Tata Motors’ Nano: It’s real…so how did they do it?

March 24th, 2009 · by Justin Fogarty · 10 Comments · LCCS and trade, automotive
sector, best practices, sourcing, supplier management, supply management, supply
market dynamics
Last year, Tata Motors’ plan to produce a car for approximately 1 lakh (approx. 2,500 USD)
was greeted with equal parts excitement, envy…and skepticism that they could deliver the
shockingly inexpensive car. 14 months later, the Tata Nano has arrived. As you can see in the
test drive video below, the car drives surprisingly well - always a concern since many joked
that at that price it would have a top speed of 40mph or loose parts as it rolled down the
street.

So the questions remain; how did they do it? And can their supply chain cost reduction
model be replicated?
Most of the coverage of how Tata Motors cut costs vaguely say they focused on their supply
chain. They cut the price of a car to 1/4 of the cost of a new econo ride in the US and they
simply “focused on the supply chain”? Obviously there is more to it.
For one, Tata Motors set their retail price target before they designed the car. Doing so let
them establish their demographic - in this case, motorcycle owning families - before pricing
them out of the car during the design process.
Setting the price and working backwards also required a fundamental shift in the way the car
was designed, since many costs are fixed once the design is set. To accomplish this, Tata
Motors worked in collaboration with their suppliers very early in the process - so early in fact
that they were able to provide functional goals for many parts rather than technical specs (i.e.
wipe water from windshield vs. windshield wiper must be x mm by y cm and work at z
cadence). This approach tapped the ingenuity of the supply chain, who delivered parts
that met the functional requirements and extremely low prices.
BusinessWeek also shed light on another cost cutting strategy - Tata Motors’ distributed
assembly model, where they ship the parts to local manufacturers for final assembly. Aside
from the obvious reduction in capital costs, perhaps there are other lessons to be learned from
this practice. Could their approach make catering a global product line to local tastes,
regulations and practical requirements help contain costs?
For a deeper look at how Tata Motors managed the seemingly impossible, I’d recommend
Jason Busch’s (of SpendMatters) interview Ravi Kumaraswami, who worked with the
company on their sourcing and procurement strategy and process. Ravi walks through Tata
Motors’ evolution from a record breaking quarterly loss to the innovative culture that now
creates the world’s most affordable car. It’s well worth a listen even if you’re cost cutting
goals are more modest than Tata’s were.
Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on
the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.

T-Implementations

CMN:Does your enterprise consider spending money on the latest IT

implementations as a burden on your expenditure or do you feel it is an
investment and mandatory for any enterprise? Elaborate.
Probir Mitra: It is important to enhance the basic capability of the enterprise
and improve the throughput of the business. This increases competitive
capability.

CMN: What are the major implementations made over the years? Please
specify.
PM: - SAP 3.1 & SAP 4.6c implémentation (Asia's largest Implémentation)
- SAP-SRM & WM
- SOX-ITGC
- Knowledge Based Engineering (KBE) in Design
- Manufacturing Planning with " Delmia "

CMN: Mention the critical usage of any three of your major IT

implementations over the last fiscal and define their benefits?
PM: 1. SAP SRM Implementation: End to end Supply Chain integration of Tata
Motors ( from Purchase, Supply, production, payment etc.) by the
implementation of SAP-SRM project.
Benefit: mySAP Supplier Relationship Management is a purchasing platform for
sustainable savings and value generation through full-cycle supply chain
management.
- Reduction in Procurement cycle time
- Improve process by e-procurement
- Real time Supplier integration with business
- Knowledge sharing

2. SAP WM Implementation
SAP- Warehouse Management (WM- with mobile data entry) is combined with
SAP RF console technology (through bar codes) to automate all the Warehouse
operations of Tata Motors.
Benefit: - Improved throughput at Warehouses by RF enabled processes
- Capability enhancement to handle more parts with same team size
- Real time Inventory tracking

3. Knowledge based Engineering Implementation in CAD/CAM

We have developed " KNEXT" an in house software frame work to develop
Knowledge Based Engineering applications. KNEXT have several modules in the
areas of body design, chassis design and vehicle performance.
Benefit: - Processes defined on KBE have reduced design Cycle time about 30
percent
- Designer's knowledge acquired over the years and company best practices are
captured and retained.
- Process is defined with KBE, reduce cycle time and improve adherence to
legislations, regulations, best practices.

IT Spend

CMN: What was the expenditure on Information Technology (IT)

systems in 2006-07 (figures) in your organization?
PM: Confidential

CMN: What will be the expenditure figures for this fiscal year/ What is
the growth rate?
PM: Confidential, Growth 30 percent

CMN: How much budget does your enterprise allocate for IT expenditure
each year? What is the expected change with respect to the previous
year?
PM: As above

CMN: What part of IT implementations play a more prominent role --

software or hardware or networking? Why?
PM: This depends on the profile of projects being implemented

CMN: Name the top 5 IT items that you spent on last year?
PM: Digital Manufacturing
- MES
- ERP Enhancement
- Product Design : Catia upgrade
- CRM

CMN: Name the top 5 items that you expect to spend on this coming
fiscal year?
PM: - Software Licenses
- Hardware
- Cost of Outsourcing contract
- AMC on Software & Hardware
- LAN & WAN cost

CMN: Do you feel that enterprises are spending more on hardware than
software? Elaborate.
PM: This depends on the profile of projects being taken up.

CMN: Do you feel that the amount allocated for IT is sufficient? If yes,
why? If not, why not? How much should you be spending?
PM: Sufficiency is a relative issue and needs to be addressed with respect to the
objectives on hand. Several IT investment proposals for improvement and
additional coverage compete with each other and with Non IT investment
proposals as well. This is because any enterprise has a limited investment
aptitude at any point of time. The customer demand is generally higher than Its
ability to deliver as the allocation budgets. The key therefore is in prioritisation
between different proposals for maximizing benefits to the enterprise.

CMN: Has the cost of the IT hardware/software been constant or has it

been growing? Elaborate on specific hardware / software.
PM: Yes in Engineering Automation, ERP & CRM

CMN: Has the prices of the IT products (hardware/software) been on

the decline due to the current stronger rupee against the US dollar?
PM: Yes

CMN: Since the rupee is growing stronger against the dollar, don't you
think it is the right time to purchase IT products (both
hardware/software)?
PM: This can be one only of several considerations