a%le to afford it and demand will only rise in the future period of time.

3E

Chapter %.4

The 3uture'Indian (utomobile

There is a sharp contrast in the %uyin( %ehavior of #ndian Consumer compared to their western counter parts, yet there is no dou%t that #ndian car market is (oin( to increasin(ly resem%le the latter. #n the 2est, the industry is likely to %e dominated %y three or four ma;or players. 2ith a likely demand of 11 lakh cars %y 288E, there will %e a few niche players like /+2, +ercedes: /en4, and $udi with lu1ury cars to offer. Fnless car manufacturers have a lar(e ran(e of vehicle to offer, they will %e una%le to su%sidi4e their costlier models. The market will consolidate to few se(ments. The carmaker has to make diverse models %ased on diverse and fle1i%le platforms. 5roducts like the stripped:down economy car, the sports utility vehicle or the van should %e %uilt on the same platform. -or the price:sensitive customers, there can %e a no:frills versionK a loaded version for the middle customer and lu1ury car manufacturers can tar(et the hi(h:end customers. The fortunes of the autoo%ile industry will continue to hin(e on the lar(e, price sensitive customers, who will (raduate to the hi(her end of the market over a period of time. Fntil then, the small car will continue to drive demand and most of the car:manufacturers are (earin( up for this eventuality.

3J

Chapter *

Company Profile JTata MotorsK

3G

C"(PT.R *

Company ProfileHTata Motors

Tata +otors, previously known as Tata En(ineerin( and Docomotive Co Dtd *TEDC ,, is one of the lar(est companies in the Tata >roup, and one of #ndia.s lar(est %usiness houses. Tata +otors is #ndia.s leadin( commercial vehicle manufacturer and the third lar(est passen(er car manufacturer. The company is the si1th lar(est truck manufacturer in the world. Tata +otors recently received the /alanced &corecard Colla%orative 0all of -ame $ward for havin( achieved a si(nificant turnaround of its overall performance. $ comprehensive "uality improvement and cost cuttin( initiative in &eptem%er 2888, has played an important role in the company.s turnaround, from a loss of !s 688 crores in the year ended +arch 2881 to a profit of !s 2G crores in the first "uarter of 2882:2883. Tata En(ineerin( and Docomotive Company *TEDC ,

Chapter *.1

"istory 5 .!olution

Tata En(ineerin( and Docomotive Company Dtd, popularly known as Telco was incorporated in 1?46 to manufacture steam locomotives. #n 1?64, the company diversified into automo%ile manufacturin(, throu(h a colla%oration with 3aimler:/en4 for the manufacture of commercial vehicles. /y the time the colla%oration ended in 1?E?, Telco had not only %ecome an independent producer of medium commercial vehicles *+CBs, with ne(li(i%le import content,%ut had developed the capa%ility of desi(nin( and developin( such vehicles. The Company pro(ressively widened its product ran(e to cover heavy commercial vehicles *0CBs, and li(ht commercial vehicles *DCBs,, implementin( one e1pansion pro(ram after another. To sustain the unrelentin( pace of its (rowth, Telco added machinin(, press and assem%ly 3?

capacities, set up its own for(e and foundries, and virtually created the country@s automo%ile ancillary industry. The Company even developed facilities for desi(nin( and manufacturin( state:of:the:art machine tools, material handlin( e"uipment, dies and fi1tures. To accommodate the Company@s (rowin( activity %ase, a lar(e, modern comple1 was set up at 5une in western #ndia and a new plant %ecame operational at Ducknow, in the north of the country. To provide a %usiness focus for the Company@s main activity areas, Telco has created two%usiness units@ :$utomo%iles and Construction E"uipment M %oth of which have notched up record:%reakin( results. Telco today has a domestic market share of EGP in the +CBR0CB se(ment, E4P in the DCB se(ment and 32P in the multi:utility se(ment. $part from commercial vehicles, which ran(e from 1 ton to 36 tons >B2, Telco@s automo%ile products also include passen(er vehicles and an e1traordinarily popular multi:utility vehicle. $ll these products have %een developed inhouse %y the Company@s own !=3 Center. This Center is e"uipped with the latest computeraided desi(n hardware and software, ena%lin( the company to respond "uickly to chan(in( customer needs, %oth in #ndia and a%road. Telco has %een e1portin( its products since 1?E? and currently e1ports a%out a tenth of its output. E1port markets include the +iddle East, $frica and &outheast $sia, as well as developed countries in Europe like -rance, FA and &pain. #t is intended that e1ports should account for 28P of the automo%iles sold %y the Company. Telco@s second line of %usiness, Construction E"uipment, has also (rown rapidly and the

48

Company currently commands a E1P share in the e1cavator market and ?8P in the crawler cranes market in #ndia. The hydraulically operated construction e"uipment made %y the company is in colla%oration with 0itachi Construction +achinery Dimited of Iapan. There are am%itious plans for widenin( the ran(e of e1cavators made %y the company and for addin( new lines of construction e"uipment. $ recent addition to the e1cavator ran(e is /ackhoe Doader. Telco is one of #ndia.s lar(est private sector companies. 2ith a turnover of !s EE.3J %illion, it is the country.s leadin( commercial vehicle manufacturer and the world@s si1th lar(est automo%ile company. The widely successful Tata #ndica, which is Euro 1 and 2 compliant, is the country@s first indi(enously desi(ned, developed and manufactured passen(er car. The company also makes several other passen(ers vehicles, includin( the &afari, the &umo, the &ierra, the Tata Estate, and the Tatamo%ile pick:up. The company@s products have received wide acceptance not only in #ndia %ut also in markets in the +iddle East, $sia, $frica and Europe

Chapter *.2

(reas of business

The company manufactures medium, heavy and li(ht commercial vehicles, multi:utility vehicles and passen(er cars. #t also makes (eneral and special purpose machines for automotive applications at its machine tool division. These include 7CRC7C hori4ontal and inline machinin( centers, fle1i%le manufacturin( systems, C7C cylindrical (rindin( machines, and ro%ots for weldin(, cuttin(, paintin( and other applications.

41

#n 1???, the company@s revenues from its four manufacturin( plants at three locations in #ndia were !s EE.3J %illion *<1,6J3.6 million,. #n 1??G, they were !s J8.2E %illion *<1,G?3 million,. *The avera(e e1chan(e rate in 1??? was !s 42.1G to one F& dollar., #n the year ended 31 +arch 2888, the company@s total e1ports were worth a%out !s 686.63 crore, a(ainst a%out !s E88.JG crore in the previous year.

+ocations

The company@s manufacturin( plants in #ndia are at Iamshedpur in /ihar, 5impri and Chinchwad near 5une in +aharashtra, and Ducknow in Fttar 5radesh. $ fifth manufacturin( facility is %ein( set up at 3harwad in Aarnataka.

Collaborations The Company has technical tie:ups withC

T The #nstitute of 3evelopment in $utomotive En(ineerin(, &.5.$., #taly, for assistance in small car %ody desi(n and stylin(K

T 7achi -u;ikoshi Corporation, Iapan, for ro%ots for weldin(, paintin( and other automotive applicationsK

T De +oteur +oderne, -rance, for the development of diesel and petrol en(ines for passen(er carsK and

42

T !o%ert /ausch >m%0, >ermany, for application work on the en(ine mana(ement system for 4 5D petrol en(ines

Chapter *.#

Tata Motors 7&uccessful Car Indica

TEDC launched #ndica when the T$T$ (roup was in red. Telco chairman !atan Tata said that the 1488 cc car #ndica would drive the company out of the red. Tata, while talkin( to reporters at the #ET- .?? in a videoconference from +um%ai said that the overwhelmin( response of over 1.26 lakh initial %ookin(s for the #ndica had come as a surprise. L#t seems we touched the national chord somewhere as people responded to the fact that this is the first #ndian car,L said Tata. L#ndica is not the end of the road for Telco when it comes to passen(er cars. #t is ;ust the %e(innin(, as there are more to comeL, said Tata, addin( that the company was workin( on another mid:si4e car after #ndica. Telco had to produce E8,888 cars a year to %reak:even. The (roup created two or(ani4ations within Telco, one dealin( with commercial vehicles and the other with passen(er cars. The company under took a ma;or restructurin( e1ercise where%y the passen(er car and commercial vehicles divisions would function as two separate %usiness units. Telco had a strate(y to (o for e1ports after addressin( the initial re"uirements of the domestic market.

(,ards and Recognition #n +ay 2888 ,Tata En(ineerin( and Docomotive Company Dtd. *Telco, won a national award for successful indi(enous technolo(y used in the #ndica car pro;ect. The award titled .7ational award for successful commerciali4ation of indi(enous technolo(y %y an industrial concern. for

43

indi(enous development and commerciali4ation of Tata #ndica car was presented %y the minister for human resource development, science and technolo(y and ocean development,

3r. +urli +anohar Ioshi. #n 7ovem%er 1??? Telco was awarded the .3epartment of scientific and industrial research national award for indi(enous desi(n of the Tata #ndica. #t was the first company in #ndia to implement strin(ent emission norms well ahead of the mandate dates. Promotions The #ndica advertisin( made interest for the car (o into overdrive. The campai(n revolved around the premise that the #ndica would not ;ust meet people.s e1pectations, it would e1ceed them. Every advertisement has a story to tell

Pre launch Campaign The #ndica campai(n %e(an in the ri(ht earnest in 3ecem%er 1??G. #t was advertised as the launch of a car that will spell doom for the small cars. #t was directly aimed at +aruti G88. The ad line used in the first campai(n was Car makers will suddenly remem%er all the thin( they for(ot to (ive you'. This hinted that #ndica would have more features than any of the e1istin( small cars. #ndica used the catch lines like +ore car per Car' +ore dreams per car' to su((est that #ndica will %e %i((er in si4e to the e1istin( small cars yet %e in the small car cate(ory. #t competes with the mid si4e cars on si4e and (ive them a run for their money with its cheaper price ta(. $t the launch of the car TEDC claimed that the people would never have to suffer from a small car a(ain and that the n end of the year *1??G, would %e the end of the small cars. 44

+aunch Campaign The launch campai(n of #ndica focussed on the many advanta(es that it offered over other cars in the same se(ment. #t promised the customers more than the current offerin(s. #ts first advertisement carried the followin( catch line 68cc moped, 188cc %ike G88cc car. Time you asked for more.' #t then concentrated its efforts on critici4in( the ne(ative aspects of +aruti G88 and hi(hli(hted how #ndica has removed those very defects and presented a very sophisticated and modern car to the #ndian customer. #t even pointed out that the shape of +aruti was very unconventional and that people would prefer the shape of #ndica to +aruti G88. The advertisement read /o1 shaped, %u%%le shaped, wed(e shaped. /ut then >entlemen prefer curves' The launch campai(n also focussed on the roomy interiors of #ndica, a feature not offered %y +aruti at that point of time. $lso the e1pertise of T$T$ in diesel en(ines and fuel efficiency of these were the hi(hli(ht of the launch campai(n of Tata #ndica.

Post +aunch Campaigns

2hile the Daunch campai(n focussed on the features of #ndica the post launch advertisements focussed on the superior after sales service and lon(er warranty periods offered %y #ndica. Telco was the first company to offer an 1G:month warranty period on en(ine parts. The most famous line used durin( this campai(n was 2e could (o on and on a%out service or (ive you the one word summary. T$T$.' 2hile their main adversary was the +aruti G88 ,Telco felt that

46

it could also tap the mid si4e se(ment usin( the sellin( point of space (iven %y #ndica. They carried a campai(n, which said -or(et small cars, we even make %i( cars feel small' #t then went on to hi(hli(ht the fact that #ndica was Euro ## compliant even %efore it was le(ally %indin( upon car manufacturers to do so. #t also hi(hli(hted the concrete wall safety test that #ndica withstands and tried to showcase the car as a safe and stron( car.

Chapter 4

CO&T R.$<CTION T.C"NI:<.& IN T(T( MOTOR&9& IN$IC(

4E

4J

Chapter 4

Tata Indica ' The Ma-ing Of The &mall Car ,ith objective of minimizing costs.

The research provides an understandin( of the issues concernin( the supply chain mana(ement system at Telco in re(ard to its small car, #ndica. #t outlines how Telco, %uilt the supply chain for the car %y levera(in( its e1istin( competencies and how it transformed itself from an inte(rated truck manufacturer to an automo%ile inte(rator and from a product:centric company to competence: centric company. The case discusses various components of the supply chain and emphasises how Telco orchestrated them with the o%;ective of minimi4in( costs.

(Telco)s Indica not only has a new plant and a new set of people manning the plant, but also new manufacturing philosophies, new systems and new processes in place, as it gets ready to take on its competition in the millennium to come.* - Business India, March 22, 1999.

#n the early 1??8s, Telco@s Chairman !atan Tata *Tata,, was flirtin( with the idea of developin( a small car. /y mid:1??4 a rudimentary desi(n was in place. #n 1??6, Telco announced that it planned to %uild a car which would %e priced close to the +aruti G88, shaped like the Qen, and spacious as an $m%assador. 5roducin( the new small car M #ndica M represented a different kind of challen(e for Telco. &hould Tata

4G

succeed, he would chan(e the face of Telco. $s a truck:maker, Telco was so inte(rated that it even made it own castin(s and for(in(s. $s an automaker, it would have to focus on the value chain that stretched %etween raw materials and after:sales service as well as assem%lin( the parts into the complete automo%ile.

-or its new venture, Telco outsourced G8P of the components *1,288 of its 1,688:plus parts,, from 288: odd vendors. To develop the #ndica, Telco had to com%ine the learnin(s from its predecessors with its own uni"ue supply chain mana(ement strate(ies to ensure a sustaina%le low:cost platform. /y learnin( to %uild and mana(e a supply chain, it would set the (round for levera(in( the capa%ilities of the automotive component:manufacturers who already operated in its tar(et markets. #n other words, Telco planned to use its skills as an inte(rator::%rin(in( to(ether products and services from %oth upstream and downstream operations, and packa(in( them for the customer under a %rand name in its new venture.

>lo%ally, a car could %e %uilt in 4G months with an investment of F& < 3 %illion *!s 12J.6 %illion,. #ndica, was %uilt in 31 months on a %ud(et of !s 1J %illion. This seemed to have %een possi%le %y focussin( on the supply chain

Chapter 4.1

T". O<T&O<RCINC &TR(T.CD

-or Telco, outsourcin( seemed to %e one of the most difficult aspects of producin( the #ndica. Fnlike (lo%al automo%ile ma;ors, -ord +otors or >eneral +otors, which had a (lo%al vendor: %ase that could %e replicated on a smaller scale in #ndia, Telco had to create a vendor:%ase from scratch. +oreover, it did not have the e1pertise either to desi(n a car or to %uild an en(ine for

4?

it.

$(ainst this %ack(round, Telco had to take its primary Umake:or:%uy@ decisions for the key inputs:desi(n, en(ine, and transmission. Telco decided to shop (lo%ally for the %est deals and use its own e1pertise to make whatever modifications were needed

*!efer Ta%le # for the components outsourced %y Telco,. T(6+. I

O<T&O<RCINC T". COMPON.NT&

Components * door hatchbac.ngine (ssembly +ine Presses Pistons and Piston rings .lectrical components and fuel in ection systems &teering systems &upplier I.$..(; Italy Institut 3rancais du Petrol; 3rance Nissan9s Plant; (ustralia Mercedes 6enF India Pistons +ucas'T2& Rane TR@ &teering

&ystems Clutch facings and rear =drum> bra-e &undaram 6ra-e +inings linings &eating &ystems Radiators Rear !ie, mirrors 3ront and rear bumper; dash'board; inside trims (ir conditioning -its @ind screens and ,indo,s 68 =&6+> Tata'Eohnson Controls Tata'Toyo Tata'3icosa Tata'(uto Plastics &ubros +td (sahi Class

3uel lines Imperial (uto $ifferential assemblies &ona &teering &heet metal items E6M Tools +ource, -usiness Today, .arch //, 0111 and 2ecember 3, 0111.

Telco turned to the #talian company, #.3E.$, for the product:desi(n. #t %ou(ht the en(ine from the #nstitut -rancais du 5etrol of -rance, and applied its en(ineerin( skills to adapt the en(ine re"uirements. The transmission was developed in:house at its En(ineerin( !esearch Centre *E!C,, at 5une. f the !s 2.6 %illion it spent on desi(nin( the #ndica, the ma;or share went in %uyin( desi(n tools and trainin( its en(ineers in new skills. Telco@s en(ineers traveled re(ularly to the sites of its technolo(y suppliers, to receive trainin( %efore the actual delivery of the machines.

Telco also outsourced its assem%ly line from 7issan@s plant in $ustralia for ;ust !s ?88 million. Telco transplanted it at its factory at Chikli near 5une, which was newly set up for #ndica. $ new assem%ly line of the same proportions would have cost at least !s 4 %illion. $(ain, of

the 3 presses for the #ndica, only 1 was new, ac"uired for !s ?88 million, while the other 2 were %ou(ht second:hand from +ercedes:/en4 and modified to suit the #ndica.

Telco@s en(ineers and the E!C did the application en(ineerin(, pro(rammin(, installation, and commissionin( to save around 46P of the technolo(y costs. The toolin( for the car too was supplied internally %y Telco@s machine tool division. To mana(e the supply chain %etter, Telco kept the num%er of suppliers for #ndica to ;ust 288 as compared to a%out 1,888 for trucks. +ost of the parts were supplied %y Telco@s traditional suppliers) TB&, !ane >roup and Tata $uto 61

Component &ystems *Taco, who were sin(le source suppliers. 5ressed parts, assem%lies, and drive shafts were sourced from sin(le vendors.

Chapter 4.2

2.N$OR $.2.+OPM.NT

nce Telco made its make:or:%uy choices, the ne1t step was to identify the vendors. +ost of the parts that went into makin( Telco were sourced locally. E1cept for some sheet metal parts, cylindrical (askets, and %elts::which accounted for 2P of the component value, the #ndica was totally indi(enousV1W. A. +ahesh, CE , &undaram /rake Dinin(s, said, Docalisation of components is the most important challen(e a new manufacturer faces. #t is a time:consumin( and painstakin( process.'

Telco employed a simple yardstick for selectin( suppliersC the a%ility to supply components at the ne(otiated "uality, cost, and "uantities. #n the first sta(e of selection, an initial assessment team from Telco evaluated the supplier. This was followed %y self:evaluation of the supplier, %ased on a format provided %y Telco. Then there was a "uality systems survey, carried out %y a Telco "uality audit team.

This was followed %y desi(n validation. $nd then there was a manufacturin( validation to ensure that the supplier was followin( the proper manufacturin( processes. This was followed %y the 5roduction 5art $pproval 5rocess *55$5,, which certified the production "uality. !. Chakra%orty *Chakra%orty,, senior deputy (eneral mana(er, materials = supplier "uality

62

improvement (roup, said, 2hen a vendor reached this sta(e, our comfort level in dealin( with him (oes up considera%ly, with re(ard to "uality and his a%ility to supply material to us. 2e feel that he has a proper production process in place to ensure "uality and timely supplies.' nly a handful of vendors met Telco@s strin(ent re"uirements. Telco set up &upplier Xuality #mprovement Teams to improve the vendors@ systems to ensure that they produced defect:free parts.

#t applied a 13:step Xuality #mprovement 5ro(ramme, coverin( supplier self:evaluation, thorou(h desi(n:validation, and audit of supplier "uality. $nother key to Telco@s successful vendor:%ase was a modern system of process mana(ement. Telco@s tar(et:costin( was %roken up into vendor:wise cost tar(ets, and the suppliers had to carry out their own value:en(ineerin( e1ercises to lower cost and improve "uality.

-or e1ample, #ndia 5istons, which supplied the pistons and piston rin(s, walked away with the #ndica order %ecause it %enchmarked itself a(ainst supplies to +aruti Fdyo(K whereas the other vendors %enchmarked themselves a(ainst pistons supplied to Telco@s commercial vehicles.

#ndia 5istons invested !s 1.6 million in toolin(s, and !s 26 million in a separate line at its +araimalai 7a(ar *Tamil 7adu, facility. 7. Benkatramani, CE , #ndia 5istons, commented, TEDC is very particular a%out lo(istics, that raw materials have a supply trace, %e ready for assem%ly, need no inspection. #t is a demandin( customer.'

Telco even involved its vendors in the desi(n:process to (ive suppliers more lead time to innovate, and for %etter supply chain coordination. Commented T.A. /ala;i, CE , Ducas:TB&,

63

which supplied electrical components and fuel:in;ection systems for the #ndica, /y makin( vendors its partner early, TEDC ensured %oth "uality and price:conformity. Date involvement would have yielded different results.'

+.&. Aumar, 3irector = CE , !ane T!2 &teerin( &ystems *!ane,, which supplied the steerin( systems for the #ndica, added, TEDC has %een e1tremely supportive, makin( availa%le its entire !=3 resources to our

en(ineers. #t is one of the %est e1periences we have had in product:development.' Telco wanted !ane to desi(n a system that would meet the peculiarities of #ndian road conditions.

/esides offerin( %oth manual and power systems, !ane also had to come out with a left:hand drive variant for th e1port market. !ane had to (o deep into application en(ineerin( %ecause the front a1le:wei(ht of the #ndica was

heavier, and its en(ine:displacement, hi(her. #ndica was not only compact, which left less space, %ut also heavy,

which strained the system. Telco wanted !ane to %enchmark the maneuvera%ility of the #ndica a(ainst the Qen, a much:li(hter car. !ane took a%out 1E months to develop and (et the steerin( system approved, spendin( close to 2 man:years on it. #t spent !s 1E million on development costs for the power steerin( system:: includin( toolin( and dies::and !s 18 million for the manual steerin( system. &aid 5.!. &arathy, 5resident, !ane *+adras,, TEDC (ave us price:tar(ets. 2e worked within them, usin( value: en(ineerin( and concurrent en(ineerin( to lower our development costs. -or all effective purposes, we were an arm of TEDC durin( the process.' #n the case of small vendors, Telco e1amined their processes: and cost:levels. Telco confi(ured its suppliers in 2 tiers. Tier # suppliers had to assem%le su%:systems usin( components provided %y Tier ## vendors.

Telco asked the latter to supply products at low mar(ins to the former. n its part, Telco helped them lower their costs %y solvin( "uality:related pro%lems. -or instance, &/D, which supplied

64

clutch:facin(s and rear *drum, %rake linin(s for the #ndica, developed them in:house. B.!. Ianardhanam, 5resident, &/D, remarked, 3espite its si4e, Telco has a lot of humility. #t is willin( to work with even the smallest of vendors to meet its tar(ets.'

$ typical %rake:linin( usually went throu(h the followin( stepsC the raw material was converted into sla%sK the sla% was cut into the re"uired len(thK the cut piece went throu(h 2 sta(es of (rindin( for the inner and the outer diametersK then, the piece was drilled, and, finally, champered. /ut &/D %rou(ht down the num%er of operations to 3C the raw material was strai(htaway converted into pieces of re"uired len(th, and the (rindin( was done to only the outer diameter.

$nd the company saved 16P %ecause of this sin(le:piece flow techni"ue. A. 5andarinath, 3eputy >eneral +ana(er *!esearch,, &/D, commented, Telco is a transparent company. #t allowed us to use all their facilities as lon( as it helps develop a %etter product. ur en(ineers spent several weeks workin( with Telco@s en(ineers on perfectin( the %rake:linin(s.'

Chapter 4.#

&<PP+D C"(IN

To keep its transaction costs low, Telco confi(ured its supply chain on a ;ust:in:time %asis. $ll hi(h:value components were delivered daily, and in the case of near%y suppliers, twice a day. Bendors who were located far away from 5une set up local warehouses near the plant. The rationale for the relocationC transportation costs alone accounted for 46P of the total lo(istics costs for a company, delays in supplies added to costs in terms of machine down:time 66

at the plant. +eanwhile, on the shop floor, where the assem%ly line was located, Telco had done away with the traditional store function.

There was no material store in the 5une plant of Telco. The truck loaded with the material first entered the factory at the material (ate where there was a documentation center. $ person at this center checked whether the material was scheduled to arrive or not, %y keyin( in the part num%er and the supplier code. #f the material was not scheduled to arrive, the documents were not processed further and the truck was not allowed to enter the factory premises. nce it was cleared at the (ate, the truck proceeded to the receivin( center.

nce the items were unloaded, unpacked and cleared for "uantity and "uality, they were moved into the transit area. -rom there they went into what was called the Usuper market@. The super market was close to the assem%ly line. #n the super market, the materials were arran(ed in such a way that the workers could easily access all the material re"uired on the assem%ly line without wastin( much time and effort.

The %enefits of this ;ust:in:time inventory system were that the inventories were low and so the interest costs were also low. $(ain the manpower re"uired to handle the inventories was also low. -or Telco, a crucial link in the supply chain was its a%ility to forecast demand accurately, which would help the vendor plan his production:schedule in advance, thus lowerin( costs. Telco and Concorde employed market research a(encies to help forecast demand throu(h trend analysis, usin( the historical data techni"ue.

6E

#t used a comple1 we% of correlation involvin( the country@s economic situation, competitors@ products, and their F&5s. To ensure "uick flow of information alon( the value chain, Telco electronically linked its demand forecasts to production, and %ackwards to its suppliers.

$ll its dealers were linked to the plant throu(h B&$Ts*2, connected %y e:mail to relay demand patterns on:line to the 5une plant. This reduced the order:processin( time %y G8P. $nalysts felt that %y %ein( online, Telco would save a minimum of 4 days from the order:to:despatch lead: time. -or speedy delivery, Telco resorted to inter:location transfers of the product %etween dealerships. This would ensure movement of the product to a place where there was more demand.

This would make a %i( difference to finished (oods inventory mana(ement once Telco started producin( at optimum capacity. Telco also trimmed costs %y makin( Concorde leaner than other dealerships, with ;ust 3 levelsC mana(in( director, (eneral mana(ers, and mana(ers*3,. Each of Concorde@s*1, (eneral mana(ers worked as profit:centre heads of their individual %usiness re(ions, and reported directly to the mana(in( director.

$dded, $.A. &eth, >eneral +ana(er *3elhi,, Concorde, The company wanted to create a lean and responsive network, with the primary o%;ective %ein( to meet customer re"uirements as "uickly as possi%le.'

*1,

Telco@s dealer for #ndica. #t had ? dealerships and 26 outlets.

6J

*2,

Bery &mall $perture Terminal *B&$T, is a satellite communications system that serves

home and %usiness users. $ B&$T end user needs a %o1 that interfaces %etween the user@s computer and an outside antenna with transceiver. The transceiver receives or sends a si(nal to a satellite transponder in the sky. The satellite sends and receives si(nals from an earth station computer that acts as a hu% for the system. Each end user is interconnected with the hu% station via the satellite. -or one end user to communicate with another, each transmission has to first (o to the hu% station which transmits it via the satellite to the other end user@s B&$T. B&$T handles data, voice and video si(nals. *3, +ost other car:marketers in the country operated with a minimum of 6 levels.

Chapter 4.%

+.2.R(CINC T". &<PP+D C"(IN

#ndica marked the %e(innin( of Telco@s drive into #ndia@s auto market as an inte(rator with a multi:product portfolio. $nalysts felt that the competencies that Telco had (rown in the process of marketin( #ndica would %e the core around which it would %uild its future car %usiness. $nalysts also felt that Tata would use the supply chain that fed the #ndica to feed a whole ran(e of Telco cars of the future. 3.C. $nand, CE , $nand >roup, said, Telco@s capacity will %e tested %y how many new models it can come up with::and how soon. #s Telco in a position to do soO -our years a(o, # would have said no. Today, # am not (oin( to underestimate their capacity. They have demonstrated it.'

6G

/usiness Today wrote, Devera(in( the low:cost supply chain that it has %uilt, Telco will launch a series of other cars::priced %oth %elow and a%ove the #ndica, straddlin( the entire spectrum::each of which will %e pro(ressively easier to inte(rate.' The supply infrastructure would %ecome economical as the volume of the %usiness that Telco offered its vendors increased. The volume of %usiness would increase with a lar(er num%er of cars. The learnin( that it was e1tractin( from the #ndica supply chain would also %e availa%le to the company as it moved into other products.

There seemed to %e a distinct opportunity for a smaller, cheaper car, positioned as an entry:level for the first:time %uyer. $nalysts felt that Telco@s supply chain mana(ement would %ecome the pivot around which it could assem%le its passen(er:car %usiness.

Chapter 4.*

Cost Cutting

To cut costs, Tata +otors tried innovative techni"ues such as 4ero:%ased costin(. The company.s en(ineers re:worked the cost of components all over a(ain. -or e1ample, earlier, Tata +otors paid for its for(ed components on a cost:plus %asis as claimed %y a vendor. Fnder the new system, it paid a price dependin( on the wei(ht of the for(in(, leadin( to savin(s of 26P. 5rakash + Telan(, senior vice president *manufacturin(,, was appointed as the .cost:erosion champion. and put in char(e of the entire initiative. -our specific areas were identifiedC

:3irect material costs !eduction 5ro;ects

6?

:#nventory $nalysis:Iust in Time :Transporation $nalysis :&tock keepin( Fnit $nalysis.

Chapter 4.4

:uality Management

Tata +otors started a comprehensive "uality improvement initiative in &eptem%er 2888. The initiative played an important role in the company.s turnaround, from a loss of !s.688 crores in the year ended +arch 2881 to a profit of !s.2G crores in the first "uarter of 2882:83. Every year, a%out a "uarter of Tata +otors. workforce went throu(h trainin( courses, which were rated hi(hly in the #ndian en(ineerin( industry. 5ersonnel were trained %efore %uildin( workshops. #n case of imported machines, en(ineers and workers wer sent to the forei(n manufacturer.s facilities to receive trainin( well %efore the arrival of the machine.

E8

Chapter 4.1

Cost Reduction in .nergy Consumption

/y implementin( various ener(y conservation pro;ects there has %een a consistent decrease in the specific Electrical and Thermal Ener(y Consumption.

E1

Chapter 4.1.1 .nergy Conser!ation Commitment; Policy and &et <p

Tata +otors, considers Ener(y &avin( as a multi disciplinary approach. Even the smallest cost reduction is (oin( to add directly to its profits in %ottom line. 5lant ener(y profile consist of Electricity, >as, il, Di(ht 3iesel il, 0i(h &peed 3iesel il, Aerosene and 2ater. /ud(et provisions are made e1clusively for Ener(y conservation mana(ement. * EC 7 , Ener(y conservation plans, policy and structure are reviewed periodically. 5lant has conducted #n house seminar on UEner(y Conservation@ with e1ternal faculties like 7ational 5roductivity Council, $tlas Copco, Enercon, Croma En(( and Therma1 which was attended %y participants from all plants of $uto &ector. &enior e1ecutives have attended UEner(y Conservation +eet@ or(ani4ed %y C## and visited !eliance #ndustries, >odre;, #C#C# Towers to share ener(y conservation ideas.Ener(y Conservation week is cele%rated every year from 14th 3ecem%er to 21st 3ecem%er. 5oster and slo(an competition on Ener(y savin( was conducted in every year. Ener(y +ana(ement policy is displayed every where in the plant for creatin( the ener(y conservation awareness. The company has formed cross functional teams for cost reduction throu(h Ener(y savin(s. Each team comprises of &enior E1ecutives as facilitators with mem%ers from each product units. &afety and Environment 3epartment is also closely attached with Ener(y Conservation Cell. Top mana(ement

E2

like president, vice: president, >eneral mana(ers actively participate in the ener(y conservation pro(ram and support the ener(y conservation plans %y providin( the necessary %ud(etary and morale help. The importance of ener(y conservation was emphasi4ed throu(h various forums and T5+ *Total 5roductive +aintenance, methodolo(y./y usin( T5+ methodolo(y plant has implemented more than 288 kai4ens * small improvements, likeC : !emoval of unwanted motors, Continuous to intermittent operatin( of motors, Timer for /lowers R 0eaters, 5rovidin( air pressure re(ulators,&toppin( idle runnin( of motors, 5hoto cell control for li(htin(, Com%inin( activities etc.

.nergy Management Policy

Y 5romote Ener(y savin( and conservation of resources. Y /ench mark specific ener(y consumption with 7ational = #nternational standards, and settin( up systems to achieve them. Y #ncrease use of non:conventional sources of ener(y = alternate fuel sources. Y Comply with the Ener(y De(islation and other re(ulations.

E3

Y Conduct re(ular Ener(y $udits to reduce ener(y wasta(e in all areas. Y 5romote awareness amon( all employees throu(h leaflets, seminars, competitions and company visits. Y !eco(nise ener(y conservation initiatives taken %y employees and award them. Y !educe waste (eneration and promote disposal, reuse and recyclin( in an Environment friendly manner. Y +ake an effort to reduce the cost continuously every year %y adoptin( effective Ener(y +ana(ement &ystem'.

.nergy Conser!ation (chie!ements

3urin( the period %etween 2883:2886 +ahindra = +ahindra Dtd. has implemented around 328 proposals throu(h En(ineerin( initiatives, workmen@s su((estion schemes, $uditors recommendations and T5+ methodolo(y resultin( into total savin( of !s 6G? lakhs with an investment of !s 143 lakhs. This has resulted in a reduction of 16P in specific electrical ener(y consumption and 14P in specific thermal ener(y consumption.

Chaptera 4.1.2

.lectrical &a!ing 7 = Compressed (ir>

E4

1. &cre, Compressor ,ith 2ariable 3re8uency $ri!e

6efore Installation H 3or 22?? cfm output compressed air re8uirement; plant ,as running

four compressors ha!ing total motor capacity of 4#? hp. Motor Capacity L 4#? hp Po,er Consumption per (nnum L 2*.#2 +a-hs -@h Operating Cost L Rs. 1?1.4# +a-hs G (nnum (fter InstallationH' &cre, compressor ,ith 23$ running in combination ,ith e/isting compressors ha!ing total motor capacity of *14 hp . Motor Capacity L *14 "P Po,er consumption per annum L 2?.10 +a-hs -@h Operating Cost L Rs AA.#* +a-hs G (nnum &a!ing L Rs. 10.2? +a-hs G (nnum

E6

%, Electrical &avin(s +easures C 1. #nte(rated * #T , (un in place of Conventional (un for &pot 2eldin(.

6efore ' <se of con!entional spot ,elding mGc gun Po,er Rating H' 1*? B2( .lectrical Consumption H' ?.12 +a-hs G annum (fter' <se of Integrated gun = IT Cun> Po,er Rating H' ## B2( .lectrical Consumption H' ?.14 +a-hs G annum Installed 4 nos of IT Cuns. Total &a!ing H' #.#1 +a-hs B@" G annum Rs. 1%.#2 +a-hs G annum

2. Installed &teffa Control !al!e for Optimum utiliFation of Chilled ,ater in Central (C Plant

EE

#nstalled &teffa Control Balve for optimum utili4ation of chilled water

at Central $ir Conditionin( 5lant. &avin( C: 36J? A20 R annum !s. 8.16 Dakhs R annum

#. Con!ersion of Core ba-ing o!er from .lectrical to PNC in 3oundry

-oundry Core /akin( ven which was runnin( on Electrical firin( converted to 57> firin( %y installin( fuel efficient %urners.

/efore C: Electrical 0eatin( Electrical Consumption M 3.46 Dakhs A20 R annum Cost C: !s. 14.E? Dakhs R annum $fter C: 57> 0eatin( Thermal Consumption M 1.8E Dakhs &C+ R annum Cost C: !s. ?.8? Dakhs R annum &avin( C: !s. 6.E8 Dakhs R annum

EJ

Chapter 4.1.#

Thermal sa!ing 5 "eat Reco!ery

1. Conversion of Thermopac from LDO to PNG with Heat Recovery

/efore C: Thermopac used for heatin( of Thermic -luid 5reviously was runnin( on D3 .

D3 Consumption M 416 Dts R day Cost of D3 M !s. 26.1J Dakhs R annum $fter C: Thermopac used for heatin( of Thermic fluid Converted to 57> firin( with 0eat !ecovery &ystem. 57> Consumption M J?G &C+ R day Cost of 57> M !s. 28.68 Dakhs R annum &avin( C: !s. 4.EJ Dakhs R annum

2. "eat pump using atmospheric heat for ,ashing machines

/efore : Fse of EE kw electrical heaters for water heatin( in washin(

EG

machine.

$fter M 0eat 5ump usin( atmospheric heat to rise the temperature of water from 32 Z to E8 Z for washin( machine avoidin( electrical heaters. &avin( [ 1.JJ Dakhs A20 R annum [ !s. J.61 Dakhs R annum

Chapter 4.1.% Other pro ects implemented during 2??%'2??*

Y Baria%le fre"uency drive for /ody top coat E1haust %lower in paint shop. Y $utomatic power factor controllers. Y Continuous to intermittent motors %y modifyin( the circuits or usin( 5ro(ramma%le Do(ic Controls. Y nline 3iesel dispenser system Y &toppin( idle runnin( of motors. Y 0i(her 05 +otor to Dower 05 +otor. Y $utomatic &tar 3elta Converter. Y -lat %elts instead of U B U %elts for %lowers. Y /oosters for 0i(h 5ressure Compressed $ir in machine shop. Y Fse direct heatin( avoidin( indirect heatin(. Y Effective #nsulation for 5aint &hop vens. Y $ir pressure re(ulators. Y !ecyclin( = !euse of 2aste +aterial.

E?

Y Tur%ine $ir Bentilation &ystem. Y /uildin( +ana(ement system for effective air conditionin( .

Chapter 4.1.*

.nergy Conser!ation Plans and Targets

Energy Conservation eas!res "nticipate# $p%anne#&

Centralization of compressor house at utility compressor house Fuel Cells for Power & Heat generation !nstall waste heat reco"ery for C#C 2 furnace an$ preheat %uench oil 'eplacing open type (urners )y close type )urners at *+C Furnace Heat pump for washing machine -apour +)sorption *ystem for air con$itioning in .ransmission P/& -aria)le Fre%uency 0ri"es for #ray Primer (ooth 12haust (lowers in Paint *hop& *olar 3ater heating system for washing machine

"nticipate# savings 'n Energy $Rs. %a(hs&

25 104 7&72 2&,5 , 4&2 10 10

"ppro). Pro*ect Pro*ect 'nvestmen commencement t $Rs. + comp%etion La(h& year

75 50 10 4&5 15 21 &2, 17&5

,--. ,--. ,--. ,--. ,--. ,--/ ,--/ ,--/

J8

Chapter 0

12OT "na%ysis of Cost Re#!ction Techni3!es in "!tomo4i%e

Chapter 0

12OT "na%ysis of Cost Re#!ction Techni3!es in "!tomo4i%e

J1

Overview on the a!tomotive sector

The automotive industry is torn %etween tryin( to reduce costs on the one hand and, on the other, dealin( with the hi(h price of performance:enhancin( technolo(y and environmental compliance. Aey drivers in the automotive industry areC Y !educed air pollution Y !eduction of wei(ht Y !ecycla%ility Y &afety Y /etter performance and en(ine efficiency *fuel savin(, Y $esthetics Y Don(er service life

J2

&@OT analysis on the automoti!e sector

II.1. Frames and body
*1, 7anomaterials presently industrially used Concernin( the materials used for frames and %ody, polymer nanocomposites play an essential role. .

.ngines and po,ertrain

The new development in en(ine and powertrain technolo(ies has the o%;ectives to improve thermal and mechanical efficiency, performance, driva%ility and relia%ility as well as to reduce

J3

emissions and costs.

Paints and coatings

*1, 7anomaterials presently industrially used o 5roperties of traditional materials chan(e and the %ehaviour of surfaces start to dominate the %ehaviour of %ulk materials. &uch effects include ultraviolet *FB, %lockin(, anti:static, and conductive capa%ilities. 5aints and coatin(s industries were amon( the first to take advanta(e of these capa%ilities three years a(o. Companies also found that with the incorporation of nanoparticles, thin film coatin(s have stron(er %onds and %etter fle1i%ility, with little cost differences. These coatin(s are smoother, stron(er, and more dura%le. 2hen used on products, the results ran(e from scratch:resistant and self:cleanin( surfaces to moisture:a%sor%in( clothin(. +any companies from around the world are usin( the properties of nanoparticles and are incorporatin( them within their coatin(s.

+ubrication
*1, 7anomaterials presently industrially used o 7anotechnolo(y:%ased solid lu%ricants reduce friction %etween movin( parts and minimise wear, save maintenance costs and (reatly improve overall machine performance. #n addition, it reduces ener(y consumption and decreases air pollution

&uspension and brea-ing systems

*1, 7anomaterials presently industrially used o &uspension systems. #n;ectin( nano iron:%ased particles into certain fluids creates a ma(netic field that chan(es the viscosity from a thin li"uid to a solid.his allows a vehicle to instantly alter its suspension system %ased on the conditions it senses&

Tires
*1, 7anomaterials presently industrially used o !eplacement of car%on %lack in tyres with nanoparticles of inor(anic clays and polymers, leadin( to tyres that are environmentally friendly and wearresistant o 7ew nano coatin( reduce wei(ht, improve pressure retention and reduce recyclin( and incineration costs.

J4

o 7anostructured soot as an additive to increase tire life, reduce friction and fuel consumption. o #n the past few years European elastomer and inor(anic o1ide producers have teamed to produce, usin( an empirical approach, the (reen tire which is %ased on nano:structured silica reinforced hydrocar%on elastomers.

Chapter A

Recommendation

J6

Chapter A

Recommendations

The automo%ile components industry is composed of Tier 1 manufacturers positioned directly %elow the automo%ile manufacturers and Tier 2 manufacturers and lower that are positioned %eneath the Tier 1 producers, formin( %usiness relationships in the shape of a %road:%ased pyramid with automo%ile manufacturers at the top. #t is common for Iapanese automo%ile component manufacturers to %e so:called keiretsu producers, which have stron( %usiness ties with a specific automo%ile manufacturer. The %usiness performance of the automo%ile component manufacturers is stron(, %ut !=# cannot %e optimistic a%out the future %usiness environment. $midst increasin(ly intense (lo%al competition %etween automo%ile manufacturers, the performance of the automo%ile manufacturers, which are the main customers, has a si(nificant influence on the performance of components manufacturers. #n addition, with earnin(s for automo%ile manufacturers themselves %ein( s"uee4ed %y the intensification of competition, the demands made on component manufacturers in terms of price have %ecome even more strin(ent. +oreover, addin( in the current rise in the price of raw materials such as steel, aluminum, and copper and it seems that earnin(s are %ein( s"uee4ed from %oth upstream and downstream directions.

JE

#n this tou(h %usiness environment, !=# considers that the presence of a financial %ase that can accommodate strate(ic investment will have a ma;or impact on future creditworthiness for components companies. !atin( 5oints for the $utomo%ile Components #ndustry .!aluation of 6usiness 6ase #n evaluatin( the %usiness %ase for the automo%ile components industry, !=# focuses on three areas which are the relationship with the automo%ile companies that are the ma;or customers, the structure for (lo%al supply of products, and the importance of the products. &ales for components manufacturers are si(nificantly affected %y how many models they can o%tain orders for at the launch of new vehicles or model chan(es and how sales (o for each of the models for which they receive orders. >lo%al production and sales of new cars is risin( overall, %ut there are ma;or disparities %etween individual manufacturers. Therefore, it is necessary to analy4e structure of sales and trends for each automo%ile manufacturer and assess the possi%ility of chan(es in future sales while considerin( e1ternal factors such as the track record and future pro;ections of each automo%ile manufacturer in the launch of new models and the effect of environmental restrictions. $utomo%ile manufacturers have so:called close component manufacturers typified %y Toyota:affiliated 3enso and $isin &eiki. /ein( a close manufacturers does not necessarily (uarantee orders. 7evertheless, the close manufacturers ultimately have a hi(h share of deliveries, %usiness volume is often sta%le, and future order risk is limited to some e1tent. 0owever, there are also fields in which independent manufacturers

JJ

have an overwhelmin( share dependin( on the product, and it can %e considered that order risk is also small for independent manufacturers in these cases. 2ith the move of automo%ile manufacturers toward a (lo%al %ase structure, component manufacturers have also %een a((ressively promotin( the esta%lishment and e1pansion of production centers overseas. Caterin( to the (lo%al strate(y and (lo%al optimal procurement of automo%ile manufacturers is essential to maintain and e1pand orders in the future, and it is important to assess the state of the (lo%al structure for the supply of products of the components manufacturers. The importance of the products that a company handles is also an key point. $s the strin(ency of demands from automo%ile producers ruses, ma;or disparities in profita%ility for each component have started to appear dependin( on factors such as the added value of a product or differences in efforts to improve costs in production. #t is important to forecast future profita%ility takin( into consideration the nature of the product, its importance in an automo%ile overall as a part, and future technolo(ical directions.

Chapter A.1

Main Indicators

7et de%tRoperatin( cash flow ratio, 7et de%t peratin( cash flow, capital e1penditure E"uity capital, e"uity capital ratio peratin( profit on sales, !=3 e1penditure on sales ratio &ales and operatin( income *loss, %y re(ion, proportion of overseas sales &hare of main products *(lo%al, for customer, 5roduction and sales of ma;or customers JG

Chapter A.2

3ocus on Mo!es to &trengthen Ties ,ith (utomobile Manufacturers

#n order to survive (lo%al competition, some Iapanese automo%ile manufacturers are tryin( to %oost product stren(th %y for(in( e1tremely close ties with hi(hly competitive component manufacturers. The role played %y component manufacturers in the development of new models, primarily in such fields as the environment, safety, and comfort, is %ecomin( increasin(ly important, and there are instances of automo%ile manufacturers movin( to %oost ties, includin( on the capital front, with competitive component manufacturers. !=# is followin( the impact that this trend is havin( on the competitive environment %etween automo%ile component manufacturers.

Chapter A.#

In!estment Margin is Bey to &ur!i!al

$%ility to (enerate cash flow is the most important factor. #n response to production increases %y automo%ile manufacturers, each of the component producers have also stepped up capital e1penditure, primarily to %oost capacity %oth in Iapan and overseas. 0owever, the sharp increase in capital e1penditure has %een a heavy %urden on finances in the automo%ile components industry, which has many companies that are small in scale compared to automo%ile producers and that compare unfavora%ly in terms of financial %ase. #n order to

J?

implement strate(ic investment includin( rationali4ation, maintenance and innovation, and initial investment in addition to esta%lishin( centers in (rowth markets, it is necessary to secure sta%le cash flow in e1cess of a certain amount every fiscal year, and this could %e termed a condition for survival.

Chapter A.%

3ocus on (de8uacy of .8uity Capital

&ales credit and inventory risk is relatively small for component manufacturers. 2ith the e1ception of some open market sales, the ma;ority of sales credit is for automo%ile manufacturers, and the risk of %ad de%ts is low when limited to Iapanese automo%ile producers. +oreover, compared to other industries, sales credit collection period is often short and its terms are also favora%le. #nventory is ordered production for automo%ile manufacturers, so !=# considers the risk of a%olition and impairment to %e e1tremely small. !=# also considers that e"uity capital as a risk %uffer is an important factor. !=# assesses effective e"uity capital takin( off %alance sheet de%t into account as a risk %uffer for accommodatin( asset impairment risk and e1traordinary losses. 7evertheless, the level of risk %uffer re"uired varies dependin( on the %usiness risk of individual companies. #f the customer is a manufacturer that is continuin( to increase production, the risk that the component manufacturer will a%olish facilities is e1tremely small. 0owever, when the customer is a manufacturer that is carryin( out lar(e:scale restructurin(, it is necessary to consider the effect of the restructurin(

G8

plans on the rate of operations at the components manufacturer and to e1amine the risk of a%olition of production facilities and the ade"uacy of e"uity capital.

G1

Chapter 0.

6ibliography

G2

6I6+IOCR(P"D
Chew, 2. /., T. -. /resnahan and A./. Clark, 1??8, +easurement, Coordination and Dearnin( in a +ultiplant 7etwork,' in !. &. Aaplan, ed., .easures for .anufacturing #xcellence, 0arvard /usiness &chool 5ress, /oston. Chew, 2. /., 3. Deonard:/arton and !. E. /ohn, 1??1, /eatin( +urphy@s Daw,' +loan .anagement 4eview, &prin(, pp. 6:1E. Cusumano, +. $., 1?G6, The 5apanese 6utomobile Industry, Technology 7 .anagement at 8issan and Toyota, 0arvard Fniversity 5ress, Cam%rid(e. 3aiwa &ecurities !esearch #nstitute, annual issues, 6nalyst)s 9uide. Tokyo, Iapan. -u;imoto, T., and $. Takeishi, 1??4, $n #nternational Comparison of 5roductivity and 5roduct 3evelopment 5erformance in the $utomotive #ndustry,' in !. +inami etal., $c"uisition, $daptation and 3evelopment of Technolo(ies, +acmillan. >eweke, I., !. +eese and 2. 3ent, 1?G3, Comparin( $lternative Tests of Causality in Temporal &ystems,' 5ournal of #conometrics, *21,, pp. 1E1:1?4. >ran(er, C. 2. I., 1?E?, #nvesti(atin( Causal !elations %y Econometric +ethods and Cross:&pectral +ethods,' #conometrica, 34*4,, Iuly, pp. 424:43G. 0all, !. 2., 1?G3, :ero Inventories. 0omewood, #DC 3ow Iones:#rwin. #m, I. 0., and &. +. Dee, 1?G?, #mplementation of Iust:in:Time &ystems in F.&. +anufacturin( -irms,' International 5ournal of $perations and ;roduction .anagement, ?*1,, pp. 6:14. Ior(enson, 3. 2. and +. Auroda, 1??2, 5roductivity and #nternational Competitiveness in Iapan and the Fnited &tates, 1?E8:1?G6,' #conomic +tudies <uarterly, 43, 3ecem%er, pp. 313:326. Die%erman, +. /., 1??8, #nventory !eduction and 5roductivity >rowthC $ &tudy of Iapanese $utomo%ile 5roducers.' #n .anufacturing +trategy, I. E. Ettlie, +. C. /urstein and $. -ei(en%aum, eds., Aluwer $cademic 5u%lishers, /oston. Die%erman, +. /., 3emeester, D, and !. !ivas, 1??6, #nventory !eduction in the Iapanese $utomotive &ector, 1?E6:1??1,' mimeo.

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+onden, H., 1?G1, 2hat +akes the Toyota 5roduction &ystem !eally TickO,' Industrial #ngineering, *Ianuary,, pp. 3E:4E.

Chapter 1?. References

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Chapter 1?

R.3.R.NC.&

httpHGG,,,.intelligen.comG httpHGG,,,.bitpipe.comGrlistGtermGManufacturing'Industry.html httpHGGscitation.aip.orgGgetabsGser!letGCetabs&er!letMprog[ httpHGG,,,.,,,'manufacturingcenter.comGmanufacturing'industries.html httpHGG,,,.rfid ournal.comGindustrysummitsGmanufacturing.php ,,,.eIn!entoryControl.info ,,,.training' classes.comGcourseNhierarchyGcoursesGA*41Ncost_reduction_techniques. ,,,.rics.orgG...G:uantitysur!eyingG:uantitysur!eyorsG#?NpercentNrealN cost ,,,.almmc.comG<serResourceCtrGMfgCostReduct.htm ,,,.strategis.ic.gc.caGsam ,,,.halfcostproducts.com/outsourcing.htm ,,,.iimm.orgG-no,ledgeNban-G12Ncost-reduction-throughimprovement-in-productivity.htm ,,,.cordis.europa.euGespritGsrcGtcsfm,s ,,,. dmoF.orgG6usinessGIndustrialNCoodsNandN&er!icesGConsulting ,,,.rapid'response'consulting.comGrst'8oi.html

EO<RN(+&H
The Relationship Bet een !irm "ro th# Si$e# and %ge& 'stimates for ()) *anufacturing +ndustries The Iournal f #ndustrial Economics Bolume NNNB Iune 1?GJ 8822:1G21

G6

Research for a Jne, age of magnesiumK in the automoti!e industry ,/y 0. -riedrich and &. &chumann Eournal of Materials Processing Technology Bolume 11J, #ssue 3 , 23 7ovem%er 2881, 5a(es 2JE:2G1 Comparison of Construction (lternati!es <sing Matched &imulation ./periments I. Constr. En(r(. and +(mt., Bolume 122, #ssue 3, pp. 231:241 *&eptem%erR cto%er 1??E,

Chapter 11.

(nne/ure

GE

Chapter 11.

(nne/ure

(nne/ure ( &egment
/a;a; Tempo, Eicher +otors

Bey Players

Commercial 2ehicles Tata +otors, $shok Deyland, &wara; +a4da, +ahindra = +ahindra, Passenger 2ehicles Tata +otors, +aruti Fdyo(, 0onda +otors,0yundai +otors, Toyota,
&koda, +ahindra = +ahindra, 3aimler Chrysler, 0industan +otors

T,o @heelers 0ero 0onda, 0onda +otors, /a;a; $uto, TB& +otors,
Hamaha, Ainetic En(ineerin(

Three @heelers /a;a; $uto, 5ia((io #ndia

(nne/ure 6

Competiti!e (d!antages

#ndia has several competitive advanta(es in the automo%ile sector,which have %een analysed usin( the followin( framework.$vaila%ility of skilled manpower with en(ineerin( and desi(n

GJ

capa%ilities #ndia has a (rowin( workforce that is En(lish:speakin(, hi(hly skilled and trained in desi(nin( and machinin( skills re"uired %y the automotive and en(ineerin( industries. #n a com%ined assessment of manpower availa%ility and capa%ilities, #ndia ranks much ahead of other competin( economies +any #ndian and (lo%al players are levera(in( this advanta(e %y increasin(ly outsourcin( activities like desi(n and !=3 to their #ndian arms. The &ociety of #ndian $utomo%ile manufacturers *&#$+, estimates that automotive vehicle manufacturers are e1pected to invest F&< 6.J %illion in the #ndian market from 2886 to 2818. f this, a%out F&< 2.3 %illion will %e on research and development and the rest pro%a%ly on cape1. &ome e1amples of investment in areas levera(in( the en(ineerin( and desi(n capa%ilities of #ndia includeC T +#C , the #ndian operation of /osch and a key player in fuel in;ection e"uipment, i(nition systems and electricals, has invested in the +#C $pplication Centre *+$C, for !=3. #t has emer(ed as a key (lo%al !=3 competency centrecaterin( to the entire /osch >roup. #t is the first of its kind in #ndia and the /osch >roup@s first outside Europe. T >+ set up a technical centre at /an(alore that %ecame fully operational in &eptem%er 2883. The centre focuses on %oth !=3 and en(ineerin(, and takes up hi(h:value work to complement current research pro(rammes, as well as new e1ploratory research pro;ects.

GG

G?