TATA NANO DISTRIBUTION SYSTEM

Prof.K.K.Shajahan

Tata Unveils the World's Cheapest Car

The conventional system looked at product systems innovation to build a new car. Going a step further: some companies expand the systems thinking to include distribution and service. Consider Tata Motors, which created the worlds cheapest car, the Tata Nano. To reach a retail price of $2,000, Tata focused on the costs of every system of car, including the system for
Prof.K.K.Shajahan

distributing and selling the car

Tata Unveils the World's Cheapest Car

The conventional system looked at
product systems innovation to build a new car.

Going a step further: some companies

expand the systems thinking to include distribution and service. Consider Tata Motors, which created the worlds cheapest car, the Tata Nano. To reach a retail price of $2,000, Tata focused on the costs of every system of car, including the system for
Prof.K.K.Shajahan

distributing and selling the car

Tata Unveils the World's Cheapest Car

At about $2,500 retail, the Nano is the most inexpensive car in the world. Its closest competitor, the Maruti 800 [ Images ], made in India [ Images ] by Maruti Udyog [ Get Quote ], sells for roughly twice as much. Thinking outside the patent box

How could Tata Motors make a car so inexpensively?

It started by looking at everything from scratch, applying what some analysts have described as 'Gandhian engineering' principles - deep frugality with a willingness to challenge conventional wisdom. A lot of features that Western consumers take for granted - air conditioning, power brakes, radios, etc - are missing from the entry-level model. More fundamentally, the engineers worked to do more with less. The car is smaller in overall dimensions than the Maruti, but it offers about 20 per cent more seating capacity as a result of design choices such as putting the wheels at the extreme edges of the car.
Prof.K.K.Shajahan 4

Tata Unveils the World's Cheapest Car

What the critics said ?
Domestic rival Bajaj Auto unveiled a hastily configured concept car with a price tag of $2,700, and Osamu Suzuki, chairman of Japan's Suzuki Motor , said the $2,500 price point was not where the market is (BusinessWeek.com, 12/5/07) in India. International carmakers and media doubted Tata's ability to meet international environment and safety standards, and wondered aloud what the appearance of an affordable car would do to India's already congested roads. Throughout, Ratan Tata remained unfazed, despite his own doubts of meeting his timeline and price goal at a time when the costs of raw materials, from steel to rubber, were rising. But Tata promised a $2,500 car, and "a promise is a promise," he said to an audience spilling out into the streets and packed with government officials, industry chiefs, international carmakers, and reporters

Ratan Tata Never Lost Faith Prof.K.K.Shajahan ..

Tata Unveils the World's Cheapest Car

The Nano has broken ground on many different levelsin price, in size, in distribution, and technology. By using lighter steel, a smaller engine, and having longer-term sourcing agreements with parts suppliers, Tata was able to keep the price of the Nano down. Its length of 3.1 meters, width of 1.5 meters, and height of 1.6 meters, with

wheels at the outer corners and

engine, gears, and transmission in the
Prof.K.K.Shajahan

rear, creates space inside the car.

Tata Unveils the World's Cheapest Car

The Nano is also much lighter than comparable models as a result of efforts to reduce the amount of steel in the car (including the use of an aluminum engine) and the use of lightweight steel where possible. The car currently meets all Indian emission, pollution, and safety standards, though it only attains a maximum speed of about 65 mph. The fuel efficiency is attractive - 50 miles to the gallon. Hearing all this, many Western executives doubt that this new car represents real innovation. Too often, when they think of innovation, they focus on product innovation using breakthrough technologies; often, specifically, on Prof.K.K.Shajahan 7 patents.

Tata Unveils the World's Cheapest Car

A modular design revolution
But even this broader perspective fails to
capture other significant dimensions of innovation. In fact, Tata Motors itself did not draw a lot of attention to what is perhaps the most innovative aspect of the Nano: its modular design. The Nano is constructed of components

that can be built and shipped separately to

be assembled in a variety of locations. In effect, the Nano is being sold in kits that are distributed, assembled, and serviced by local entrepreneurs.
Prof.K.K.Shajahan 8

Tata Unveils the World's Cheapest Car

Tata: Master of the gentle approach
Ratan Tata , chairman of the Tata group of companies, observed in an interview with The Times of London: "A bunch of entrepreneurs could establish an assembly operation and Tata Motors would train their people, would oversee their quality assurance and they would become satellite assembly operations for us. So we would create entrepreneurs across the country that would produce the car. We would produce the mass items and ship it to them as kits. That is my idea of dispersing wealth. The service person would be like an insurance agent who would be trained, have a cell phone and scooter and would be assigned to a set of customers."
Prof.K.K.Shajahan 9

Tata Unveils the World's Cheapest Car

'Open distribution' innovation

'open distribution' innovation because it mobilises large numbers of third parties to reach remote rural consumers, tailor the products and services to more effectively serve their needs, and add value to the core product or service through ancillary services. Three innovations in products and processes come together to support 'open distribution': increased modularity (both in products and processes) aggressive leveraging of existing third-party, often noncommercial, institutions in rural areas to more effectively reach target customers creative use of information technology, carefully integrated with social institutions, to encourage use and deliver even greater value. Modular designs combined with creative leverage of local third-party institutions Prof.K.K.Shajahan help participants to get better faster 10

Tata Unveils the World's Cheapest Car

Welcoming users back into the design loop
The Tata Motors/Nano approach contrasts with the strategy of most other manufacturers. For more established automakers each new model represents an advance in tight integration, with more and more of the functionality deeply embedded in electronics that truly represent a 'black box' to the customer. The days of customising cars to personalise them and push their performance limits are rapidly receding into distant memory for the average customer. Yet, as Kathleen Franz, makes clear in her wonderful book, Tinkering: Consumers Reinvent the Early Automobile, it was the open design of early automobile models that blurred the lines between consumption and invention and led to a wave of innovations that were Prof.K.K.Shajahan later embraced by the auto industry. 11

Tata Unveils the World's Cheapest Car

What are the broader lessons that Western executives should learn from this innovation story? Emerging markets are a fertile ground for innovation. The challenge of reaching dispersed, low-income consumers in emerging markets often spurs significant innovation. Western executives should be careful about compartmentalizing the impact of these innovations on the edge of the global economy. As suggested in Innovation Blowback, these innovations will become the basis for 'attacker' strategies that can be used to challenge incumbents in more developed economies
Prof.K.K.Shajahan 12

Tata Unveils the World's Cheapest Car

What are the broader lessons that Western executives should learn from this innovation story? Find ways to help customers and others on the edge to tinker with your products. Modular and open product designs help engage large numbers of motivated users in tailoring and pushing the performance boundaries of your products, leading to significant insight into unmet customer needs and creative approaches to addressing those needs
Prof.K.K.Shajahan 13

Tata Unveils the World's Cheapest Car

What are the broader lessons that Western executives should learn from this innovation story? Pay attention to institutional innovation. Western executives often become too narrowly focused on product or process innovation. Far higher returns may come from investing in institutional innovation redefining the roles and relationships that bring together independent entities to deliver more value to the market. Tata is innovating in all three dimensions simultaneously.
Prof.K.K.Shajahan 14

Tata Unveils the World's Cheapest Car

What are the broader lessons that Western executives should learn from this innovation story? Rethink distribution models. In our relentless quest for operating efficiency, we have gone for more standardisation and fewer business partners in our efforts to reach customers. As customers gain more power, they will demand more tailoring and valueadded service to meet their needs. Companies that innovate on this dimension are likely to be richly rewarded.
Prof.K.K.Shajahan 15

Tata Unveils the World's Cheapest Car

The Baby is called the Nano, for its high technology and small size. It's cute, compact, and contemporary. It's a complete four-door car with a 623-cc gas engine, gets 50 miles to the gallon, and seats up to five. It meets domestic emissions norms and will soon comply with European standards. It's 8% smaller in outer length than its closest rival, Suzuki's Maruti 800, but has 21% more volume inside. And at $2,500 before taxes (valueadded taxes increase the price by about $300), it is the most inexpensive car in the world.
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Tata Unveils the World's Cheapest Car

"The car has put India on the global map," says Fionna Prims, head of business development for Segment Y, a Goa-based automotive consultant for emerging markets. "Tata has done in four years what the Japanese took 30 years to do. It will change the whole industry." Even rivals are gushing. "It's a red letter day for Indian industry, a day India should be proud of," says Venu Srinivasan, chairman of motorcycle maker TVS Motors. "Ratan Tata has the vision to create a new business model and all the naysayers are looking at it with concern. The Nano is a path breaker." Judging by the extreme enthusiasm that greeted the launch of the car Jan. 10 at the biennial Auto Expo 2008 in New Delhi, the Nano has exceeded industry expectations. For the four years that the car has been in the making, Tata Motors, which makes trucks, sportutility vehicles, and the Indica, India's second most popular car, has endured skepticism and disbelief (BusinessWeek.com, 1/3/08) from Prof.K.K.Shajahan rivals both domestic and international. 17 .

Tata Unveils the World's Cheapest Car

To reach a retail price of $2,000, Tata focused on the costs of every system of car, including the system for distributing and selling the car. To keep costs low, Tata created a modular design and an innovative distribution model. Tata manufacture modules centrally and, in some cases, ship the cars as kits to local entrepreneurs who will assemble & sell them. Tata designed to the modules to be glued together rather than welded because gluing is less expensive and doesnt require costly welding equipment. Tata will also train the entrepreneurs Prof.K.K.Shajahan do servicing. 18 to

Tata Unveils the World's Cheapest Car

When designing new products or services, consider how those products will be distributed. * Think about the role that local entrepreneurs or business partners

can serve
* Design the product to support the distribution channel (e.g., modularity,

ease of assembly, packaging, etc.)

REMEMBER THE BUSINESS STRATEGY OF IKEA FURNITURE MANUFACTURER
Prof.K.K.Shajahan 19

Tata Unveils the World's Cheapest Car

How the supply chain works ?
Tata divided the components into two types proprietary designs and Tata Motors design. For proprietary design components, Tata went with established suppliers such as Bosch (which supplies the engine management system and has significantly contributed to the future diesel engine). Bosch split the development between its design centres in Bangalore and Germany. Using local design capabilities was a crucial decision, as most global design centres were accustomed to designing high-end systems, employing development staff at a significantly higher wage levels. For components and systems designed in-house, Tata Motors chose suppliers with strong process capabilities who could give valuable suggestions and improve on the designs. Nearly everything has been sourced locally and the Nano will have 97% local content from day one. Tatas supplierswere an integral part of not only the design and development process, but 20 also Prof.K.K.Shajahan purchasing.

Tata Unveils the World's Cheapest Car

How the supply chain works ?
Hydro-forming is used for all the Nanos tubular structures, resulting in weight reductions and simple production processes and stamping has been replaced by roll-forming process. Roll forming allows a common tooling for a number of parts, fewer operations and better productivity. Tata not only worked on its own processes but also helped its vendors innovate. Cost saving was also achieved by using thinner materials wherever the design allowed, so the bumpers are only 2.5mm thick, against 3mm on the Tata Indica super mini. Half of the 100 vendors for the project are colocating with Tata in a 350-acre vendor park in the vendor park next to the new Tata plant. Instead of annual contracts, Tata went with long term volume contracts with its suppliers, driving down the costs even further. The suppliers received significant volume commitments from Tata Motors, with about 75% of the components being single-source and Prof.K.K.Shajahan 21 about 90% of the total car being outsourced

Tata Unveils the World's Cheapest Car

How the supply chain works ?
A three-shift operation and consolidated purchasing with suppliers allowed for a further reduction in costs. While the first plant at Gujarat will eventually have a capacity of 350,000 units, Tata wants to set up three other plants in different parts of India to sell a million units per year eventually. With four plants in various locations, the company aims to save significantly on logistics and inter-state taxation. Tatas current challenge is to have all the suppliers in the vendor park up and running by the start-of-production of the plant. With the Nano, Tata is aiming for a less than 100 ppm rejection rate (better than existing Tata plants) and a ten-fold improvement in warranty costs. What better way to get the biggest bang Prof.K.K.Shajahan your buck than a CNG Nano (the petrol 22 for

Tata Unveils the World's Cheapest Car

Speaking about the companys experience with cost control for the Rs 1-lakh car, Mr Ashok B. Ramaswamy, President and Managing Director, Delphi India, said that there was a considerable amount of lateral thinking that the Indian development team had to do to come up with ideas for crashing the cost structure. So, the instrument cluster was kept basic with just a speedometer, odometer and turn indicator signals being featured. The other ways by which Delphi cut costs for the component supplied was by eliminating screws and replacing them simply with panels and parts that just snap on firmly. Also the clear plastic panel that covers the display was curved at an angle to eliminate reflections and glare, a simple solution compared to the usual anti-glare coatings and so on. Prof.K.K.Shajahan 23

New Distribution System for India's Nano Car From Tata.

There is very interesting business model innovation in the production and sale of the new Tata Nano. Just like a bicycle, the Nano will be sold in kits that are distributed and serviced by people who will assemble it for the consumer. The could remove layers in distribution and service and make the Nano available throughout India without a large dealership network. That means the Nano was designed for easy assembly by Prof.K.K.Shajahan 24 non-professionals. Fascinating.

Innovations
. Once the features and functions are finalized target costs are assigned to each and every component/system transmission system, instruments, engine, body, interiors, electrical systems. The sub-teams then design the components/systems within the target cost. They look at every bolt and nut and keep driving cost out of the components/ system. For example the Nano has a variable transmission instead of the standard gears Prof.K.K.Shajahan 25

Supply Chain Innovations

Cost and waste is driven out of supply chains by reducing inventory, eliminating waiting times and delays, increasing utilization of warehouse and trucks, optimizing location of warehouses and plants, drawing up the optimum transportation network, utilizing backhauls etc. Reducing inventory reduces the working capital cost , reduces warehousing costs and obsolescence costs . To reduce inventory, demand fluctuation will have to be reduced, reliability of inventory replenishment will have to increased, Inventory Record Accuracy will have to be above ~95% and supply chain length will have to be reduced.
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Prof.K.K.Shajahan

Supply Chain Innovations

Reducing supply chain times reduces inventory and increases responsiveness. To eliminate waiting times and delays the complete supply chain process will have to be mapped. For this a lead time map is used. Delays like waiting for loading or unloading and waiting for documents can be minimized. Transit times can be reduced [ not by fast and rash driving ] but by using AC cabins and doubledrivers. Also, backhauls are a way to reduce costs. Truck utilization can be improved by using truck optimization softwares . Similarly, warehouse space can be utilized more efficiently by increasing storage height- by increasing the rack heights or having a mezzanine.
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Prof.K.K.Shajahan

Supply Chain Innovations

On a strategic level, Supply Chain Network Design - locating plants, contract manufacturers, Distribution Centres and warehouses- is important because 70% of the cost of a supply chain is fixed at the design stage.

So while Tata Nano has created a

breakthrough in car manufacture by reducing the cost of a car significantly,

it has led to think about doing a Tata

Nano with a bench mark supply chain.
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Supply Chain Innovations

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Prof.K.K.Shajahan

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