COST REDUCTION TECHNIQUES IN AUTOMOBILE SECTOR & ITS IMPACT ON INDIAN AUTOMOBILE MARKET

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STUD !T"S D #$ARAT%O!

I hereby declare that this project report on the Topic COST REDUCTION TECHNIQUES IN UTO!O"I#E SECTOR $ ITS I!% CT ON UTO!O"I#E ' ! R&ET'( Is an ori)inal *or+ done by ,e -nder the )-idance o. This is s-b,itted in .-l.ill,ent o. "achelor o. "-siness d,inistration'

Table of #ontents
&age !o

#hapter '( #hapter *(

*(' *(* *(. *(/ 1*(2

%ntrodu)tion Resear)h Methodology

&rimary Ob+e)ti,e -ypothesis Resear)h Design S)ope of Study On #ost Redu)tion0Automobile $imitations

#hapter .
.(' .(* .(. .(/

#riti)al re,ie3 of literature

Automobile Mar4et O,er,ie3 Automobile Domesti) &erforman)e 5ports of Automobile from %ndia Re,ie3 of $iterature on #ost Redu)tion

#hapter /
/(' /(* /(. /(/ /(2 /(2(' /(2(* /(2(.

%ndustry &rofile0Automobile
The &re '667 Automobile Mar4et The &rote)ted %ndian Domesti) Automobile Se)tor The Ad,ent of the Auto Ma+ors0%ndia The After Sales Ser,i)e S)enario Mar4et &otential of %ndian Automobile Segment 8ehi)le &ri)es #onsumer Finan)e %nfrastru)ture 0

/(2(/ /(9

&rodu)t A,ailability The Future0%ndian Automobile

#hapter 2
2(' 2(* 2(.

#ompany &rofile0Tata Motors

-istory : ,olution Area Of Business Tata Motors ;Su))essful #ar %ndi)a

#hapter 9

#ost Redu)tion te)hniques in Tata Motors"s %ndi)a

9(' 9(*

Outsour)ing Strategy

8endor De,elopment 9(. 9(/ 9(2 9(9 9(7 9(7(' 9(7(* 9(7(. 9(7(/ 9(7(2 Supply #hain $e,eraging The Supply #hain #ost #utting <uality Management #ost Redu)tion %n nergy #onsumption nergy #onser,ation #ommitment= &oli)y and Set Up le)tri)al Sa,ing ; > #ompressed Air? Thermal sa,ing : -eat Re)o,ery &ro+e)ts %mplemented During *@@/0*@@2 nergy #onser,ation &lans and Targets

#hapter 7

SAOT Analysis of #ost Redu)tion Te)hniques

in Automobile #hapter B
B(' B(*

Re)ommendation
Main %ndi)ators

Fo)us on Mo,es to Strengthen Ties 3ith Automobile Manufa)turers B(. B(/ %n,estment Margin is Cey to Sur,i,al Fo)us on Adequa)y of quity #apital

#hapter 6 #hapter '@ #hapter ''

Bibliography Referen)es Anne5ures

Chapter 1'

%ntrodu)tion

This research *or+ related to c-sto,er research st-dy3 titled E..ecti4eness O. Cost Red-ction Techni5-es In The -to,obile Sector(3 thro*s a b-c+et o. ice *ater in the .ace o. so,e core b-siness ,ana)e,ent tenets 6 pl-s a n-,ber o. +eystone principles o. the ,ar+etin)3 distrib-tion channel3 ad4ertisin) and c-sto,er relationship ,ana)e,ent 7CR!8 ind-stries' 9reed .ro, the editin) and selecti4e hearin) b-sinesses o.ten in4o+es to a4oid hearin) -npleasant tr-ths3 c-sto,ers dish o-t an ear.-l to co,panies abo-t *hat they *ant3 *hat they don:t *ant and *hat they i)nore 6 and ho* they really ,a+e p-rchase decisions' "-sinesses need to rethin+ their lo)ic and de4elop ne* operatin) ,odels based on c-sto,er centric beha4iors and 4al-ations'

India has beca,e ,an-.act-rin) H-b .or a-to,obile and te;tile ind-stries' <here 9DI Has been done in these sectors' So its tas+ .or Operational !ana)ers to opti,i=e Cost *ith respect to Capital e,ployed ' This ,ay helped co,panies to )ain ,a;i,-, %ro.it *ith ,ini,-, e..ort' So Co,petiti4e %ricin) can be done by co,panies to co,petitor *ith their co,petitors' This %aper ai,s to st-dy e..ecti4e ,ethods .or Direct Cost red-ction techni5-es that c-rrently bein) i,ple,ented by -to,obile ' ' The a-to ind-stry is another beehi4e o. inno4ation' *hy so ,any !NCs *ere settin) -p car

plants in Ta,il Nad-' "eca-se3 the state prod-ces an ine;ha-stible s-pply o. en)ineers3 ,aybe

>

/??3??? per year@ !any co,e .ro, pri4ate en)ineerin) colle)es o. poor 5-ality' "-t e4en i. hal. the )rad-ates are s-bAstandard3 that still lea4es 1??3??? co,petent3 inno4ati4e technicians' !-ltinational car co,panies ori)inally ca,e to India .or the potentially h-)e do,estic ,ar+et' To c-t costs3 they had to -se local co,ponents3 *hich initially *ere o. lo* 5-ality' "-t soon3 the interaction bet*een co,ponent ,an-.act-rers and !NCs led to not j-st 5-ality i,pro4e,ent b-t inno4ations that nobody had drea,ed o. earlier' Today3 Indian a-to co,ponent co,panies are doin) co,p-terAaided desi)n and co,p-terAaided ,an-.act-rin)3 constantly co,in) -p *ith ne* desi)ns that red-ce cost and increase e..iciency' This desi)nAsa44iness has ,ade India a )lobal player3 e;Aportin) o4er B1 billion *orth o. co,ponents last year' nd car e;ports ha4e shot -p to o4er 1??3??? in /??0A?1' In the bad old days o. the licenceAper,it raj3 co,panies had no incenti4e to do R$D' Cettin) a .orei)n collaboration appro4al ens-red ,onopoly pro.its .or years' "-t the ne* co,petition bro-)ht in by econo,ic liberalisation in the 1DD?s ,ade R$D is an essential tool to co,pete and s-r4i4e' TataEs Indica car is a pri,e e;a,ple' "ajaj -to once depended on technical +no*Aho* .ro, &a*asa+i3 and TFS on S-=-+i' Today3 both t*oA*heeler co,panies rely o4er*helA,in)ly on inAho-se R$DG this aloAne *ill enable the, to *ithstand the ne* challen)e .ro, Honda' Other ,iracle sian econo,ies li+e &orea and Tai*an -sed labo-rAintensi4e ,an-.act-rin) as their la-nchin) pad3 ta+in) ad4anta)e o. their lo* *a)es' #ater3 they ,o4ed -p the 4al-e chain' India ,issed the b-s o. labo-rAintensi4e e;ports3 b-t has no* ca-)ht the jet plane o. brainApo*er e;ports' This be)an in co,p-ter so.t*are' It then spread to desi)nAintensi4e ,an-.act-rin)' nd it is no* spar+in) an R$D re4ol-tion' .ter boo,in) years o. /??/ and /??0 the sales )ro*th is slo*in) do*n and the prices are .allin)' Co,petition is beco,in) .iercer' %ress-re on pro.it ,ar)ins and .allin) ,ar+et shares .orce ,any local prod-cers to ,o4e to*ards e;ports to .orei)n ,ar+ets'

Up to /?1? India is )oin) to beco,e the second bi))est a-to,oti4e ,ar+et in the *orld' 9orecasters predict the co-ntry *ill be the .o-rthAlar)est prod-cer o. 4ehicles in the *orld by /??I3 and ,ay be the thirdAlar)est prod-cer by /?1?' Indian cons-,ers are de,andin) hi)h 5-ality cars so prices ,-st be c-t and costs ,ini,i=ed' 7so-rce G Ernst $ Jo-n)8 In /??23 India prod-ced nearly .i4e ti,es as ,any ,otor 4ehicles as in the early 1DD?s' <ith ann-al prod-ction nearin) si; ,illion 4ehicles3 it is on pace to o4erta+e Cer,any as the third lar)est national 4ehicle prod-cer3 and *o-ld trail only the United States and Kapan in total 4ehicle o-tp-t'

,on) the st-dy:s +ey .indin)s areG To St-dy Cost Red-ction techni5-es practiced in !an-.act-rin) Ind-stries7 -to,obile8

7a8'

St-dy o. E..ecti4e Cost Red-ction techni5-es in S-pply Channel o. distrib-tion Net*or+' 7b8' 7c8' St-dy o. E..ecti4e Cost Red-ction techni5-es in %roc-re,ent o. Ra* !aterials' St-dy o. E..ecti4e Cost Red-ction techni5-es in Operational !ana)e,ent'

The presence o. a )ro*in) )ap bet*een c-sto,er e;pectations and co,pany beha4iors3 *hich creates opport-nity .or so,e co,panies and increasin) ris+ to others' t a hi)h le4el3 a co,pany:s de)ree o. c-sto,er .oc-s *as the ,ost i,portant p-rchase decision .actor .or c-sto,ers3 and by a 4ery *ide ,ar)in' In ter,s o. speci.ic co,pany beha4iors 6 deli4erin) c-sto,erArele4ant 5-ality prod-cts3 as e;pected3 *as the ,ost desired .actorL 4ery closely and -ne;pectedly .ollo*ed by co,panies e,po*erin) their e,ployees'

#hapter *

R S AR#- M T-ODO$ODE

#hapter *(

R S AR#- M T-ODO$ODE G

#-A&T R *('

&rimary Ob+e)ti,eG

The .o-nder o. the KapanAbased :&ai=en Instit-te3: !asaa+i I,ai3 de.ined &ai=en in his boo+3 :&ai=en A The &ey to Kapan:s Co,petiti4e S-ccess: as3 M&ai=en ,eans contin-o-s i,pro4e,ent in the personal li.e3 ho,e li.e3 social li.e and *or+in) li.e'M -to,obile co,panies applied &ai=en .or contin-o-s i,pro4e,ent in their operations'

<hen &ai=en is applied to the *or+place it ,eans contin-o-s i,pro4e,ent .or A ,ana)ers and *or+ers' Th-s3 &ai=en in4ol4es e4eryone in an or)ani=ation to ,a+e i,pro4e,ents :*itho-t lar)e capital in4est,ents': It can be seen as a c-lt-re o. contin-o-s s-stained i,pro4e,ent .oc-sin) on eli,inatin) *aste in all syste,s and processes' The &ai=en strate)y be)ins and ends *ith people' <ith &ai=en3 an in4ol4ed leadership )-ides people contin-o-sly to i,pro4e their abilities to ,eet hi)h 5-ality e;pectations3 lo* cost and onAti,e deli4ery3 *hich in t-rn helps the or)ani=ation )ain a co,petiti4e 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." 0 Fay AetGel= 8i)e &resident and Deneral Manager= DM Te)hni)al #enter= )ommenting on the benefits deri,ed from #ADH#AMH#A tools= in *@@

1?

To St-dy Operations o. -to,obile Co,pany'7Tata !otors8 ' 7a8 St-dy o. E..ecti4e Cost Red-ction techni5-es in S-pply Channel o. distrib-tion

Net*or+' 7b8' 7c8' St-dy o. E..ecti4e Cost Red-ction techni5-es in %roc-re,ent o. Ra* !aterials' St-dy o. E..ecti4e Cost Red-ction techni5-es in Operational !ana)e,ent'

ccordin) to the Co-ncil o. #o)istics !ana)e,ent S-pply Chain !ana)e,ent3 the process o. plannin)3 i,ple,entin) and controllin) e..icient and cost e..ecti4e .lo* o. ,aterials3 inAprocess in4entory3 .inished )oods and related in.or,ation .ro, pointAo.Aorder to pointAo.Acons-,ption3 .or the p-rpose o. con.or,in) to c-sto,er re5-ire,ents as e..iciently as possible(' The a-to,obile ind-stry has -nder)one si)ni.icant str-ct-ral and other chan)es in the last decade or so' In 4ie* o. the present )lobalisation3 i,ple,entation o. lean prod-ction and the de4elop,ent o. ,od-larisation ha4e chan)ed the relationships bet*een a-to,obile asse,blers 7OE!s8 and their s-ppliers3 especially those in the .irst tier'Sti.. co,petition a,on) ,an-.act-rers *ill res-lt in ,ore ,er)ers or ac5-isitions' The challen)es a-to,obile ,an-.act-rers and s-ppliers .ace incl-de i,pro4in) 5-ality3 ,eetin) cost red-ction tar)ets and de4elopin) ti,e to ,ar+et'

#-A&T R *(*

-ypothesis:

11

Is -to,obile co,panies are .ollo*in) certain )-idelines .or Operations or notG -ypo 'A !et3or4 &lanning N This is one o. the ,ost i,portant iss-es .or SC!' Deter,ination o. prod-ction re5-ire,ents and in4entory le4els at the 4endorEs .acility .or each prod-ct and de4elop,ent o. transportation .lo*s bet*een these .acilities to the *areho-ses in a best possible *ay to red-ce total prod-ction3 in4entory and ransportation costs *ith .-l.il,ent o. ser4ice le4el re5-ire,ents' -ypo *A %T and De)ision Support System; This is another i,portant challen)e .or SC!' Today3 SC! is dri4en by the scope and opport-nities appearin) d-e to ab-ndance o. data and the sa4in)s *hich can be achie4ed thro-)h e..icient analysis o. these data' <hat data sho-ld be trans.erred *ith its si)ni.icance and ,ost i,portantly3 *hat in.rastr-ct-re is re5-ired internally and bet*een its partners is 4ery i,portant' -ypo .0 Supply )hain integration and strategi) partnering ; In SC!3 in.or,ation sharin) and operational plannin) are cr-cial .or s-ccess.-lly inte)rated s-pply chain'

CH %TER /'0

RESE RCH DESICN

The st-dy *as cond-cted on part o. "-siness E;pansion plan o. -to,obile ind-stry to e;pand their e;istin) "-siness' On this part E;ploratory S-r4ey *as cond-cted to +no* abo-t Operatational Strate)ies o. a-to,obile co,panies'

This !ar+et research is I&$ORATORE R S AR#- D S%D!' r)-,ents in .a4ors o. EO%#OR TORJ RESE RCH DESICN isA

1/

AIt tests the Hypothesis3 e;a,ines the relationship and co,es to a concl-sion' It test Hypothesis *hether A

Is -to,obile Co,panies -sin) !et3or4 &lanning P Is -to,obile Co,panies -sin) %T and De)ision Support system P Is -to,obile Co,panies Usin) Supply #hain %ntegration And Strategi) &artneringP

9indin)s and analysis are -sed .or Decision ,a+in) on acco-nt o. S-r4eyed Data' In This type o. E;ploratory Research desi)n3 in4ol4es Collection o. In.or,ation .ro, Secondary Data' In this -to,obile S-r4ey3 The *hole st-dy is Secondary data based oriented' a' Secondary Data .ro, Internet on !an-.act-rin) Ind-stries b' Ko-rnals on Cost red-ction Techni5-es on ,an-.act-rin) Ind-stries c' Scholarly articles for brief about indian manufacturing industries d' "oo+s on Operational ,ana)e,ent' e' Re4ie* rticles on S-pply ChainAUpstrea, and Do*n strea, .' St-dy .or Opeartion Research Techni5-esA Transportation Techni5-es'

#-A&T R *(/

S)ope of the Study

,on) the st-dy:s +ey .indin)s areG

10

Indian a-to,obile and a-to co,ponents ind-stry is on a roll and there is an i,,ense scope .or ,ana)e,ent .or enhancin) the s-pply chain o. the sector' India has beco,e a .a4o-rable destination .or .orei)n co,panies to establish their .acilities and .or, alliances *ith do,estic co,panies' #o* cost o. ,an-.act-rin) and cond-ci4e )o4ern,ent s-pport ha4e been the ,ajor dri4ers .or .orei)n co,panies in4estin) in India' IndiaEs lar)e yo-n) pop-lation3 hi)her CD% )ro*th3 and ,ost i,portantly per capita passen)er car penetration is lo* at I'2 car per tho-sand pop-lation3 *hich creates )reat opport-nity .or ind-stry players to o..er an a..ordable .o-rA*heeler alternati4e to the t*oA*heeler c-sto,ers' ccordin) to %lannin) Co,,ission o. India3 Indian a-to,obile ind-stry is e;pected to )ro* at C CR o. 12Q o4er the ne;t .i4e years' The Indian econo,y is no* )ainin) ,o,ent-, in the *orld o. .ree trade and liberal ,o4e,ents o. )oods and ser4ices bet*een co-ntries' There.ore3 e..iciency in s-pply *ill be critical .or IndiaEs a-to,obile s-ccess'

D FOR MAT R%A$S0SEST MS A&&ROA#-

I,pro4ed ,aterials and ,aterials processin) can and ,-st play a lar)e role in )eneratin) prod-cti4e and e..ecti4e responses to the .orces that *ill dri4e the a-to,oti4e ind-stry in the .-t-re' Ho*e4er3 these .orces o.ten p-ll in di4erse directions *hen speci.ic technolo)ical actions are considered' 9or e;a,ple3 al-,in-, alloys can be -sed to red-ce 4ehicle *ei)ht3 thereby red-cin) e,issions and i,pro4in) .-el econo,y3 b-t the added ,aterials costs c-rrently o..set these ad4anta)es .or ,any

11

applications' s a res-lt3 steel is still the ,ajor ,aterial o. choice .or a-to,obile constr-ction today and *ill be di..ic-lt to s-pplant .or the .oreseeable .-t-re IndiaEs processAen)ineerin) potential can be -tilised .or redesi)nin) o. ,an-.act-rin) processes to ,a+e the, ,ore labo-r intensi4e and less capital intensi4e3 *hich *ill enable the !NCEs to red-ce their o4erall costs s-bstantially' 9or instance3 MdeAa-to,atin)M o. the prod-ction processes3 *hich are applied in <estern co-ntriesE .actories3 can red-ce the o4erall ,an-.act-rin) cost o. so,e co,ponents by -p to /?Q' In case o. prod-ct en)ineerin)3 India has e,er)ed as a leadin) destination in the *orld' IndiaEs stren)th is in its desi)n3 *hich helps in red-cin) costs' 9or instance3 redesi)n o. the !ar-ti ltoEs steerin) syste, has c-t do*n its *ei)ht by 12Q' India3 *ith its s+illed en)ineers3 can desi)n a prod-ct 4ery .ast3 *hich in t-rn red-ces its de4elop,ent cost and lead ti,es' 9or e;a,ple3 an Indian s-pplier too+ si; ,onths to desi)n a steerin) syste, .or an a-to,a+er' It too+ ,ore than .o-r years to de4elop si,ilar syste, *ith s-ppliers in the other lo*Acost co-ntries' Se4eral a-to,obile ,an-.act-rers ha4e already set -p their a-to co,ponent .acilities in India'

12

#-A&T R *(2

$imitations:

9or -to,obile St-dy3 %ri,ary Data 4aries *'r't Secondary Data on acco-nt o. theoretical practices in .ield then practical theories' <ith increasin) disposable inco,es and e4erA)ro*in) b-rden on the p-blic ,odes o. transport3 the Indian passen)er car ind-stry is headin) .or a bri)ht .-t-re pro4ided car ,an-.act-rers o..er a *orld class cars that )i4e 4al-e .or ,oney3 -se no4el ,ar+etin) concepts to entice potential b-yers and o..er )ood a.terAsales ser4ice' De,and .or passen)er cars in 9J/??/ is projected at appro;i,ately DH?3H22 -nits *hile prod-ction is e;pected to reach 13/1?3??? -nits' The year is li+ely to *itness a sp-rt in e;ports d-e to e;cess s-pply and liberali=ation o. e;port policy by the )o4ern,ent' So,e o. the .-t-re strate)ies that need to be addressed *hile enterin) in to Indian s,all car ,ar+et incl-de the redesi)n o. the 4ehicle to s-it the Indian road conditions and to de4elop a))ressi4e ,ar+etin) strate)y to co-nter the cost ad4anta)e enjoyed by do,inant players li+e !ar-ti d-e to hi)h capacity -tili=ation' <ith )ro*in) n-,ber o. t*o *heeler o*ners optin) .or -sed cars3 4ehicles *ith hi)her resale 4al-e and e;cellent ser4ice net*or+ are li+ely to acco-nt .or a ,ajor ,ar+et share in the near .-t-re' !oreo4er3 the introd-ction o. E-ro III and E-ro IF nor,s in the near .-t-re is li+ely to increase the scrappin) rates o. cars' E;ports are li+ely to increase in the near .-t-re *ith the entry o. international car )iants li+e Dae*oo3 Hy-ndai3 Honda Siel3 C! and 9ord that intend to -se India as a ,an-.act-rin) prod-ction base''

1>

#hapter .( #R%T%#A$ R 8% A OF $%T RATUR

1H

CH %TER 0'

#R%T%#A$ R 8% A OF $%T RATUR :

j-st released c-sto,er research st-dy3 titled C-sto,ers Say <hat Co,panies Don:t <ant to Hear3 thro*s a b-c+et o. ice *ater in the .ace o. so,e core b-siness ,ana)e,ent tenets 6 pl-s a n-,ber o. +eystone principles o. the ,ar+etin)3 ad4ertisin) and c-sto,er relationship ,ana)e,ent 7CR!8 ind-stries' Creenber) adds3 MC-sto,ers Say <hat Co,panies Don:t <ant To Hear pro4es a ,issionAcritical strate)ic point' "-sinesses need to rethin+ their lo)ic and de4elop ne* operatin) ,odels based on c-sto,er centric beha4iors and 4al-ations'M' Co,,entin) on the .indin)s3 %a-l Creenber)3 a-thor o. the ind-stry bestAseller CR! at the Speed o. #i)htG C-sto,er Strate)ies .or the /1st Cent-ry3 says3 M#ee and !an)en ha4e 4eri.ied and a,pli.ied *ith hard data the )ro*in) perception that the ne* breed o. c-sto,er is here to stay and b-sinesses need to react 6 or ris+ their 4ery e;istence'

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. 1I

0 Ratan Tata= the #hairman= Tata Droup

#hapter .('

Automobile Mar4et O,er,ie3

The do,estic a-to,obile ,ar+et has been )ro*in) at 11'/ per cent C CR o4er the past 1 years 7/???A?1 to /??1A?283 *hile the a-to co,ponents ,ar+et has been )ro*in) at 1D'/ per cent C CR 7/???A?1 to /??0A?18' The ind-stry 7OE!s and s-ppliers to)ether8 contrib-ted nearly 1 per cent to the co-ntryEs CD% in /??0A?1' The a-to,oti4e sector also o..ers si)ni.icant e,ploy,ent opport-nities' It e,ploys ?'12 ,illion people directly and aro-nd 1? ,illion people indirectly' The ind-stryEs capabilities in desi)n3 en)ineerin) and ,an-.act-rin) ha4e been reco)nised the *orld o4er3 and ,ost a-to,oti4e ,ajors are loo+in) to increasin)ly so-rce a-to co,ponents .ro, India' India is e,er)in) as one o. the ,ost attracti4e a-to,oti4e ,ar+ets in the *orld3 and is poised to beco,e a +ey so-rcin) base .or a-to co,ponents' The table belo* capt-res the hi)hli)hts o. the sector in India that ill-strates its )ro*in) si)ni.icance'See Anne5ure A( : B

Indian -to,obile Ind-stry #ar)est three *heeler ,ar+et in the *orld /nd lar)est t*o *heeler ,ar+et in the *orld 1th lar)est passen)er 4ehicle ,ar+et in sia 1th lar)est tractor ,ar+et in the *orld

1D

2th lar)est co,,ercial 4ehicle ,ar+et in the *orld

/?

#hapter .(*

Automobiles 0 Domesti) &erforman)e

The prod-ction and do,estic sales o. the a-to,obiles in India ha4e been )ro*in) stron)ly' <hile prod-ction increased .ro, 1'I ,illion -nits in /???A1 to I'2 ,illion -nits in /??1A?2 7a C CR o. o4er 12 per cent83 do,estic sales d-rin) the sa,e period ha4e )one -p .ro, 1'> ,illion to H'D ,illion -nits 7C CR 11'/ per cent8' positi4e trend in the do,estic ,ar+et is that the )ro*th has not been dri4en

by one or t*o se),ents3 b-t is consistent across all +ey se),ents' T*o *heelers3 *hich constit-te the ,ajority o. the ind-stry 4ol-,e3 ha4e been )ro*in) at a rate o. 11'0 per cent3 three *heelers at a rate o. 11 per cent and passen)er 4ehicles at a rate o. 11'0 per cent' Co,,ercial 4ehicles ha4e been )ro*in) at a hi)her rate o. nearly /0'2 per cent3 altho-)h .ro, a lo*er base' Since nearly all ,acroAecono,ic indicators N CD%3 in.rastr-ct-re3 pop-lation de,o)raphics3 interest rates3 etc' N are sho*in) a .a4o-rable trend3 the do,estic ,ar+et .or a-to,obiles in India is e;pected to contin-e on its )ro*th trajectory'

#hapter .(.

5ports of automobiles from %ndia

<hile the do,estic sales o. a-to,obiles ha4e been increasin) at a si)ni.icant rate3 e;ports ha4e ta+en a 5-ant-, leap in recent years' The e;ports o. a-to,obiles .ro, India ha4e been )ro*in) at a C CR o. 0D per cent .or the past .o-r years' E;ports )ro*th has been spearheaded by the passen)er 4ehicle se),ent3 *hich has )ro*n at a rate o. 2H'1 per cent' s a res-lt3 the share o. passen)er 4ehicles in o4erall 4ehicle e;ports has increased .ro, 1I per cent in 1DDIADD to

/1

/> per cent in /??1A?2' E-rope is the bi))est i,porter o. cars .ro, the co-ntry *hile predo,inantly .rican nations i,port b-ses and tr-c+s' The ssociation o. So-th East sian Nations 7 SE N8 re)ion is the pri,e destination .or Indian t*o *heelers'

//

#hapter .(/

R 8% A OF T- S%S DO! :

This is easy to -nderstand beca-se the per capita disposable inco,e o. the people has )one -p re,ar+ably' O4er the last .i4e years3 per capita personal disposable inco,e has )one -p by aro-nd IQ3 *hich has increased p-rchasin) capacity o. the people in the co-ntry' Other .actors ha4e also contrib-ted to this hi)h )ro*th in Indian a-to,obile sector' These incl-de lo*erin) a)e o. .irst car -sers3 shorter replace,ent cycles3 risin) d-el inco,e .a,ilies3 n* technolo)y3 *hich is lo*erin) cost o. o*nership3 lo* car penetration in the co-ntry and ,ost i,portantly )ro*in) steel prod-ction in the co-ntry' In addition3 *ide 4ariety and easily a4ailable .inancin) options are also so,e o. the ,ajor reasons .or s-r)e in de,and .or a-to,obiles in India' Clobal a-to,obile ,an-.act-rers are consistently strea,linin) their b-siness process by o-tso-rcin) their nonAcore acti4ities to lo*Acost co-ntries li+e India'Clobal a-to,obile ,an-.act-rers are -nder tre,endo-s press-res to inno4ate their ,an-.act-rin) process and at the sa,e ti,e3 to red-ce costs' In 4ie* o. the present )lobal co,petiti4eness3 they ,-st not only de4elop ne* .eat-res to stren)then their c-sto,er re5-ire,ents b-t also .ollo* the en4iron,ental and sa.ety standards' In addition3 the base price o. a car is e;pected to re,ain sa,e o4er the ne;t decade' s a res-lt3 co,panies are .orced to so-rce ,ore co,ponents .ro, lo*Acost co-ntries li+e India ccordin) to !c+insey3 )lobal o-tso-rcin) o. a-to,obile and a-to co,ponents *o-ld reach USB0H2 billion by /?12 .ro, USB>2 billion in /??/' India has plenty o. scope to )arner this potential' ccordin) to the ,ana)e,ent cons-ltin) .ir,3 India has the potential to notch this opport-nity and

/0

reach -p to USB/2 billion to e,er)e as ,ajor so-rcin) destinations alon) *ith China3 !e;ico and Thailand' "esides lo* cost3 India:s a-to co,ponents ind-stry has the ,ajor ad4anta)e o. enor,o-s s+ills in process3 prod-ct3 and capital en)ineerin)6its e;cellent ,an-.act-rin) history and )ood ed-cation syste,' %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." 0 Shoi)hiro Toyoda= #hairman= Toyota Motor #orporation= in De)ember *@@@ <hen &ai=en is applied to the *or+place it ,eans contin-o-s i,pro4e,ent .or A ,ana)ers and *or+ers' Th-s3 &ai=en in4ol4es e4eryone in an or)ani=ation to ,a+e i,pro4e,ents :*itho-t lar)e capital in4est,ents': It can be seen as a c-lt-re o. contin-o-s s-stained i,pro4e,ent .oc-sin) on eli,inatin) *aste in all syste,s and processes' The &ai=en strate)y be)ins and ends *ith people' <ith &ai=en3 an in4ol4ed leadership )-ides people contin-o-sly to i,pro4e their abilities to ,eet hi)h 5-ality e;pectations3 lo* cost and onAti,e deli4ery3 *hich in t-rn helps the or)ani=ation )ain a co,petiti4e ed)e' The prod-ction di4isions co-ncil3 *hich chec+ed the plants objecti4es occasionally ,odi.yin) the,3 ta+in) into acco-nt the co,pany:s pro.it tar)ets3 replaced the prod-ction allo*ance co-ncils' .ter appro4al3 these objecti4es beca,e the &ai=en nor, o. each plant in ter,s o. prod-ction e..iciency' The ,ethod o. deter,inin) the prod-ction e..iciency *as altered to ,a+e it less constrained as the standard ti,e *as .i;ed by ,eas-rin) the ti,e really re5-ired .or *or+er:s operations *hereas earlier standard ti,e *as .i;ed on the basis o. the best standard ti,e ,ar+ed in the past

/1

Chapter 1' Ind-stry %ro.ile

/2

/>

#-A&T R /(

%ndustry &rofile

The TransAnationals *ere also serio-s abo-t de4elopin) 4endors in India' India is bo-nd to beco,e an i,portant destination .or the )lobal a-to ind-stry' It too+ the .inancial t-r,oil in So-th East sia and the slo*do*n in the Chinese a-to ,ar+et to rein.orce the tar)etin) to Indian !ar+et' The ne* interest in the s,all car se),ent also re.lects certain a,o-nt o. b-llishness on the part o. a-to ,an-.act-rers abo-t India @ Despite projected o4er capacitiesAAand c-rrent losses3 car,a+ers contin-ed to 5-e-e -p their in4est,ents .or s,all car se),ent' To day there are 1? )lobal a-to ,ajors6incl-din) the B10A billion S-=-+i !otor 7Kapan83 the B>2Abillion Dae*oo 7So-th &orea83 the B11HAbillion 9ord 7US83 the B1HAbillion 9iat 7Italy83 and the B1>IAbillion Ceneral !otors 7US8 operatin) in Indian !ar+et'

#hapter /('

The &re '667 Automobile Mar4et

s late as 1DDH3 the a-to ,ar+et in India *as clearly se),ented' t the entry le4el *ere !U#:s I??Acc carAApriced bet*een Rs /'1?Ala+h and Rs /'12 la+hAAand the O,ni3 at Rs 1'H2 la+h' t the ne;t le4el *ere the DD0Acc RenAApriced at Rs 0'H? la+hAAand the DDDAcc 9iat Uno 7Rs 0'>/ la+h8' Then ca,e the 130??Acc Estee, ,odelsAApriced bet*een Rs 1'>D la+h and Rs 2'D2 la+hAAthe 131DIAcc Cielo 7Rs >'/? la+h83 and the 132DIAcc Opel stra 7Rs H'2/ la+h83 .ollo*ed by pre,i-, cars li+e !ercedesA"en=:s EA//? 7Rs // la+h8' #hanging $anes T*o e4ents ha4e -pset the e5-ations in the priceAse),ented car ,ar+et' Dae*oo has Chan)ed the lanes *ith the Cielo3 *hich is no* priced at Rs 1'D? la+h3 and co,petes *ith the Ren:s topAend ,odel 7Rs 1'1? la+h8 and the Estee,:s lo*erAend 4ersion 7Rs 1'>D la+h8' Ceilo has created a /H

ne* 4al-e se),ent3 *here the price is not proportionate to the si=e' Dae*oo:s strate)ic response has 4ery clearly rede.ined di..erentiation3 .ro, price or si=e to 4al-e' Hy-ndai !otors India3 a s-bsidiary o. the B/HAbillion Hy-ndai o. So-th &orea la-nched its DDDAcc Santro at the -to E;po 1DDI in Delhi' The ,odel co,es in .i4e 4ariants3 *ith the nonAairA conditioned3 ,an-al trans,ission ,odel priced at Rs /'I? la+h3 and the se,ia-to,atic3 airA conditioned C#S ,odel priced bet*een Rs 0'12 la+h and Rs 1 la+h' Clearly3Hy-ndai:s strate)y is ai,ed at ta+in) on the ,ar+et leader3 !ar-ti Udyo) #i,ited "-t by pricin) the del-;e ,odel at Rs 1 la+h3 it is also brid)in) the )ap bet*een the s,all and the ,iddle car se),ents' t present Maruti"s steem $I is priced Rs H?3??? ,ore than the Santro D$S3 *hile the #ielo is priced Rs D?3??? ,ore' The .-rther entry o. ne* players *ill only bl-r the se),ents' Ne* entrants *ill be in4ol4ed in price *ar to .ind a .oothold in the Indian ,ar+et' 9e* o. the e;a,ples incl-deG TE#CO:s positionin) o. its 131??Acc Indica carAAla-nched in No4e,ber3 1DDI and priced close to !ar-tiEs I??Acc ,odel as a s,all carLand -onda snea+in) its 130??Acc #ity into the se),ent 4acated by the Cielo altho-)h it is an accepted .act that pricin) or positionin) cannot be done in isolation' In a cro*ded ,ar+et3 that ,-st depend on the a4ailable strate)ic opport-nities'M "y creatin) ne* se),ents3 co,panies can broaden their ,ar+et base3 increase capacity -tili=ation le4els3 preAe,pt co,petitors ,ar+et entry ,o4es and i,portantly lo*er costs' <hile !ar-ti did that by la-nchin) three 4ersions o. the Estee,3 TE#CO acco,plished it by -sin) a co,,on plat.or, .or the S-,o3 the Estate and the Sierra ,odelsL Hy-ndai is also plannin) to co,e to

/I

the ,ar+et *ith .i4e 4ariants in near .-t-re' t hi)h 4ol-,es3 costs can be lo*ered by ,ore than /? per cent across 4ariants d-e to e;perience c-r4e e..ect' Con.i)-rin) the stic+er price .or a car in the ,ar+et today is no ,ore a .-nctional decision' It has beco,e a strate)ic decision as it identi.ies the +ey se),entEs response elasticity to the ,ar+et o..er' The t*o +ey inhibitin) .actors .or the poor response to the a-to *ar .are in Indian Car !ar+et are basically the lo* per capita inco,e at B02? 7Rs 113??? at c-rrent prices8 and the hi)h ,an-.act-rin) costs' lar)e part o. the pop-lation e;pected to )rad-ate .ro, t*o *heelers to

.o-r *heelers has not responded as they *ere s-pposed to d-rin) this period o. ti,e' The do,estic a-to )iant !ar-ti Udyo) li,ited3 still .orces the ne* players to bench,ar+ the,sel4es a)ainst its prod-cts *hich roll o-t .ro, a depreciated3 yet hi)hA4ol-,e plant' It enjoys the .ast ,o4er as *ell as the cost ad4anta)e *ith the hi)her capacity -tilisation that helps hi, to c-t costs across as ,ore cars yo- ,a+e3 the cheaper they )et' <ith the *orldEs second lar)est and .astestA)ro*in) pop-lation3 there is no do-bt that IndiaEs potential in both econo,ic and pop-lation ter,s and the e..ect it *ill ha4e on the a-to ind-stry in the ne;t years' D-rin) the last t*o years3 e;port .ro, this sector has )ro*n si)ni.icantly3 o*in) ,ainly to the e;port o. cars and t*oAthreeA*heelers' The ind-stry is characteri=ed by a 4ery hi)h percenta)e 7H2Q8 o. prod-ction in the /S0 *heeler sector' India ran+s as the lar)est ,an-.act-rer o. ,otorcycles and second lar)est in ,an-.act-rin) o. scooters in the *orld' India today is also the second lar)est ,an-.act-rer o. tractors3 as *ell' The ind-stry has intense .or*ard and bac+*ard inte)ration The Indian a-to,oti4e ind-stry had e;perienced an e;traordinary )ro*th d-e to the i,pro4e,ent in the li4in) standards o. the ,iddle class and an increase in their disposable inco,es' !oreo4er3 the /D

liberali=ation steps3 s-ch as3 rela;ation o. the .orei)n e;chan)e and e5-ity re)-lations3 red-ction o. tari..s on i,ports3 and re.inin) the ban+in) policies3 initiated by the Co4ern,ent o. India3 ha4e played an e5-ally i,portant role in brin)in) the Indian -to,oti4e ind-stry to )reat hei)hts' It is esti,ated that the sale o. passen)er cars ha4e tripled co,pared to their sale in the last .i4e years' Th-s3 the sale o. cars has reached a .i)-re o. 1 ,illion -sers and is e;pected to increase .-rther' It:s also to be noted that the de,and .or l-;-rio-s ,odels3 SUFs3 and ,iniAcars .or .a,ily o*ners3 ha4e shot -p3 lar)ely d-e to increase in the cons-,er:s b-yin) capacity'

The %ndian automoti,e mar4et

%ndia )ountry fa)t file %op-lation %er Capita CD% 7%%%8 CD% Cro*th Rate Total a-to,oti4e sales /??2 Total a-to,oti4e prod-ction /??2 !ar+et )ro*th /??2 4s /??1 "est sold ,odel %C se),ent /??1 "est sold ,odel #CF se),ent /??1

*@@2 13 ?I?3 />130II B031?? H'1Q 13 10D3>?1 7IID30008T 13 >1031>? 713 ???32>H8T H'?Q 7>'1Q8T !ar-ti lto 71>'IQ8 TT !ar-ti O,ni 7/1'0Q8 TT

7passen)er cars8 L TT 7,ar+et share in se),ent8 So-rceG httpGSS***'se),enty'co,SIndia'ht,

#hapter /(*

The &rote)ted %ndian Domesti) Automobile Se)tor

0?

!U#3 *hich set -p shop in 1DI13 had 1? lon) years o. relati4e protection to e,er)e as a .or,idable co,petitor *ith hi)h 4ol-,e and a stron) brand i,a)e in the ,ind o. Indian c-sto,ers' <hen the ind-stry *as dere)-lated in 1DD03 the cost barrier had beco,e so hi)h that ne* co,panies co-ld not dare to loo+ at the s,all car se),ent' Instead3 they settled .or the ,idAsi=e se),ent3 *here both 4ol-,es and ,ar)ins *ere e;pected to be hi)h' Ho*e4er3 a sha+eo-t in the Indian ,idAsi=e car se),ent3 the slo*do*n in international a-to sales p-shed transnational a-to ,ajors into India *hich ha4e no* t-rned the tide a)ainst !U#''The present )eneration s,all cars la-nched recently are ,ore conte,porary in ter,s o. both desi)n and technolo)y *hile !ar-ti:s s,allAcar technolo)y is at least a decade old'

&eepin) the .-t-re )ro*th potential o. Indian ,ar+et in ,ind3 the a-to ,ajors are prepared to bear losses .or the ne;t 1? years 'This *ill help the, to )ain a )ood ,ar+et share the lon) r-n and pro4ide breathin) space to co-nter the strate)ic ,o4es o. the leader' Hence3 the narro*in) price di..erential bet*een the old and the ne* s,all cars is the .irst call o. the a-to ,ajors a)ainst !ar-ti in Indian !ar+et' I. !ar-ti has to try and ,atch the .eat-res o. ne* )eneration s,all cars3 it *o-ld ,ean additional costs' On the contrary3 i. !ar-ti decides to hold its price line and add ne* .eat-res3 it co-ld translate into losses or at least lo* pro.its' "-t !U# can still ban+ on at least t*o S-=-+i ,odelsG the proposed >2HAcc Cer4o C and the c-rrent DD>Acc <a)on R to battle its ri4als in the .-t-re'

#hapter /(.

The Ad,ent of the Auto Ma+ors

"esides bracin) -p .or losses in the initial years3 a-to ,ajors li+e Hy-ndai and Dae*oo are ban+in) on e;ports too' t the ,o,ent e;port ,ay loo+ -nattracti4e beca-se o. the So-th sian ,eltdo*n b-t in

01

the lon) r-n3 lo* prod-ction costs and co,ponentA,an-.act-rin) s+ills *ill ,a+e IndiaA ,ade cars co,petiti4e at )lobal ,ar+et place' Hence they are loo+in) India as a prod-ction base to cater to the )ro*in) sian ,ar+et by *ay o. o-tso-rcin) .ro, Indian ,an-.act-rin) base' Ho*e4er ,any a h-rdles they ha4e to cross on the jo-rney to pro.itability'

The in4est,ents necessary .or a lar)e plant are si,ply h-)e' Dae*oo has3 so .ar3 s-n+ Rs /3H?? crore in a 1'/?Ala+hA-nitAaAyear plant' Unli+e China3 *hich has restricted the n-,ber o. co,panies India has .ollo*ed an open door policy .or car ,an-.act-rers3 *hich has res-lted in e,er)ence o. .ra),ented ,ar+ets *ith distrib-ted capacity'

n Ori)inal E5-ip,ent !an-.act-rer 7OE!8 needs a ,ini,-, econo,ic si=e o. 1'2? la+h cars a year to attract 4endor interest' Dae*oo *as able to slash the Cielo:s price as it is cheaper to i,port co,ponents beca-se o. the de4al-ation o. the So-th sian c-rrencies' The a-to ,ajors are lobbyin) *ith the )o4ern,ent to ease the strict indi)enisation nor,s in the ne* a-to,obile policy3 so that they can i,port the co,ponents .ro, other co-ntries' This *ill help the, to c-t the prices and to )o head on the ,ar+et leader partic-larly in a price responsi4e ,ar+et li+e that o. s,all car se),ent' The other ar)-,ent is that *ith the )i4en i,port d-ty o. 1?0 per cent on Co,pletely &noc+edADo*n &its 7C&Ds8 3 *hich is the sa,e as that on Co,pletely "-iltA-p Units 7C"Us8 and >I per cent on co,ponents the i,ports *ill beco,e costlier and co,pel co,panies to locali=e their ,an-.act-re' The e;pos-re to c-rrency .l-ct-ations3 *hich crippled the .o-r Kapanese li)ht co,,ercial 4ehicle projects in the late 1DI?s3 is also ,ini,al *hen a co,pany locali=es co,ponent ,an-.act-re'

0/

"esides lean ,an-.act-rin) techni5-es li+e K-stAInATi,e 7KIT8 are possible only *hen the s-pplier is located close to the ,an-.act-rin) -nit' I. !ar-ti is a s-ccess story3 it is only beca-se it indi)enised I2 per cent o. its co,ponents *ithin .i4e years o. )oin) onAstrea,' Then3 there:s the 5-estion o. ser4icin) the replace,ent ,ar+et .or spares' C-sto,ers3 typically3 e;pect co,ponents to be a4ailable locally3 and at co,petiti4e prices' I,ports cannot )-arantee that b-t it: is a tre,endo-s job to locali=e co,ponents at the ri)ht 5-ality and price )i4en the s-pplier proble,s in pre4alent in India' n Ori)inal E5-ip,ent !an-.act-rerEs co,petiti4e ad4anta)e lies in its ,ar+etin) s+ills' Ha4in) achie4ed price and technolo)y parity3 it can easily *oo the cons-,er *ith attracti4e .inancin) sche,es and s-perior a.terAsales ser4ice' N-d)ed by the co,petition3 ,ost a-to players ha4e a cl-tch o. sche,es to o..erG Dae*oo !otors India pro4ides interest.ree car .inance3 9ord !otor and Ceneral !otors ha4e slashed interest rates' !U#:s joint 4ent-re .inance co,pany3 !ar-ti Co-ntry*ide3 is o..erin) loans at 10'2? per cent *hen the pre4ailin) lendin) rate is 1H per cent and abo4e'

#hapter /(/

The After Sales Ser,i)e S)enario

.ter sales ser4ice .or cars is as critical as sho*roo, deals' !ar-ti ser4ices its / ,illion c-sto,ers thro-)h an ar,y o. 1H1 dealers spread across the co-ntry' It *ill be i,possible .or a co,pany to d-plicate s-ch in.rastr-ct-re3 partic-larly *ith in4est,ents in a ,etroAbased sho*roo, )oin) -p to Rs 1 crore' !ar)ins in retailin) are ,o4in) .ro, act-al sales to a.ter sales ser4ice'M

00

The proble, o. price *ar is e4ident *ith -to ,ajors as ,-ch as *ith dealers' In a bid to *oo the c-sto,ers3 dealers3 partic-larly in nonApri,e locations3 are c-ttin) their ,ar)ins' It *ill not be s-rprisin) i. sin)leAbrand dealers e4ent-ally t-rn into ,-ltiAbrand sellers in .-t-re' Doin) so *ill bene.it all the three constit-ents in the ,ar+etin) chainG the OE!3 the dealer3 and the b-yer' The car,a+er can e;pand his reach *itho-t e;pensi4e in4est,entL the dealer can increase his re4en-eL and the c-sto,er )ets a 4ariety o. ,odels and brands -nder one roo. in .-t-re' The local partner *ill be the loser in this .ierce battle' <itho-t the ,eans to ,a+e either ,atchin) e5-ity or technolo)ical in4est,ent3 the Indian collaborator *ill be dri4en o.. the road' It has already happened to the Rs 1>>Acrore DC!3 *hich tied -p *ith Dae*oo !otors3 and can happen to both the Rs 13/2IAcrore Hind-stan !otors 7%artnerGG Ceneral !otors8 and the Rs 03>?>'2H crore !ahindra $ !ahindra 7%artner G9ord !otor8' So they are reconciled to adoptin) a ,inority role or beco,in) a-to co,ponent 4endors' This list incl-des Siddharth Shrira,:s Rs 10?Acrore Siel 7%artnerG Honda83 the &irlos+ars 7%artner GToyota8 and the !-njals o. the Rs /3???Acrore Hero Cro-p 7%artner G"!<8' nd the e4idence is co,pellin) e')' Hind-sthan !otors has a passi4e role in its joint 4ent-re *ith Ceneral !otors altho-)h the Opel stra is ,an-.act-red at H!:s Halol plant in C-jarat' The sa,e can be .orecasted abo-t !ahindra and !ahindraEs joint 4ent-re *ith 9ord !otor' <hat can prolon) the li.e o. the joint 4ent-re is distrib-tion ,-scle3 as it *ill ta+e at least .i4e years .or a transnational a-to ,ajor to b-ild a stron) distrib-tion channel in this co-ntry' "y all acco-nts3 the a-to ind-stry is headed .or a )l-t' <ith an esti,ated de,and .or cars to to-ch D la+hs in /??1A/??/3 the installed capacity *ill rise to 1> la+hs' So the c-rrent )ro*th rate in Indian ,ar+et is not s-stainable' There *ill be at least t*o years o. sta)nant or declinin) de,and be.ore the res-,ption o. the )ro*th trend'There is a projected de,and o. 1Ala+h cars in the ,idAse),ent alone

01

by /??1A/??/' nd the car n-,bers *ill add -p to aro-nd > la+h a year' That *ill en)ender a sha+eo-t3 *hich is already a.oot in the other sian ,ar+ets' 9or instance3 poor o.. Ata+e and a conse5-ent b-ildA-p o. car in4entories has led to a .ierce priceA*ar in China'

#hapter /(2

Mar4et &otential of %ndian Automobile Segment

The de,and .or the s,all car *ill contin-e to dri4e )ro*th .or the ne;t .i4e years' O. the total sales o. !ar-ti in /???A/??1aro-nd I2 per cent *ere s,all cars' The Estee,:s sales dropped in the sa,e period3 *here as the s,all cars dro4e !U#:s sales' So de,and .or s,all cars *ill leap only i. certain conditions are .-l.illedG Rise in the Inco,e #e4els In the US3 a-to de,and rises by 1 per cent .or e4ery 1 per cent increase in the real Cross Do,estic %rod-ct b-t this is irrele4ant .or India as only the top 1'2? per cent o. the pop-lation can a..ord a car' The de,and can shoot -p i. the inco,e le4els o. the top 2 per cent contin-e to rise in .-t-re' #e4el O. !otori=ation It is sta)nant at 1'H? cars per 13??? people .or decades' Ho*e4er3 in the postA liberali=ation period3 the ,otori=ation le4el has leaped to 0'H? cars per 13???' ltho-)h it is still lo*er than the le4els in the de4eloped ,ar+ets3 ,otori=ation is bo-nd to rise .-rther in the co,in) years'

#hapter /(2('

8ehi)le &ri)es'

9allin) i,ports and e;cise d-ties co-pled *ith co,petition *ill contin-e to boost de,and and the prices are li+ely to .all .-rther at least in the short r-n'

#hapter /(2(*

#onsumer Finan)e(

02

O4er >? per cent o. c-sto,ers opt .or cons-,er .inance' That .i)-re co-ld )o -p i. interest rates contin-e to .all'

#hapter /(2(.

%nfrastru)ture

Tra..ic con)estion and bad roads co-ld deter potential b-yers .ro, )oin) .or s,all cars partic-larly in s,all cities o. India' The .-t-re is not 4ery heartenin) in this aspect'

#hapter /(2(/

&rodu)t A,ailability

s ,an-.act-rers shi.t their attention to the s,all car3 ,ore and ,ore people *ill be able to a..ord it and de,and *ill only rise in the .-t-re period o. ti,e'

#hapter /(9

The Future0%ndian Automobile

There is a sharp contrast in the b-yin) beha4ior o. Indian Cons-,er co,pared to their *estern co-nter parts3 yet there is no do-bt that Indian car ,ar+et is )oin) to increasin)ly rese,ble the latter' In the <est3 the ind-stry is li+ely to be do,inated by three or .o-r ,ajor players' <ith a li+ely de,and o. 11 la+h cars by /??>3 there *ill be a .e* niche players li+e "!<3 !ercedesA"en=3 and -di *ith l-;-ry cars to o..er' Unless car ,an-.act-rers ha4e a lar)e ran)e o. 4ehicle to o..er3 they *ill be -nable to s-bsidi=e their costlier ,odels' The ,ar+et *ill consolidate to .e* se),ents' The car,a+er has to ,a+e di4erse ,odels based on di4erse and .le;ible plat.or,s' %rod-cts li+e the strippedAdo*n econo,y car3 the sports -tility 4ehicle

0>

or the 4an sho-ld be b-ilt on the sa,e plat.or,' 9or the priceAsensiti4e c-sto,ers3 there can be a noA .rills 4ersionL a loaded 4ersion .or the ,iddle c-sto,er and l-;-ry car ,an-.act-rers can tar)et the hi)hAend c-sto,ers' The .ort-nes o. the a-toobile ind-stry *ill contin-e to hin)e on the lar)e3 price sensiti4e c-sto,ers3 *ho *ill )rad-ate to the hi)her end o. the ,ar+et o4er a period o. ti,e' Until then3 the s,all car *ill contin-e to dri4e de,and and ,ost o. the carA,an-.act-rers are )earin) -p .or this e4ent-ality'

0H

#hapter 2

#ompany &rofile JTata MotorsK

0I

#-A&T R 2

#ompany &rofile:Tata Motors

Tata !otors3 pre4io-sly +no*n as Tata En)ineerin) and #oco,oti4e Co #td 7TE#CO83 is one o. the lar)est co,panies in the Tata Cro-p3 and one o. India:s lar)est b-siness ho-ses' Tata !otors is India:s leadin) co,,ercial 4ehicle ,an-.act-rer and the third lar)est passen)er car ,an-.act-rer' The co,pany is the si;th lar)est tr-c+ ,an-.act-rer in the *orld' Tata !otors recently recei4ed the "alanced Scorecard Collaborati4e Hall o. 9a,e *ard .or ha4in) achie4ed a si)ni.icant t-rnaro-nd o. its o4erall per.or,ance' co,prehensi4e 5-ality i,pro4e,ent and cost c-ttin) initiati4e in Septe,ber

/???3 has played an i,portant role in the co,pany:s t-rnaro-nd3 .ro, a loss o. Rs 2?? crores in the year ended !arch /??1 to a pro.it o. Rs /I crores in the .irst 5-arter o. /??/A/??0' Tata En)ineerin) and #oco,oti4e Co,pany 7TE#CO8

#hapter 2('

-istory : ,olution

Tata En)ineerin) and #oco,oti4e Co,pany #td3 pop-larly +no*n as Telco *as incorporated in 1D12 to ,an-.act-re stea, loco,oti4es' In 1D213 the co,pany di4ersi.ied into a-to,obile ,an-.act-rin)3 thro-)h a collaboration *ith Dai,lerA"en= .or the ,an-.act-re o. co,,ercial 4ehicles' "y the ti,e the collaboration ended in 1D>D3 Telco had not only beco,e an independent prod-cer o. ,edi-, co,,ercial 4ehicles 7!CFs8 *ith ne)li)ible i,port content3b-t had de4eloped the capability o. desi)nin) and de4elopin) s-ch 4ehicles' The Co,pany pro)ressi4ely *idened its prod-ct ran)e to co4er hea4y co,,ercial 4ehicles 7HCFs8 and li)ht co,,ercial 4ehicles 7#CFs83 i,ple,entin) one e;pansion pro)ra, a.ter another' To s-stain the -nrelentin) pace o. its )ro*th3 Telco added ,achinin)3 press and asse,bly

0D

capacities3 set -p its o*n .or)e and .o-ndries3 and 4irt-ally created the co-ntryEs a-to,obile ancillary ind-stry' The Co,pany e4en de4eloped .acilities .or desi)nin) and ,an-.act-rin) stateAo.AtheAart ,achine tools3 ,aterial handlin) e5-ip,ent3 dies and .i;t-res' To acco,,odate the Co,panyEs )ro*in) acti4ity base3 a lar)e3 ,odern co,ple; *as set -p at %-ne in *estern India and a ne* plant beca,e operational at #-c+no*3 in the north o. the co-ntry' To pro4ide a b-siness .oc-s .or the Co,panyEs ,ain acti4ity areas3 Telco has created t*ob-siness -nitsE A -to,obiles and Constr-ction E5-ip,ent N both o. *hich ha4e notched -p recordAbrea+in) res-lts' Telco today has a do,estic ,ar+et share o. >IQ in the !CFSHCF se),ent3 >1Q in the #CF se),ent and 0/Q in the ,-ltiA-tility se),ent' part .ro, co,,ercial 4ehicles3 *hich ran)e .ro, 1 ton to 02 tons CF<3 TelcoEs a-to,obile prod-cts also incl-de passen)er 4ehicles and an e;traordinarily pop-lar ,-ltiA-tility 4ehicle' ll these prod-cts ha4e been de4eloped inho-se by the Co,panyEs o*n R$D Center' This Center is e5-ipped *ith the latest co,p-teraided desi)n hard*are and so.t*are3 enablin) the co,pany to respond 5-ic+ly to chan)in) c-sto,er needs3 both in India and abroad' Telco has been e;portin) its prod-cts since 1D>D and c-rrently e;ports abo-t a tenth o. its o-tp-t' E;port ,ar+ets incl-de the !iddle East3 .rica and So-theast sia3 as *ell as de4eloped co-ntries in E-rope li+e 9rance3 U& and Spain' It is intended that e;ports sho-ld acco-nt .or /?Q o. the a-to,obiles sold by the Co,pany' TelcoEs second line o. b-siness3 Constr-ction E5-ip,ent3 has also )ro*n rapidly and the

1?

Co,pany c-rrently co,,ands a >1Q share in the e;ca4ator ,ar+et and D?Q in the cra*ler cranes ,ar+et in India' The hydra-lically operated constr-ction e5-ip,ent ,ade by the co,pany is in collaboration *ith Hitachi Constr-ction !achinery #i,ited o. Kapan' There are a,bitio-s plans .or *idenin) the ran)e o. e;ca4ators ,ade by the co,pany and .or addin) ne* lines o. constr-ction e5-ip,ent' recent addition to the e;ca4ator ran)e is "ac+hoe #oader'

Telco is one o. India:s lar)est pri4ate sector co,panies' <ith a t-rno4er o. Rs >>'0H billion3 it is the co-ntry:s leadin) co,,ercial 4ehicle ,an-.act-rer and the *orldEs si;th lar)est a-to,obile co,pany' The *idely s-ccess.-l Tata Indica3 *hich is E-ro 1 and / co,pliant3 is the co-ntryEs .irst indi)eno-sly desi)ned3 de4eloped and ,an-.act-red passen)er car' The co,pany also ,a+es se4eral other passen)ers 4ehicles3 incl-din) the Sa.ari3 the S-,o3 the Sierra3 the Tata Estate3 and the Tata,obile pic+A-p' The co,panyEs prod-cts ha4e recei4ed *ide acceptance not only in India b-t also in ,ar+ets in the !iddle East3 sia3 .rica and E-rope

#hapter 2(*

Areas of business

The co,pany ,an-.act-res ,edi-,3 hea4y and li)ht co,,ercial 4ehicles3 ,-ltiA-tility 4ehicles and passen)er cars' It also ,a+es )eneral and special p-rpose ,achines .or a-to,oti4e applications at its ,achine tool di4ision' These incl-de NCSCNC hori=ontal and inline ,achinin) centers3 .le;ible ,an-.act-rin) syste,s3 CNC cylindrical )rindin) ,achines3 and robots .or *eldin)3 c-ttin)3 paintin) and other applications'

11

In 1DDD3 the co,panyEs re4en-es .ro, its .o-r ,an-.act-rin) plants at three locations in India *ere Rs >>'0H billion 7B132H0'2 ,illion8' In 1DDI3 they *ere Rs H?'/> billion 7B13ID0 ,illion8' 7The a4era)e e;chan)e rate in 1DDD *as Rs 1/'1I to one US dollar'8 In the year ended 01 !arch /???3 the co,panyEs total e;ports *ere *orth abo-t Rs 2?2'20 crore3 a)ainst abo-t Rs >??'HI crore in the pre4io-s year'

$o)ations

The co,panyEs ,an-.act-rin) plants in India are at Ka,shedp-r in "ihar3 %i,pri and Chinch*ad near %-ne in !aharashtra3 and #-c+no* in Uttar %radesh' bein) set -p at Dhar*ad in &arnata+a' .i.th ,an-.act-rin) .acility is

#ollaborations The Co,pany has technical tieA-ps *ithG

U The Instit-te o. De4elop,ent in -to,oti4e En)ineerin)3 S'%' '3 Italy3 .or assistance in s,all car body desi)n and stylin)L

U Nachi 9-ji+oshi Corporation3 Kapan3 .or robots .or *eldin)3 paintin) and other a-to,oti4e applicationsL

U #e !ote-r !oderne3 9rance3 .or the de4elop,ent o. diesel and petrol en)ines .or passen)er carsL and

1/

U Robert "a-sch C,bH3 Cer,any3 .or application *or+ on the en)ine ,ana)e,ent syste, .or 1 %# petrol en)ines

#hapter 2(.

Tata Motors ;Su))essful #ar %ndi)a

TE#CO la-nched Indica *hen the T T )ro-p *as in red' Telco chair,an Ratan Tata said that the 11?? cc car Indica *o-ld dri4e the co,pany o-t o. the red' Tata3 *hile tal+in) to reporters at the IET9 :DD in a 4ideocon.erence .ro, !-,bai said that the o4er*hel,in) response o. o4er 1'/2 la+h initial boo+in)s .or the Indica had co,e as a s-rprise' MIt see,s *e to-ched the national chord so,e*here as people responded to the .act that this is the .irst Indian car3M said Tata' MIndica is not the end o. the road .or Telco *hen it co,es to passen)er cars' It is j-st the be)innin)3 as there are ,ore to co,eM3 said Tata3 addin) that the co,pany *as *or+in) on another ,idAsi=e car a.ter Indica' Telco had to prod-ce >?3??? cars a year to brea+Ae4en' The )ro-p created t*o or)ani=ations *ithin Telco3 one dealin) *ith co,,ercial 4ehicles and the other *ith passen)er cars' The co,pany -nder too+ a ,ajor restr-ct-rin) e;ercise *hereby the passen)er car and co,,ercial 4ehicles di4isions *o-ld .-nction as t*o separate b-siness -nits' Telco had a strate)y to )o .or e;ports a.ter addressin) the initial re5-ire,ents o. the do,estic ,ar+et'

A3ards and Re)ognition In !ay /??? 3Tata En)ineerin) and #oco,oti4e Co,pany #td' 7Telco8 *on a national a*ard .or s-ccess.-l indi)eno-s technolo)y -sed in the Indica car project' The a*ard titled :National a*ard .or s-ccess.-l co,,erciali=ation o. indi)eno-s technolo)y by an ind-strial concern: .or indi)eno-s

10

de4elop,ent and co,,erciali=ation o. Tata Indica car *as presented by the ,inister .or h-,an reso-rce de4elop,ent3 science and technolo)y and ocean de4elop,ent3

Dr' !-rli !anohar Koshi' In No4e,ber 1DDD Telco *as a*arded the :Depart,ent o. scienti.ic and ind-strial research national a*ard .or indi)eno-s desi)n o. the Tata Indica' It *as the .irst co,pany in India to i,ple,ent strin)ent e,ission nor,s *ell ahead o. the ,andate dates' &romotions The Indica ad4ertisin) ,ade interest .or the car )o into o4erdri4e' The ca,pai)n re4ol4ed aro-nd the pre,ise that the Indica *o-ld not j-st ,eet people:s e;pectations3 it *o-ld e;ceed the,' E4ery ad4ertise,ent has a story to tell

&re laun)h #ampaign The Indica ca,pai)n be)an in the ri)ht earnest in Dece,ber 1DDI' It *as ad4ertised as the la-nch o. a car that *ill spell doo, .or the s,all cars' It *as directly ai,ed at !ar-ti I??' The ad line -sed in the .irst ca,pai)n *as Car ,a+ers *ill s-ddenly re,e,ber all the thin) they .or)ot to )i4e yo-(' This hinted that Indica *o-ld ha4e ,ore .eat-res than any o. the e;istin) s,all cars' Indica -sed the catch lines li+e !ore car per Car( !ore drea,s per car( to s-))est that Indica *ill be bi))er in si=e to the e;istin) s,all cars yet be in the s,all car cate)ory' It co,petes *ith the ,id si=e cars on si=e and )i4e the, a r-n .or their ,oney *ith its cheaper price ta)' t the la-nch o. the car TE#CO clai,ed that the people *o-ld ne4er ha4e to s-..er .ro, a s,all car a)ain and that the n end o. the year 71DDI8 *o-ld be the end o. the s,all cars'

11

$aun)h #ampaign The la-nch ca,pai)n o. Indica .oc-ssed on the ,any ad4anta)es that it o..ered o4er other cars in the sa,e se),ent' It pro,ised the c-sto,ers ,ore than the c-rrent o..erin)s' Its .irst ad4ertise,ent carried the .ollo*in) catch line 2?cc ,oped3 1??cc bi+e I??cc car' Ti,e yo- as+ed .or ,ore'( It then concentrated its e..orts on critici=in) the ne)ati4e aspects o. !ar-ti I?? and hi)hli)hted ho* Indica has re,o4ed those 4ery de.ects and presented a 4ery sophisticated and ,odern car to the Indian c-sto,er' It e4en pointed o-t that the shape o. !ar-ti *as 4ery -ncon4entional and that people *o-ld pre.er the shape o. Indica to !ar-ti I??' The ad4ertise,ent read "o; shaped3 b-bble shaped3 *ed)e shaped' "-t then Centle,en pre.er c-r4es( The la-nch ca,pai)n also .oc-ssed on the roo,y interiors o. Indica3 a .eat-re not o..ered by !ar-ti at that point o. ti,e' lso the e;pertise o. T T in diesel en)ines and .-el e..iciency o. these *ere the hi)hli)ht o. the la-nch ca,pai)n o. Tata Indica'

&ost $aun)h #ampaigns

<hile the #a-nch ca,pai)n .oc-ssed on the .eat-res o. Indica the post la-nch ad4ertise,ents .oc-ssed on the s-perior a.ter sales ser4ice and lon)er *arranty periods o..ered by Indica' Telco *as the .irst co,pany to o..er an 1IA,onth *arranty period on en)ine parts' The ,ost .a,o-s line -sed d-rin) this ca,pai)n *as <e co-ld )o on and on abo-t ser4ice or )i4e yo- the one *ord s-,,ary' T T '( <hile their ,ain ad4ersary *as the !ar-ti I?? 3Telco .elt that it co-ld also tap the ,id si=e se),ent -sin) the sellin) point o. space )i4en by Indica' They carried a ca,pai)n3 *hich said 9or)et s,all cars3 *e e4en ,a+e bi) cars .eel s,all(

12

It then *ent on to hi)hli)ht the .act that Indica *as E-ro II co,pliant e4en be.ore it *as le)ally bindin) -pon car ,an-.act-rers to do so' It also hi)hli)hted the concrete *all sa.ety test that Indica *ithstands and tried to sho*case the car as a sa.e and stron) car'

#hapter 9

#OST R DU#T%O! T #-!%<U S %! TATA MOTORS"S %!D%#A

1>

1H

#hapter 9

Tata %ndi)a 0 The Ma4ing Of The Small #ar 3ith objective of minimizing costs.

The research pro4ides an -nderstandin) o. the iss-es concernin) the s-pply chain ,ana)e,ent syste, at Telco in re)ard to its s,all car3 Indica' It o-tlines ho* Telco3 b-ilt the s-pply chain .or the car by le4era)in) its e;istin) co,petencies and ho* it trans.or,ed itsel. .ro, an inte)rated tr-c+ ,an-.act-rer to an a-to,obile inte)rator and .ro, a prod-ctAcentric co,pany to co,petenceA centric co,pany' The case disc-sses 4ario-s co,ponents o. the s-pply chain and e,phasises ho* Telco orchestrated the, *ith the objecti4e o. ,ini,i=in) 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.

In the early 1DD?s3 TelcoEs Chair,an Ratan Tata 7Tata83 *as .lirtin) *ith the idea o. de4elopin) a s,all car' "y ,idA1DD1 a r-di,entary desi)n *as in place' In 1DD23 Telco anno-nced that it planned to b-ild a car *hich *o-ld be priced close to the !ar-ti I??3 shaped li+e the Ren3 and spacio-s as an ,bassador' %rod-cin) the ne* s,all car N Indica N represented a di..erent +ind o. challen)e .or Telco' Sho-ld Tata s-cceed3 he *o-ld chan)e the .ace o. Telco' s a tr-c+A,a+er3 Telco *as so inte)rated that it e4en ,ade it

1I

o*n castin)s and .or)in)s' s an a-to,a+er3 it *o-ld ha4e to .oc-s on the 4al-e chain that stretched bet*een ra* ,aterials and a.terAsales ser4ice as *ell as asse,blin) the parts into the co,plete a-to,obile'

9or its ne* 4ent-re3 Telco o-tso-rced I?Q o. the co,ponents 713/?? o. its 132??Apl-s parts83 .ro, /??Aodd 4endors' To de4elop the Indica3 Telco had to co,bine the learnin)s .ro, its predecessors *ith its o*n -ni5-e s-pply chain ,ana)e,ent strate)ies to ens-re a s-stainable lo*Acost plat.or,' "y learnin) to b-ild and ,ana)e a s-pply chain3 it *o-ld set the )ro-nd .or le4era)in) the capabilities o. the a-to,oti4e co,ponentA,an-.act-rers *ho already operated in its tar)et ,ar+ets' In other *ords3 Telco planned to -se its s+ills as an inte)ratorAAbrin)in) to)ether prod-cts and ser4ices .ro, both -pstrea, and do*nstrea, operations3 and pac+a)in) the, .or the c-sto,er -nder a brand na,e in its ne* 4ent-re'

Clobally3 a car co-ld be b-ilt in 1I ,onths *ith an in4est,ent o. US B 0 billion 7Rs 1/H'2 billion8' Indica3 *as b-ilt in 01 ,onths on a b-d)et o. Rs 1H billion' This see,ed to ha4e been possible by .oc-ssin) on the s-pply chain

#hapter 9('

T- OUTSOUR#%!D STRAT DE

9or Telco3 o-tso-rcin) see,ed to be one o. the ,ost di..ic-lt aspects o. prod-cin) the Indica' Unli+e )lobal a-to,obile ,ajors3 9ord !otors or Ceneral !otors3 *hich had a )lobal 4endorAbase that co-ld be replicated on a s,aller scale in India3 Telco had to create a 4endorAbase .ro, scratch' !oreo4er3 it did not ha4e the e;pertise either to desi)n a car or to b-ild an en)ine .or it'

)ainst this bac+)ro-nd3 Telco had to ta+e its pri,ary V,a+eAorAb-yE decisions .or the +ey inp-tsA

1D

desi)n3 en)ine3 and trans,ission' Telco decided to shop )lobally .or the best deals and -se its o*n e;pertise to ,a+e *hate4er ,odi.ications *ere needed

7Re.er Table I .or the co,ponents o-tso-rced by Telco8' TAB$ %

OUTSOUR#%!D T- #OM&O! !TS

#omponents 2 door hat)hba)4 ngine Assembly $ine &resses &istons and &iston rings le)tri)al )omponents and fuel in+e)tion systems Steering systems #lut)h fa)ings and rear >drum? bra4e linings Seating Systems Radiators Rear ,ie3 mirrors Front and rear bumper= dash0board= Supplier %(D (A= %taly %nstitut Fran)ais du &etrol= Fran)e !issan"s &lant= Australia Mer)edes BenG %ndia &istons $u)as0T8S Rane TRA Steering Systems Sundaram Bra4e $inings >SB$? Tata0Fohnson #ontrols Tata0Toyo Tata0Fi)osa

Tata0Auto &lasti)s inside trims Air )onditioning 4its Subros $td Aind s)reens and 3indo3s Asahi Dlass Fuel lines %mperial Auto Differential assemblies Sona Steering Sheet metal items FBM Tools +ource, -usiness Today, .arch //, 0111 and 2ecember 3, 0111.

2?

Telco t-rned to the Italian co,pany3 I'DE' 3 .or the prod-ctAdesi)n' It bo-)ht the en)ine .ro, the Instit-t 9rancais d- %etrol o. 9rance3 and applied its en)ineerin) s+ills to adapt the en)ine re5-ire,ents' The trans,ission *as de4eloped inAho-se at its En)ineerin) Research Centre 7ERC83 at %-ne' O. the Rs /'2 billion it spent on desi)nin) the Indica3 the ,ajor share *ent in b-yin) desi)n tools and trainin) its en)ineers in ne* s+ills' TelcoEs en)ineers tra4eled re)-larly to the sites o. its technolo)y s-ppliers3 to recei4e trainin) be.ore the act-al deli4ery o. the ,achines'

Telco also o-tso-rced its asse,bly line .ro, NissanEs plant in -stralia .or j-st Rs D?? ,illion' Telco transplanted it at its .actory at Chi+li near %-ne3 *hich *as ne*ly set -p .or Indica' ne* asse,bly

line o. the sa,e proportions *o-ld ha4e cost at least Rs 1 billion' )ain3 o. the 0 presses .or the Indica3 only 1 *as ne*3 ac5-ired .or Rs D?? ,illion3 *hile the other / *ere bo-)ht secondAhand .ro, !ercedesA"en= and ,odi.ied to s-it the Indica'

TelcoEs en)ineers and the ERC did the application en)ineerin)3 pro)ra,,in)3 installation3 and co,,issionin) to sa4e aro-nd 12Q o. the technolo)y costs' The toolin) .or the car too *as s-pplied internally by TelcoEs ,achine tool di4ision' To ,ana)e the s-pply chain better3 Telco +ept the n-,ber o. s-ppliers .or Indica to j-st /?? as co,pared to abo-t 13??? .or tr-c+s' !ost o. the parts *ere s-pplied by TelcoEs traditional s-ppliers6 TFS3 Rane Cro-p and Tata -to Co,ponent Syste,s 7Taco8 *ho *ere sin)le so-rce s-ppliers' %ressed parts3 asse,blies3 and dri4e sha.ts *ere so-rced .ro, sin)le 4endors'

#hapter 9(*

8 !DOR D 8 $O&M !T
21

Once Telco ,ade its ,a+eAorAb-y choices3 the ne;t step *as to identi.y the 4endors' !ost o. the parts that *ent into ,a+in) Telco *ere so-rced locally' E;cept .or so,e sheet ,etal parts3 cylindrical )as+ets3 and beltsAA*hich acco-nted .or /Q o. the co,ponent 4al-e3 the Indica *as totally indi)eno-sW1X' &' !ahesh3 CEO3 S-ndara, "ra+e #inin)s3 said3 #ocalisation o. co,ponents is the ,ost i,portant challen)e a ne* ,an-.act-rer .aces' It is a ti,eAcons-,in) and painsta+in) process'(

Telco e,ployed a si,ple yardstic+ .or selectin) s-ppliersG the ability to s-pply co,ponents at the ne)otiated 5-ality3 cost3 and 5-antities' In the .irst sta)e o. selection3 an initial assess,ent tea, .ro, Telco e4al-ated the s-pplier' This *as .ollo*ed by sel.Ae4al-ation o. the s-pplier3 based on a .or,at pro4ided by Telco' Then there *as a 5-ality syste,s s-r4ey3 carried o-t by a Telco 5-ality a-dit tea,'

This *as .ollo*ed by desi)n 4alidation' nd then there *as a ,an-.act-rin) 4alidation to ens-re that the s-pplier *as .ollo*in) the proper ,an-.act-rin) processes' This *as .ollo*ed by the %rod-ction %art ppro4al %rocess 7%% %83 *hich certi.ied the prod-ction 5-ality' R' Cha+raborty 7Cha+raborty83 senior dep-ty )eneral ,ana)er3 ,aterials $ s-pplier 5-ality i,pro4e,ent )ro-p3 said3 <hen a 4endor reached this sta)e3 o-r co,.ort le4el in dealin) *ith hi, )oes -p considerably3 *ith re)ard to 5-ality and his ability to s-pply ,aterial to -s' <e .eel that he has a proper prod-ction process in place to ens-re 5-ality and ti,ely s-pplies'( Only a hand.-l o. 4endors ,et TelcoEs strin)ent re5-ire,ents' Telco set -p S-pplier Q-ality I,pro4e,ent Tea,s to i,pro4e the 4endorsE syste,s to ens-re that they prod-ced de.ectA.ree parts'

2/

It applied a 10Astep Q-ality I,pro4e,ent %ro)ra,,e3 co4erin) s-pplier sel.Ae4al-ation3 thoro-)h desi)nA4alidation3 and a-dit o. s-pplier 5-ality' nother +ey to TelcoEs s-ccess.-l 4endorAbase *as a ,odern syste, o. process ,ana)e,ent' TelcoEs tar)etAcostin) *as bro+en -p into 4endorA*ise cost tar)ets3 and the s-ppliers had to carry o-t their o*n 4al-eAen)ineerin) e;ercises to lo*er cost and i,pro4e 5-ality'

9or e;a,ple3 India %istons3 *hich s-pplied the pistons and piston rin)s3 *al+ed a*ay *ith the Indica order beca-se it bench,ar+ed itsel. a)ainst s-pplies to !ar-ti Udyo)L *hereas the other 4endors bench,ar+ed the,sel4es a)ainst pistons s-pplied to TelcoEs co,,ercial 4ehicles'

India %istons in4ested Rs 1'2 ,illion in toolin)s3 and Rs /2 ,illion in a separate line at its !arai,alai Na)ar 7Ta,il Nad-8 .acility' N' Fen+atra,ani3 CEO3 India %istons3 co,,ented3 TE#CO is 4ery partic-lar abo-t lo)istics3 that ra* ,aterials ha4e a s-pply trace3 be ready .or asse,bly3 need no inspection' It is a de,andin) c-sto,er'(

Telco e4en in4ol4ed its 4endors in the desi)nAprocess to )i4e s-ppliers ,ore lead ti,e to inno4ate3 and .or better s-pply chain coordination' Co,,ented T'&' "alaji3 CEO3 #-casATFS3 *hich s-pplied electrical co,ponents and .-elAinjection syste,s .or the Indica3 "y ,a+in) 4endors its partner early3 TE#CO ens-red both 5-ality and priceAcon.or,ity' #ate in4ol4e,ent *o-ld ha4e yielded di..erent res-lts'(

!'S' &-,ar3 Director $ CEO3 Rane TR< Steerin) Syste,s 7Rane83 *hich s-pplied the steerin) syste,s .or the Ind

added3 TE#CO has been e;tre,ely s-pporti4e3 ,a+in) a4ailable its entire R$D reso-rces to o-r en)ineers' It is on the best e;periences *e ha4e had in prod-ctAde4elop,ent'( Telco *anted Rane to desi)n a syste, that *o-ld ,eet pec-liarities o. Indian road conditions' 20

"esides o..erin) both ,an-al and po*er syste,s3 Rane also had to co,e o-t *ith a le.tAhand dri4e 4ariant .or the e

,ar+et' Rane had to )o deep into application en)ineerin) beca-se the .ront a;leA*ei)ht o. the Indica *as hea4ier3 a

its en)ineAdisplace,ent3 hi)her' Indica *as not only co,pact3 *hich le.t less space3 b-t also hea4y3 *hich strained t syste,' Telco *anted Rane to bench,ar+ the ,ane-4erability o. the Indica a)ainst the Ren3 a ,-chAli)hter car' Rane too+ abo-t 1> ,onths to de4elop and )et the steerin) syste, appro4ed3 spendin) close to / ,anA years on it' It spent Rs 1> ,illion on de4elop,ent costs .or the po*er steerin) syste,AAincl-din) toolin) and diesAAand Rs 1? ,illion .or the ,an-al steerin) syste,' Said %'R' Sarathy3 %resident3 Rane 7!adras83 TE#CO )a4e -s priceAtar)ets' <e *or+ed *ithin the,3 -sin) 4al-eAen)ineerin) and conc-rrent en)ineerin) to lo*er o-r de4elop,ent costs' 9or all e..ecti4e p-rposes3 *e *ere an ar, o. TE#CO d-rin) the process'( In the case o. s,all 4endors3 Telco e;a,ined their processesA and costA le4els' Telco con.i)-red its s-ppliers in / tiers' Tier I s-ppliers had to asse,ble s-bAsyste,s -sin) co,ponents pro4ided by Tier II 4endors'

Telco as+ed the latter to s-pply prod-cts at lo* ,ar)ins to the .or,er' On its part3 Telco helped the, lo*er their costs by sol4in) 5-alityArelated proble,s' 9or instance3 S"#3 *hich s-pplied cl-tchA .acin)s and rear 7dr-,8 bra+e linin)s .or the Indica3 de4eloped the, inAho-se' F'R' Kanardhana,3 %resident3 S"#3 re,ar+ed3 Despite its si=e3 Telco has a lot o. h-,ility' It is *illin) to *or+ *ith e4en the s,allest o. 4endors to ,eet its tar)ets'(

typical bra+eAlinin) -s-ally *ent thro-)h the .ollo*in) stepsG the ra* ,aterial *as con4erted into slabsL the slab *as c-t into the re5-ired len)thL the c-t piece *ent thro-)h / sta)es o. )rindin) .or the inner and the o-ter dia,etersL then3 the piece *as drilled3 and3 .inally3 cha,pered' "-t S"# bro-)ht do*n the n-,ber o. operations to 0G the ra* ,aterial *as strai)hta*ay con4erted into pieces o.

21

re5-ired len)th3 and the )rindin) *as done to only the o-ter dia,eter'

nd the co,pany sa4ed 12Q beca-se o. this sin)leApiece .lo* techni5-e' &' %andarinath3 Dep-ty Ceneral !ana)er 7Research83 S"#3 co,,ented3 Telco is a transparent co,pany' It allo*ed -s to -se all their .acilities as lon) as it helps de4elop a better prod-ct' O-r en)ineers spent se4eral *ee+s *or+in) *ith TelcoEs en)ineers on per.ectin) the bra+eAlinin)s'(

#hapter 9(.

SU&&$E #-A%!

To +eep its transaction costs lo*3 Telco con.i)-red its s-pply chain on a j-stAinAti,e basis' ll hi)hA 4al-e co,ponents *ere deli4ered daily3 and in the case o. nearby s-ppliers3 t*ice a day' Fendors *ho *ere located .ar a*ay .ro, %-ne set -p local *areho-ses near the plant' The rationale .or the relocationG transportation costs alone acco-nted .or 12Q o. the total lo)istics costs .or a co,pany3 delays in s-pplies added to costs in ter,s o. ,achine do*nAti,e at the plant' !ean*hile3 on the shop .loor3 *here the asse,bly line *as located3 Telco had done a*ay *ith the traditional store .-nction'

There *as no ,aterial store in the %-ne plant o. Telco' The tr-c+ loaded *ith the ,aterial .irst entered the .actory at the ,aterial )ate *here there *as a doc-,entation center' person at this

center chec+ed *hether the ,aterial *as sched-led to arri4e or not3 by +eyin) in the part n-,ber and the s-pplier code' I. the ,aterial *as not sched-led to arri4e3 the doc-,ents *ere not processed .-rther and the tr-c+ *as not allo*ed to enter the .actory pre,ises' Once it *as cleared at the )ate3 the tr-c+ proceeded to

22

the recei4in) center'

Once the ite,s *ere -nloaded3 -npac+ed and cleared .or 5-antity and 5-ality3 they *ere ,o4ed into the transit area' 9ro, there they *ent into *hat *as called the Vs-per ,ar+etE' The s-per ,ar+et *as close to the asse,bly line' In the s-per ,ar+et3 the ,aterials *ere arran)ed in s-ch a *ay that the *or+ers co-ld easily access all the ,aterial re5-ired on the asse,bly line *itho-t *astin) ,-ch ti,e and e..ort'

The bene.its o. this j-stAinAti,e in4entory syste, *ere that the in4entories *ere lo* and so the interest costs *ere also lo*' )ain the ,anpo*er re5-ired to handle the in4entories *as also lo*' 9or Telco3 a cr-cial lin+ in the s-pply chain *as its ability to .orecast de,and acc-rately3 *hich *o-ld help the 4endor plan his prod-ctionAsched-le in ad4ance3 th-s lo*erin) costs' Telco and Concorde e,ployed ,ar+et research a)encies to help .orecast de,and thro-)h trend analysis3 -sin) the historical data techni5-e' It -sed a co,ple; *eb o. correlation in4ol4in) the co-ntryEs econo,ic sit-ation3 co,petitorsE prod-cts3 and their US%s' To ens-re 5-ic+ .lo* o. in.or,ation alon) the 4al-e chain3 Telco electronically lin+ed its de,and .orecasts to prod-ction3 and bac+*ards to its s-ppliers'

ll its dealers *ere lin+ed to the plant thro-)h FS Ts7/8 connected by eA,ail to relay de,and patterns onAline to the %-ne plant' This red-ced the orderAprocessin) ti,e by I?Q' nalysts .elt that by bein) online3 Telco *o-ld sa4e a ,ini,-, o. 1 days .ro, the orderAtoAdespatch leadAti,e' 9or speedy deli4ery3 Telco resorted to interAlocation trans.ers o. the prod-ct bet*een dealerships' This *o-ld ens-re ,o4e,ent o. the prod-ct to a place *here there *as ,ore de,and'

2>

This *o-ld ,a+e a bi) di..erence to .inished )oods in4entory ,ana)e,ent once Telco started prod-cin) at opti,-, capacity' Telco also tri,,ed costs by ,a+in) Concorde leaner than other dealerships3 *ith j-st 0 le4elsG ,ana)in) director3 )eneral ,ana)ers3 and ,ana)ers708' Each o. ConcordeEs718 )eneral ,ana)ers *or+ed as pro.itAcentre heads o. their indi4id-al b-siness re)ions3 and reported directly to the ,ana)in) director'

dded3 '&' Seth3 Ceneral !ana)er 7Delhi83 Concorde3 The co,pany *anted to create a lean and responsi4e net*or+3 *ith the pri,ary objecti4e bein) to ,eet c-sto,er re5-ire,ents as 5-ic+ly as possible'(

718 7/8

TelcoEs dealer .or Indica' It had D dealerships and /2 o-tlets' Fery S,all pert-re Ter,inal 7FS T8 is a satellite co,,-nications syste, that ser4es ho,e FS T end -ser needs a bo; that inter.aces bet*een the -serEs co,p-ter and an

and b-siness -sers'

o-tside antenna *ith transcei4er' The transcei4er recei4es or sends a si)nal to a satellite transponder in the s+y' The satellite sends and recei4es si)nals .ro, an earth station co,p-ter that acts as a h-b .or the syste,' Each end -ser is interconnected *ith the h-b station 4ia the satellite' 9or one end -ser to co,,-nicate *ith another3 each trans,ission has to .irst )o to the h-b station *hich trans,its it 4ia the satellite to the other end -serEs FS T' FS T handles data3 4oice and 4ideo si)nals' 708 !ost other carA,ar+eters in the co-ntry operated *ith a ,ini,-, o. 2 le4els'

#hapter 9(/

$ 8 RAD%!D T- SU&&$E #-A%!

2H

Indica ,ar+ed the be)innin) o. TelcoEs dri4e into IndiaEs a-to ,ar+et as an inte)rator *ith a ,-ltiA prod-ct port.olio' nalysts .elt that the co,petencies that Telco had )ro*n in the process o. ,ar+etin) Indica *o-ld be the core aro-nd *hich it *o-ld b-ild its .-t-re car b-siness' nalysts also .elt that Tata *o-ld -se the s-pply chain that .ed the Indica to .eed a *hole ran)e o. Telco cars o. the .-t-re' D'C' nand3 CEO3 nand Cro-p3 said3 TelcoEs capacity *ill be tested by ho* ,any ne* ,odels it can co,e -p *ithAAand ho* soon' Is Telco in a position to do soP 9o-r years a)o3 I *o-ld ha4e said no' Today3 I a, not )oin) to -nderesti,ate their capacity' They ha4e de,onstrated it'(

"-siness Today *rote3 #e4era)in) the lo*Acost s-pply chain that it has b-ilt3 Telco *ill la-nch a series o. other carsAApriced both belo* and abo4e the Indica3 straddlin) the entire spectr-,AAeach o. *hich *ill be pro)ressi4ely easier to inte)rate'( The s-pply in.rastr-ct-re *o-ld beco,e econo,ical as the 4ol-,e o. the b-siness that Telco o..ered its 4endors increased' The 4ol-,e o. b-siness *o-ld increase *ith a lar)er n-,ber o. cars' The learnin) that it *as e;tractin) .ro, the Indica s-pply chain *o-ld also be a4ailable to the co,pany as it ,o4ed into other prod-cts'

There see,ed to be a distinct opport-nity .or a s,aller3 cheaper car3 positioned as an entryAle4el .or the .irstAti,e b-yer' nalysts .elt that TelcoEs s-pply chain ,ana)e,ent *o-ld beco,e the pi4ot aro-nd *hich it co-ld asse,ble its passen)erAcar b-siness'

#hapter 9(2

#ost #utting

To c-t costs3 Tata !otors tried inno4ati4e techni5-es s-ch as =eroAbased costin)' The co,pany:s en)ineers reA

2I

*or+ed the cost o. co,ponents all o4er a)ain' 9or e;a,ple3 earlier3 Tata !otors paid .or its .or)ed co,ponents on a costApl-s basis as clai,ed by a 4endor' Under the ne* syste,3 it paid a price dependin) on the *ei)ht o. the .or)in)3 leadin) to sa4in)s o. /2Q' %ra+ash ! Telan)3 senior 4ice president 7,an-.act-rin)83 *as appointed as the :costAerosion cha,pion: and p-t in char)e o. the entire initiati4e' 9o-r speci.ic areas *ere identi.iedG

ADirect ,aterial costs Red-ction %rojects AIn4entory nalysisAK-st in Ti,e ATransporation nalysis AStoc+ +eepin) Unit nalysis'

#hapter 9(9

<uality Management

Tata !otors started a co,prehensi4e 5-ality i,pro4e,ent initiati4e in Septe,ber /???' The initiati4e played an i,portant role in the co,pany:s t-rnaro-nd3 .ro, a loss o. Rs'2?? crores in the year ended !arch /??1 to a pro.it o. Rs'/I crores in the .irst 5-arter o. /??/A?0' E4ery year3 abo-t a 5-arter o. Tata !otors: *or+.orce *ent thro-)h trainin) co-rses3 *hich *ere rated hi)hly in the Indian en)ineerin) ind-stry' %ersonnel *ere trained be.ore b-ildin) *or+shops' In case o. i,ported ,achines3 en)ineers and *or+ers *ere sent to the .orei)n ,an-.act-rer:s .acilities to recei4e trainin) *ell be.ore the arri4al o. the ,achine'

2D

#hapter 9(7

#ost Redu)tion in nergy #onsumption

"y i,ple,entin) 4ario-s ener)y conser4ation projects there has been a consistent decrease in the speci.ic Electrical and Ther,al Ener)y Cons-,ption'

>?

#hapter 9(7('

nergy #onser,ation #ommitment= &oli)y and Set Up

Tata !otors3 considers Ener)y Sa4in) as a ,-lti disciplinary approach' E4en the s,allest cost red-ction is )oin) to add directly to its pro.its in botto, line' %lant ener)y pro.ile consist o. Electricity3 Cas3 Oil3 #i)ht Diesel Oil3 Hi)h Speed Diesel Oil3 &erosene and <ater' "-d)et pro4isions are ,ade e;cl-si4ely .or Ener)y conser4ation ,ana)e,ent' 7 ECON 8 Ener)y conser4ation plans3 policy and str-ct-re are re4ie*ed periodically' %lant has cond-cted In ho-se se,inar on VEner)y Conser4ationE *ith e;ternal .ac-lties li+e National %rod-cti4ity Co-ncil3 tlas Copco3 Enercon3 Cro,a En)) and Ther,a; *hich *as attended by participants .ro, all plants o. -to Sector' Senior e;ec-ti4es ha4e attended VEner)y Conser4ation !eetE or)ani=ed by CII and 4isited Reliance Ind-stries3 Codrej3 ICICI To*ers to share ener)y conser4ation ideas'Ener)y Conser4ation *ee+ is celebrated e4ery year .ro, 11th Dece,ber to /1st Dece,ber' %oster and slo)an co,petition on Ener)y sa4in) *as cond-cted in e4ery year' Ener)y !ana)e,ent policy is displayed e4ery *here in the plant .or creatin) the ener)y conser4ation a*areness' The co,pany has .or,ed cross .-nctional tea,s .or cost red-ction thro-)h Ener)y sa4in)s' Each tea, co,prises o. Senior E;ec-ti4es as .acilitators *ith ,e,bers .ro, each prod-ct -nits' Sa.ety and En4iron,ent Depart,ent is also closely attached *ith Ener)y Conser4ation Cell' Top ,ana)e,ent li+e president3 4iceA president3 Ceneral ,ana)ers acti4ely participate in the ener)y conser4ation pro)ra, and s-pport the ener)y conser4ation plans by pro4idin) the necessary b-d)etary and ,orale help' The i,portance o. ener)y conser4ation *as e,phasi=ed thro-)h 4ario-s .or-,s and T%! 7Total

>1

%rod-cti4e !aintenance8 ,ethodolo)y'"y -sin) T%! ,ethodolo)y plant has i,ple,ented ,ore than /?? +ai=ens 7 s,all i,pro4e,ents8 li+eG A Re,o4al o. -n*anted ,otors3 Contin-o-s to inter,ittent operatin) o. ,otors3 Ti,er .or "lo*ers S Heaters3 %ro4idin) air press-re re)-lators3Stoppin) idle r-nnin) o. ,otors3 %hoto cell control .or li)htin)3 Co,binin) acti4ities etc'

nergy Management &oli)y

Y %ro,ote Ener)y sa4in) and conser4ation o. reso-rces' Y "ench ,ar+ speci.ic ener)y cons-,ption *ith National $ International standards3 and settin) -p syste,s to achie4e the,' Y Increase -se o. nonAcon4entional so-rces o. ener)y $ alternate .-el so-rces' Y Co,ply *ith the Ener)y #e)islation and other re)-lations' Y Cond-ct re)-lar Ener)y -dits to red-ce ener)y *asta)e in all areas' Y %ro,ote a*areness a,on) all e,ployees thro-)h lea.lets3 se,inars3 co,petitions and co,pany 4isits' Y Reco)nise ener)y conser4ation initiati4es ta+en by e,ployees and a*ard the,' Y Red-ce *aste )eneration and pro,ote disposal3 re-se and recyclin) in an En4iron,ent .riendly ,anner' Y !a+e an e..ort to red-ce the cost contin-o-sly e4ery year by adoptin) e..ecti4e Ener)y !ana)e,ent

>/

Syste,('

nergy #onser,ation A)hie,ements

D-rin) the period bet*een /??0A/??2 !ahindra $ !ahindra #td' has i,ple,ented aro-nd 0/? proposals thro-)h En)ineerin) initiati4es3 *or+,enEs s-))estion sche,es3 -ditors reco,,endations and T%! ,ethodolo)y res-ltin) into total sa4in) o. Rs 2ID la+hs *ith an in4est,ent o. Rs 110 la+hs' This has res-lted in a red-ction o. 12Q in speci.ic electrical ener)y cons-,ption and 11Q in speci.ic ther,al ener)y cons-,ption'

#haptera 9(7(*
Before %nstallation :

le)tri)al Sa,ing ; > #ompressed Air?

'( S)re3 #ompressor 3ith 8ariable Frequen)y Dri,e

For **@@ )fm output )ompressed air requirement= plant 3as running

four )ompressors ha,ing total motor )apa)ity of 9.@ hp( Motor #apa)ity L 9.@ hp >0

&o3er #onsumption per Annum L *2(.* $a4hs 4Ah Operating #ost L Rs( '@7(9. $a4hs H Annum After %nstallation:0 S)re3 )ompressor 3ith 8FD running in )ombination 3ith e5isting )ompressors ha,ing total motor )apa)ity of 2'9 hp ( Motor #apa)ity L 2'9 -& &o3er )onsumption per annum L *@(76 $a4hs 4Ah Operating #ost L Rs BB(.2 $a4hs H Annum Sa,ing L Rs( '6(*@ $a4hs H Annum

b8 Electrical Sa4in)s !eas-res G 1' Inte)rated 7 IT 8 )-n in place o. Con4entional )-n .or Spot <eldin)'

Before 0 Use of )on,entional spot 3elding mH) gun &o3er Rating :0 '2@ C8A le)tri)al #onsumption :0 @(7* $a4hs H annum After0 Use of %ntegrated gun > %T Dun? &o3er Rating :0 .. C8A le)tri)al #onsumption :0 @('9 $a4hs H annum >1

%nstalled 9 nos of %T Duns( Total Sa,ing :0 .(.7 $a4hs CA- H annum Rs( '/(.* $a4hs H annum

*( %nstalled Steffa #ontrol ,al,e for Optimum utiliGation of #hilled 3ater in #entral A# &lant
Installed Ste..a Control Fal4e .or opti,-, -tili=ation o. chilled *ater

at Central ir Conditionin) %lant' Sa4in) GA 02HD &<H S ann-, Rs' ?'12 #a+hs S ann-,

.( #on,ersion of #ore ba4ing o,er from le)tri)al to &!D in Foundry

9o-ndry Core "a+in) O4en *hich *as r-nnin) on Electrical .irin)

>2

con4erted to %NC .irin) by installin) .-el e..icient b-rners'

"e.ore GA Electrical Heatin) Electrical Cons-,ption N 0'12 #a+hs &<H S ann-, Cost GA Rs' 11'>D #a+hs S ann-, .ter GA %NC Heatin) Ther,al Cons-,ption N 1'?> #a+hs SC! S ann-, Cost GA Rs' D'?D #a+hs S ann-, Sa4in) GA Rs' 2'>? #a+hs S ann-,

#hapter 9(7(.

Thermal sa,ing : -eat Re)o,ery

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

"e.ore GA Ther,opac -sed .or heatin) o. Ther,ic 9l-id

>>

%re4io-sly *as r-nnin) on #DO'

#DO Cons-,ption N 112 #ts S day Cost o. #DO N Rs' /2'1H #a+hs S ann-, .ter GA Ther,opac -sed .or heatin) o. Ther,ic .l-id Con4erted to %NC .irin) *ith Heat Reco4ery Syste,' %NC Cons-,ption N HDI SC! S day Cost o. %NC N Rs' /?'2? #a+hs S ann-, Sa4in) GA Rs' 1'>H #a+hs S ann-,

*( -eat pump using atmospheri) heat for 3ashing ma)hines

"e.ore A Use o. >> +* electrical heaters .or *ater heatin) in *ashin)

>H

,achine'

.ter N Heat %-,p -sin) at,ospheric heat to rise the te,perat-re o. *ater .ro, 0/ Z to >? Z .or *ashin) ,achine a4oidin) electrical heaters' Sa4in) [ 1'HH #a+hs &<H S ann-, [ Rs' H'21 #a+hs S ann-,

#hapter 9(7(/ Other pro+e)ts implemented during *@@/0*@@2

Y Fariable .re5-ency dri4e .or "ody top coat E;ha-st blo*er in paint shop' Y -to,atic po*er .actor controllers' Y Contin-o-s to inter,ittent ,otors by ,odi.yin) the circ-its or -sin) %ro)ra,,able #o)ic Controls' Y Online Diesel dispenser syste, Y Stoppin) idle r-nnin) o. ,otors' Y Hi)her H% !otor to #o*er H% !otor' Y -to,atic Star Delta Con4erter' Y 9lat belts instead o. V F V belts .or blo*ers' Y "oosters .or Hi)h %ress-re Co,pressed ir in ,achine shop' Y Use direct heatin) a4oidin) indirect heatin)' Y E..ecti4e Ins-lation .or %aint Shop O4ens' Y ir press-re re)-lators' Y Recyclin) $ Re-se o. <aste !aterial' Y T-rbine ir Fentilation Syste,'

>I

Y "-ildin) !ana)e,ent syste, .or e..ecti4e air conditionin) '

#hapter 9(7(2

nergy #onser,ation &lans 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

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

>D

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

Overview on the a!tomotive sector
H?

The a-to,oti4e ind-stry is torn bet*een tryin) to red-ce costs on the one hand and3 on the other3 dealin) *ith the hi)h price o. per.or,anceAenhancin) technolo)y and en4iron,ental co,pliance' &ey dri4ers in the a-to,oti4e ind-stry areG Y Red-ced air poll-tion Y Red-ction o. *ei)ht Y Recyclability Y Sa.ety Y "etter per.or,ance and en)ine e..iciency 7.-el sa4in)8 Y esthetics Y #on)er ser4ice li.e

H1

SAOT analysis on the automoti,e se)tor

II.1. Frames and body
718 Nano,aterials presently ind-strially -sed Concernin) the ,aterials -sed .or .ra,es and body3 poly,er nanoco,posites play an essential role' '

ngines and po3ertrain

The ne* de4elop,ent in en)ine and po*ertrain technolo)ies has the objecti4es to i,pro4e ther,al and ,echanical e..iciency3 per.or,ance3 dri4ability and reliability as *ell as to red-ce

H/

e,issions and costs'

&aints and )oatings

718 Nano,aterials presently ind-strially -sed o %roperties o. traditional ,aterials chan)e and the beha4io-r o. s-r.aces start to do,inate the beha4io-r o. b-l+ ,aterials' S-ch e..ects incl-de -ltra4iolet 7UF8 bloc+in)3 antiAstatic3 and cond-cti4e capabilities' %aints and coatin)s ind-stries *ere a,on) the .irst to ta+e ad4anta)e o. these capabilities three years a)o' Co,panies also .o-nd that *ith the incorporation o. nanoparticles3 thin .il, coatin)s ha4e stron)er bonds and better .le;ibility3 *ith little cost di..erences' These coatin)s are s,oother3 stron)er3 and ,ore d-rable' <hen -sed on prod-cts3 the res-lts ran)e .ro, scratchAresistant and sel.A cleanin) s-r.aces to ,oist-reAabsorbin) clothin)' !any co,panies .ro, aro-nd the *orld are -sin) the properties o. nanoparticles and are incorporatin) the, *ithin their coatin)s'

$ubri)ation
718 Nano,aterials presently ind-strially -sed o Nanotechnolo)yAbased solid l-bricants red-ce .riction bet*een ,o4in) parts and ,ini,ise *ear3 sa4e ,aintenance costs and )reatly i,pro4e o4erall ,achine per.or,ance' In addition3 it red-ces ener)y cons-,ption and decreases air poll-tion

Suspension and brea4ing systems

718 Nano,aterials presently ind-strially -sed o S-spension syste,s' Injectin) nano ironAbased particles into certain .l-ids creates a ,a)netic .ield that chan)es the 4iscosity .ro, a thin li5-id to a solid'his allo*s a 4ehicle to instantly alter its s-spension syste, based on the conditions it senses&

Tires
718 Nano,aterials presently ind-strially -sed o Replace,ent o. carbon blac+ in tyres *ith nanoparticles o. inor)anic clays and poly,ers3 leadin) to tyres that are en4iron,entally .riendly and *earresistant o Ne* nano coatin) red-ce *ei)ht3 i,pro4e press-re retention and red-ce recyclin) and incineration costs' o Nanostr-ct-red soot as an additi4e to increase tire li.e3 red-ce .riction and .-el cons-,ption' H0

o In the past .e* years E-ropean elasto,er and inor)anic o;ide prod-cers ha4e tea,ed to prod-ce3 -sin) an e,pirical approach3 the )reen tire *hich is based on nanoAstr-ct-red silica rein.orced hydrocarbon elasto,ers'

#hapter B

Re)ommendation

H1

#hapter B

Re)ommendations

The a-to,obile co,ponents ind-stry is co,posed o. Tier 1 ,an-.act-rers positioned directly belo* the a-to,obile ,an-.act-rers and Tier / ,an-.act-rers and lo*er that are positioned beneath the Tier 1 prod-cers3 .or,in) b-siness relationships in the shape o. a broadAbased pyra,id *ith a-to,obile ,an-.act-rers at the top' It is co,,on .or Kapanese a-to,obile co,ponent ,an-.act-rers to be soAcalled +eirets- prod-cers3 *hich ha4e stron) b-siness ties *ith a speci.ic a-to,obile ,an-.act-rer' The b-siness per.or,ance o. the a-to,obile co,ponent ,an-.act-rers is stron)3 b-t R$I cannot be opti,istic abo-t the .-t-re b-siness en4iron,ent' ,idst increasin)ly intense )lobal co,petition bet*een a-to,obile ,an-.act-rers3 the per.or,ance o. the a-to,obile ,an-.act-rers3 *hich are the ,ain c-sto,ers3 has a si)ni.icant in.l-ence on the per.or,ance o. co,ponents ,an-.act-rers' In addition3 *ith earnin)s .or a-to,obile ,an-.act-rers the,sel4es bein) s5-ee=ed by the intensi.ication o. co,petition3 the de,ands ,ade on co,ponent ,an-.act-rers in ter,s o. price ha4e beco,e e4en ,ore strin)ent' !oreo4er3 addin) in the c-rrent rise in the price o. ra* ,aterials s-ch as steel3 al-,in-,3 and copper and it see,s that earnin)s are bein) s5-ee=ed .ro, both -pstrea, and do*nstrea, directions' In this to-)h b-siness en4iron,ent3 R$I considers that the presence o. a .inancial base that can acco,,odate strate)ic in4est,ent *ill ha4e a ,ajor i,pact on .-t-re credit*orthiness .or co,ponents co,panies'

H2

Ratin) %oints .or the -to,obile Co,ponents Ind-stry ,aluation of Business Base In e4al-atin) the b-siness base .or the a-to,obile co,ponents ind-stry3 R$I .oc-ses on three areas *hich are the relationship *ith the a-to,obile co,panies that are the ,ajor c-sto,ers3 the str-ct-re .or )lobal s-pply o. prod-cts3 and the i,portance o. the prod-cts' Sales .or co,ponents ,an-.act-rers are si)ni.icantly a..ected by ho* ,any ,odels they can obtain orders .or at the la-nch o. ne* 4ehicles or ,odel chan)es and ho* sales )o .or each o. the ,odels .or *hich they recei4e orders' Clobal prod-ction and sales o. ne* cars is risin) o4erall3 b-t there are ,ajor disparities bet*een indi4id-al ,an-.act-rers' There.ore3 it is necessary to analy=e str-ct-re o. sales and trends .or each a-to,obile ,an-.act-rer and assess the possibility o. chan)es in .-t-re sales *hile considerin) e;ternal .actors s-ch as the trac+ record and .-t-re projections o. each a-to,obile ,an-.act-rer in the la-nch o. ne* ,odels and the e..ect o. en4iron,ental restrictions' -to,obile ,an-.act-rers ha4e soAcalled close co,ponent ,an-.act-rers typi.ied by ToyotaAa..iliated Denso and isin Sei+i' "ein) a close ,an-.act-rers does not necessarily )-arantee orders' Ne4ertheless3 the close ,an-.act-rers -lti,ately ha4e a hi)h share o. deli4eries3 b-siness 4ol-,e is o.ten stable3 and .-t-re order ris+ is li,ited to so,e e;tent' Ho*e4er3 there are also .ields in *hich independent ,an-.act-rers ha4e an o4er*hel,in) share dependin) on the prod-ct3 and it can be considered that order ris+ is also s,all .or independent ,an-.act-rers in these cases' <ith the ,o4e o. a-to,obile ,an-.act-rers to*ard a )lobal base str-ct-re3 co,ponent ,an-.act-rers

H>

ha4e also been a))ressi4ely pro,otin) the establish,ent and e;pansion o. prod-ction centers o4erseas' Caterin) to the )lobal strate)y and )lobal opti,al proc-re,ent o. a-to,obile ,an-.act-rers is essential to ,aintain and e;pand orders in the .-t-re3 and it is i,portant to assess the state o. the )lobal str-ct-re .or the s-pply o. prod-cts o. the co,ponents ,an-.act-rers' The i,portance o. the prod-cts that a co,pany handles is also an +ey point' s the strin)ency o. de,ands .ro, a-to,obile prod-cers r-ses3 ,ajor disparities in pro.itability .or each co,ponent ha4e started to appear dependin) on .actors s-ch as the added 4al-e o. a prod-ct or di..erences in e..orts to i,pro4e costs in prod-ction' It is i,portant to .orecast .-t-re pro.itability ta+in) into consideration the nat-re o. the prod-ct3 its i,portance in an a-to,obile o4erall as a part3 and .-t-re technolo)ical directions'

#hapter B('

Main %ndi)ators

\ Net debtSoperatin) cash .lo* ratio3 Net debt \ Operatin) cash .lo*3 capital e;pendit-re \ E5-ity capital3 e5-ity capital ratio \ Operatin) pro.it on sales3 R$D e;pendit-re on sales ratio \ Sales and operatin) inco,e 7loss8 by re)ion3 proportion o. o4erseas sales \ Share o. ,ain prod-cts 7)lobal3 .or c-sto,er8 \ %rod-ction and sales o. ,ajor c-sto,ers

#hapter B(*

Fo)us on Mo,es to Strengthen Ties 3ith Automobile Manufa)turers

In order to s-r4i4e )lobal co,petition3 so,e Kapanese a-to,obile ,an-.act-rers are tryin) to boost HH

prod-ct stren)th by .or)in) e;tre,ely close ties *ith hi)hly co,petiti4e co,ponent ,an-.act-rers' The role played by co,ponent ,an-.act-rers in the de4elop,ent o. ne* ,odels3 pri,arily in s-ch .ields as the en4iron,ent3 sa.ety3 and co,.ort3 is beco,in) increasin)ly i,portant3 and there are instances o. a-to,obile ,an-.act-rers ,o4in) to boost ties3 incl-din) on the capital .ront3 *ith co,petiti4e co,ponent ,an-.act-rers' R$I is .ollo*in) the i,pact that this trend is ha4in) on the co,petiti4e en4iron,ent bet*een a-to,obile co,ponent ,an-.act-rers'

#hapter B(.

%n,estment Margin is Cey to Sur,i,al

bility to )enerate cash .lo* is the ,ost i,portant .actor' In response to prod-ction increases by a-to,obile ,an-.act-rers3 each o. the co,ponent prod-cers ha4e also stepped -p capital e;pendit-re3 pri,arily to boost capacity both in Kapan and o4erseas' Ho*e4er3 the sharp increase in capital e;pendit-re has been a hea4y b-rden on .inances in the a-to,obile co,ponents ind-stry3 *hich has ,any co,panies that are s,all in scale co,pared to a-to,obile prod-cers and that co,pare -n.a4orably in ter,s o. .inancial base' In order to i,ple,ent strate)ic in4est,ent incl-din) rationali=ation3 ,aintenance and inno4ation3 and initial in4est,ent in addition to establishin) centers in )ro*th ,ar+ets3 it is necessary to sec-re stable cash .lo* in e;cess o. a certain a,o-nt e4ery .iscal year3 and this co-ld be ter,ed a condition .or s-r4i4al'

#hapter B(/

Fo)us on Adequa)y of quity #apital

Sales credit and in4entory ris+ is relati4ely s,all .or co,ponent ,an-.act-rers' <ith the e;ception o.

HI

so,e open ,ar+et sales3 the ,ajority o. sales credit is .or a-to,obile ,an-.act-rers3 and the ris+ o. bad debts is lo* *hen li,ited to Kapanese a-to,obile prod-cers' !oreo4er3 co,pared to other ind-stries3 sales credit collection period is o.ten short and its ter,s are also .a4orable' In4entory is ordered prod-ction .or a-to,obile ,an-.act-rers3 so R$I considers the ris+ o. abolition and i,pair,ent to be e;tre,ely s,all' R$I also considers that e5-ity capital as a ris+ b-..er is an i,portant .actor' R$I assesses e..ecti4e e5-ity capital ta+in) o.. balance sheet debt into acco-nt as a ris+ b-..er .or acco,,odatin) asset i,pair,ent ris+ and e;traordinary losses' Ne4ertheless3 the le4el o. ris+ b-..er re5-ired 4aries dependin) on the b-siness ris+ o. indi4id-al co,panies' I. the c-sto,er is a ,an-.act-rer that is contin-in) to increase prod-ction3 the ris+ that the co,ponent ,an-.act-rer *ill abolish .acilities is e;tre,ely s,all' Ho*e4er3 *hen the c-sto,er is a ,an-.act-rer that is carryin) o-t lar)eAscale restr-ct-rin)3 it is necessary to consider the e..ect o. the restr-ct-rin) plans on the rate o. operations at the co,ponents ,an-.act-rer and to e;a,ine the ris+ o. abolition o. prod-ction .acilities and the ade5-acy o. e5-ity capital'

HD

I?

#hapter 6(

Bibliography

B%B$%ODRA&-E
Che*3 <' "'3 T' 9' "resnahan and &'"' Clar+3 1DD?3 !eas-re,ent3 Coordination and #earnin) in a !-ltiplant Net*or+3( in R' S' &aplan3 ed'3 .easures for .anufacturing #xcellence3 Har4ard "-siness School %ress3 "oston' Che*3 <' "'3 D' #eonardA"arton and R' E' "ohn3 1DD13 "eatin) !-rphyEs #a*3( +loan .anagement 4eview3 Sprin)3 pp' 2A1>' C-s-,ano3 !' '3 1DI23 The 5apanese 6utomobile Industry, Technology 7 .anagement at 8issan and Toyota3 Har4ard Uni4ersity %ress3 Ca,brid)e' Dai*a Sec-rities Research Instit-te3 ann-al iss-es3 6nalyst)s 9uide' To+yo3 Kapan'

I1

9-ji,oto3 T'3 and ' Ta+eishi3 1DD13 n International Co,parison o. %rod-cti4ity and %rod-ct De4elop,ent %er.or,ance in the -to,oti4e Ind-stry3( in R' !ina,i etal'3 c5-isition3 daptation and De4elop,ent o. Technolo)ies3 !ac,illan'

Ce*e+e3 K'3 R' !eese and <' Dent3 1DI03 Co,parin) lternati4e Tests o. Ca-sality in Te,poral Syste,s3( 5ournal of #conometrics3 7/183 pp' 1>1A1D1' Cran)er3 C' <' K'3 1D>D3 In4esti)atin) Ca-sal Relations by Econo,etric !ethods and CrossA Spectral !ethods3( #conometrica3 017183 K-ly3 pp' 1/1A10I' Hall3 R' <'3 1DI03 :ero Inventories' Ho,e*ood3 I#G Do* KonesAIr*in' I,3 K' H'3 and S' !' #ee3 1DID3 I,ple,entation o. K-stAinATi,e Syste,s in U'S' !an-.act-rin) 9ir,s3( International 5ournal of $perations and ;roduction .anagement3 D7183 pp' 2A11'

Kor)enson3 D' <' and !' &-roda3 1DD/3 %rod-cti4ity and International Co,petiti4eness in Kapan and the United States3 1D>?A1DI23( #conomic +tudies <uarterly3 103 Dece,ber3 pp' 010A 0/2'

#ieber,an3 !' "'3 1DD?3 In4entory Red-ction and %rod-cti4ity Cro*thG 9ei)enba-,3 eds'3 &l-*er cade,ic %-blishers3 "oston'

St-dy o. Kapanese

-to,obile %rod-cers'( In .anufacturing +trategy3 K' E' Ettlie3 !' C' "-rstein and ' #ieber,an3 !' "'3 De,eester3 #3 and R' Ri4as3 1DD23 In4entory Red-ction in the Kapanese -to,oti4e Sector3 1D>2A1DD13( ,i,eo' !onden3 J'3 1DI13 <hat !a+es the Toyota %rod-ction Syste, Really Tic+P3( Industrial #ngineering3 7Kan-ary83 pp' 0>A1>'

I/

#hapter '@( Referen)es

#hapter '@

R F R !# S

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http:HH333(rfid+ournal()omHindustrysummitsHmanufa)turing(php 333(e%n,entory#ontrol(info 333(training0 )lasses()omH)ourseNhierar)hyH)oursesHB297Ncost_reduction_techniques( 333(ri)s(orgH(((H<uantitysur,eyingH<uantitysur,eyorsH.@Nper)entNrealNcost 333(almm)()omHUserResour)e#trHMfgCostReduct.htm 333(strategis(i)(g)()aHsam 333(halfcostproducts.com/outsourcing.htm 333(iimm(orgH4no3ledgeNban4H'*Ncost-reduction-through-improvementin-productivity.htm 333()ordis(europa(euHespritHsr)Ht)sfm3s 333( dmoG(orgHBusinessH%ndustrialNDoodsNandNSer,i)esH#onsulting 333(rapid0response0)onsulting()omHrst0qoi(html

FOUR!A$S:
The Relationship Bet een !irm "ro th# Si$e# and %ge& 'stimates for ()) *anufacturing +ndustries The Ko-rnal O. Ind-strial Econo,ics Fol-,e OOOF K-ne 1DIH ??//A1I/1 Resear)h for a Jne3 age of magnesiumK in the automoti,e industry 3"y H' 9riedrich S' Sch-,ann Fournal of Materials &ro)essing Te)hnology Fol-,e 11H3 Iss-e 0 3 /0 No4e,ber /??13 %a)es /H>A/I1 #omparison of #onstru)tion Alternati,es Using Mat)hed Simulation 5periments K' Constr' En)r)' and !),t'3 Fol-,e 1//3 Iss-e 03 pp' /01A/11 7Septe,berSOctober 1DD>8 and

I1

#hapter ''(

Anne5ure

#hapter ''(

Anne5ure
I2

Anne5ure A Segment
"ajaj Te,po3 Eicher !otors

Cey &layers

#ommer)ial 8ehi)les Tata !otors3 sho+ #eyland3 S*araj !a=da3 !ahindra $ !ahindra3 &assenger 8ehi)les Tata !otors3 !ar-ti Udyo)3 Honda !otors3Hy-ndai !otors3 Toyota3 S+oda3
!ahindra $ !ahindra3 Dai,ler Chrysler3 Hind-stan !otors

T3o Aheelers Hero Honda3 Honda !otors3 "ajaj -to3 TFS !otors3
Ja,aha3 &inetic En)ineerin)

Three Aheelers "ajaj -to3 %ia))io India

Anne5ure B

#ompetiti,e Ad,antages

India has se4eral co,petiti4e ad4anta)es in the a-to,obile sector3*hich ha4e been analysed -sin) the .ollo*in) .ra,e*or+' 4ailability o. s+illed ,anpo*er *ith en)ineerin) and desi)n capabilities India has a )ro*in) *or+.orce that is En)lishAspea+in)3 hi)hly s+illed and trained in desi)nin) and ,achinin) s+ills re5-ired by the a-to,oti4e and en)ineerin) ind-stries' In a co,bined assess,ent o. ,anpo*er a4ailability and capabilities3 India ran+s ,-ch ahead o. other co,petin) econo,ies !any Indian and )lobal players are le4era)in) this ad4anta)e by increasin)ly o-tso-rcin) acti4ities li+e desi)n and R$D to their Indian ar,s' The Society o. Indian -to,obile ,an-.act-rers 7SI !8 esti,ates that a-to,oti4e 4ehicle ,an-.act-rers are e;pected to in4est USB 2'H billion in the Indian ,ar+et .ro, /??2 to /?1?' O. this3 abo-t USB /'0 billion *ill be on research and de4elop,ent and the rest probably on cape;' So,e e;a,ples o. in4est,ent in areas le4era)in) the en)ineerin) and desi)n capabilities o. India incl-deG U !ICO3 the Indian operation o. "osch and a +ey player in .-el injection e5-ip,ent3 i)nition syste,s and electricals3 has in4ested in the !ICO pplication Centre 7! C8 .or R$D' It has e,er)ed as a +ey )lobal R$D co,petency centrecaterin) to the entire "osch Cro-p' It is the .irst o. its +ind in India and the "osch Cro-pEs .irst o-tside E-rope' I>

U C! set -p a technical centre at "an)alore that beca,e .-lly operational in Septe,ber /??0' The centre .oc-ses on both R$D and en)ineerin)3 and ta+es -p hi)hA4al-e *or+ to co,ple,ent c-rrent research pro)ra,,es3 as *ell as ne* e;ploratory research projects'

IH